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weyerhaeuser annual reports 1997
1.
2. “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.”
> > >
> > > >
> > > > > >
3. 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.
4. 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.
5.
6. August 1, 1991 — Nove mbe r 30, 1997
D ec em ber 1, 1997 —
7. 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
8. 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.
9. 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.
10. 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
11. 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-
12.
13. 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
14. 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.
15. 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.
16. 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.
17. 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.
18. 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.
19. 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.
20. 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.
22. 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
23. 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.
24. 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.
26. 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
27. 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
28. 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.
29. 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
30. 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
31. 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
32. 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
33. 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
34. 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
35. 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
36. 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,
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