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weyerhaeuser annual reports 1997
weyerhaeuser annual reports 1997
weyerhaeuser annual reports 1997
weyerhaeuser annual reports 1997
weyerhaeuser annual reports 1997
weyerhaeuser annual reports 1997
weyerhaeuser annual reports 1997
weyerhaeuser annual reports 1997
weyerhaeuser annual reports 1997
weyerhaeuser annual reports 1997
weyerhaeuser annual reports 1997
weyerhaeuser annual reports 1997
weyerhaeuser annual reports 1997
weyerhaeuser annual reports 1997
weyerhaeuser annual reports 1997
weyerhaeuser annual reports 1997
weyerhaeuser annual reports 1997
weyerhaeuser annual reports 1997
weyerhaeuser annual reports 1997
weyerhaeuser annual reports 1997
weyerhaeuser annual reports 1997
weyerhaeuser annual reports 1997
weyerhaeuser annual reports 1997
weyerhaeuser annual reports 1997
weyerhaeuser annual reports 1997
weyerhaeuser annual reports 1997
weyerhaeuser annual reports 1997
weyerhaeuser annual reports 1997
weyerhaeuser annual reports 1997
weyerhaeuser annual reports 1997
weyerhaeuser annual reports 1997
weyerhaeuser annual reports 1997
weyerhaeuser annual reports 1997
weyerhaeuser annual reports 1997
weyerhaeuser annual reports 1997
weyerhaeuser annual reports 1997
weyerhaeuser annual reports 1997
weyerhaeuser annual reports 1997
weyerhaeuser annual reports 1997
weyerhaeuser annual reports 1997
weyerhaeuser annual reports 1997
weyerhaeuser annual reports 1997
weyerhaeuser annual reports 1997
weyerhaeuser annual reports 1997
weyerhaeuser annual reports 1997
weyerhaeuser annual reports 1997
weyerhaeuser annual reports 1997
weyerhaeuser annual reports 1997
weyerhaeuser annual reports 1997
weyerhaeuser annual reports 1997
weyerhaeuser annual reports 1997
weyerhaeuser annual reports 1997
weyerhaeuser annual reports 1997
weyerhaeuser annual reports 1997
weyerhaeuser annual reports 1997
weyerhaeuser annual reports 1997
weyerhaeuser annual reports 1997
weyerhaeuser annual reports 1997
weyerhaeuser annual reports 1997
weyerhaeuser annual reports 1997
weyerhaeuser annual reports 1997
weyerhaeuser annual reports 1997
weyerhaeuser annual reports 1997
weyerhaeuser annual reports 1997
weyerhaeuser annual reports 1997
weyerhaeuser annual reports 1997
weyerhaeuser annual reports 1997
weyerhaeuser annual reports 1997
weyerhaeuser annual reports 1997
weyerhaeuser annual reports 1997
weyerhaeuser annual reports 1997
weyerhaeuser annual reports 1997
weyerhaeuser annual reports 1997
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weyerhaeuser annual reports 1997

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  • 1. “When we set a course in 1991 to become the best President & Chi ef Exe c u t i ve Of f i c e r forest products company in the world, we said that Au gust 1, 1991 — Novem ber 30, 1997 one measure of our progress would be our ability to deliver superior returns to shareholders. I’m proud of the significant improvements that we have made – and continue to make – in this important area.” “My job now is to build upon this foundation of Presi dent & C hief Exe c u t i ve Of f i c e r success. This may require that the Senior Management D ece mbe r 1, 1997 — 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 towards our vision of becoming the best forest products company in the world.” > > > > > > > > > > > > >
  • 2. Dollar amounts in millions except per-share figures Net sales and revenues $11,210 $11,114 Net earnings before special items 351 463 Effect of special items (1) (9) – Net earnings 342 463 Cash flow from operations, before working capital changes 1,099 1,257 Capital expenditures (excluding acquisitions) 656 879 Total assets 13,075 13,596 Shareholders’ interest 4,649 4,604 (1) Basic earnings per common share (2) : First quarter $ .22 $ (0.12) $ .10 $ .72 Second quarter .47 .09) .56 .52 Third quarter .53 .04) .57 .60 Fourth quarter .54 (.05) .49 .50 $ 1.76 $ (0.04) $1.72 $2.34 (1) The 1997 special items are the net of gains on the sale of We ye rhaeuser Mortgage Company and Saskatoon Chemicals, Ltd., and interest income from a favorable federal income tax decision offset by the loss on the sale of Shemin Nurseries; the consolidation, closure or disposition of certain recycling facilities; and closure of two plywood facilities, an export lumber mill and a corrugated medium machine. (2) Diluted earnings per common share by quarter for 1997 and 1996 were $0.10, $0.55, $0.57 and $0.49; and $0.71, $0.52, $0.60 and $0.49, respectively. Market prices – high/low First quarter $50 5⁄8 - 441 ⁄2 $49 1 ⁄2 - 39 15⁄16 Second quarter 551⁄4 - 425 ⁄8 49 7 ⁄8 - 41 3 ⁄4 Third quarter 6315⁄16 - 515⁄8 48 1 ⁄4 - 39 1 ⁄2 Fourth quarter 603⁄4 - 461 ⁄16 48 1⁄ 8 - 43 7 ⁄8 Year $6315 ⁄16 - 425⁄8 $49 7 ⁄8 - 39 1 ⁄2 The consolidated financial statements include: (1) Weyerhaeuser Company (Weyerhaeuser), principally engaged in the growing and harvesting of timber and the manufacture, distribution and sale of forest products, and (2) Real estate and related assets, principally engaged in real estate development and construction, and other real estate related activities.
  • 3. On December 1, 1997, Steven R. Rogel became president, chief executive officer and a director of Weyerhaeuser, following the retire- ment of John W. Creighton, Jr. Rogel, 55, had served as president and chief executive officer of Willamette Industries since 1995. He is a 32-year veteran of the forest products industry.
  • 4. August 1, 1991 — Nove mbe r 30, 1997 D ec em ber 1, 1997 —
  • 5. Under the leadership of Jack Creighton and the strategies he put in place, Weyerhaeuser has consistently produced results in the top quartile of the forest products industry. My job now is to build upon this foundation of success. Reaching the next level, howe ve r, will require hard work from all of us at Weyerhaeuser. First, our industry is changing. It is becoming more global and more consolidated. Our strategies going forward must reflect this fact and position Weyerhaeuser to be a leader in this change. Second, even though the company has come a long way, I believe there always are opportunities to improve. Achieving these goals may require that the Senior Management Team and I adapt to changes in our industry and find ways to accel- erate our efforts to improve. But, as we do, we will always steer towards our vision of becoming the best forest products company in the world. In the coming years, I look forward to reporting to you on our progress towards this important goal. Sincerely, Preside nt & Chief Exe c u t i ve Of f i c e r
  • 6. When we set a course in 1991 to These improvements are a direct become the best forest products result of the discipline to narrow company in the world, we said our focus, upgrade our portfolio, that one measure of our progress enhance our operating perfor- would be our ability to deliver mance and improve our capital superior returns to shareholders. management. We started those As I write to you for the last efforts in 1991 and we continued time, I’m proud of the significant working on them in 1997. i m p rovements that we have made – and continue to make – in this During i m p o rtant area. Since 1991, the year, we completed the we’ve gone from a position where sale of our mortgage banking our return on net assets for our company and sold our chemical c o re businesses ranked in the business in Canada. We also bottom quartile of the industry negotiated the restructuring of our to a point in 1997 where we North Pacific Paper Corporation led our industry peer gro u p. (NORPAC) joint venture with Meanwhile, our total return to Nippon Paper Industries Co., s h a reholders since 1991 ranks Ltd., to more closely reflect our second in our peer gro u p. operating relationship.
  • 7. Our 1997 results include a charge During against earnings associated with 1997, we announced plans to the difficult decision to close our improve the lumber-producing lumber mill in Coos Bay, Oregon, capabilities of our Plymouth that had been producing green and New Bern, North Carolina, metric-sized posts and beams for and Philadelphia, Mississippi, Japan. Although Japan has been, locations. These announcements and will continue to be, a key mar- are part of our overall plan to ket for Weyerhaeuser, the demand increase our lumber production for metric posts and beams has capacity by 15 percent over the next declined over the past several three years. Although we have closed years. After reviewing all options, our plywood facilities at two of we announced early in 1998 that these locations, our overall plywood- closing the facility was the best manufacturing capacity over time decision in the long term. will be unchanged as we continue implementing productivity improve- ments at our remaining facilities. Three years ago, we initiated our To expand into areas capable of second Business Improvement producing high returns, we began Plan with a goal of realizing investing in fast-growing timber- $600 million in annual pretax lands in the Southern Hemisphere. operating improvements as mea- In New Zealand, we now hold a sured in 1994 prices and costs. 51 percent interest in the Nelson We achieved that goal this year Forests Joint Venture, one of the due to the efforts of our employees. world’s first forestry operations Their ideas helped us reduce our to achieve ISO 14001 environ- costs, enhance our manufacturing mental management certification. reliability, increase production Through our investment in the capabilities, improve the quality World Timberfund, we began pur- of our products and achieve chasing private agricultural land in greater customer satisfaction. Uruguay to establish fast-growing Equally important, most of these managed forests. Because the soils improvements required little or and climates of the Southern no capital to achieve. Hemisphere produce the world’s fastest rates for tree growth, we As expect to make additional invest- a company we continue to become ments in this area of the world.
  • 8. more disciplined regarding where succeed because of the strong and how we invest capital. This management team in place and year we held capital spending, the position of our company to excluding acquisitions, to $656 produce even better returns. million, the lowest in five years. We own or manage an enormous But we also know we can be more expanse of highly productive forest- effective in how we invest capital. land in North America. Thirty years That’s why this year we began a ago, we had the foresight to pioneer new capital effectiveness initiative the High Yield Fo re s t ry programs. designed to attain a savings of up As a result, we will see a dramatic to 30 cents on every dollar we increase in our timber harvest over spend. Our analysis of world-class the next 20 years. By the year 2020, companies – inside and outside of the timber harvest from the land the forest products industry – we own and manage in the United indicates this is an achievable goal. States will increase by approxi- As 1997 demonstrated, such mately 70 percent from 1995 lev- improvements are necessary to els and significantly enhance cash reduce our vulnerability to broad flow from this resource. Meanwhile, economic conditions. Due to the our manufacturing facilities are weakness of several international operating more efficiently and economies and the slow recovery producing higher quality products of worldwide pulp prices, net than ever before. earnings for 1997 before special More important, we are a com- items were $351 million, or $1.76 pany with a superior work force. per common share, down from Through our Performance Share $463 million, or $2.34 per com- Plan, most of our employees also are mon share, in 1996. In previous shareholders of this company. As years, we would have fared far shareholders, they demand that we worse in an industry downturn achieve the high standards of per- of this magnitude. But we still formance we have set for ourselves. have a way to go. These are the tools and It is now up to Steve Rogel – resources Steve Rogel will use as who succeeds me as president and he leads Weyerhaeuser on its next chief executive officer – and the steps of improving shareholder Senior Management Team to lead returns. He also will lead us us in achieving further improve- t ow a rds better performance in ments. I firmly believe they will other areas we feel befit the best
  • 9. forest products company in the ship role during an exciting and world. This includes making our important period in our compa- work environment and processes ny’s history. Most of all, I am even safer for employees, improv- deeply grateful to everyone who ing the quality of our products, helped, advised and supported listening more closely to our me along the way. customers, developing global production and marketing capa- Sincerely, bilities, and continuing to increase our productivity and reliability through empowered employees. I have enjoyed my years at Weyerhaeuser and I’m proud of President & Chief Exe c u t i ve Of f i c e r the progress we’ve made. I’m August 1, 1991 — November 30, 1997 honored to have played a leader-
  • 10. S EN IO R V I C E PRESIDENT Chief Fi n a n c i a l Of f i c e r SE NIOR VICE PRESIDENT P R ES I D E N T A N D C o r p o rate Affairs CH I E F E X E C U T I V E OFFICER E X E C UT I V E V I C E PRESIDENT S EN I O R V I C E Pulp, Paper and PRESIDENT Pa c k a g i n g Wood Pro d u c t s S EN I O R V I C E SENIOR VICE PRESIDENT PRESIDENT Human Re s o u rc e s Re s e a rch and and In f o rm a t i o n De ve l o p m e n t Te c h n o l o gy E X E C UT I V E V I C E PRESIDENT Ti m b e rlands and Distribution
  • 11. O u r v i s i o n i s st r a i g h t f o r w a r d: To b e t he b e s t f o r e s t p r o d u c t s c o m p a n y i n t h e w o r ld . A s w i t h a n y v a l i d v i s i o n st a t e m e n t , i t i s inte nde d to end ure and re main c ons tant t hro ugh ch an ging busin ess co nd it io ns. We wi ll k now we are t h e b est wh en a ll o f o ur s t a k e- h ol de rs t el l u s and whe n we h ave e vide nce su ppo rtin g the ir vie w.
  • 12. Ou r v a l u e s h o l d u s t o t h e h ig h e st s t a n da r d o f e t h ic a l c o n d u c t a n d en v ir o n m en ta l r e s p o n s i b i l it y i n o u r r e l a t i o n s w i t h c u s t o m e r s , employe es, shareho lders, su ppl iers and communitie s.
  • 13. b y m a ki n g to ta l qu a l i t y t h e way we d o bu s i n e s s , w e ’re d o i n g m o r e t h a n j u st m a k i n g b e t t e r p r od u c t s . > We’re s a f e r a n d m o re p r o d u c t i ve . > Si n c e 1 9 9 1 , w e’v e de c r e a s e d t h e n u m b e r o f r e p o r t a b l e a c c i d e n t s b y 5 5 p e r c e n t . > Mea nw h ile , ou r f a ci li ti es re p o r t le ss d ow n ti me an d im p rov e d pr o d uct ion le ve l s . > B e c a us e o f t h e s e su c c e s s e s , w e ’r e c h a l l e n g i n g o ur s e l v e s t o i de nt i f y f u r t h e r improvements in our work systems.
  • 14. m e e t in g c u s to m e r n e e d s s ta rts b y l i s t e n i n g and th en tak in g a ct ion. > Maybe i t’s b uil din g a box pla nt in C hina t o se r ve e xisti n g c ust omer s e x pand ing i n t o inte rna tion al mark e t s. > Or de vel op ing a s ys tem to l et cus tom ers cus to m o rde r architec tural do ors e lect ro nical ly fro m tw o m illi on poss ibl e c ombin at ion s . > Be ca us e ou r n e w D o 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 comp ut er to our sho p fl oo r, we’ll ac hie ve ad minis tra tive eff ici en cies w hile reduci ng wa ste a nd inve n t o r y cos ts. > It’s th is ap pr oach to c ust ome r ser v i c e th at a l l ow s u s to d el iv er v ir t u a ll y a l l c us t o m d oo r o rd er s o n t im e an d c om p le te.
  • 15. m a k i ng e mp l oy e e s ow n e r s o f w e ye r h a e u s e r t h r ou g h o ur Pe rf or m a n c e S h a re P la n do es mo re than rew a rd th em for outstan ding fina ncial pe r f o r m a n c e . > It c hal le nges th em to think li ke ow n e r s . > To work to gether to m ake the mos t o f e ve ry d o ll a r we in ve s t . > To fi n d w ay s of i mpr ov in g p er f or ma nc e w it h ou t spend ing add iti on al c api tal. > T h e y’re d oing th at. > S in ce 199 4, we’ve stead il y r educe d our l evel of capital expend itu res wh ile increasin g p ro d u c t i v i t y.
  • 16. to mak e our p ro d u c ts, we u se – an d re g e n e r ate – the wo rl d’s o nly re n ew a b l e re s o u rce . > Cre ati ng a s us t ain abl e su ppl y of q ual ity w oo d tak es ma ny f or ms. > It me an s growing more t han 250 mil li on see dlin gs a year a t e ight nur seri es. > Re pl anting th ou sand s o f acre s each ye a r. > Ha r vest ing a t s us tainabl e r ates . > Em p l oyi ng some of the world’s largest silvicultural and environmental re s e a rc h s t a f f s . > We’re proud of our leadersh ip in indust rial for est manage ment. > It’s o ne reason our g row th rates today are nearly 70 percent greate r than they w e re in 1991.
  • 17. c re at i n g s u p e r i o r r e t u r n s f o r s h a re h o l d e r s d o e s n’t h a p pe n o v er n i g h t . > T h a t’s why ou r go al i s to pro d uce s up er io r ea rn ings over ou r bu si n ess cy cl e. > It re q u i re s the pa tien c e of a lo ng- term v iew. > It ’s an ap pro a c h t h a t’s p r o du ce d a t ot a l s ha re ho l de r re tu rn t ha t h as o u t p e r formed the St a n d a rd & Po o r’s Paper and Fo rest Products Group since 1991. > But we know we ’re capable o f pro du cing ev e n be tter retu rns. > We wo n’t be s atis fi ed u ntil we re ach that go al.
  • 18. (Millions of dollars) Pulp $ 986 $ 954 $1,616 $1,012 $ 823 Newsprint 416 451 508 356 322 Paper 842 803 1,001 664 648 Paperboard and containerboard 301 281 325 240 255 Packaging 1,781 1,921 1,863 1,495 1,302 Recycling 189 140 266 121 77 Chemicals 57 63 63 45 32 Miscellaneous products 37 35 40 133 120 $4,609 $4,648 $5,682 $4,066 $3,579 (Thousands) Pulp — air-dry metric tons 1,982 1,868 2,060 2,068 1,886 Newsprint — metric tons 684 629 663 638 609 Paper — tons 1,146 1,007 1,006 998 990 Paperboard — tons 243 205 230 201 222 Containerboard — tons 389 346 259 254 290 Packaging — MSF 44,508 42,323 34,342 34,483 31,386 Recycling — tons 2,229 2,011 1,467 985 851 (Thousands) Pulp — air-dry metric tons 2,180 2,063 2,004 2,159 2,041 2,096 Newsprint — metric tons 715 704 631 687 651 618 Paper — tons 1,126 1,128 1,034 1,060 982 1,007 Paperboard — tons 230 231 206 229 189 217 Containerboard — tons 2,480 2,381 2,331 2,329 2,357 2,269 Packaging — MSF 50,000 46,488 44,471 36,041 36,020 32,795 Recycling — tons — 3,655 3,428 2,754 2,042 1,847 Pulp Containerboard 8 4 Newsprint Packaging 1 46 Paper Recycling 5 28 Paperboard Chemicals 1 7 Containerboard 4 Packaging 45 Recycling 40 Chemicals 7
  • 19. 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 Over the past seven years, we’ve allowed our sector to generate its followed a course to improve our third consecutive year of positive operations and apply discipline to cash flows despite the general indus- our capital spending. This has try downturn. And because we’ve involved making sure that we focus completed our major modernization on what we do best, continually projects, we believe we can maintain, improving the performance of our or even lower, our levels of capital business, and investing prudently to spending in the future. upgrade the quality of our assets. We’ve made significant progress Through these efforts, we’ve strength- in improving the efficiency of our ened the ability of this sector to operations by engaging our employ- meet increased global competition ees in the design and implementa- and grow shareholder returns. tion of better work systems. These The market conditions we experi- improvements have reduced enced during 1997 demonstrate the reportable accidents by 65 percent importance of continuing to improve since 1991 and significantly our operations. The slow recovery increased production capability at in pulp and paper prices resulted our existing pulp and paper facilities. in operating earnings of $192 mil- In 1997 alone, this helped increase lion compared with $307 million in our production by 300,000 tons. 1996. Operating earnings for 1997 We’re improving operations by exclude special items associated with continually evaluating our businesses closures and disposition of certain and operating units to ensure they facilities that were offset, in part, by fit our core competencies and serve the gain on the sale of the Canadian attractive markets. Through this dis- chemical business. Net sales were cipline, we channel our energies and $4.6 billion, unchanged from the resources on areas capable of pro- prior year. While this performance ducing the returns we seek over the did not meet our expectations, we business cycle. During 1997, we: saw indications that our efforts are > Negotiated the restructuring of producing results. our NORPAC joint venture that For example, we’ve reduced our produces high-quality newsprint for capital spending to depreciation publishers and printers in the west- levels. We did this by aligning our ern United States and Japan. Under capital spending to the levels we need the new structure that takes effect in to sustain our current operations 1998, Weyerhaeuser and Nippon and achieve our long-range strategic Paper Industries Co., Ltd., each will
  • 20. own 50 percent of NORPAC. The During 1997, we also continued new arrangement more closely to focus on differentiating our prod- reflects the operating relationship ucts and services in ways that our of this joint venture. customers recognize and value. > Closed the sale of our Saskatoon This includes expanding our entire chemical facility to a subsidiary of line of high-quality uncoated free ( Milli ons of dol lar s) Sterling Chemicals Holdings, Inc. sheet paper to capture higher returns $192 > Realigned our Recycling business generated by these products. We’ve $307 to meet the key raw material needs already seen the contribution of fine of our mill customers. Through this papers to our earnings more than $1,181 effort, we improved efficiencies and double over the past five years. One $211 reduced costs by focusing on those reason for such growth – created by $61 locations most important to our cus- the growth in home offices – is the tomers. During 1997, our Recycling increased use of high-quality busi- business collected and processed 7 ness papers. During 1997, we intro- percent more recycled paper with 30 duced our SOHO (Small Office/ percent fewer facilities than we had Home Office) retail program. In in 1996. addition to developing higher quali- During the year, we also ty papers for small and home office improved the quality of our asset needs, we made it easier for cus- base to serve the needs of customers tomers to select the right paper for in growth markets. Domestically, their specific requirements by devel- our strategy involves expanding oping easy-to-use product guides. ( Mil li ons of dol lar s) through acquisitions rather than We’re also differentiating other $315 building new capacity. For example, parts of our product line. Our in 1997 we acquired Union Camp Containerboard Packaging business $415 Corporation’s Denver box plant to began exploring new packaging solu- $501 expand market coverage into the tions for customers, while our Pulp $794 Rocky Mountain Region. operation is working on new $652 To serve the international needs absorbency fibers. Both efforts will of existing customers, we develop help us develop higher value prod- strategic alliances to limit risk, con- ucts capable of producing new serve capital and gain access to growth opportunities and higher local market information and distri- margins. New absorbency fibers, for bution channels. In 1996, we formed example, improve product function a joint venture with SCA Packaging and provide manufacturers with Europe BV to meet corrugated pack- greater flexibility and speed in com- aging needs in the People’s Republic mercializing their product upgrades. of China. During 1997, this venture We believe this will allow providers – SCA Weyerhaeuser Packaging to develop a greater range of products Holding Company Asia Limited – and increase demand for our product. began construction of plants in As we’ve upgraded our mills to run Shanghai and Wuhan. We expect more efficiently, we’ve also seen signif- both to begin operation in 1998. icant environmental improvements.
  • 21. 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. manufactures wood pulp for global markets. Georgia, Mississippi, North > Reducing water consumption by Carolina, Washington, Alberta, British Columbia, Saskatchewan 65 percent. These efforts have not gone manufactures a range of both coated and uncoated Mississippi, North Carolina, fine papers and markets its products through paper merchants. Washington, Wisconsin, unnoticed. During 1997, the Saskatchewan Environmental Protection Agency and McGraw-Hill honored our Flint manufactured at the North Pacific Paper Corporation Washington River, Georgia, facility for meeting (NORPAC) mill is marketed to customers in the western United States and Japan. or exceeding voluntary waste-elimi- produces and markets bleached Washington nation or pollution-prevention pro- paperboard to West Coast and Pacific Rim customers for grams in conjunction with the EPA’s production of liquid containers such as milk and juice cartons. Project XL. An initiative of the Clinton Administration, Project XL manufactures linerboard corrugating Arizona, California, Colorado, medium and produces industrial and agricultural Connecticut, Florida, Georgia, – eXellence and Leadership – seeks packaging (boxes). Hawaii, Illinois, Indiana, Iowa, Kentucky, Maryland, Michigan, to provide regulatory flexibility in Minnesota, Mississippi, Missouri, exchange for superior environmental Nebraska, New Jersey, New York, North Carolina, Ohio, Oklahoma, performance. And because our mills Oregon, Tennessee, Texas, Virginia, already substantially meet the water Washington, Wisconsin quality standards outlined in the operates an extensive wastepaper collection system Arizona, California, Colorado, EPA’s new Cluster Rules, we’ve to supply company mills and national and international Georgia, Illinois, Iowa, Kansas, customers. Maryland, Minnesota, Nebraska, reduced the need for future capital North Carolina, Oklahoma, Oregon, Tennessee, Texas, Utah, investments in this area. Virginia, Washington, West Virginia These are some of the actions produces chemicals used in pulp and paper Georgia, Mississippi, North we’ve taken to build the foundation manufacturing processes and other products like tall oil Carolina, Oklahoma, Oregon, for future growth. Looking ahead, and turpentine. Washington we will build on this progress by continuing to reduce costs, narrow- provides ocean transportation for Washington Weyerhaeuser and other selected markets. 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.
  • 22. (Millions of dollars) Raw materials (logs, chips and timber) $1,008 $1,066 $1,102 $1,091 $1,021 Softwood lumber 2,094 1,988 1,648 1,880 1,704 Softwood plywood and veneer 502 519 591 636 567 Oriented strand board, composite and other panel products 594 667 752 750 623 Hardwood lumber 272 235 193 175 154 Engineered wood products 284 233 207 157 100 Miscellaneous products 620 532 438 303 299 $5,374 $5,240 $4,931 $4,992 $4,468 (Millions) Raw materials — cubic feet 584 577 535 564 547 Softwood lumber — board feet 4,869 4,745 4,515 4,402 4,230 Softwood plywood and veneer — square feet (3 ⁄8quot;) 2,042 2,172 2,324 2,685 2,435 Composite panels — square feet (3 ⁄4quot;) 551 604 648 660 626 Oriented strand board — square feet (3 ⁄8quot;) 2,462 2,083 1,931 1,803 1,672 Hardboard — square feet ( 7⁄16quot;) — 193 201 167 140 Hardwood lumber — board feet 362 349 293 254 240 Engineered wood products — lineal feet 137 116 128 71 47 Hardwood doors (thousands) 730 652 648 617 556 (Millions) Logs — cubic feet — 995 912 914 671 673 Softwood lumber — board feet 3,790 3,992 3,701 3,419 3,249 3,135 Softwood plywood and veneer — square feet ( 3⁄8quot;) 1,008 1,092 1,243 1,292 1,249 1,188 Composite panels — square feet (3 ⁄4quot;) 600 478 535 583 594 564 Oriented strand board — square feet (3 ⁄8quot;) 2,195 2,041 1,687 1,654 1,568 1,443 Hardboard — square feet ( 7⁄16quot;) — — 86 124 122 120 Hardwood lumber — board feet 413 345 333 278 229 221 Hardwood doors (thousands) 850 740 646 643 597 522 Softwood lumber, plywood and veneer 32 5 Hardwood lumber 12 Composite panels 5 Hardwood doors 1 Oriented strand board 6 Hardwood lumber 11 Hardwood doors 1
  • 23. 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 For nearly 100 years, we’ve been a overhead costs. We’ve also benefited leader in forest management and the from the Business Improvement production of high-quality wood Plans we’ve had in place since 1991. products. It’s a position you’d expect Meanwhile, our Wood Products from the world’s largest private business is now capable of producing, owner of merchantable softwood on a same-facility basis, 21 percent timber and North America’s largest more lumber, 40 percent more ply- producer of softwood lumber. wood and 18 percent more oriented Although we’re proud of our leader- strand board than we did in 1991. ship status, we also know that it To achieve further improvements, takes continual improvement to we’re applying what we’ve learned maintain this position. That’s why from our 1996 acquisition of the we’ve spent the past seven years highly efficient Cavenham properties upgrading our portfolio, improving in Mississippi and Louisiana to our our production capabilities, and other lumber businesses. focusing on customer service. As a We’re also seeking to continually result, we’ve positioned our improve our outstanding timber Timberlands and Wood Products base. In 1997, this resulted in expan- sector to perform better, produce sion of our portfolio outside North higher quality products and operate America. We purchased a 51 percent with greater safety than ever before. interest in the Nelson Forests Joint During 1997, market conditions Venture, previously owned by a sub- tested us. Weak demand for logs and sidiary of Fletcher Challenge Forests. wood products in the last half of the The Nelson Forests Joint Venture year resulted in operating earnings of manages more than 193,000 acres $747 million, excluding the effect of of forestland in New Zealand and charges related to the closure of is one of the world’s first forestry three manufacturing facilities, com- operations to achieve ISO 14001 pared with $805 million in 1996. status. Created by the International Net sales in 1997 were $5.4 billion Standards Organization in Geneva, compared with $5.2 billion the ISO certification recognizes compa- previous year. Despite the effect of nies that integrate environmental market conditions on our results, responsibility into daily operations. we fared better than we would During the year, we also began have previously under similar cir- purchasing private agricultural land cumstances. We also did better than in Uruguay for establishing fast- others in our industry. This level of growing managed forests. This is the
  • 24. first investment we’ve made through businesses have steadily enhanced the World Timberfund – a joint ven- their lines of appearance-grade prod- ture with institutional investors rep- ucts. During 1997, we placed resented by UBS Resource additional emphasis on this growth Investments International. Uruguay area by introducing appearance- features good tree-growing soils and grade products from a variety of climate and a history of economic domestic and international sources. and political stability. We expect the Meeting the demand for higher- first thinning of these managed quality products also has resulted in forests to occur in 11 years, with the use of new technologies. For final harvests expected in 20 to 25 example, our Marshfield, Wisconsin, years. Our investments in New door business now uses the industry’s Zealand and Uruguay are part of the most effective enterprise resource ( Milli o ns o f dol la r s) company’s strategies to better serve planning system – DoorBuilder ™ $747 international customers. – to reduce order cycle time by 50 $805 As with all of our timberlands, percent. This new system links all we’ll manage our properties in the of the business’ computerized $808 Southern Hemisphere in ways that information processing systems to $1,034 protect the environment and pro- electronically track ordering, pro- $891 duce sustainable sources of high- duction and billing of the more quality wood. This includes applying than 700,000 custom doors we the core competencies we’ve devel- make each year. Not only does this oped in High Yield Forestry over the system improve our efficiency, past 30 years. In North America, customers benefit from the reliable we’re about to begin to see the first delivery rate it provides. For the harvests of trees grown using these past two years, we’ve delivered practices. Our first harvests will virtually all of our door orders on begin within the next five years in time and complete. the South, with similar harvests in Meanwhile, our Wood Products ( Milli o ns o f dol l ar s) the West occurring in about 10 businesses continue to improve their $314 years. Over the next 15 years, the manufacturing capabilities and pro- $418 harvest of high-yield timber will vide added value to customers. gradually increase by approximately In 1997, this included announcing $446 70 percent from 1995 levels due plans to close two plywood plants. $257 to High Yield Forestry. In addition The closures of plywood plants in $241 to increasing our harvests and cash Plymouth, North Carolina, and flow, these forests will produce Philadelphia, Mississippi, are part more knot-free wood for use in of our effort to strengthen lumber- appearance-grade lumber and other producing facilities. As a result of higher-value products due to our modernization and expansion plans, practice of pruning selected trees. we’ll increase our annual lumber- To develop products, markets and producing capabilities by 15 percent customers for these future harvests, by the end of 1999. These modern - our Building Materials Distribution ization efforts also significantly
  • 25. 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 Acres owned 2,048,000 Oregon, Washington remove production bottlenecks and Acres owned 3,123,000 Alabama, Arkansas, Georgia, Acres leased 237,000 Louisiana, Mississippi, North reduce unscheduled downtime in 3,360,000 Carolina, Oklahoma existing facilities while helping Acres licensed 23,715,000 Alberta, British Columbia, reduce start-up costs at new facilities. Saskatchewan Our oriented strand board mill in produces dimension lumber. Western Lumber: Sutton, West Virginia, for example, Oregon, Washington Southern Lumber: just completed its first year of opera- Alabama, Arkansas, Georgia, Louisiana, Mississippi, North tion and is ahead of the projected Carolina, Oklahoma start-up curve due to our capital Canadian Lumber: Alberta, British Columbia, planning and work systems improve- Saskatchewan ment practices. We also see an manufactures softwood structural and “appearance” Alabama, Arkansas, Oklahoma, improvement in safety as we increase panels for home remodelers, builders and industrial users. Washington (veneer) the productivity and efficiency of produces structural sheathing, sub- Michigan, North Carolina, West flooring, underlayment and other panels for residential and Virginia; Alberta, Canada our facilities. To help deploy these commercial construction. practices throughout our system, manufactures particleboard and medium Georgia, North Carolina, Oregon, we’re working closely with our two density fiberboard used primarily in furniture, laminating, Wisconsin countertops, millwork and door manufacturing. major unions to identify additional opportunities for improvement. is the world’s leading producer of hardwood Arkansas, Michigan, Oklahoma, lumber and components for use in manufacturing cabinets Oregon, Pennsylvania, Washington, As we look to the future, our and furniture. Wisconsin Timberlands and Wood Products is the top door manufacturer in the United Wisconsin segment will continue its focus States and produces architectural doors used mainly in offices, schools and hospitals. on improving operations through provides chain/regional lumber Alabama, Arizona, California, process reliability and a focus on accounts, industrial/home improvement warehouse retailers, Colorado, Florida, Georgia, delivering value to the customer. and millwork and manufactured-housing customers with Idaho, Illinois, Indiana, Iowa, marketing, sales and logistics support. Kansas, Kentucky, Louisiana, Through these efforts, we believe Michigan, Minnesota, Missouri, Nevada, New Jersey, New York, we will create increased value for North Carolina, Ohio, Oklahoma, our shareholders. Oregon, Pennsylvania, Tennessee, Texas, Utah, Virginia, Washington, Wisconsin; Alberta, British Columbia, Manitoba, Nova Scotia, Ontario and Quebec, Canada.
  • 26. Strong real estate markets, an In addition to narrowing its with the best backlog of home sales increased focus on the home- focus, the sector has made signifi- since the late 1980s. building and land development cant improvements in operations. With home building and land business, and improved operating Sales revenues were up slightly from development activities in Southern efficiencies combined to increase 1996, reaching $1.1 billion in 1997. California, Las Vegas, Houston, earnings for our Real Estate and Home sales increased 17 percent and Maryland, Virginia and the Puget Related Assets sector in 1997. housing inventory turnover has Sound area, the company continues For the year, the sector reported improved. Significantly more homes to be one of the top 20 home earnings of $66 million before were presold prior to completion builders in the United States. a gain associated with the sale than in prior years. We go into 1998 of Weyerhaeuser Mortgage Company. This compares with $43 million in 1996. The Real Estate and Related Land Management Arkansas, Georgia, North Carolina, Washington Assets sector has continually Pardee Construction Company Nevada, Southern California reviewed its portfolio to ensure Quadrant Corporation Washington it targets markets and businesses capable of producing competitive Trendmaker Homes Texas returns. As a result, the sector Winchester Homes Maryland, Virginia has exited a number of smaller Weyerhaeuser Realty Investors California, Washington markets and secondary businesses. and/or one million work hours Cleveland, Ohio, was designated an Safety is a core value at Weyerhaeuser without a lost-time accident and “OSHA Star” plant site by the and the company’s number one have achieved “stretch” safety targets. U.S. Department of Labor (DOL). priority. Award winners in 1997 include the The award, which is OSHA’s highest In 1997, Weyerhaeuser’s record- recycling centers in Oklahoma City, recognition for accident prevention able incident rate (RIR) was 4.6 per Okla., and San Jose, Calif.; the and on-the-job safety performance, 100 employees compared with 5.1 containerboard packaging plant in acknowledges and rewards outstand- per 100 employees in 1996, a 10 Amarillo, Texas; North Carolina ing achievement in creating and percent decrease. Weyerhaeuser’s Timberlands; the customer service maintaining a safe and healthy target for 1998 is a RIR of 3.0, a center in Cleveland, Ohio; the workplace. After three years as a 35 percent improvement over 1997. lumber mill in Barnesville, Ga.; “Star” plant site, the containerboard > The Senior Management Team and the architectural door plant mill in Valliant, Okla., was recertified Safety Excellence Award recognizes in Marshfield, Wis. for another three years. In addition, units that have completed five years > The customer service center in Brown & Root (Valliant’s mill
  • 27. maintenance contractor), received an equally high designation from > Employees at the Mount Vernon, > Throughout 1997, North the DOL when it became the 12th Ohio, and Yakima, Wash., con- Carolina Timberlands worked with contractor in the nation to be tainerboard packaging plants; the the Environmental Defense Fund named a “Demonstration Worksite” Flint River, Ga., pulp mill; and the (EDF) and other participants on a for job safety. Plymouth, N.C., fine paper mill management plan designed to pro- > The chlor-alkali plant in the received the Jack Waechter Award tect 3,000 acres of unique habitat Longview, Wash., pulp and paper for Customer Excellence. The award area within the company’s 11,000- complex received the Chemical recognizes Pulp, Paper and Packaging acre Parker Tract forestland in North Manufacturers Association’s (CMA) organizations with exceptional cus- Carolina. The joint plan provides for Lammot du Pont Safety Award. The tomer relationships. varying levels of forest management award is presented to the chemical > Weyerhaeuser’s Building Materials based on scientific and economic production facility with the best Distribution (BMD) and Wood considerations. five-year safety improvement trend Products businesses received > Weyerhaeuser participated in many in OSHA recordable incidents. National Home Center News’ 1997 cooperative programs during the > In 1997, British Columbia Golden Hammer Award in the lum- year to better understand and plan Timberlands achieved one million ber/plywood category. It is the trade for wildlife habitat needs, including: hours with no lost-time accidents – publication’s highest award in each • Forestry for Wildlife, a program a milestone reflecting over three of 16 building materials categories. with the Georgia Department of years of effort aimed at achieving The award also recognized Southern, Natural Resources to develop world-class safety status. Similarly, Western and Canadian Lumber; wildlife management plans that employees at the pulp and paper Plywood; Oriented Strand Board; achieve habitat goals while support- facilities in Prince Albert, Sask., Composite Products; and Hardwood ing commercial forestry. Columbus, Miss., and New Bern, Lumber for “vendor excellence in • Partners in Flight, a joint effort N.C., worked over one million marketing and partnership.” More between the National Fish & consecutive hours during 1997 than 500 manufacturers were nomi- Wildlife Foundation and major without a lost-time accident. The nated for the awards. North American landowners to Mississippi/Alabama Timberlands > Kmart Corporation and research and manage habitat for team completed 11 consecutive years Weyerhaeuser joined forces several Neotropical bird species. without a lost-time accident. years ago to minimize waste and • The Mississippi Gap Analysis > Western Timberlands’ Coos Bay, increase recovered fiber through a Program (GAP) with the Forest Ore., operation was recognized national agreement. Together, they and Wildlife Research Center at by the Oregon Occupational and passed a milestone of recycling one Mississippi State University and Safety Health Division (OR-OSHA) billion pounds of used corrugated other forest landowners. This as a Safety & Health Achievement boxes since the program’s inception. cooperative effort shares vegetation Recognition Program (SHARP) > For three consecutive six-month and wildlife data among participants recipient. SHARP provides incen- periods, the paper mill in Prince to support better resource manage- tives for Oregon employers to Albert, Sask., received the highest ment decisions. develop and implement effective ratings from Xerox for quality per- • A collaboration with Wildlife injury and illness prevention pro- formance. The facility is one of eight Habitat Canada to develop a biodi- grams. Weyerhaeuser is the first certified North American suppliers versity strategy for forestry opera- forest products company to receive to Xerox. tions on more than 1.2 million SHARP recognition. acres (500,000 hectares) at Merritt, B.C., and creation of biodiversity
  • 28. conservation guidelines for the Wildlife Stewardship to Western Environmental and Energy company’s forest management Timberlands’ Springfield, Ore., Achievement Award. In addition, planning in Alberta. operation for its watershed analysis the U.S. Chemical Management and habitat enhancement efforts. Association and Chlorine Institute > In 1997, Saskatchewan honored Weyerhaeuser as one of the > Weyerhaeuser received the 1997 Timberlands completed a new nation’s top 10 chemical companies American Business Ethics Award in 20-year forest management plan for in terms of employee understanding the “public company” category. The Weyerhaeuser’s 12.5 million acres of the association’s Responsible Care award recognizes U.S. companies (5 million hectares) of licensed program – a code of chemical man- that demonstrate a strong commit- forest in Saskatchewan, Canada. agement practices for safety, product ment to ethical business practices. The plan is Weyerhaeuser’s first stewardship and pollution prevention. Companies were evaluated on senior environmental impact assessment > Representatives of Weyerhaeuser’s management’s commitment to busi- of forest operations in Canada. Flint River pulp mill in Oglethorpe, ness ethics, their formal ethics pro- > Weyerhaeuser foresters and scien- Ga., signed a final, 15-year project grams and how they respond to tists completed 14 watershed analyses agreement with the Environmental crises. The award is sponsored by the in Oregon, Washington and British Protection Agency (EPA). The mill American Society of CLU & ChFC Columbia during the year, for a total is the first forest products facility (Chartered Life Underwriters & of 47 completed on 1.3 million acres accepted into the EPA’s eXcellence Chartered Financial Consultants). of company-owned or managed land and Leadership program (Project XL). > For the third year in a row, since 1993. These assessments In addition, Oregon and Weyerhaeuser ranked number one involve cooperative work with gov- Washington state passed “XL” legis- in responsibility to the community ernment agencies, native people, lation. This will allow any qualifying and environment among forest and interest groups and other landowners business in these states to pursue paper products companies, accord- to examine water flows, soil, fish environmentally beneficial projects ing to Fortune magazine’s annual habitat and other characteristics of while reducing costs and gaining Corporate Reputation Survey. the basins surrounding a river or regulatory flexibility. > Weyerhaeuser’s forest stewardship stream. The resulting management > The Weyerhaeuser Company efforts earned several awards during prescriptions help protect and Foundation was recognized on 1997. The company’s cooperative improve water quality and fish the Oprah Winfrey show for its efforts to conserve waterfowl and habitat in watersheds managed for commitment to Habitat for wetlands habitat received the U.S. sustainable wood production. Humanity. Weyerhaeuser has Forest Service’s Taking Wing Award. > During 1997, the sawmill at helped build nearly 50 homes This award recognizes Weyerhaeuser’s Grande Cache joined the company's since 1988. role in its 1996 land exchange involv- other Alberta operations in achieving ing the Ouachita National Forest, ForestCare certification. ForestCare Arkansas and Oklahoma state is an industry audit program that agencies, and The Nature protects environmental, economic Conservancy. The Arkansas chapter and social values while sustaining of The Nature Conservancy also forest health. All Weyerhaeuser presented Weyerhaeuser its Charles Alberta operations are certified. L. Steel award for “outstanding > The American Forest & Paper contributions to the environment.” Association (AF&PA) recognized The state of Oregon presented a Weyerhaeuser’s chemical manage- Commendation for Fish and ment program in 1997 with an
  • 29. 1997 FINANCIAL REPORT CONTENTS 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 performance that are forward looking statements within the meaning of the Private Securities Litigation Reform Act 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 not limited to, the effect of general economic conditions, including the level of interest rates and housing starts; market demand for the company’s products; the effect of forestry, land use, environmental and other 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 and Asia, particularly Japan, and by changes in currency exchange rates and restrictions on international trade. These and other factors that could cause or contribute to actual results differing materially from such forward looking statements are discussed in greater detail in the company’s Securities and Exchange Commission filings. 29
  • 30. DESCRIPTION OF THE BUSINESS OF THE COMPANY Weyerhaeuser Company (the company) was incorpo- Many of the company’s products also compete with sub- rated in the state of Washington in January 1900 as stitutes for wood and wood fiber products. The com- Weyerhaeuser Timber Company. It is principally en- pany’s subsidiaries in the real estate and related assets seg- gaged in the growing and harvesting of timber and the ment operate in highly competitive markets, competing manufacture, distribution and sale of forest products, real with numerous regional and national firms in real estate estate development and construction, and other real development and construction and other real estate re- estate related activities. lated activities. The company has 35,800 employees, of whom 34,900 In 1997, the company’s sales to customers outside the are employed in its timber-based businesses, and of this United States totaled $2.2 billion (including exports of number, approximately 17,400 are covered by collective $1.5 billion from the United States and $.7 billion of bargaining agreements, which generally are negotiated on Canadian export and domestic sales), or 20 percent of a multi-year basis. total consolidated sales and revenues, compared with 22 Approximately 900 of the company’s employees are percent in 1996. The company believes these sales con- involved in the activities of its real estate and related tributed a higher proportion of aggregate operating prof- assets segment. its (see Note 3 of Notes to Financial Statements). All The major markets, both domestic and foreign, in sales to customers outside the United States are subject which the company sells its products are highly competi- to risks related to international trade and to political, tive, with numerous strong sellers competing in each. economic and other factors that vary from country to country. BUSINESS SEGMENTS TIMBERLANDS AND WOOD PRODUCTS The company is engaged in the management of 5.2 mil- These products are sold primarily through the company’s lion acres of company-owned and .2 million acres of own sales organizations. Building materials are sold to leased commercial forestland in the United States (60 wholesalers, retailers and industrial users. percent in the South and 40 percent in the Pacific North- The company, through its wholly owned subsidiary, west), most of it highly productive and located extremely Weyerhaeuser Forestlands International, is in a joint- well to serve both domestic and international markets. venture partnership with institutional investors repre- The company has, additionally, long-term license ar- sented by UBS Resource Investments International, a rangements in Canada covering approximately 23.7 mil- unit of UBS Asset Management (New York) Inc., which lion acres (of which 16.5 million acres are considered to makes investments in timberlands and related assets out- be productive forestland). The combined total timber side the United States. The primary focus of this partner- inventory on these U.S. and Canadian lands is approxi- ship is in pine forests in the Southern Hemisphere. The mately 273 million cunits (a cunit is 100 cubic feet of company is a 50 percent owner of the joint venture, the solid wood), of which approximately 75 percent is soft- total size of which is expected to be approximately wood species. The relationship between cubic measure- $400 million. The joint venture will be capitalized over ment and the quantity of end products that may be pro- time through equal cash contributions by the company duced from timber varies according to the species, size and the investor group. and quality of timber, and will change through time as During the year, the company purchased a 51 percent the mix of these variables changes. To sustain the timber interest in an existing New Zealand joint venture located supply from its fee timberlands, the company is engaged on the northern end of the South Island. The company in extensive planting, suppression of nonmerchantable paid $190 million for timber, land, related assets and net species, precommercial and commercial thinning, fertili- working capital. The forested area of the joint venture zation and operational pruning, all of which increase the consists of 148,000 acres of Crown Forest License cut- yield from its fee timberland acreage. ting rights and approximately 45,000 acres of freehold The company’s wood products businesses produce land. The company will be responsible for the manage- and sell softwood lumber, plywood and veneer; compos- ment and marketing activities of the joint venture. RII New Zealand Forests I Inc. continues to hold the re- ite panels; oriented strand board; hardwood lumber and maining 49 percent in the joint venture. plywood; doors; treated products; logs; chips and timber. 30
  • 31. The company closed an export lumber mill at Coos 1997. These closures were part of the company’s long- Bay, Oregon, and plywood facilities located at Philadel- term strategy to align its wood products manufacturing phia, Mississippi, and Plymouth, North Carolina, in facilities with changing future sources of raw materials. 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 $1,021 Softwood lumber 2,094 1,988 1,648 1,880 1,704 Softwood plywood and veneer 502 519 591 636 567 Oriented strand board, composite and other panels 594 667 752 750 623 Hardwood lumber 272 235 193 175 154 Engineered wood products 284 233 207 157 100 Miscellaneous products 620 532 438 303 299 $5,374 $5,240 $4,931 $4,992 $4,468 (1) Approximate contributions to earnings $ 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. PULP, PAPER AND PACKAGING The company’s pulp, paper and packaging businesses company mills and worldwide customers; and Chemi- include: Pulp, which manufactures chemical wood pulp cals, which produces chlorine, caustic and tall oil, which for world markets; Newsprint, which manufactures are used principally by the company’s pulp, paper and newsprint at the company’s North Pacific Paper Corpo- packaging operations. ration mill and markets it to West Coast and Japanese During 1997, the company sold its Saskatoon, newspaper publishers; Paper, which manufactures and Saskatchewan, Canada, chemical operation, closed its markets a range of both coated and uncoated fine papers Longview, Washington, corrugated medium machine, through paper merchants and printers; Containerboard and restructured its recycling business through consoli- Packaging, which manufactures linerboard and corrugat- dation, closure or disposition of certain facilities. ing medium, which is primarily used in the production The SCA Weyerhaeuser Packaging Holding Company of corrugated packaging, and manufactures and markets Asia Ltd. joint venture, formed in 1996 to pursue oppor- industrial and agricultural packaging; Paperboard, which tunities to build or buy containerboard packaging facili- manufactures and markets bleached paperboard, used for ties to serve manufacturers of consumer and industrial production of liquid containers, to West Coast and products in Asia, commenced construction on two facili- Pacific Rim customers; Recycling, which operates an ex- ties in China in 1997. tensive wastepaper collection system and markets it to Dollar amounts in millions 1997 1996 1995 1994 1993 Net sales: Pulp $ 986 $ 954 $1,616 $1,012 $ 823 Newsprint 416 451 508 356 322 Paper 842 803 1,001 664 648 Paperboard and containerboard 301 281 325 240 255 Packaging 1,781 1,921 1,863 1,495 1,302 Recycling 189 140 266 121 77 Chemicals 57 63 63 45 32 Miscellaneous products 37 35 40 133 120 $4,609 $4,648 $5,682 $4,066 $3,579 (1) Approximate contributions to earnings $ 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 the restructuring of the recycling business in 1997. REAL ESTATE AND RELATED ASSETS The company, through its subsidiary, Weyerhaeuser Operations are concentrated mainly in selected metro- Real Estate Company (WRECO), is engaged in develop- politan areas in Southern California, Nevada, Washing- ing single-family housing and residential lots for sale, in- ton, Texas, Maryland and Virginia. cluding development of master-planned communities. 31
  • 32. With the sale of Weyerhaeuser Mortgage Company in the remaining real estate activities of Weyerhaeuser the second quarter of 1997, the financial services seg- Financial Services, Inc. (WFS), have been combined with ment is no longer material to the company. Therefore, WRECO into one segment entitled real estate and related assets. Dollar amounts in millions 1997 1996 1995 1994 1993 Net sales and revenues: Single-family units $ 688 $ 573 $ 563 $ 686 $ 615 Multi-family units 29 12 — 26 30 Residential lots 91 76 60 65 43 Commercial lots 57 50 29 7 41 Commercial buildings 68 43 4 35 3 Acreage 41 25 36 20 27 Interest (1) 35 70 76 84 110 Investment income (1) 2 1 3 2 116 Loan origination and servicing fees (1) 35 100 84 88 127 Other 47 59 64 104 118 $1,093 $1,009 $ 919 $1,117 $1,230 (2) Approximate contributions to earnings $ 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 subsidiaries Weyerhaeuser 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. CORPORATE AND OTHER Corporate and other includes marine transportation and Nurseries, Inc., in the first quarter of 1997. Revenues general corporate expense. and operating earnings of this operation were not ma- The company sold its wholly owned wholesale terial to the company. nursery and garden supply products subsidiary, Shemin Dollar amounts in millions 1997 1996 1995 1994 1993 Net sales $ 134 $ 217 $ 256 $ 223 $ 269 (1) Approximate contributions to earnings $ (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 Shemin Nurseries in 1997, and a $70 million gain on disposal of the infant diaper business in 1993. ENVIRONMENTAL MATTERS In 1990 the northern spotted owl was listed as a threat- result, in restrictions on timber harvest on some non- ened species under the Endangered Species Act (ESA). In federal timberlands in the Pacific Northwest, including 1992 the marbled murrelet was listed as a threatened spe- some timberlands of the company. The listing of the red- cies under the ESA, and in 1996 the Umpqua River Cut- cockaded woodpecker as an endangered species under the throat Trout was listed as a threatened species. Certain ESA had some effect on the harvest of public and private Snake River salmon runs have been listed as threatened timber in the southeastern United States, but has had or endangered under the ESA, and coho salmon have little effect on the company’s operations. Other ESA- been listed as threatened in California and parts of south- listed species (e.g., American burying beetle and gopher west Oregon. Petitions have been filed to list certain tortoise) occur on or near some of the company’s south- Pacific Northwest salmon runs, steelhead trout, bull ern timberlands, but have had little effect on the com- trout and other fish populations as threatened or endan- pany’s operations. Other federal ESA listings, or des- gered under the ESA. A consequence of these listings has ignations of fish and wildlife species as endangered, been, and a consequence of future listings may be, reduc- threatened or otherwise sensitive under various state tions in the sale and harvest of timber on federal timber- laws, could affect future timber harvests on some of the lands in the Pacific Northwest. Requirements to protect company’s timberlands and could affect timber supply habitat for threatened and endangered species on non- and prices in some regions. In addition, statutory federal timberlands has resulted, and may in the future requirements with respect to the protection of wetlands 32
  • 33. may affect future harvest and forest management prac- the ESA (including the northern spotted owl), and all or tices on some of the company’s timberlands, particularly most species that may become listed in the future, in the in southeastern states. course of conducting timber harvest and other forest In April 1994, the Clinton administration (the ad- management and land use activities on those lands. ministration) adopted its plan with respect to manage- Pursuant to both of those HCPs, there are limits on the ment of federal timberlands in the Pacific Northwest. amount of land covered by the HCPs that can be trans- This plan has reduced timber sales from certain federal ferred unless the U.S. Fish and Wildlife Service approves lands in western Washington, western Oregon and the transfer or the new owner agrees to be bound by the northern California by more than 75 percent from har- HCP and related documents. vest levels in the 1980s. Subsequently, the administration In 1996 the company obtained from the U.S. Fish has begun similar planning efforts and adopted interim and Wildlife Service an Incidental Take Permit for the timber sale policies for federal timberlands in the inter- American burying beetle covering approximately 25,000 mountain west and certain other regions. These reduc- acres of lands in Oklahoma that it acquired from the tions in federal timber sales have seriously reduced log United States in an exchange with the U.S. Forest Service supplies to many independent sawmills that have been and certain nearby lands that the company already important suppliers of wood chips to the company’s pulp owned. The company also has entered into agreements and paper mills in Washington and Oregon. Alternative with the U.S. Fish and Wildlife Service to reduce uncer- sources of wood chips and recycled fiber have become tainties under the ESA with respect to red-cockaded available, and some companies have reduced manufactur- woodpeckers on some of its timberlands in North ing capacity or production levels in response to reduced Carolina and northern spotted owls on some of its tim- federal timber harvests. The company does not anticipate berlands in Washington. that reductions in federal timber harvests will require sig- The company believes the most effective way to man- nificant curtailments of capacity or production at its cur- age its timberlands for the growth and harvest of timber rent manufacturing facilities. and the protection of wildlife and fish habitat is to The administration also has stated that reduced tim- develop plans for the management of timber and other ber harvest on federal lands will provide the opportunity resources on those lands and obtain approval of those to clarify the uncertainty surrounding federal policies for plans from the appropriate federal or state agencies. Accordingly, the company is seeking to develop HCPs or protection of northern spotted owls on some private other arrangements with federal and state fish and wild- lands. On February 7, 1995, the administration pro- life agencies for some other parts of its Pacific Northwest posed a special rule to clarify federal harvest restrictions timberlands that would address the protection of wildlife on some private lands in Washington and California. and fish habitat for both listed and non-listed species. The company believes that the regulatory changes might Forest practice acts in some of the states in which the ultimately allow it to harvest fee timber in some areas company has timber increasingly affect present or where it has not been operating because of uncertainties future harvest and forest management activities. For regarding regulations intended to protect the northern example, forest practice acts in Washington and Oregon spotted owl. Whether those regulatory changes will be limit the size of clearcuts, require that some timber be left implemented is uncertain. If those regulatory changes are unharvested in riparian areas and sometimes in other not implemented, the company might not harvest some areas to protect water quality, fish habitat and wildlife, timber that it otherwise might harvest in 1998 and 1999. regulate construction of forest roads and conduct of Because those regulatory changes may not be imple- other forest management activities, require reforestation mented, and in order to avoid existing uncertainty under the ESA, the company, in February 1995, developed a following timber harvest, and contain procedures for Habitat Conservation Plan (HCP) and obtained from the state agencies to review and approve proposed forest U.S. Fish and Wildlife Service an Incidental Take Per- practice activities. Other states and some local govern- mit with respect to northern spotted owls on approxi- ments regulate certain forest practices through various mately 209,000 acres of its Oregon coastal timberlands. permit programs. Each of the states in which the com- That HCP establishes a protocol for the harvest of timber pany owns timberlands has developed “best management and the protection of the northern spotted owl on those practices” (BMPs) to reduce the effects of forest practices timberlands and is expected to remain in effect for at on water quality and aquatic habitats. Additional and least 50 years. In December 1996, the company applied more stringent regulations and regulatory programs may for an Incidental Take Permit covering approximately be adopted by various state and local governments to 400,000 acres of company timberlands in western achieve water quality standards under the Clean Water Oregon. If the related HCP and Implementation Agree- Act or to preserve aquatic habitats. These current or ment are approved and that permit is issued by the U.S. future forest practice acts, BMPs and other programs may Fish and Wildlife Service and the National Marine Fish- reduce the volumes of timber that can be harvested, eries Service, the company would be authorized to “take” increase operating and administrative costs, and make it all species currently listed or proposed for listing under more difficult to respond to rapid changes in markets, 33
  • 34. extreme weather or other unexpected circumstances. company expects that expenditures will range from However, the company does not anticipate that it will be $75 million to $85 million (10 to 11 percent of total disproportionately affected by these programs as com- capital expenditures) in 1998 and 1999. pared with typical owners of comparable timberlands or The company is involved in the environmental inves- that these programs will significantly disrupt its planned tigation or remediation of numerous sites, including 43 operations over large areas or for extended periods. superfund sites where the company has been named as a In addition, the company participates in the Sus- potentially responsible party. Some of the sites are on tainable Forestry Initiative® sponsored by the American property presently or formerly owned by the company Forest & Paper Association, a code of conduct designed where the company has the sole obligation to remediate to supplement government regulatory programs with the site or shares that obligation with one or more par- voluntary landowner initiatives to further protect certain ties, and others are third-party sites involving several public resources and values. Compliance with the Sus- parties who have a joint and several obligation to remedi- tainable Forestry Initiative® may require some increases ate the site. The company’s liability with respect to these in operating costs. sites ranges from insignificant at some sites to substantial The combination of the forest management and har- at others, depending on the quantity, toxicity and nature vest restrictions and effects described in the preceding of materials deposited by the company at the site and, paragraphs has increased operating costs, resulted in with respect to some sites, the number and economic changes in the value of timber and logs from the viability of the other responsible parties. company’s Pacific Northwest timberlands, and contrib- The company spent approximately $21 million in uted to increases in the prices paid for wood products 1997 and expects to spend $15 million in 1998 on envi- and wood chips during periods of high demand. The ronmental remediation of these sites. It is the company’s company does not know whether these effects will con- policy to accrue for environmental remediation costs tinue. One additional effect may be the continuation of when it is determined that it is probable that such an ob- some reduced usage of, and some substitution of other ligation exists and the amount of the obligation can be products for, lumber and plywood. reasonably estimated. Based on currently available infor- The company does not believe that the restrictions mation and analysis, the company believes that it is rea- and effects described in the above paragraphs have had, sonably possible that costs associated with all identified or in 1998 or 1999 will have, a significant effect on the sites may exceed current accruals by amounts that may company’s total harvest of timber, although they may prove insignificant or that could range, in the aggregate, have such an effect in the future. up to approximately $100 million over several years. In addition to the foregoing, the company is subject to This estimate of the upper end of the range of reasonably federal, state or provincial and local air, water and land possible additional costs is much less certain than the pollution control, solid and hazardous waste manage- estimates upon which accruals are currently based and ment, disposal and remediation laws and regulations in utilizes assumptions less favorable to the company among all areas in which it has operations, and to market de- the range of reasonably possible outcomes. An Environmental Protection Agency (EPA) regula- mands with respect to chemical content of some products tion under Title 5 of the Clean Air Act requires updated and use of recycled fiber. Compliance with these laws, comprehensive operating permits at many of the regulations and demands usually involves capital expen- company’s manufacturing operations. The company will ditures as well as operating costs. The company cannot continue to prepare the permit applications in 1998 and easily quantify future amounts of capital expenditures anticipates that it will be able to obtain the necessary per- required to comply with these laws, regulations and de- mits. mands, or the effects on operating costs, because in some The EPA published proposed regulations on instances compliance standards have not been developed December 17, 1993, known as the “cluster rules,” which or have not become final or definitive. In addition, com- would establish maximum achievable control technology pliance with standards frequently serves other purposes standards for non-combustion sources under the Clean such as extension of facility life, increase in capacity, Air Act, and revised wastewater effluent limitations un- changes in raw material requirements, or increase in eco- der the Clean Water Act. The original proposal has been nomic value of assets or products. While it is difficult to modified on two occasions. The final rule was approved isolate the environmental component of most manu- by the administrator of the EPA in November 1997 and facturing capital projects, the company estimates that will go into effect in early 1998. The cluster rules will capital expenditures for environmental compliance were require the company to commit approximately $80 mil- approximately $41 million (6 percent of total capital ex- lion of additional capital to further reduce air emissions penditures excluding acquisitions) in 1997. Based on its and wastewater discharges over the next several years. understanding of current regulatory requirements, the 34
  • 35. FINANCIAL REVIEW RESULTS OF OPERATIONS The real estate and related assets segment earned 1997 COMPARED WITH 1996 $111 million for the year, including a $45 million gain During 1997, the company’s consolidated net sales and on the sale of the company’s wholly owned subsidiary, revenues were $11.2 billion compared with $11.1 billion Weyerhaeuser Mortgage Company. The $66 million op- in the prior year. Sales were relatively even from year to erating earnings, excluding this gain, when compared year in all the operating segments, with increased vol- with $43 million in 1996, reflects stronger real estate umes in most product lines offsetting unfavorable price markets, an increased focus on the home building and variances. While the real estate and related assets seg- land development businesses, and improved operating ment included only four months of revenues from efficiencies. Weyerhaeuser Mortgage Company due to the sale of this The increase in Weyerhaeuser’s costs of products sold, business in May, the lost revenues were more than offset as a percentage of sales, to 78 percent in 1997 compared by increased revenues from real estate activity. with last year’s 75 percent can be attributed to the price Net earnings for the year were $342 million, or $1.72 weaknesses described above. The product inventory turn- basic earnings per share, compared with $463 million, or over rate was 12.1 turns for the year compared with 10.3 $2.34 basic earnings per share, in 1996. The current turns in 1996. Charges of $89 million incurred for the year’s earnings included after-tax special items of $9 mil- closure of production facilities were a factor in the in- lion, or 4 cents per common share, related to the charges crease in costs and expenses for 1997 over the prior year. incurred for closures of operating facilities, offset in part The increase in costs and operating expenses in the by the gain on sale of businesses. Diluted earnings per real estate and related assets segment is consistent with share, which is based upon the weighted average number the increased revenues from the strong real estate mar- of shares outstanding plus shares the company may be kets. Reduced selling, general and administrative ex- obligated to issue to satisfy stock options, were $1.71 and penses, compared with the prior year, are due primarily $2.33 for 1997 and 1996, respectively. to the sale of the mortgage banking business. 1997 operating earnings in the timberlands and wood Other income (expense) is an aggregation of both re- products segment were $707 million, net of charges to- curring and occasional income and expense items and, as taling $40 million for the closure of two plywood facili- a result, can fluctuate from year to year. Individual items ties and an export sawmill. Excluding these charges, the significant in relation to net earnings in 1997 were: a segment earned $747 million compared with $805 mil- gain of $45 million from the sale of the mortgage bank- lion in 1996. The decrease from year to year is the com- ing business, interest income of $18 million from the bination of weak export demand for logs and lumber and favorable federal income tax decision related to timber lower domestic structural panel prices, offset somewhat casualty losses incurred in the eruption of Mount by a stronger domestic lumber market. St. Helens in 1980, a loss of $8 million from the sale of The pulp, paper and packaging segment had operat- the wholesale nursery business, and a gain of $21 million ing earnings of $164 million in 1997, which includes from the sale of the Saskatoon chemical facility. There special items netting to a charge of $28 million. This in- were no significant individual items in 1996. cludes a $49 million charge for the consolidation, closure or disposition of certain recycling facilities, the closure of a corrugated medium machine, and a gain of $21 million 1996 COMPARED WITH 1995 from the sale of a chemical facility in Saskatoon, Consolidated net sales and revenues were $11.1 billion in Saskatchewan, Canada. Before these special items, the 1996, a decrease of 6 percent from the record $11.8 bil- segment earned $192 million compared with $307 mil- lion posted in 1995. This decrease is the net of a $1 bil- lion in the previous year. Volume increases in all product lion decrease in the pulp, paper and packaging segment lines were more than offset by weaker average prices and an increase of $309 million for timberlands and when compared with 1996, although pulp, paper and wood products. Pulp, paper, corrugated packaging and packaging markets improved each quarter in 1997. The recycled products experienced material unfavorable price paper and packaging markets continued this improve- variances offset, in part, by favorable volume variances in ment through the fourth quarter; however, pulp markets the packaging business related to the acquisition of nine began to weaken during the quarter due to a decline in facilities in late 1995. Wood products benefited from demand in Asia. favorable price and volume variances in lumber. 35
  • 36. Net earnings for 1996 were $463 million, or $2.34 Other income (expense) is an aggregation of both per common share, compared with record earnings of recurring and occasional non-operating income and $799 million, or $3.93 per common share, in 1995. The expense items and, as a result, may fluctuate from period 1995 earnings were net of an after-tax special charge of to period. No individual income or expense item in 1996 $184 million ($290 million pretax), or 90 cents per com- was significant in relation to net earnings. mon share, in the real estate and related assets segment. Lower prices in the pulp, paper and packaging segment, 1995 COMPARED WITH 1994 which were in sharp contrast with the record 1995 levels, The company’s consolidated net sales and revenues accounted for the decline in 1996 earnings. increased 13 percent to a record $11.8 billion in 1995 The timberlands and wood products segment operat- compared with $10.4 billion in 1994. The pulp, paper ing earnings were $805 million, comparable to 1995 and packaging segment accounted for $5.7 billion of this earnings of $808 million, as it benefited from strong de- record performance, 40 percent over its sales of $4.1 bil- mand in the United States and Japan. Tight supplies and lion in 1994, with strong year-to-year improvement in all disruptions related to countervailing duties on imports product lines. These markets weakened in the fourth from Canada contributed to strong lumber results. The quarter, and this weakness persisted in 1996 as customers panel markets were negatively impacted by the excess ca- continued to reduce inventories. The timberlands and pacity of oriented strand board as new facilities came on wood products segment sales of $4.9 billion approxi- line in 1996. mated 1994’s. The real estate and related assets segment The pulp, paper and packaging segment reported op- had combined sales of $919 million, down from the prior erating earnings of $307 million in 1996 compared with year’s $1.1 billion, largely attributable to declines in a record performance of $1.2 billion in 1995. The down- single-family home sales. turn in pulp and paper prices, which began in the fourth The company also achieved record earnings of quarter of 1995 as customers cut back on purchases in $799 million, or $3.93 per common share, in 1995, order to reduce excess inventories, continued as prices which was 36 percent over the $589 million, or $2.86 were significantly lower than the prior year. per common share, recorded in 1994. The 1995 earnings The real estate and related assets segment earned were net of an after-tax charge of $184 million $43 million from operations in 1996 compared with ($290 million pretax), or 90 cents per common share, in $13 million, before the special charge, in 1995. Real the real estate and related assets segment. The 1994 earn- estate benefited from several major commercial project ings included a net contribution of $.03 per common closings and increased residential property sales along share for the return of countervailing duty by the U.S. with reduced costs as the result of the disposition of government against Canadian lumber imports and the certain impaired properties. Improved financial services expected cost of postretirement benefits for Canadian results reflected the sale of capitalized servicing rights and employees. increased loan originations in the company’s mortgage Operating earnings in the timberlands and wood banking business. products segment were $808 million, down from the Weyerhaeuser’s cost of products sold, as a percentage record $1 billion for the previous year. This was attribut- of sales, increased to 75 percent in 1996 compared with able to price declines primarily in softwood lumber, 69 percent in 1995, reflecting the significant decline in caused by a drop in domestic housing starts. pulp, paper and packaging pricing. Additionally, inven- The pulp, paper and packaging segment posted record tory turnover rates were lower in 1996 compared with operating earnings of $1.2 billion in 1995 compared the higher rates experienced in the peak price periods of with $211 million earned in 1994. Significant price 1995. improvement over the prior year and ongoing improve- The real estate and related assets segment costs and ments in operations were the key factors in recovery in operating expenses in 1996 rose 7 percent over the 1995 this segment. level, consistent with the 10 percent increase in revenues The company’s real estate and related assets segment from year to year. The decline in depreciation and amor- recorded an operating loss of $277 million for the year tization was directly related to the disposition of certain after reflecting a $290 million charge to operations. The impaired assets and sale of substantially all of the capital- majority of the charge was a direct result of the com- ized servicing rights in the mortgage banking business. pany’s decision to accelerate the disposition of certain Selling, general and administrative expenses increased real estate assets previously held for development and use. over 1995 primarily due to the opening of additional The remainder of the charge resulted from the applica- branch offices in 1996 by the mortgage banking business. tion of those provisions of Statement of Financial 36
  • 37. Accounting Standards (SFAS) No. 121 relating to the stock on behalf of each employee. The size of the contri- valuation of assets held for future use where estimated bution, if any, is decided by the board of directors each undiscounted future cash flows from those assets did not year on the basis of that year’s profits and the company’s exceed the carrying value of those assets. Before these performance relative to its competition. actions, the combined segments earned $13 million com- Excluding the revaluation charge, the decrease in costs pared with $18 million in 1994. and operating expenses of the real estate and related Weyerhaeuser’s cost of products sold as a percentage assets segment are in line with the reduced sales activity. of net sales decreased to 69 percent in 1995 compared Other income (expense) is an aggregation of both with 73 percent in 1994. The company continued to recurring and occasional non-operating income and benefit from its mill modernization program and imple- expense items and, as a result, may fluctuate from period mentation of its business improvement plans, offset in to period. No individual income or expense item in 1995 part by the costs associated with higher sales activity, was significant in relation to net earnings. principally in the pulp, paper and packaging segment. Weyerhaeuser’s interest expense incurred was up Depreciation expense increased over the prior year as a $34 million over the prior year as a result of prefunding result of the completion and start-up of several mill mod- 1995 debt maturities that were due late in the year as well ernization projects in late 1994 in the pulp, paper and as an increase in the company’s combined long- and packaging segment. The expansion of the company’s short-term debt levels. Capitalized interest was $16 mil- Performance Share Plan to include all employees was the lion less than the prior year as mill modernization major contributor to the $109 million increase in selling, projects at Longview, Washington, and Plymouth, North general and administrative expenses. Contributions made Carolina, were completed. by the company into this plan are invested in company SUBSEQUENT EVENT In February 1998, the company and Nippon Paper ship and 20 percent NPI ownership to 50 percent for Industries Co., Ltd. (NPI), completed the restructuring each shareholder. The company, either directly or of their North Pacific Paper Corporation (NORPAC) through a wholly owned subsidiary, will continue to joint venture. Through this restructuring, the ownership provide marketing, support services, raw materials and of NORPAC changed from 80 percent company owner- staffing to the joint venture. BUSINESS IMPROVEMENT PLANS In 1994 business improvement plans were developed to The company achieved annualized improvements to- improve the annual pretax earnings of the company by taling $224 million, $120 million and $276 million, as $600 million by the end of 1997. Given the volatility of measured in 1994 dollars, in 1997, 1996 and 1995, prices in many of the company’s product lines and respectively, with 1998 as the first full year of benefits. changing material and labor costs, the improvement The rate of improvement increased in 1997 compared plans were developed, stated and are being tracked in with 1996. The company exceeded its goal in Pulp, 1994 dollars. The year-to-year impact of these plans will Paper and Packaging. Wood Products and Timberlands obviously vary as prices and costs change each year. fell slightly short of its goal as four facilities were sold and These plans were developed by each unit of the com- three were closed permanently that were included in the pany and did not require major capital investment. They original plan. focused on the manageable variables at each operating The annualized improvements realized over the 1995 unit that have the greatest impact on profitability, i.e., to 1997 period, in 1994 dollars, are as follows: production volume, manufacturing cost, product mix Dollar amounts in millions and controllable overhead. 1997 1996 1995 Total Pulp, paper and packaging $ 129 $ 49 $146 $ 324 Timberlands and wood products 95 71 130 296 $ 224 $ 120 $276 $ 620 37
  • 38. LIQUIDITY AND CAPITAL RESOURCES $23 million before changes in working capital was pro- GENERAL vided by net income of $71 million, of which $45 mil- The company is committed to the maintenance of a lion was from the gain on the sale of the mortgage sound, conservative capital structure. This commitment banking business. The segment’s working capital in- is based upon two considerations: the obligation to pro- creased by $10 million in 1997 compared with a decrease tect the underlying interests of its shareholders and of $82 million in the prior year from decreases in real lenders, and the desire to have access, at all times, to ma- estate inventories and mortgages held for sale. jor financial markets. Cash flow from operations before changes in working The important elements of the policy governing the capital by business segment was as follows: company’s capital structure are as follows: • To view separately the capital structures of Dollar amounts in millions 1997 1996 1995 Weyerhaeuser Company, Weyerhaeuser Real Estate Timberlands and wood Company and related subsidiaries, given the very differ- products $ 993 $ 1,045 $ 1,026 ent nature of their assets and business activities. The Pulp, paper and packaging 556 665 1,567 amount of debt and equity associated with the capital Real estate and related assets 23 73 67 structure of each will reflect the basic earnings capacity, Corporate and other (473) (526) (792) real value and unique liquidity characteristics of the as- $ 1,099 $ 1,257 $ 1,868 sets dedicated to that business. • The combination of maturing short-term debt and the structure of long-term debt will be managed INVESTING judiciously to minimize liquidity risk. Long-term debt Capital expenditures, excluding acquisitions, were maturities are shown in Note 13 of Notes to Financial $656 million in 1997 compared with $879 million in Statements. 1996. They are currently expected to approximate $750 million, excluding acquisitions, in 1998; however, these expenditures could be increased or decreased as a OPERATIONS consequence of future economic conditions. Weyerhaeuser’s net cash provided by operations in 1997 Recent capital spending, excluding acquisitions, has was $1 billion, essentially all from cash flow from opera- been in the following areas: tions before changes in net working capital. This was down slightly from the $1.1 billion provided in 1996. Dollar amounts in millions 1997 1996 1995 These funds were provided by net income of $271 mil- Timberlands and wood lion, down from last year’s $434 million; depreciation, products $ 314 $ 418 $ 446 amortization and fee stumpage of $616 million compa- Pulp, paper and packaging 315 415 501 rable to the prior year; and deferred taxes of $88 million Corporate and other 27 46 49 compared to $121 million in 1996. In addition, in 1997 $ 656 $ 879 $ 996 funds were provided from $89 million in non-cash charges for the closure or disposition of facilities. Acquisitions of plant, property and equipment Working capital, net of the effects of the sale or acqui- amounted to $13 million in 1997. Also, during the year, sition of businesses and facilities, increased by $44 mil- the company expended $190 million to acquire 51 per- lion in 1997, slightly higher than the $41 million in- cent of a forestry joint venture in New Zealand. crease a year earlier. This net increase in the current year The cash needed to meet these and other company was due primarily to an increase in receivables and a de- needs was generated from internal cash flow, issuance of crease in accounts payable and accrued liabilities. debt, sale of businesses and short-term borrowing. Net cash provided by operations in the real estate and Proceeds from the sale of the wholesale nursery related assets segment was $13 million compared with business and the Saskatoon chemical facility provided $155 million in 1996. Cash flow from operations of $76 million of cash to Weyerhaeuser in 1997 while the sale of the mortgage banking business provided $192 million of cash in the real estate and related assets segment. 38
  • 39. To ensure its ability to meet future commitments, FINANCING Weyerhaeuser Company and Weyerhaeuser Real Estate During the year, Weyerhaeuser reduced its interest- Company have established unused bank lines of credit in bearing debt by $117 million, bringing the debt to total the maximum aggregate sum of $825 million. Neither of capital ratio down to 36.3 percent at year-end compared the entities is a guarantor of the borrowings of the other with 37.9 percent at the end of 1996. New borrowings under any of these credit facilities. included two $300 million, 6.95 percent debentures, one for 20 years and the other for 30 years. In addition, $38 million of industrial revenue bonds were sold. Long- MARKET RISK OF FINANCIAL INSTRUMENTS term debt was reduced by a pay-down of $695 million in The company has exposure to market risk including commercial paper and $78 million in scheduled debt. changes in interest rates and currency exchange rates. To The company paid $317 million in cash dividends on manage the volatility relating to these exposures, the common shares in both 1997 and 1996. Although com- company has entered into limited derivative transactions mon share dividends have exceeded the company’s target to manage well-defined interest rate and foreign ex- ratio in recent years, the intent, over time, is to pay divi- change risks. The company does not hold or issue deriva- dends to common shareholders in the range of 35 to 45 tive financial instruments for trading. The majority of percent of common share earnings. Weyerhaeuser also the company’s derivative instruments are “pay fixed, received an intercompany dividend from Weyerhaeuser receive variable” interest rate swaps with highly rated Financial Services, Inc., which has been eliminated on a counterparties in which the interest payments are calcu- consolidated basis. lated on a notional amount. The notional amounts do During the year, the company repurchased 496,000 not represent amounts exchanged by the parties and, common shares for $22 million as part of the 11 million thus, are not a measure of exposure to the company share repurchase program implemented in 1995. This through its use of derivatives. The company is exposed to repurchase program was completed in January 1998. credit-related gains or losses in the event of non- The real estate and related assets segment used performance by counterparties to these financial instru- $299 million in funds for financing activities in the year. ments; however, the company does not expect any An increase in commercial paper borrowings provided counterparties to fail to meet their obligations. The $118 million while funds were used for the $150 million company’s interest rate swaps are described as follows: intercompany dividend and $281 million in debt reduc- tions. Dollar amounts in millions Variable Rate at December 28, 1997 Fair Value of Swap (1) Notional Amount Maturity Date Fixed Rate % % Based On $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) 6/8/98 (2) 50 5.54 5.90 90 day LIBOR 0.1 27 5/1/99 6.70 8.25 11.95% - Kenny index 0.5 12/6/99 (3) 75 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 the netting 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. CONTINGENCIES The company is a party to legal proceedings and environ- resulting from these proceedings and matters would not mental matters generally incidental to its business. have a material effect on the company’s current financial Although the final outcome of any legal proceeding or position, liquidity or results of operations; however, in environmental matter is subject to a great many variables any given future reporting period, such proceedings or and cannot be predicted with any degree of certainty, the matters could have a material effect on results of opera- company presently believes that the ultimate outcome tions. 39
  • 40. YEAR 2000 Weyerhaeuser, like all other companies using computers information technology, manufacturing and facilities and microprocessors, is faced with the task of addressing systems. The company plans to modify or replace its the Year 2000 problem over the next two years. The affected systems in a manner that will minimize any Year 2000 challenge arises from the nearly universal prac- detrimental effects on operations. While it is not possible tice in the computer industry of using two digits rather at present to quantify the overall cost of this work, the than four digits to designate the calendar year (e.g., company presently believes that the ultimate outcome DD/MM/YY). This can lead to incorrect results when resulting from this work will not have a material effect on computer software performs arithmetic operations, com- the company’s current financial position, liquidity or parisons or data field sorting involving years later than results of operations; however, in any given future report- 1999. The company has embarked on a comprehensive ing period, such costs could have a material effect on approach to identify where this problem may occur in its results of operations. ACCOUNTING MATTERS PROSPECTIVE PRONOUNCEMENTS ACCOUNTING AND REPORTING STANDARDS COMMITTEE During the year, the FASB issued the following pro- During the year, the Accounting and Reporting Stan- nouncements that will be effective in periods after the dards Committee, comprised of four outside directors, close of the company’s 1997 fiscal year: reviewed with the company’s management and with its • SFAS No. 130, “Reporting Comprehensive independent public accountants the scope and results of Income.” the company’s internal and external audit activities and • SFAS No. 131, “Disclosure about Segments of an the adequacy of the company’s internal accounting con- Enterprise and Related Information.” trols. The committee also reviewed current and emerging These statements are described in Note 1, Summary accounting and reporting requirements and practices of Significant Accounting Policies, of Notes to Financial affecting the company. Statements. REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS TO THE SHAREHOLDERS OF WEYERHAEUSER COMPANY: We have audited the accompanying consolidated balance sheets of Weyerhaeuser Company (a Washington corporation) and subsidiaries as of December 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 financial statements are the responsibility of the company’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a rea- sonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Weyerhaeuser Company and subsidiaries as of December 28, 1997, and December 29, 1996, and the results of their operations and their cash flows for each of the three years in the period ended December 28, 1997, in conformity with generally accepted accounting principles. Seattle, Washington, February 11, 1998 ARTHUR ANDERSEN LLP 40
  • 41. CONSOLIDATED STATEMENT OF EARNINGS For the three-year period ended December 28, 1997 1997 1996 1995 Dollar amounts in millions except per-share figures Net sales and revenues: Weyerhaeuser $10,117 $10,105 $10,869 Real 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 7,516 Depreciation, amortization and fee stumpage 616 601 580 Selling, general and administrative expenses 647 702 724 Research and development expenses 56 54 51 Taxes other than payroll and income taxes 142 151 155 Charges for closure or disposition of facilities 89 — — 9,416 9,118 9,026 Real estate and related assets: Costs and operating expenses 909 726 681 Depreciation and amortization 12 16 41 Selling, general and administrative expenses 96 173 139 Taxes other than payroll and income taxes 8 11 8 Charge 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 1,603 Interest expense and other: Weyerhaeuser: Interest expense incurred 271 273 271 Less interest capitalized 15 21 20 Other income (expense), net (Note 4) (17) (58) (71) Real estate and related assets: Interest expense incurred 110 132 140 Less interest capitalized 69 65 76 Other income (expense), net (Note 4) 84 27 27 Earnings before income taxes 539 720 1,244 Income 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. 41
  • 42. CONSOLIDATED BALANCE SHEET December 28, 1997 December 29, 1996 Dollar amounts in millions ASSETS Weyerhaeuser Current 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 assets Cash 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 $27 and $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 reserves of $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. 42
  • 43. December 28, 1997 December 29, 1996 Dollar amounts in millions LIABILITIES AND SHAREHOLDERS’ INTEREST Weyerhaeuser Current liabilities: Notes payable $ 25 $ 16 Current maturities of long-term debt 17 80 Accounts payable (Note 1) 694 725 Accrued liabilities (Note 11) 648 662 Total current liabilities 1,384 1,483 Long-term debt (Notes 13 and 14) 3,483 3,546 Deferred income taxes (Note 5) 1,418 1,324 Deferred pension and other liabilities (Notes 6 and 7) 498 493 Minority interest in subsidiaries 121 113 Commitments and contingencies (Note 15) 6,904 6,959 Real estate and related assets Notes payable and commercial paper (Note 12) 228 245 Long-term debt (Notes 13 and 14) 1,032 1,537 Other liabilities 262 251 Commitments 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 258 258 Other capital 407 407 Cumulative translation adjustment (123) (93) Retained earnings 4,397 4,372 Treasury 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 43
  • 44. CONSOLIDATED STATEMENT OF CASH FLOWS Consolidated For the three-year period ended December 28, 1997 1997 1996 1995 Dollar amounts in millions Cash provided by (used for) operations: Net earnings (loss) $ 342 $ 463 $ 799 Non-cash charges to income: Depreciation, amortization and fee stumpage 628 617 621 Deferred income taxes, net 75 181 103 Charges 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) 38 Property and equipment and timber and timberlands from acquisitions (13) (448) (77) Proceeds from sale of: Property and equipment (Note 16) 85 74 19 Businesses 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 632 142 723 Sale of industrial revenue bonds 38 33 150 Notes 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 19 Other 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. 44
  • 45. Weyerhaeuser Company Real Estate and Related Assets 1997 1996 1995 1997 1996 1995 $ 271 $ 434 $ 981 $ 71 $ 29 $ (182) 616 601 580 12 16 41 88 121 183 (13) 60 (80) 89 — — — — — — — — — — 290 (17) 75 (60) 8 (8) 27 5 (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 25 22 (44) (31) (45) 39 184 (743) (1,309) (1,091) 270 145 253 618 12 583 14 130 140 38 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) 45
  • 46. CONSOLIDATED STATEMENT OF SHAREHOLDERS’ INTEREST For the three-year period ended December 28, 1997 1997 1996 1995 Dollar amounts in millions Common stock issued: Balance at end of year $ 258 $ 258 $ 258 Other capital: Balance at beginning of year 407 415 416 Stock 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 3,733 Net earnings 342 463 799 Cash 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 22 Used 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 7,303 455 Purchases of treasury common shares 496 1,086 8,494 Stock 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. 46
  • 47. NOTES TO FINANCIAL STATEMENTS For the three-year period ended December 28, 1997 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES NOTE 1. No. 15 (Earnings per Share) for computing EPS by re- CONSOLIDATION The consolidated financial statements include the ac- placing primary earnings per share with basic earnings counts of Weyerhaeuser Company and all of its majority- per share and by altering the calculation of diluted EPS, owned domestic and foreign subsidiaries. Significant in- which replaces fully diluted EPS. tercompany transactions and accounts are eliminated. • SFAS No. 129, “Disclosure of Information about Certain of the consolidated financial statements and Capital Structure,” that continues the existing require- notes to financial statements are presented in two group- ments to disclose pertinent rights and privileges of all ings: (1) Weyerhaeuser (the company), principally en- securities other than common stock, but expands the gaged in the growing and harvesting of timber and the number of companies subject to portions of its require- manufacture, distribution and sale of forest products, ments. The company’s current capital structure does not and (2) Real estate and related assets, principally engaged require any additional disclosures as a result of this pro- in real estate development and construction and other nouncement. real estate related activities. In June 1996, the FASB issued SFAS No. 125, “Ac- counting for Transfers and Servicing of Financial Assets NATURE OF OPERATIONS and Extinguishments of Liabilities,” to provide account- The company’s principal business segments, which ac- ing and reporting guidance for transfers and servicing of count for the majority of sales, earnings and the asset financial assets and extinguishments of liabilities. The base, are: statement uses the “financial-components approach” in • Timberlands and wood products, which is engaged which, after a transfer of financial assets, an entity would in the management of 5.2 million acres of company- recognize all financial assets and services it controls and owned and .2 million acres of leased commercial forest- all liabilities it has incurred and remove financial assets land in the United States (60 percent in the South and 40 and liabilities from the balance sheet when control is percent in the Pacific Northwest) and 23.7 million acres surrendered or when they are extinguished, respectively. of forestland in Canada under long-term licensing It is to be applied to transfers and servicing of financial arrangements (of which 16.5 million acres are considered assets and extinguishment of liabilities occurring after to be productive forestland) and the production of a full December 31, 1996. This statement supersedes several line of solid wood products that are sold primarily previous statements, including SFAS No. 122, “Account- through the company’s own sales organizations to whole- ing for Mortgage Servicing Rights — an amendment of salers, retailers and industrial users in North America, the FASB Statement No. 65,” which the company had Pacific Rim and Europe. implemented in 1995. In 1996, the FASB issued SFAS • Pulp, paper and packaging, which manufactures No. 127, “Deferral of the Effective Date of Certain Pro- and sells pulp, newsprint, paper, paperboard and con- visions of FASB Statement No. 125 — an amendment of tainerboard in North American, Pacific Rim and Euro- FASB Statement No. 125,” which deferred for one year pean markets, and packaging products for the domestic the effective date of certain provisions. The adoption of markets, and which operates an extensive wastepaper these statements did not have a significant impact on re- recycling system that serves company mills and world- sults of operations or financial position. wide markets. PROSPECTIVE ACCOUNTING PRONOUNCEMENTS FISCAL YEAR-END In 1997, the FASB issued the following pronouncements The company’s fiscal year ends on the last Sunday of the that will be effective in periods after the close of the year. Fiscal years 1997 and 1996 had 52 weeks, and fiscal company’s 1997 fiscal year: year 1995 had 53 weeks. • SFAS No. 130, “Reporting Comprehensive In- come,” that establishes standards for reporting and dis- ACCOUNTING PRONOUNCEMENTS IMPLEMENTED play of comprehensive income and its components (rev- In 1997, the company implemented the following pro- enues, expenses, gains and losses) in a full set of financial nouncements of the Financial Accounting Standards statements. This statement will require that all items that Board (FASB): are required to be recognized under accounting standards • Statement of Financial Accounting Standards as components of comprehensive income be reported in a (SFAS) No. 128, “Earnings per Share,” that establishes financial statement that is displayed with the same standards for computing and presenting earnings per prominence as other financial statements. This statement share (EPS). It simplifies the standards in APB Opinion 47
  • 48. is effective for fiscal years beginning after December 15, • Interest rate swaps entered into with major banks or 1997. financial institutions in which the company pays a fixed • SFAS No. 131, “Disclosure about Segments of an rate and receives a floating rate with the interest pay- Enterprise and Related Information,” that will require ments being calculated on a notional amount. The pre- companies to determine segments based on how manage- miums received by the company on the sale of these ment makes decisions about allocating resources to seg- swaps are treated as deferred income and amortized ments and measuring their performance. Disclosures for against interest expense over the term of the agreements. each segment are similar to those required under current The company is exposed to credit-related gains or standards, with the addition of certain quarterly require- losses in the event of nonperformance by counterparties ments. This statement will also require entity-wide dis- to financial instruments but does not expect any counter- closure about products and services, the countries in parties to fail to meet their obligations. The company which the company holds material assets and reports deals only with highly rated counterparties. material revenues, and its significant customers. This The notional amounts of these derivative financial statement is effective for fiscal years beginning after instruments are $492 million and $807 million at December 15, 1997; however, no interim reporting is December 28, 1997, and December 29, 1996, respec- required in the initial year. Management is evaluating the tively. These notional amounts do not represent amounts effect of this statement on reported segment information. exchanged by the parties and, thus, are not a measure of exposure to the company through its use of derivatives. ESTIMATES The exposure in a derivative contract is the net difference The preparation of financial statements in conformity between what each party is required to pay based on the with generally accepted accounting principles requires contractual terms against the notional amount of the management to make estimates and assumptions that contract, such as interest rates or exchange rates. The use affect the reported amounts of assets and liabilities and of derivatives does not have a significant effect on the disclosure of contingent assets and liabilities at the date company’s results of operations or its financial position. of the financial statements and the reported amounts of revenues and expenses during the reporting period. CASH AND SHORT-TERM INVESTMENTS Actual results could differ from those estimates. For purposes of cash flow and fair value reporting, short- term investments with original maturities of 90 days or FINANCIAL INSTRUMENTS less are considered as cash equivalents. Short-term invest- The company has, where appropriate, estimated the fair ments are stated at cost, which approximates market. value of financial instruments. These fair value amounts may be significantly affected by the assumptions used, INVENTORIES including the discount rate and estimates of cash flow. Inventories are stated at the lower of cost or market. Accordingly, the estimates presented are not necessarily Cost includes labor, materials and production overhead. indicative of the amounts that could be realized in a cur- The last-in, first-out (LIFO) method is used to cost ap- rent market exchange. Where these estimates approxi- proximately half of domestic raw materials, in process mate carrying value, no separate disclosure of fair value is and finished goods inventories. LIFO inventories were shown. $250 million and $296 million at December 28, 1997, Financial instruments that potentially subject the and December 29, 1996, respectively. The balance of do- company to concentrations of credit risk consist of mestic raw material and product inventories, all materials real estate and related assets receivables and mortgage- and supplies inventories, and all foreign inventories is related financial instruments, of which $119 million and costed at either the first-in, first-out (FIFO) or moving $417 million are in the western geographical region of average cost methods. Had the FIFO method been used the United States at December 28, 1997, and to cost all inventories, the amounts at which product in- December 29, 1996, respectively. ventories are stated would have been $234 million and $239 million greater at December 28, 1997, and DERIVATIVES December 29, 1996, respectively. The company has only limited involvement with de- rivative financial instruments and does not use them for PROPERTY AND EQUIPMENT trading purposes. They are used to manage well-defined The company’s property accounts are maintained on an interest rate and foreign exchange risks. These include: individual asset basis. Betterments and replacements of • Foreign exchange contracts, which are hedges for major units are capitalized. Maintenance, repairs and foreign denominated accounts receivable and accounts minor replacements are expensed. Depreciation is pro- payable, have gains or losses recognized at settlement vided generally on the straight-line or unit-of-production date. method at rates based on estimated service lives. Amorti- zation of logging railroads and truck roads is provided 48
  • 49. generally as timber is harvested and is based upon rates cost of these benefits for its current eligible retirees and determined with reference to the volume of timber esti- some employees. All of the company’s salaried employees mated to be removed over such facilities. and some hourly employees may become eligible for The cost and related depreciation of property sold or these benefits when they retire. retired is removed from the property and allowance for RECLASSIFICATIONS depreciation accounts and the gain or loss is included in Certain reclassifications have been made to conform earnings. prior years’ data to the current format. TIMBER AND TIMBERLANDS REAL ESTATE AND RELATED ASSETS Timber and timberlands are carried at cost less fee With the sale of the mortgage banking business in the stumpage charged to disposals. Fee stumpage is the cost second quarter of 1997, the financial services segment is of standing timber and is charged to fee timber disposals no longer material to the results of the company. There- as fee timber is harvested, lost as the result of casualty or fore, the remaining activities in financial services that are sold. Depletion rates used to relieve timber inventory are principally real estate related have been combined with determined with reference to the net carrying value of real estate into one segment entitled real estate and re- timber and the related volume of timber estimated to be lated assets. recoverable. Timber carrying costs are expensed as in- Real estate held for sale is stated at the lower of cost or curred. The cost of timber harvested is included in the fair value. The determination of fair value is based on ap- carrying values of raw material and product inventories, praisals and market pricing of comparable assets, when and in the cost of products sold as these inventories are available, or the discounted value of estimated future disposed of. cash flows from these assets. Real estate held for develop- ment is stated at cost to the extent it does not exceed the INVESTMENTS IN JOINT VENTURES The company accounts for its investments in joint ven- estimated undiscounted future net cash flows, in which tures under the equity method and provides for taxes on case, it is carried at fair value. undistributed earnings. Mortgage notes held for sale (see Note 14) that were outstanding at December 29, 1996, were stated at the ACCOUNTS PAYABLE lower of cost or market, which was computed by the The company’s banking system provides for the daily aggregate method (unrealized losses were offset by un- replenishment of major bank accounts as checks are pre- realized gains). As a result of the sale of the company’s sented for payment. Accordingly, there were negative mortgage banking business during the year, there were book cash balances of $185 million and $164 million at no mortgage notes held for sale outstanding at December 28, 1997, and December 29, 1996, respec- December 28, 1997. tively. Such balances result from outstanding checks that Mortgage-backed certificates (see Note 14) are carried had not yet been paid by the bank and are reflected in at par value, adjusted for any unamortized discount or accounts payable in the consolidated balance sheets. premium. These certificates and other financial instru- ments are pledged as collateral for the collateralized INCOME TAXES mortgage obligation (CMO) bonds and are held by banks Deferred income taxes are provided to reflect temporary as trustees. Principal and interest collections are used to differences between the financial and tax bases of assets meet the interest payments and reduce the outstanding and liabilities using presently enacted tax rates and laws. principal balance of the bonds. Related CMO bonds are the obligation of the issuer, and neither the company nor PENSION PLANS any affiliated company has guaranteed or is otherwise The company has pension plans covering most of its obligated with respect to the bonds. employees. The U.S. plan covering salaried employees In 1995, the company implemented SFAS No. 121, provides pension benefits based on the employee’s high- “Accounting for the Impairment of Long-Lived Assets est monthly earnings for five consecutive years during the and for Long-Lived Assets to Be Disposed Of,” which final 10 years before retirement. Plans covering hourly requires companies to change their method of valuing employees generally provide benefits of stated amounts long-lived assets. The company’s decision to accelerate for each year of service. Contributions to U.S. plans are the disposition of certain real estate assets previously held based on funding standards established by the Employee for development and use along with the implementation Retirement Income Security Act of 1974 (ERISA). of this pronouncement resulted in a $290 million charge to operations in the third quarter of 1995. The majority POSTRETIREMENT BENEFITS OTHER THAN PENSIONS In addition to providing pension benefits, the company of the charge was a direct result of the company’s deci- provides certain health care and life insurance benefits for sion to accelerate the disposition of those assets. The some retired employees and accrues the expected future remainder of the charge resulted from the application of 49
  • 50. those provisions of SFAS No. 121 relating to the valua- assets were valued based upon comparable sales data or tion of assets held for future use where estimated undis- discounted estimated cash flows. The discount rate con- counted future cash flows from those assets did not sidered applicable market conditions and risks associated exceed the carrying value of those assets. with each asset. In those cases where a discount rate was The company’s evaluation of each asset first con- used, it was 20 percent. Subsequent sales have demon- sidered the availability of appraisal information, then strated that the valuation assumptions used were rea- comparable sales information, and finally discounted sonable. The carrying value of the affected assets at estimated cash flows. Because appraisal information was December 28, 1997, and December 29, 1996, was ap- very limited for the assets evaluated, the majority of the proximately $94 million and $141 million, respectively. NET EARNINGS PER COMMON SHARE NOTE 2. Basic net earnings per common share are based on the ber of common shares outstanding and stock options weighted average number of common shares outstanding outstanding at the beginning of or granted during the re- during the respective periods. Diluted net earnings per spective periods. common share are based on the weighted average num- Weighted Average Dollar 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 than the average market price of common shares for the period were not included in the computation of diluted earnings per share. These options to purchase shares were as follows: Year Options to Purchase Exercise Price 1997 150,000 $53.06 1996 1,216,400 $45.94 4,700 $47.13 1,178,400 $48.13 1995 1,180,400 $48.13 50
  • 51. FOREIGN OPERATIONS AND EXPORT SALES NOTE 3. 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 $ 160 Timber-cutting rights 3 5 Property and equipment, net 900 930 Other assets 259 35 1,285 1,130 Other 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 $ 392 U.S. entities with foreign activity 2 5 18 The company is engaged in the sale of products for board, lumber and plywood to Europe; and logs to China export from the United States. These sales consist princi- and Korea. The following table compares the company’s pally of pulp, newsprint, paperboard, containerboard, export sales from the United States to customers in Japan logs, lumber and wood chips to Japan; pulp, container- and elsewhere with its total net sales and revenues. Dollar amounts in millions 1997 1996 1995 Export sales from the United States: Customers in Japan $ 893 $ 1,185 $ 1,173 Customers 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 OTHER INCOME (EXPENSE), NET NOTE 4. Other income (expense) is an aggregation of both recur- • The loss of $8 million from the sale of the wholesale ring and occasional income and expense items and, as a nursery business. result, fluctuates from period to period. Individual • The gain of $21 million from the sale of the income (expense) items significant in 1997 in relation to Saskatoon chemical facility. net earnings were: Real estate and related assets: Weyerhaeuser: • The gain of $45 million from the sale of the mort- • The interest income of $18 million from the favor- gage banking business. able federal income tax decision related to timber casu- There were no significant other income (expense) alty losses incurred in the eruption of Mount St. Helens items in 1996 or 1995. in 1980. 51
  • 52. INCOME TAXES NOTE 5. Earnings before income taxes are comprised of the following: Dollar amounts in millions 1997 1996 1995 Domestic earnings $ 432 $ 614 $ 852 Foreign 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 $177 Deferred 86 166 92 151 207 269 State: Current 6 2 31 Deferred 3 16 4 9 18 35 Foreign: Current 45 33 134 Deferred (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 2 All 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 $ 84 Noncurrent (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 128 125 Charges for impairment of long-lived assets 43 56 Alternative minimum tax credit carryforward 63 46 Other 254 245 Total deferred tax assets 488 472 $(1,300) $(1,228) 52
  • 53. As of December 28, 1997, the company has available The company intends to reinvest undistributed earn- approximately $63 million of alternative minimum tax ings of certain foreign subsidiaries; therefore, no U.S. credit carryforward, which does not expire, and foreign taxes have been provided. These earnings totaled ap- tax credit carryforwards of $4 million, $1 million, proximately $827 million at the end of 1997. While it is $1 million and $1 million expiring in 1999, 2000, 2001 not practicable to determine the income tax liability that and 2002, respectively. would result from repatriation, it is estimated that with- holding taxes payable upon repatriation would approxi- mate $41 million. PENSION PLANS NOTE 6. 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 $ 37 Interest cost on projected benefit obligation 122 111 104 Actual return on plan assets (584) (414) (466) Net amortization and deferrals 399 254 323 Pension 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 balance sheet for its U.S. and Canadian pension plans: December 28, 1997 December 29, 1996 Assets Accumulated Assets Accumulated Exceed Benefits Exceed Benefits Accumulated Exceed Accumulated Exceed Dollar amounts in millions Benefits Assets Total Benefits Assets Total Accumulated benefit obligation: Vested $ 1,307 $ 23 $ 1,330 $ 1,337 $ 17 $ 1,354 Non-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 $ 1,528 Fair 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 2 541 Unrecognized net transition asset 22 (1) 21 27 (1) 26 Additional minimum liability — 2 2 — — — Accrued/(prepaid) pension cost $ 59 $ — $ 59 $ 73 $ (1) $ 72 The assets of the U.S. and Canadian pension plans, as Approximately 1,600 employees are covered by of December 28, 1997, and December 29, 1996, consist union-administered multi-employer pension plans to of a highly diversified mix of equity, fixed income and which the company makes negotiated contributions real estate securities. based 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. 53
  • 54. POSTRETIREMENT BENEFITS OTHER THAN PENSIONS NOTE 7. The company sponsors defined benefit postretirement thousand dollars in 20 percent increments. Approxi- plans for its U.S. employees that provide medical and life mately 4,000 persons who are retired or were eligible to insurance coverage as follows: retire as of December 31, 1991, are subject to a different • Two salaried retiree medical plans that cover sub- schedule. stantially all salaried employees who retire under the • An hourly retiree life insurance plan in which ap- company’s retirement plan and their spouses. Plan I cov- proximately 12,400 active hourly employees are eligible ers those retired or eligible to retire as of January 1, 1990, and approximately 2,600 hourly retirees have coverage. and provides full health coverage. Plan II includes those Most of these are covered by fixed dollar amount cover- salaried employees not eligible for Plan I, under which age that is graded down after retirement. Some units have the company provides a fixed dollar amount per year of pay-related insurance on which the company pays the service toward the premium, with the retiree paying the full cost. remainder. The company reserves the right to revise the Weyerhaeuser sponsors various defined contribution fixed dollar amount. plans for U.S. salaried and hourly employees. The basis • An hourly retiree medical plan that covers approxi- for determining plan contributions varies by plan. The mately 3,500 active hourly employees and their spouses. amounts charged to operations and contributed to the For some, the coverage stops at age 65, while others have plans for participating employees were $34 million, lifetime coverage. In some units the retiree must pay a $32 million and $28 million in 1997, 1996 and 1995, re- portion of the premium, while in others the company spectively. pays the full cost. There are approximately 1,900 retired The company sponsors four defined benefit post- hourly employees and their spouses currently covered retirement plans for its Canadian employees that provide under these programs. medical and life insurance benefits. Approximately 300 • A salaried retiree life insurance plan that starts at retired employees are covered and 2,300 active employees 80 percent of salary at retirement and reduces to six are eligible for coverage in these four plans as of year-end 1997. The following table sets forth the U.S. and Canadian plans’ combined accrued postretirement benefit obligation as of December 28, 1997, and December 29, 1996: Dollar amounts in millions December 28, 1997 December 29, 1996 Accumulated postretirement benefit obligation: Retirees: Health $ 98 $102 Life 24 25 Fully eligible and other active plan participants: Health 76 86 Life 15 14 213 227 Unrecognized 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 $3 Life 1 1 — Interest cost on accumulated postretirement benefit obligation: Health 13 13 16 Life 3 3 3 Amortization of gain — health (2) (1) (1) Net postretirement benefit cost $19 $20 $21 54
  • 55. For measurement purposes, an 8.5, 8.0 and 7.5 per- effect of a one percent increase in the assumed health care cent annual rate of increase in the per capita cost of cost trend rates would increase the accumulated post- covered health care benefits was assumed for 1995, 1996 retirement benefit obligation as of December 28, 1997, and 1997, respectively. Beginning in 1998, the rate is by 10.3 percent, and the aggregate of the service and assumed to decrease by 0.5 percent annually to a level of interest cost components of net annual postretirement 5.5 percent for the year 2001 and all years thereafter. The benefit cost for 1997 by 13 percent. 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% INVENTORIES NOTE 8. Dollar amounts in millions December 28, 1997 December 29, 1996 Logs and chips $ 103 $ 120 Lumber, plywood and panels 154 148 Pulp, newsprint and paper 185 202 Containerboard, paperboard and packaging 107 108 Other products 152 134 Materials and supplies 282 289 $ 983 $1,001 PROPERTY AND EQUIPMENT NOTE 9. Dollar amounts in millions December 28, 1997 December 29, 1996 Property and equipment, at cost: Land $ 158 $ 158 Buildings and improvements 1,721 1,686 Machinery and equipment 9,954 9,713 Rail and truck roads and other 599 596 12,432 12,153 Less allowance for depreciation and amortization 5,458 5,146 $ 6,974 $ 7,007 55
  • 56. REAL ESTATE IN PROCESS OF DEVELOPMENT AND FOR SALE NOTE 10. 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 $198 Residential lots 223 264 Commercial lots 79 135 Commercial projects 56 31 Acreage 27 49 Other inventories 1 3 $593 $680 ACCRUED LIABILITIES NOTE 11. Dollar amounts in millions December 28, 1997 December 29, 1996 Payroll — wages and salaries, incentive awards, retirement and vacation pay $268 $279 Taxes — Social Security and real and personal property 53 57 Interest 91 79 Income taxes 42 51 Other 194 196 $648 $662 SHORT-TERM DEBT NOTE 12. to the total amount of $375 million, all of which could BORROWINGS Real estate and related assets segment short-term bor- be availed of by the company, WRECO and rowings were $228 million with a weighted average Weyerhaeuser Mortgage Company (WMC) at interest rate of 5.7 percent at December 28, 1997, and December 29, 1996. No portions of these lines have been $245 million with a weighted average interest rate of 4.7 availed of by the company or WRECO at December 28, percent at December 29, 1996. 1997, and none were availed of by the company, WRECO or WMC at December 29, 1996. None of the LINES OF CREDIT entities referred to herein is a guarantor of the borrow- The company has short-term bank credit lines that pro- ings of the others. vide for borrowings of up to the total amount of At December 29, 1996, WMC had $54 million out- $425 million, all of which could be availed of by the standing against short-term special credit lines that pro- company and Weyerhaeuser Real Estate Company vided for borrowings of up to $230 million. With the (WRECO) at December 28, 1997, and borrowings of up sale of WMC in 1997, this credit line has been repaid and cancelled. 56
  • 57. LONG-TERM DEBT NOTE 13. DEBT Weyerhaeuser long-term debt, including the current portion, is as follows: Dollar amounts in millions December 28, 1997 December 29, 1996 3 8 ⁄8% debentures due 2007 $ 150 $ 150 7.50% debentures due 2013 250 250 7.25% debentures due 2013 250 250 71⁄8% debentures due 2023 250 250 9.05% notes due 2003 200 200 81⁄2% debentures due 2025 300 300 7.95% debentures due 2025 250 250 6.95% 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 784 746 Medium-term notes, rates from 6.43% to 8.91%, due 1999–2005 246 313 Commercial paper/credit agreements 194 889 Other 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 $ 17 1999 86 2000 295 2001 78 2002 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 $ 735 Bank and other borrowings, unsecured; weighted average interest rates are approximately 5.9% and 5.5% 250 380 Notes payable, secured; weighted average interest rates are approximately 8.2% and 8.5% 30 41 Collateralized mortgage obligation bonds 100 133 Commercial 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 $350 1999 116 2000 199 2001 162 2002 81 57
  • 58. upon by WFS and the banks, and (2) a commitment fee LINES OF CREDIT The company’s lines of credit include a five-year revolv- on the unused portion of the credit. $75 million and ing credit facility agreement entered into in 1997 with a $355 million were outstanding under this facility at group of banks that provides for borrowings of up to the December 28, 1997, and December 29, 1996, respec- total amount of $400 million, all of which is available to tively. the company. Borrowings are at LIBOR plus a spread or To the extent that these credit commitments expire other such interest rates mutually agreed to between the more than one year after the balance sheet date and are borrower and lending banks. unused, an equal amount of commercial paper is classifi- At December 29, 1996, WMC had $25 million out- able as long-term debt. Amounts so classified are shown standing against a one-year evergreen credit commit- in the tables in this note. ment. With the sale of WMC in 1997, this credit com- No portion of these lines has been availed of by the mitment has been repaid and cancelled. company, WRECO or WFS at December 28, 1997, and Weyerhaeuser Financial Services, Inc. (WFS), a wholly none was availed of by the company, WRECO, WMC or owned subsidiary, has a revolving/term credit agreement WFS at December 29, 1996, except as noted above. that provides for: (1) borrowings of up to $75 million at The company’s compensating balance agreements December 28, 1997, and $450 million at December 29, were not significant. 1996, at LIBOR or other such rates as may be agreed FAIR VALUE OF FINANCIAL INSTRUMENTS NOTE 14. December 28, 1997 December 29, 1996 Carrying Fair Carrying Fair Dollar 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 — — 334 335 Mortgage loans receivable 64 74 133 126 Mortgage-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 The methods and assumptions used to estimate fair loans adjusted for differences in loan characteristics. The value of each class of financial instruments for which it is estimated fair value was net of related hedge instruments, practicable to estimate that value are as follows: which were estimated based upon quoted market prices • Long-term debt, including the real estate and re- for securities. lated assets segment, is estimated based on quoted market • Mortgage loans receivable are estimated based on prices for the same issues or on the discounted value of the discounted value of estimated future cash flows using the future cash flows expected to be paid using incremen- current rates for loans with similar terms and risks. tal rates of borrowing for similar liabilities. • Mortgage-backed certificates and other pledged fi- • Mortgage notes held for sale were estimated using nancial instruments (pledged to secure collateralized the quoted market prices for securities backed by similar mortgage obligations) are estimated using the quoted market prices for securities backed by similar loans and restricted deposits held at cost. 58
  • 59. LEGAL PROCEEDINGS, COMMITMENTS AND CONTINGENCIES NOTE 15. range, in the aggregate, up to approximately $100 mil- LEGAL PROCEEDINGS In November 1996, an action was filed against the com- lion over several years. This estimate of the upper end of pany in Superior Court for King County, Washington, the range of reasonably possible additional costs is much on behalf of a purported class of all individuals and enti- less certain than the estimates upon which accruals are ties that own property in the United States on which ex- currently based, and utilizes assumptions less favorable to terior hardboard siding manufactured by the company the company among the range of reasonably possible out- has been installed since 1980. The action alleges the comes. In estimating both its current accruals for envi- company has manufactured and distributed defective ronmental remediation and the possible range of addi- hardboard siding and has breached express warranties tional future costs, the company has assumed that it will and consumer protection statutes in its sale of hardboard not bear the entire cost of remediation of every site to the siding. The action seeks compensatory damages, includ- exclusion of other known potentially responsible parties ing prejudgment interest, and seeks damages for the cost who may be jointly and severally liable. The ability of of replacing siding that rots subsequent to the entry of other potentially responsible parties to participate has any judgment. In January 1997, an action was filed, also been taken into account, based generally on each party’s in Superior Court for King County, Washington, on be- financial condition and probable contribution on a per- half of a purported class of all individuals, proprietor- site basis. No amounts have been recorded for potential ships, partnerships, corporations and other business enti- recoveries from insurance carriers. ties in the United States on whose homes, condomini- The company is a party to legal proceedings and envi- ums, apartment complexes or commercial buildings ronmental matters generally incidental to its business. hardboard siding manufactured by the company has been Although the final outcome of any legal proceeding or installed. The action alleges the company has breached environmental matter is subject to a great many variables express and implied warranties in its sale of hardboard and cannot be predicted with any degree of certainty, the siding and also has violated the Consumer Protection Act company presently believes that the ultimate outcome of the state of Washington. The action seeks damages, resulting from these proceedings and matters, including prejudgment interest, costs and reasonable attorney fees. those described in this note, would not have a material In December 1997, the two cases were consolidated for effect on the company’s current financial position, li- the purpose of discovery and resolution of the class certi- quidity or results of operations; however, in any given fication issue. Also, in December 1997, the plaintiffs in future reporting period, such proceedings or matters the first of the two cases filed a motion to change the trial could have a material effect on results of operations. date and for leave to move for class certification. In OTHER ITEMS January 1998, the court denied this motion. The two The company’s 1997 capital expenditures, excluding cases are currently set for trial in March 1998 and May acquisitions, were $656 million and are expected to ap- 1998, respectively, without class certification. The com- proximate $750 million in 1998; however, the 1998 pany is a defendant in approximately eighteen other expenditure level could be increased or decreased as a hardboard siding cases, two of which purport to be class consequence of future economic conditions. actions on behalf of purchasers of single- or multi-family During the normal course of business, the company’s residences that contain the company’s hardboard siding, subsidiaries included in its real estate and related assets one in Nebraska and one in Iowa. segment have entered into certain financial commitments comprised primarily of guarantees made on $42 million ENVIRONMENTAL It is the company’s policy to accrue for environmental of partnership borrowings and limited recourse obliga- remediation costs when it is determined that it is prob- tions associated with $162 million of sold mortgage able that such an obligation exists and the amount of the loans. The fair value of the recourse on these loans is esti- obligation can be reasonably estimated. Based on cur- mated to be $3 million, which is based upon market rently available information and analysis, the company spreads for sales of similar loans without recourse or believes that it is reasonably possible that costs associated estimates of the credit risk of the associated recourse with all identified sites may exceed current accruals by obligation. amounts that may prove insignificant or that could 59
  • 60. PROCEEDS FROM SALE OF PROPERTY AND EQUIPMENT NOTE 16. In 1996, the company sold its Klamath Falls, Oregon, on this transaction was not material to the company’s hardboard, particleboard and plywood manufacturing pretax income. The timberlands portion of this trans- operations; 600,000 acres of predominantly pine timber- action involved a like-kind exchange for other timber- lands; and its nursery and seed orchard facilities. Pro- lands, primarily private commercial timberlands in ceeds from the sale of the property and equipment in this southeastern Louisiana and southern Mississippi previ- transaction amounted to $33 million. The resulting gain ously owned by Cavenham Forest Industries. SHAREHOLDERS’ INTEREST NOTE 17. The preferred and preference shares may be issued in PREFERRED AND PREFERENCE SHARES The company is authorized to issue: one or more series with varying rights and preferences • 7,000,000 preferred shares having a par value of including dividend rates, redemption rights, conversion $1.00 per share, of which none were issued and outstand- terms, sinking fund provisions, values in liquidation and ing at December 28, 1997, and December 29, 1996; and voting rights. When issued, the outstanding preferred • 40,000,000 preference shares having a par value of and preference shares rank senior to outstanding com- $1.00 per share, of which none were issued and outstand- mon shares as to dividends and assets available on liqui- ing at December 28, 1997, and December 29, 1996. dation. STOCK-BASED COMPENSATION PLAN NOTE 18. The company’s Long-Term Incentive Compensation Because the SFAS No. 123 method of accounting has Plan (the “Plan”) was approved at the 1992 Annual not been applied to options granted prior to fiscal year Meeting of Shareholders. The Plan provides for the pur- 1995, the resulting pro forma compensation cost may chase of the company’s common stock at its market price not be representative of that to be expected in future on the date of grant by certain key officers and other years. employees of the company and its subsidiaries who are The fair value of each option grant is estimated on the selected from time to time by the Compensation Com- date of the grant using the Black-Scholes option pricing mittee of the Board of Directors. No more than 10 mil- model with the following weighted average assumptions lion shares may be issued under the Plan. The term of used for grants: options granted under the Plan may not exceed 10 years from the grant date. Grantees are 25 percent vested after 1997 1996 one year, 50 percent after two years, 75 percent after Risk-free interest rate 6.42% 5.81% Expected life three years, and 100 percent after four years. 4.9 years 6.4 years Expected volatility 26.21% 25.61% The company accounts for all options under APB Expected dividend yield 3.44% 3.48% Opinion No. 25 and related interpretations, under which no compensation has been recognized. Had compensa- tion costs for the Plan been determined consistent with SFAS No. 123, “Accounting for Stock-Based Compensa- tion,” net income and earnings per share would have been reduced to the following pro forma amounts: 1997 1996 Net income (in millions): As reported $ 342 $ 463 Pro forma 332 454 Basic earnings per share: As reported $1.72 $2.34 Pro forma 1.67 2.29 Diluted earnings per share: As reported $1.71 $2.33 Pro forma 1.66 2.28 60
  • 61. Changes in the number of shares subject to option are 334 of the 5,848 options outstanding at summarized as follows: December 28, 1997, have exercise prices between $20 and $35, with a weighted average exercise price of $25.29 and a weighted average remaining contractual life of 2.59 1997 1996 1995 years. All of these options are exercisable. The remaining Shares (in thousands): Outstanding, 5,514 options have exercise prices between $36 and $54, beginning of year 6,243 5,972 5,687 with a weighted average exercise price of $44.41 and a Granted 1,563 1,222 1,155 weighted average remaining contractual life of 7.35 years. Exercised 1,864 925 859 3,975 of these options are exercisable with a weighted Forfeited 91 26 11 average exercise price of $43.59. Expired 3 — — Outstanding, end of year 5,848 6,243 5,972 Exercisable, end of year 4,309 5,022 4,817 Weighted average exercise price: Outstanding, beginning of year $40.56 $38.17 $36.27 Granted 46.54 45.94 39.47 Exercised 36.70 32.11 27.34 Forfeited 44.68 43.46 40.10 Expired 37.75 — — Outstanding, end of year 43.32 40.56 38.17 Weighted average grant date fair value of options 11.26 11.40 10.41 BUSINESS SEGMENTS NOTE 19. The company is principally engaged in the growing and The timber-based businesses involve a high degree of harvesting of timber and the manufacture, distribution integration among timber operations; building materials and sale of forest products. The business segments are conversion facilities; and pulp, newsprint, paper, con- timberlands and wood products (including softwood tainerboard and paperboard primary manufacturing and lumber, plywood and veneer; composite panels; oriented secondary conversion facilities, including extensive trans- strand board; logs; chips; timber; doors; hardwood lum- fers of raw materials, semi-finished materials and end ber and plywood; and treated products); pulp, paper and products between and among these groups. Accounting packaging (including pulp, newsprint, paper, container- for segment profitability involves allocations of joint raw board, paperboard, packaging, recycling and chemicals); materials and conversion costs and the use of transfer and real estate and related assets. prices that attempt to approximate current market val- ues. 61
  • 62. 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 $ 4,931 Pulp, paper and packaging 4,609 4,648 5,682 Real estate and related assets 1,093 1,009 919 Corporate and other 134 217 256 11,210 11,114 11,788 Intersegment sales and revenues: Timberlands and wood products 248 322 558 Pulp, paper and packaging 95 88 168 Corporate and other 35 35 33 378 445 759 Total sales and revenues 11,588 11,559 12,547 Eliminations (378) (445) (759) $11,210 $11,114 $11,788 (1)(2)(3) Approximate contribution (charge) to earnings : Timberlands and wood products $ 707 $ 805 $ 808 Pulp, paper and packaging 164 307 1,181 Real estate and related assets 111 43 (277) Corporate and other (186) (183) (217) 796 972 1,495 Interest expense (3) (341) (338) (347) Less capitalized interest 84 86 96 Earnings before income taxes 539 720 1,244 Income taxes (197) (257) (445) $ 342 $ 463 $ 799 Depreciation, amortization and fee stumpage: Timberlands and wood products $ 243 $ 227 $ 211 Pulp, paper and packaging 353 355 350 Real estate and related assets 12 16 41 Corporate and other 20 19 19 $ 628 $ 617 $ 621 Capital expenditures (including acquisitions): Timberlands and wood products $ 315 $ 866 $ 508 Pulp, paper and packaging 327 415 562 Real estate and related assets 3 9 13 Corporate and other 24 37 36 $ 669 $ 1,327 $ 1,119 Assets: Timberlands and wood products $ 3,804 $ 3,658 $ 2,940 Pulp, paper and packaging 6,589 6,721 6,797 Real estate and related assets 2,004 2,628 2,905 Corporate and other 1,160 1,184 1,151 13,557 14,191 13,793 Eliminations (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 sales of 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 “approximate contribution to earnings” and excluded from “interest expense” for financial services businesses. 62
  • 63. SELECTED QUARTERLY FINANCIAL INFORMATION (UNAUDITED) NOTE 20. 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 $11,210 1996 2,605 2,886 2,852 2,771 $11,114 Operating income: 1997 104 212 233 220 769 1996 287 265 286 232 1,070 Earnings before income taxes: 1997 33 172 180 154 539 1996 222 161 187 150 720 Net earnings: 1997 21 109 114 98 342 1996 142 103 120 98 463 Net earnings per common share: Basic 1997 .10 .56 .57 .49 1.72 1996 .72 .52 .60 .50 2.34 Diluted 1997 .10 .55 .57 .49 1.71 1996 .71 .52 .60 .49 2.33 Dividends per common share: 1997 .40 .40 .40 .40 1.60 1996 .40 .40 .40 .40 1.60 Market prices — high/low: 505⁄8 – 441⁄2 551⁄4 – 425⁄8 6315⁄16 – 515⁄8 603⁄4 – 461⁄16 6315⁄16 – 425⁄8 1997 491⁄2 – 3915⁄16 497⁄8 – 413⁄4 481⁄4 – 391⁄2 481⁄8 – 437⁄8 497⁄8 – 391⁄2 1996 63
  • 64. HISTORICAL SUMMARY NOTE 21. Dollar amounts in millions except per-share figures 1997 1996 1995 1994 1993 P E R C O M M O N S H A R E: Basic net earnings (loss) from continuing operations, before extraordinary item and effect of accounting changes $ 1.72 2.34 3.93 2.86 2.58 Extraordinary item (3) $ — — — — .25 Effect of accounting changes $ — — — — — Basic net earnings (loss) $ 1.72 2.34 3.93 2.86 2.83 Diluted net earnings (loss) from continuing operations, before extraordinary item and effect of accounting changes $ 1.71 2.33 3.91 2.85 2.56 Extraordinary item (3) $ — — — — .25 Effect 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 1.20 Shareholders’ interest (end of year) $ 23.30 23.21 22.57 20.86 19.34 F I N A N C I A L P O S I T I O N: Total assets: Weyerhaeuser $11,071 10,968 10,359 9,750 9,087 Real 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 2,998 Capital 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 3,966 Percent earned on shareholders’ interest 7.4% 10.2% 18.2% 14.3% 15.2% O P E R A T I N G R E S U L T S: Net sales and revenues: Weyerhaeuser $10,117 10,105 10,869 9,281 8,315 Real 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 before extraordinary item and effect of accounting changes: Weyerhaeuser $ 271 434 981 576 459 Real estate and related assets (182)(2) $ 71 29 13 68 342(1) $ 463 799 589 527 Extraordinary item (3) $ — — — — 52 Effect of accounting changes $ — — — — — Net earnings (loss) $ 342 463 799 589 579 (UNAUDITED): STATISTICS Number of employees 35,778 39,020 39,558 36,665 36,748 Salaries and wages $ 1,706 1,781 1,779 1,610 1,585 Employee benefits $ 355 370 408 357 347 Total taxes $ 478 557 736 618 577 Timberlands (thousands of acres): U.S. fee ownership 5,171 5,326 5,302 5,587 5,512 Long-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 25,282 Preferred — — — — — Preference — — — — — Average common and common equivalent shares outstanding (thousands) 198,967 198,318 203,525 205,543 204,866 64
  • 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 .90 17.85 17.25 19.21 18.55 18.14 16.54 8,566 7,551 7,556 7,371 6,983 6,418 9,720 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 3,714 10.4% (4.4)% 9.8% 8.3% 14.6% 12.8% 7,744 7,167 7,447 8,355 7,861 6,988 1,522 1,606 1,619 1,826 1,467 1,397 9,266 8,773 9,066 10,181 9,328 8,385 332 (25) 340 377 516 379 40 (76) 54 (36) 50 68 (101)(4) 341(5) 372 394 566 447 — — — — — — — (61) — — — — 372 (162) 394 341 566 447 39,022 38,669 40,621 45,214 46,976 45,123 1,580 1,476 1,531 1,563 1,423 1,277 (1)1997 results reflect net special items charges of $14 million less related tax effect of $5 million, or $9 million. 323 321 318 325 292 250 443 173 446 403 511 467 (2)1995 results reflect a special charge for disposal of certain real estate assets of $290 million less related tax effect of $106 million, or $184 million. 5,592 5,488 5,592 5,664 5,775 5,813 (3)1993 results reflect an extraordinary net gain as a result of 18,828 13,491 13,491 13,324 13,324 12,064 extinguishing certain debt obligations of $86 million less related tax effect of $34 million, or $52 million. 26,334 26,937 28,187 29,847 30,379 32,535 (4)1991 results reflect restructuring and other charges of — — — 12 25 26 $445 million less related tax effect of $162 million, or — — — 443 351 106 $283 million. (5)1989 results reflect net special items charges of $401 million 203,373 201,578 203,673 204,331 207,785 202,544 less related tax effect of $141 million, or $260 million. 65
  • 66. WEYERHAEUSER COMPANY FOUNDATION In 1998, the Weyerhaeuser Company Foundation celebrates its 50th year of corporate philanthropy. Since 1948, the Foundation 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 across the United States and Canada. We believe Weyerhaeuser’s success is linked to the health and well-being of the communities where 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 these communities. Our grants support needs such as education, human services, community development, arts and culture, and the environment. The increasing number of requests we receive each year reminds us that we can only do so much with the funds 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 “Making WAVEs” (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 140 projects 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 communities where we maintain operations, shows the neighborly face of a large company, and shares our many skills and talents. 1997 FINANCIAL HIGHLIGHTS GRANTS AWARDED BY GEOGRAPHY 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% GRANTS AWARDED BY PRIORITY 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 66
  • 67. DIRECTORS TERM EXPIRES 1998 TERM EXPIRES 1999 TERM EXPIRES 2000 P H I L I P M . H AW L E Y MARTHA R. INGRAM J O H N W. C R E I G H T O N , J R . Hawley, 72, a director of the company since Ingram, 62, a director of the company since Creighton, 65, a director of the company since 1989, is chairman and chief executive officer of 1995, has been chairman of Ingram Industries 1988, was company president from 1988-1997 Krause Furniture, Inc. (retailing). He was Inc. (micro-computer, book and video distri- and chief executive officer from 1991-1997. chairman and chief executive officer of Broad- bution, and inland barging) since 1995, a He is also a director of Quality Foods Centers, way Stores, Inc. (retailing) (formerly Carter member of the board since 1981 and was direc- Inc., and Unocal Corp., and is the national Hawley Hale Stores, Inc.), until his retirement tor of Public Affairs in the period 1979-95. She president of the Boy Scouts of America.* in 1993. He was chairman of the California is also a director of Ingram Micro, Inc., Baxter Retailers Association in the period 1993-95. International Inc. and First American Corpora- W. J O H N D R I S C O L L He is a director of Aeromovel USA, Inc., tion. Mrs. Ingram was the chairman of the Driscoll, 68, a director of the company since Johnson & Johnson and a trustee of the 1996 Tennessee Bicentennial Commission and 1979, was chairman of Rock Island Company Haynes Foundation.(3)(4) serves on the boards of Vassar College, Ashley (private investment company) until his Hall and Vanderbilt University.(2) retirement in 1994. He is also a director of Comshare Incorporated, Northern States Power STEVEN R. ROGEL Rogel, 55, has been president, chief executive Company, The St. Paul Companies, Inc. and JOHN I. KIECKHEFER John Nuveen & Company.(3)(4) officer, and a director of the company since Kieckhefer, 53, a director of the company since December 1, 1997. He had previously served as 1990, has been president of Kieckhefer Associ- president and chief executive officer of ates, Inc. (investment and trust management), R T . H O N . D O N A L D F. M A Z A N K O W S K I Willamette Industries since 1995. He is also a since 1989 and was senior vice president prior Mazankowski, 62, was a Member of Parlia- director of Fred Meyer, Inc., the Cascade to that time. He has been engaged in commer- ment, Government of Canada, from 1968- Pacific Council Boy Scouts of America and cial cattle operations since 1967 and is a trustee 1993, served as a Deputy Prime Minister from a trustee of Pacific University.(1) of J.W. Kieckhefer Foundation, an Arizona 1986-1993 and Minister of Finance from charitable trust.(3) 1991-1993. He is also a director of the Power Group of Companies, Canadian Utilities Ltd., WILLIAM D. RUCKELSHAUS Ruckelshaus, 65, a director of the company Shaw Communications Inc., IMC Global, Inc., GEORGE H. WEYERHAEUSER since 1989, has been chairman of Browning- Weyerhaeuser, 71, a director of the company Gulf Canada Resources Ltd., Gulf Indonesia Ferris Industries, Inc. (waste services), since since 1960, has been chairman of Weyerhaeuser Resources, Ltd., Golden Star Resources Ltd. October 1988 and was chief executive officer Company since 1988. Mr. Weyerhaeuser and Weyerhaeuser Canada Ltd., a wholly until his retirement in 1995. He has been joined the company in 1949, became its presi- owned subsidiary of the Company. He is also a president of William D. Ruckelshaus Associ- dent in 1966, and was its chief executive officer member of the Board of Governors of Univer- sity of Alberta.(2) ates since 1987. He was administrator, Envi- in the period 1966-91. He is also a director of ronmental Protection Agency, in the period The Boeing Company, Chevron Corporation 1983-85 and a senior vice president of and SAFECO Corporation and is a member of The Business Council.(1)(4) Weyerhaeuser Company in the period 1976-83. He is also a director of Cummins Engine Company, Inc., Coinstar, Inc., Monsanto Company, Nordstrom, Inc., Solutia, Inc. and Gargoyles, Inc.(1)(2)(4) RICHARD H. SINKFIELD Sinkfield, 55, a director of the company since 1993, is an executive vice president and a director of United Auto Group, Inc. (automo- bile dealership), a senior partner in the law firm of Rogers and Hardin in Atlanta and has been a partner in the firm since 1976. He is also a director of the Metropolitan Atlanta (1) Member of the Executive Committee. Community Foundation, Inc. and the Atlanta Mr. Weyerhaeuser is chairman. College of Art. He is a member of the Board (2) of Trust of Vanderbilt University and the board Member of the Accounting and Reporting Standards Committee. of governors of the State Bar of Georgia. He is Mr. Ruckelshaus is chairman. a former chairman of the board of Atlanta Urban League, Inc.(2) (3) Member of the Compensation Committee. Mr. Hawley is chairman. (4) Member of the Nominating and Management Organization Committee. Mr. Driscoll is chairman. *Mr. Creighton will retire from the Board of Directors at the Annual Shareholders Meeting on April 21, 1998. 67
  • 68. CORPORATE DATA SENIOR OFFICERS J O H N W. C R E I G H T O N , J R . WILLIAM R. CORBIN MACK L. HOGANS THOMAS M. LUTHY President and Executive Vice President, Senior Vice President, Senior Vice President, Chief Executive Officer Timberlands and Distribution Corporate Affairs Wood Products (through November 30, 1997) RICHARD C. GOZON NORMAN E. JOHNSON WILLIAM C. STIVERS Executive Vice President, Senior Vice President, Senior Vice President and STEVEN R. ROGEL President and Pulp, Paper and Packaging Research and Development Chief Financial Officer Chief Executive Officer STEVEN R. HILL (as of December 1, 1997) Senior Vice President, Human Resources and Information Technology TIMBERLANDS AND DISTRIBUTION WOOD PRODUCTS PULP, PAPER AND PACKAGING CORPORATE ARNOLD B. CURTIS L E E T. A L F O R D CHARLES E. CARPENTER CREIGH H. AGNEW Vice President, Vice President, MS/LA Operations Vice President, Newsprint Vice President, Government Affairs Hardwoods Business Group and Bleached Paperboard and Corporate Contributions JAMES M. BRANSON Vice President, Plywood RICHARD E. HANSON MICHAEL J. CORDRY JOHN S. COATES Vice President, West Vice President, Recycling Vice President and RODNEY J. DEMPSTER Managing Director, Vice President, J. CARL JESSUP RICHARD L. ERICKSON Pension Fund Investments Vice President, South Oriented Strand Board – West Vice President, Technology and Environment ROBERT A. DOWDY SCOTT R. MARSHALL LYNN E. ENDICOTT Vice President and Vice President, Policy, Vice President, Southern Lumber C A R L W. G E I S T, J R . General Counsel Finance and Strategic Planning Vice President, Pulp REYNOLD HERT D AV I D R . E DWA R D S Vice President, Canadian Lumber REX McCULLOUGH GEORGE D. HENSON Vice President and Treasurer Vice President, Vice President, DANIEL M. McCORMICK Forestry Research Manufacturing and Total Quality CLIFFORD R. HALL Vice President, Vice President, Composite Products J O H N P. M c M A H O N JAMES R. KELLER Information Technology Vice President, Timberlands, Vice President, H OWA R D S . M E C K External and Regulatory Affairs Containerboard Packaging JOHN S. LARSEN Vice President, Vice President, Oriented Strand Board – East E D W A R D P. R O G E L RICHARD E. LODMILL Energy and Environment Vice President, Vice President, Chemicals D AV I D K . S H A R P Human Resources MONTYE C. MALE Vice President, Western Lumber R O B E R T F. M E Y E R Vice President, Communications Vice President, Fine Paper D A V I D T. S T I L L Vice President and R O S E M A R Y F. M A T T I C K P E T E R W. S H E R L A N D General Manager, Vice President, Procurement Vice President, Building Materials Distribution and Supply Management Finance and Planning SANDY D. McDADE Secretary SUSAN M. MERSEREAU Vice President, Quality, Business Services and Aviation HENRY M. MONTREY Vice President, Corporate R&D L A R R Y W. P O L L O C K Vice President and Director of Taxes WEYERHAEUSER REAL WEYERHAEUSER (ASIA) LIMITED WEYERHAEUSER FORESTLANDS DARIEN E. ROSEEN ESTATE COMPANY INTERNATIONAL Vice President, Strategic Planning H. JAMES FITZGERALD C. STEPHEN LEWIS C O N O R W. B O Y D President K E N N E T H J . S TA N C ATO President President Vice President and Controller RICHARD J. TAGGART WEYERHAEUSER CANADA LTD. WESTWOOD SHIPPING LINES WASHINGTON D.C. OFFICE Vice President, Investor Relations GEORGE H. WEYERHAEUSER, JR. ARNFINN GISKE FREDERICK S. BENSON GREGORY H. YUCKERT President and President Vice President, Federal and Vice President, Labor Relations Chief Executive Officer International Government Affairs 68
  • 69. Weyerhaeuser Company Weyerhaeuser Company Common Stock is listed on the P.O. Box 2999 New York Stock Exchange (NYSE), the Chicago Stock Tacoma WA 98477-2999 Exchange and the Pacific Stock Exchange. The company’s NYSE symbol is WY. (253) 924-2345 http://www.weyerhaeuser.com To order a copy of Weyerhaeuser’s 1997 Annual Report, Form 10-K or the 1997 Annual Environmental Performance Report, call (800) 551-4803, or write: April 21, 1998 George Hunt Walker Weyerhaeuser Building Weyerhaeuser Company Federal Way, Wash. CH 1K35C P.O. Box 2999 Proxy material will be mailed on or about March 9, 1998, Tacoma WA 98477-2999 to each holder of record of voting shares. A copy will be provided at no charge. ChaseMellon Shareholder Services, L.L.C. Overpeck Centre 85 Challenger Road Ridgefield Park NJ 07660 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 Investment Plan, please call: Inside the United States (800) 561-4405 (800) 231-5469 Hearing-impaired Outside the United States (201) 329-8660 (201) 329-8354 Hearing-impaired GEN ERAL INQUIRIES: ChaseMellon Shareholder Services, L.L.C. Shareholder Relations P.O. Box 3315 So. Hackensack NJ 07606 ChaseMellon has the ability to respond to many shareholder inquiries via the Internet. Its website address is: http://www.chasemellon.com This report is printed entirely on Weyerhaeuser papers. Soy-based inks were used which are more easily separated from the paper fiber in the repulping process. The cover and main text portions of the report are printed on Weyerhaeuser Cougar manufactured at our Rothschild, Wis., fine paper mill. The inserts of the report are printed on Weyerhaeuser Choctaw Gloss manufactured at our Columbus, Miss., fine paper mill. The entire report can be recycled in most high-grade office paper recycling programs. Thank you for recycling.

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