-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, IBAPaCpaL2ZVKGU7kHc6SGHYaVRMddZaJWdfQ9vacBzCG4dDTApT3KPeh8ZUyFWl K/QavJBR3TTu4VZMMATNtw== 0000106535-00-000013.txt : 20000508 0000106535-00-000013.hdr.sgml : 20000508 ACCESSION NUMBER: 0000106535-00-000013 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000326 FILED AS OF DATE: 20000505 FILER: COMPANY DATA: COMPANY CONFORMED NAME: WEYERHAEUSER CO CENTRAL INDEX KEY: 0000106535 STANDARD INDUSTRIAL CLASSIFICATION: LUMBER & WOOD PRODUCTS (NO FURNITURE) [2400] IRS NUMBER: 910470860 STATE OF INCORPORATION: WA FISCAL YEAR END: 1228 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-04825 FILM NUMBER: 620421 BUSINESS ADDRESS: STREET 1: 33663 WEYERHAEUSER WAY SOUTH CITY: FEDERAL WAY STATE: WA ZIP: 98003 BUSINESS PHONE: 2539242345 MAIL ADDRESS: STREET 1: 33663 WEYERHAEUSER WAY SOUTH CITY: FEDERAL WAY STATE: WA ZIP: 98003 10-Q 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) X OF THE SECURITIES EXCHANGE ACT OF 1934 For the thirteen weeks ended March 26, 2000 or TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _______ to _______ Commission File Number 1-4825 WEYERHAEUSER COMPANY A Washington Corporation (IRS Employer Identification No. 91-0470860) Tacoma, Washington 98477 Telephone (253) 924-2345 Securities registered pursuant to Section 12(b) of the Act: Name of Each Exchange on Title of Each Class Which Registered - ---------------------------------- ------------------------- Common Shares ($1.25 par value) Chicago Stock Exchange New York Stock Exchange Pacific Stock Exchange Exchangeable Shares (no par value) Toronto Stock Exchange Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes _X_ No ___. The number of shares outstanding of the registrant's class of common stock, as of April 28, 2000, was 232,953,031 common shares ($1.25 par value). Weyerhaeuser Company - -2- WEYERHAEUSER COMPANY AND SUBSIDIARIES Index to Form 10-Q Filing For the thirteen weeks ended March 26, 2000
Page No. --------------- Part I. Financial Information Item 1. Financial Statements Consolidated Statement of Earnings 3 Consolidated Balance Sheet 4-5 Consolidated Statement of Cash Flows 6-7 Notes to Financial Statements 8-19 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 20-25 Item 3. Quantitative and Qualitative Disclosures About Market Risk 24-25 Part II. Other Information Item 1. Legal Proceedings 26-27 Item 2. Changes in Securities (not applicable) Item 3. Defaults upon Senior Securities (not applicable) Item 4. Submission of Matters to a Vote of Security Holders (not applicable) Item 5. Other Information (not applicable) Item 6. Exhibits and Reports on Form 8-K 27
The financial information included in this report has been prepared in conformity with accounting practices and methods reflected in the financial statements included in the annual report (Form 10-K) filed with the Securities and Exchange Commission for the year ended December 26, 1999. Though not examined by independent public accountants, the financial information reflects, in the opinion of management, all adjustments necessary to present a fair statement of results for the interim periods indicated. The results of operations for the thirteen-week period ending March 26, 2000, should not be regarded as necessarily indicative of the results that may be expected for the full year. Signature Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereto duly authorized. WEYERHAEUSER COMPANY By /s/ K. J. Stancato ------------------------ K. J. Stancato Duly Authorized Officer and Principal Accounting Officer May 5, 2000 Weyerhaeuser Company - -3- WEYERHAEUSER COMPANY AND SUBSIDIARIES ____________ CONSOLIDATED EARNINGS For the periods ended March 26, 2000 and March 28, 1999 (Dollar amounts in millions except as noted and per share figures) (Unaudited)
Thirteen weeks ended: March March 26, 28, 2000 1999 -------- -------- Net sales and revenues: Weyerhaeuser $ 3,633 $ 2,389 Real estate and related assets 278 276 -------- -------- Total net sales and revenues 3,911 2,665 -------- -------- Costs and expenses: Weyerhaeuser: Costs of products sold 2,693 1,835 Depreciation, amortization and fee stumpage 200 155 Selling, general and administrative expenses 259 164 Research and development expenses 12 13 Taxes other than payroll and income taxes 37 32 Charges for integration and closure of facilities (Note 12) 13 94 Charge for Year 2000 remediation -- 17 -------- -------- 3,214 2,310 -------- -------- Real estate and related assets: Costs and operating expenses 229 220 Depreciation and amortization 1 1 General and administrative expenses 13 15 Taxes other than payroll and income taxes 2 2 -------- -------- 245 238 -------- -------- Total costs and expenses 3,459 2,548 -------- -------- Operating income 452 117 Interest expense and other: Weyerhaeuser: Interest expense incurred 91 68 Less interest capitalized 4 2 Equity in income of affiliates (Note 4) 10 2 Other income (expense), net (2) 5 Real estate and related assets: Interest expense incurred 19 20 Less interest capitalized 15 15 Equity in income of unconsolidated entities (Note 4) 14 7 Other income, net 4 5 -------- -------- Earnings before income taxes and cumulative effect of a change in an accounting principle 387 65 Income taxes (Note 5) 143 24 -------- -------- Earnings before cumulative effect of a change in an accounting principle 244 41 Cumulative effect of a change in an accounting principle (Note 1) -- 89 -------- -------- Net earnings (loss) $ 244 $ (48) ======== ======== Basic and diluted net earnings (loss) per share (Note 2): Before cumulative effect of a change in an accounting principle $ 1.04 $ 0.21 Cumulative effect of a change in an accounting principle -- (0.45) -------- -------- $ 1.04 $ (0.24) ======== ======== Weighted average shares outstanding (thousands): Basic 234,213 199,160 Dilutive effect of stock options 721 675 -------- -------- Diluted 234,934 199,835 ======== ======== Dividends paid per share $ .40 $ .40 ======== ========
See Accompanying Notes to Financial Statements Weyerhaeuser Company - -4- WEYERHAEUSER COMPANY AND SUBSIDIARIES ____________ CONSOLIDATED BALANCE SHEET March 26, 2000 and December 26, 1999 (Dollar amounts in millions)
March Dec. 26, 26, 2000 1999 --------- --------- (Unaudited) Assets - ------ Weyerhaeuser Current assets: Cash and short-term investments (Note 1) $ 92 $ 1,640 Receivables, less allowances 1,468 1,296 Inventories (Note 6) 1,564 1,329 Prepaid expenses 243 278 --------- --------- Total current assets 3,367 4,543 Property and equipment (Note 7) 8,243 7,560 Construction in progress 482 355 Timber and timberlands at cost, less fee stumpage charged to disposals 1,623 1,667 Investments in and advances to equity affiliates (Note 4) 560 950 Goodwill, net of accumulated amortization 1,174 792 Other assets and deferred charges 514 533 --------- --------- 15,963 16,400 --------- --------- Real estate and related assets Cash and short-term investments 4 3 Receivables, less discounts and allowances 82 94 Mortgage-related financial instruments, less discounts and allowances 81 84 Real estate in process of development and for sale 585 556 Land being processed for development 969 956 Investments in unconsolidated entities, less reserves (Note 4) 135 124 Other assets 132 122 --------- --------- 1,988 1,939 --------- --------- Total assets $ 17,951 $ 18,339 ========= =========
See Accompanying Notes to Financial Statements Weyerhaeuser Company - -5-
March Dec. 26, 26, 2000 1999 --------- --------- (Unaudited) Liabilities and shareholders' interest - -------------------------------------- Weyerhaeuser Current liabilities: Notes payable and commercial paper $ 243 $ 54 Current maturities of long-term debt 101 855 Accounts payable (Note 1) 911 961 Accrued liabilities (Note 8) 1,121 1,093 --------- --------- Total current liabilities 2,376 2,963 Long-term debt (Note 10) 4,039 3,945 Deferred income taxes (Note 5) 2,154 1,985 Deferred pension, other postretirement benefits and other liabilities 676 773 Commitments and contingencies (Note 13) --------- --------- 9,245 9,666 --------- --------- Real estate and related assets Notes payable and commercial paper 749 676 Long-term debt (Note 10) 429 479 Other liabilities 339 345 Commitments and contingencies (Note 13) --------- --------- 1,517 1,500 --------- --------- Total liabilities 10,762 11,166 --------- --------- Shareholders' interest (Note 11) Common shares: authorized 400,000,000 shares, issued: 232,665,265 and 230,797,536, $1.25 par value 291 288 Exchangeable shares; no par value; unlimited shares authorized; issued and held by nonaffiliates: 7,149,312 and 8,809,994 486 598 Other capital 2,210 2,086 Retained earnings 4,731 4,578 Cumulative other comprehensive (expense) (116) (167) Treasury common shares, at cost: 8,702,101 and 4,758,348 (413) (210) --------- --------- Total shareholders' interest 7,189 7,173 --------- --------- Total liabilities and shareholders' interest $ 17,951 $ 18,339 ========= =========
Weyerhaeuser Company - -6- WEYERHAEUSER COMPANY AND SUBSIDIARIES ____________ CONSOLIDATED STATEMENT OF CASH FLOWS For the thirteen-week periods ended March 26, 2000 and March 28, 1999 (Dollar amounts in millions) (Unaudited)
Consolidated ------------------ March March 26, 28, 2000 1999 -------- -------- Cash provided by (used for) operations: Net earnings (loss) $ 244 $ (48) Noncash charges (credits) to income: Depreciation, amortization and fee stumpage 201 156 Deferred income taxes, net 35 16 Pension and other postretirement benefits (36) (17) Equity in (income) of affiliates and unconsolidated entities (24) (9) Effect of a change in an accounting principle - net of taxes (Note 1) -- 89 Charges for integration and closure of facilities (Note 12) 13 91 Decrease (increase) in working capital: Receivables (66) (104) Inventories, real estate and land (191) (143) Prepaid expenses 26 (1) Mortgage-related financial instruments 2 7 Accounts payable and accrued liabilities (176) (21) Other (23) (10) -------- -------- Net cash provided by (used for) operations 5 6 -------- -------- Cash provided by (used for) investing activities: Property and equipment (135) (90) Timber and timberlands (17) (16) Acquisition of a business - net of cash acquired (Note 14) (594) -- Investments in and advances to equity affiliates 5 5 Proceeds from sale of: Property and equipment -- 4 Mortgage-related financial instruments 1 6 Intercompany advances -- -- Other 34 -- -------- -------- Net cash provided by (used for) investing activities (706) (91) -------- -------- Cash provided by (used for) financing activities: Issuances of debt 5 22 Notes and commercial paper borrowings, net 279 168 Cash dividends (91) (79) Payments on debt (875) (39) Purchase of treasury common shares (211) -- Exercise of stock options 8 23 Other 39 (8) -------- -------- Net cash provided by (used for) financing activities (846) 87 -------- -------- Net increase (decrease) in cash and short-term investments (1,547) 2 Cash and short-term investments at beginning of year 1,643 35 -------- -------- Cash and short-term investments at end of period $ 96 $ 37 ======== ======== Cash paid (received) during the period for: Interest, net of amount capitalized $ 93 $ 107 ======== ======== Income taxes $ 68 $ (6) ======== ========
See Accompanying Notes to Financial Statements Weyerhaeuser Company - -7-
Real Estate and Weyerhaeuser Related Assets - ------------------- --------------------- March March March March 26, 28, 26, 28, 2000 1999 2000 1999 -------- -------- --------- --------- $ 215 $ (77) $ 29 $ 29 200 155 1 1 34 12 1 4 (35) (17) (1) -- (10) (2) (14) (7) -- 89 -- -- 13 91 -- -- (79) (105) 13 1 (151) (96) (40) (47) 26 (1) -- -- -- -- 2 7 (171) (37) (5) 16 (18) 5 (5) (15) -------- -------- --------- --------- 24 17 (19) (11) -------- -------- --------- --------- (126) (90) (9) -- (17) (16) -- -- (594) -- -- -- 2 -- 3 5 -- 4 -- -- -- -- 1 6 (3) (24) 3 24 35 -- (1) -- -------- -------- --------- --------- (703) (126) (3) 35 -------- -------- --------- --------- 5 22 -- -- 206 189 73 (21) (91) (79) -- -- (825) (35) (50) (4) (211) -- -- -- 8 23 -- -- 39 (8) -- -- -------- -------- --------- --------- (869) 112 23 (25) -------- -------- --------- --------- (1,548) 3 1 (1) 1,640 28 3 7 -------- -------- --------- --------- $ 92 $ 31 $ 4 $ 6 ======== ======== ========== ========= $ 88 $ 102 $ 5 $ 5 ======== ======== ========== ========= $ 68 $ (6) $ -- $ -- ======== ======== ========== ========= Weyerhaeuser Company - -8- WEYERHAEUSER COMPANY AND SUBSIDIARIES ____________ NOTES TO FINANCIAL STATEMENTS For the thirteen-week periods ended March 26, 2000 and March 28, 1999 Note 1: Summary of Significant Accounting Policies Consolidation The consolidated financial statements include the accounts of Weyerhaeuser Company and all of its majority-owned domestic and foreign subsidiaries. Investments in and advances to equity affiliates which are not majority owned or controlled are accounted for using the equity method with taxes provided on undistributed earnings. Significant intercompany transactions and accounts are eliminated. Certain of the consolidated financial statements and notes to financial statements are presented in two groupings: (1) Weyerhaeuser (the company), principally engaged in the growing and harvesting of timber and the manufacture, distribution and sale of forest products, and (2) Real estate and related assets, principally engaged in real estate development and construction and other real estate related activities. Nature of Operations The company's principal business segments, which account for the majority of sales, earnings and the asset base, are: . Timberlands, which is engaged in the management of 5.9 million acres of company-owned and .5 million acres of leased commercial forestland in North America. . Wood products, which produces a full line of solid wood products that are sold primarily through the company's own sales organizations to wholesalers, retailers and industrial users in North America, the Pacific Rim and Europe. It is also engaged in the management of forestland in North America under long-term licensing arrangements. . Pulp, paper and packaging, which manufactures and sells pulp, paper, paperboard and containerboard in North American, Pacific Rim and European markets and packaging products for the domestic markets, and which operates an extensive wastepaper recycling system that serves company mills and worldwide markets. Accounting Pronouncement Implemented In the 1999 first quarter, the company implemented the Statement of Position (SOP), 98-5, Reporting on the Costs of Start-up Activities, issued by the American Institute of Certified Public Accountants Accounting Standards Executive Committee, which required that the costs of start-up activities be expensed as incurred. In addition, this pronouncement required that all unamortized start-up costs on the balance sheet at the implementation date be written off as a cumulative effect of a change in an accounting principle. The company recorded an after-tax charge of $89 million, or 45 cents per share, in the first quarter to reflect this write- off. This charge included $9 million for the company's interest in the write-off of unamortized start-up costs in three of its 50 percent-owned equity affiliates. Prospective Accounting Pronouncements In 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (SFAS) No. 133, Accounting for Derivative Instruments and Hedging Activities, which establishes accounting and reporting standards for derivative instruments, including certain derivatives embedded in other contracts, and hedging activities. It requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. The effective date of this pronouncement, originally fiscal years beginning after June 15, 1999, has been delayed to fiscal years beginning after June 15, 2000, with the issuance of SFAS No. 137 in June 1999. This will be effective for the company's fiscal year 2001. Assuming that the company's current minimal involvement in derivatives and hedging activities continues after the implementation date of this statement, the company believes that the future adoption of this statement will not have a material impact on its results of operations or financial position. Weyerhaeuser Company - -9- Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Derivatives The company has only limited involvement with derivative financial instruments and does not use them for trading purposes. They are used to manage well-defined interest rate and foreign exchange risks. These include: . Foreign exchange contracts, which are hedges for foreign denominated accounts receivable and accounts payable. These contracts generate gains or losses that are recognized at the contracts' respective settlement dates. . Interest rate swaps entered into with major banks or financial institutions in which the company pays a fixed rate and receives a floating rate with the interest payments being calculated on a notional amount. The premiums received by the company on the sale of these swaps are treated as deferred income and amortized against interest expense over the term of the agreements. The company is exposed to credit-related gains or losses in the event of nonperformance by counterparties to financial instruments, but does not expect its counterparties to fail to meet their obligations. The company deals only with highly rated counterparties. The notional amounts of these derivative financial instruments are $140 million and $385 million at March 26, 2000, and December 26, 1999, respectively. These notional amounts do not represent amounts exchanged by the parties and, thus, are not a measure of exposure to the company through its use of derivatives. The exposure in a derivative contract is the net difference between what each party is required to pay based on the contractual terms against the notional amount of the contract, such as interest rates or exchange rates. The company's use of derivatives does not have a significant effect on the company's results of operations or its financial position. Cash and Short-Term Investments For purposes of cash flow and fair value reporting, short-term investments with original maturities of 90 days or less are considered as cash equivalents. Short-term investments are stated at cost, which approximates market. At the end of 1999, the company's cash and short-term investments reflected $1.6 billion in marketable securities. These liquid investments were being held to meet cash requirements in early January to complete the $735 million acquisition of TJ International and redeem $750 million in notes payable. Inventories Inventories are stated at the lower of cost or market. Cost includes labor, materials and production overhead. The last-in, first-out (LIFO) method is used to cost approximately half of domestic raw materials, in process and finished goods inventories. LIFO inventories were $399 million and $358 million at March 26, 2000, and December 26, 1999, respectively. The balance of domestic raw material and product inventories, all materials and supplies inventories, and all foreign inventories is costed at either the first-in, first-out (FIFO) or moving average cost methods. Had the FIFO method been used to cost all inventories, the amounts at which product inventories are stated would have been $227 million greater at both March 26, 2000, and December 26, 1999. Property and Equipment The company's property accounts are maintained on an individual asset basis. Betterments and replacements of major units are capitalized. Maintenance, repairs and minor replacements are expensed. Depreciation is provided generally on the straight-line or unit-of- production method at rates based on estimated service lives. Amortization of logging railroads and truck roads is provided generally as timber is harvested and is based upon rates determined with reference to the volume of timber estimated to be removed over such facilities. Weyerhaeuser Company - -10- The cost and related depreciation of property sold or retired is removed from the property and allowance for depreciation accounts and the gain or loss is included in earnings. Timber and Timberlands Timber and timberlands are carried at cost less fee stumpage charged to disposals. Fee stumpage is the cost of standing timber and is charged to fee timber disposals as fee timber is harvested, lost as the result of casualty or sold. Depletion rates used to relieve timber inventory are determined with reference to the net carrying value of timber and the related volume of timber estimated to be available over the growth cycle. Timber carrying costs are expensed as incurred. The cost of timber harvested is included in the carrying values of raw material and product inventories, and in the costs of products sold as these inventories are disposed of. Goodwill Goodwill, which represents the excess of purchase price over fair value of net assets acquired, is amortized on a straight-line basis over 40 years, which is the expected period to be benefited. Accounts Payable The company's banking system provides for the daily replenishment of major bank accounts as checks are presented for payment. Accordingly, there were negative book cash balances of $165 million and $185 million at March 26, 2000, and December 26, 1999, respectively. Such balances result from outstanding checks that had not yet been paid by the bank and are reflected in accounts payable in the consolidated balance sheets. Income Taxes Deferred income taxes are provided to reflect temporary differences between the financial and tax bases of assets and liabilities using presently enacted tax rates and laws. Pension Plans The company has pension plans covering most of its employees. The U.S. plan covering salaried employees provides pension benefits based on the employee's highest monthly earnings for five consecutive years during the final ten years before retirement. Plans covering hourly employees generally provide benefits of stated amounts for each year of service. Contributions to U.S. plans are based on funding standards established by the Employee Retirement Income Security Act of 1974 (ERISA). Postretirement Benefits Other Than Pensions In addition to providing pension benefits, the company provides certain health care and life insurance benefits for some retired employees and accrues the expected future cost of these benefits for its current eligible retirees and some employees. All of the company's salaried employees and some hourly employees may become eligible for these benefits when they retire. Revenue Recognition The company's forest products-based operations recognize revenue from product sales upon shipment to their customers or when the customer assumes risk of ownership. The company's real estate operations recognize income from the sales of single-family housing units when construction has been completed, required down payments have been received and title has passed to the customer. Income from multi-family and commercial properties, developed lots and undeveloped land is recognized when required down payments are received and other income recognition criteria has been satisfied. Impairment of Long-Lived Assets to Be Disposed Of The company accounts for long-lived assets in accordance with SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and Long- Lived Assets to Be Disposed Of. This statement requires that long-lived assets and certain identifiable intangibles be reviewed for impairment whenever events or changes in circumstances indicate that the carrying Weyerhaeuser Company - -11- amount of the assets may not be recoverable. Assets to be disposed of are reported at the lower of the carrying value or fair value less cost to sell. Comprehensive Income Comprehensive income consists of net income, foreign currency translation adjustments and additional minimum pension liability adjustments. See Note 3: Comprehensive Income (Expense). Reclassifications Certain reclassifications have been made to conform prior years' data to the current format. Real Estate and Related Assets Real estate held for sale is stated at the lower of cost or fair value less costs to sell. The determination of fair value is based on appraisals and market pricing of comparable assets, when available, or the discounted value of estimated future cash flows from these assets. Real estate held for development is stated at cost to the extent it does not exceed the estimated undiscounted future net cash flows, in which case, it is carried at fair value. Mortgage-related financial instruments include mortgage loans receivable, mortgage-backed certificates and other financial instruments. Note 2: Net Earnings Per Share Basic net earnings per share are based on the weighted average number of common and exchangeable shares outstanding during the period. Diluted net earnings per share are based on the weighted average number of common and exchangeable shares outstanding and stock options outstanding at the beginning of or granted during the period. Options to purchase 210,650 shares at $65.56 per share and 2,500 shares at $68.41 per share were outstanding during the thirteen weeks ending March 26, 2000. Options to purchase 576,732 shares at $56.78 per share were outstanding during the thirteen weeks ending March 28, 1999. These options were not included in the computation of diluted earnings per share for the respective periods because the option exercise prices were greater than the average market prices of common shares during those periods. Note 3: Comprehensive Income (Expense) The company's comprehensive income (expense) is as follows:
Thirteen weeks ended ---------------- March March 26, 28, Dollar amounts in millions 2000 1999 ------- ------- Net earnings (loss) $ 244 $ (48) Other comprehensive income (expense): Foreign currency translation adjustments 60 39 Income tax (expense) on foreign currency translation adjustments (9) (6) ------- ------- $ 295 $ (15) ======= =======
Note 4: Equity Affiliates Weyerhaeuser The company's investments in affiliated companies that are not majority owned or controlled are accounted for using the equity method. The company's significant equity affiliates are: . Cedar River Paper Company - A 50 percent owned joint venture in Cedar Rapids, Iowa, that manufactures liner and medium containerboard from recycled fiber. Weyerhaeuser Company - -12- . Nelson Forests Joint Venture - An investment in which the company owns a 51 percent financial interest and has a 50 percent voting interest, which holds Crown Forest License cutting rights and freehold land on the South Island of New Zealand. . SCA Weyerhaeuser Packaging Holding Company Asia Ltd. - A 50 percent owned joint venture formed to build or buy containerboard packaging facilities to serve manufacturers of consumer and industrial products in Asia. Two facilities are in operation in China. . RII Weyerhaeuser World Timberfund, L.P. - A 50 percent owned joint venture with institutional investors to make investments in timberlands and related assets outside the United States. The primary focus of this partnership is in pine forests in the Southern Hemisphere. During the 1999 second quarter, this joint venture paid approximately $142 million to acquire 62,500 acres of radiata pine plantations, two softwood lumber mills with a capacity of 115 million board feet, a lumber treating operation, a pine molding remanufacturing plant, a chip export business, and a 30 percent interest in a sales and distribution business in Australia. Approximately 500 people currently work in these operations. Weyerhaeuser Company, through a subsidiary, has the responsibility for all management and marketing activities of this acquisition. . North Pacific Paper Corporation - A 50 percent owned joint venture that has a newsprint manufacturing facility in Longview, Washington. . Wapawekka Lumber LP - A 51 percent owned limited partnership in Saskatchewan, Canada, that commenced the operation of a sawmill during 1999. Substantive participating rights by the minority partner preclude the consolidation of this partnership by the company. . Wilton Connor LLC - A 50 percent owned joint venture in Charlotte, North Carolina, which supplies full-service, value-added turnkey packaging solutions to assist product manufacturers in the areas of retail marketing and distribution. Unconsolidated financial information for affiliated companies, which are accounted for by the equity method, is as follows:
March Dec. 26, 26, Dollar amounts in millions 2000 1999 -------- -------- Current assets $ 248 $ 525 Noncurrent assets 1,433 1,885 Current liabilities 176 275 Noncurrent liabilities 653 816
Thirteen weeks ended -------------------- March March 26, 28, 2000 1999 -------- -------- Net sales and revenues $ 212 $ 164 Operating income 25 20 Net income (loss) 16 (4)
The company provides goods and services to these affiliates, which vary by entity, in the form of raw materials, management and marketing services, support services and shipping services. Additionally, the company purchases finished product from certain of these entities. The aggregate total of these transactions is not material to the results of operations of the company. Real Estate and Related Assets Investments in unconsolidated entities that are not majority owned or controlled are accounted for using the equity method with taxes provided on undistributed earnings as appropriate. These investments include minor holdings in non-real estate partnerships that have significant assets and income. Weyerhaeuser Company - -13- Unconsolidated financial information for unconsolidated entities, which are accounted for by the equity method, is as follows:
March Dec. 26, 26, Dollar amounts in millions 2000 1999 -------- -------- Current assets $14,217 $11,457 Noncurrent assets 155 159 Current liabilities 13,211 10,577 Noncurrent liabilities 115 115
Thirteen weeks ended -------------------- March March 26, 28, 2000 1999 -------- -------- Net sales and revenues $ 259 $ 69 Operating income 123 47 Net income 99 40
The company may charge management and/or development fees to these unconsolidated entities. The aggregate total of these transactions is not material to the results of operations of the company. Note 5: Income Taxes
Provisions for income taxes include the following: Thirteen weeks ended ------------------ March March 26, 28, Dollar amounts in millions 2000 1999 -------- -------- Federal: Current $ 56 $ 3 Deferred 21 13 -------- -------- 77 16 -------- -------- State: Current 6 1 Deferred 2 -- -------- -------- 8 1 -------- -------- Foreign: Current 46 4 Deferred 12 3 -------- -------- 58 7 -------- -------- Income taxes before cumulative effect of a change in an accounting principle 143 24 Deferred taxes applicable to the cumulative effect of a change in an accounting principle -- (52) -------- -------- $ 143 $ (28) ======== ========
Income tax provisions for interim periods are based on the current best estimate of the effective tax rate expected to be applicable for the full year. The effective tax rate reflects anticipated tax credits, foreign taxes and other tax planning alternatives. For the periods ended March 26, 2000, and March 28, 1999, the company's provision for income taxes as a percent of earnings before income taxes and cumulative effect of a change in an accounting principle is greater than the 35% federal statutory rate due principally to the effect of state income taxes. The effective tax rates for the thirteen-week periods ended March 26, 2000, and March 28, 1999, were 37% and 36.5%, respectively. Weyerhaeuser Company - -14- Deferred taxes are provided for the temporary differences between the financial and tax bases of assets and liabilities, applying presently enacted tax rates and laws. The major sources of these temporary differences include depreciable and depletable assets, real estate, and pension and retiree health care liabilities. Note 6: Inventories
March Dec. 26, 26, Dollar amounts in millions 2000 1999 -------- -------- Logs and chips $ 243 $ 197 Lumber, plywood and panels 439 297 Pulp and paper 182 161 Containerboard, paperboard and packaging 179 160 Other products 207 207 Materials and supplies 314 307 -------- -------- $ 1,564 $ 1,329 ======== ========
Note 7: Property and Equipment
March Dec. 26, 26, Dollar amounts in millions 2000 1999 -------- -------- Property and equipment, at cost: Land $ 224 $ 219 Buildings and improvements 2,141 1,933 Machinery and equipment 11,403 10,499 Rail and truck roads 697 577 Other 161 149 -------- -------- 14,626 13,377 Less allowance for depreciation and amortization 6,383 5,817 -------- -------- $ 8,243 $ 7,560 ======== ========
Note 8: Accrued Liabilities
March Dec. 26, 26, Dollar amounts in millions 2000 1999 -------- -------- Payroll - wages and salaries, incentive awards, retirement and vacation pay $ 359 $ 413 Taxes - Social Security and real and personal property 63 48 Product warranties 82 83 Interest 104 105 Income taxes 60 58 Other 453 386 -------- -------- $ 1,121 $ 1,093 ======== ========
Note 9: Short-Term Debt Lines of Credit The company had short-term bank credit lines of $865 million and $515 million, all of which could be availed of by the company and Weyerhaeuser Real Estate Company (WRECO) at March 26, 2000, and December 26, 1999, respectively. No portions of these lines have been availed of by the company or WRECO at March 26, 2000, or December 26, 1999. None of the entities referred to above is a guarantor of the borrowing of the other. In addition, the company's wholly owned Canadian subsidiary has short-term bank credit lines that provide for the borrowings of up to $710 million and $745 million at March 26, 2000, and December 26, 1999, respectively. No portions of these lines have been availed of by the company's subsidiary. Weyerhaeuser Company - -15- Note 10: Long-Term Debt Lines of Credit The company's lines of credit include a five-year revolving credit facility agreement entered into in 1997 with a group of banks that provides for borrowings of up to the total amount of $400 million, all of which is available to the company. Borrowings are at LIBOR plus a spread or other such interest rates mutually agreed to between the borrower and lending banks. To the extent that these credit commitments expire more than one year after the balance sheet date and are unused, an equal amount of commercial paper is classifiable as long-term debt. Weyerhaeuser reclassified $400 million at March 26, 2000, and December 26, 1999. No portion of these lines has been availed of by the company or WRECO at March 26, 2000, and December 26, 1999, except as noted. The company's compensating balance agreements were not significant. Note 11: Shareholders' Interest Common Shares A reconciliation of common share activity for the periods ending March 26, 2000, and December 26, 1999, is as follows:
March Dec. 26, 26, In thousands 2000 1999 -------- -------- Balance at beginning of year 230,798 206,073 New issuance 13 20,157 Retraction of exchangeable shares 1,854 4,568 -------- -------- Balance at end of period 232,665 230,798 ======== ======== In treasury: Balance at beginning of year 4,758 7,064 Purchase of treasury common shares 4,128 -- Stock options exercised (184) (2,306) -------- -------- Balance at end of period 8,702 4,758 ======== ========
Exchangeable Shares Exchangeable Shares issued by Weyerhaeuser Company Ltd., a wholly owned Canadian subsidiary of the company, are, as nearly as practicable, the economic equivalent of the company's common shares; i.e., they have the following rights: . The right to exchange such shares for Weyerhaeuser common shares on a one- to-one basis. . The right to receive dividends, on a per-share basis, in amounts that are the same as, and are payable at the same time as, dividends declared on Weyerhaeuser common shares. . The right to vote at all shareholder meetings at which Weyerhaeuser shareholders are entitled to vote on the basis of one vote per Exchangeable Share. . The right to participate upon a Weyerhaeuser liquidation event on a pro- rata basis with the holders of Weyerhaeuser common shares in the distribution of assets of Weyerhaeuser. Weyerhaeuser Company - -16- A reconciliation of Exchangeable Share activity for the periods ending March 26, 2000, and December 26, 1999, is as follows:
March Dec. 26, 26, In thousands 2000 1999 -------- -------- Balance at beginning of year 8,810 -- New issuance 193 13,373 Debentures converted to exchangeable shares -- 5 Retraction (1,854) (4,568) -------- -------- Balance at end of period 7,149 8,810 ======== ========
Cumulative Other Comprehensive (Expense) The company's cumulative other comprehensive (expense) includes:
March Dec. 26, 26, Dollar amounts in millions 2000 1999 -------- -------- Foreign currency translation adjustments $ (108) $ (159) Minimum pension liability adjustment (8) (8) -------- -------- $ (116) $ (167) ======== ========
Note 12: Charges for Integration and Closure of Facilities In the 2000 first quarter, the company incurred $13 million of pretax charges related to the MacMillan Bloedel acquisition. These expenditures included a $7.3 million accrual for the closure of a Weyerhaeuser containerboard packaging plant and $5.7 million of costs incurred for the transition and integration of activities. During the 1999 first quarter, the company recorded a pretax charge of $91 million for the impairment of long-lived assets to be disposed of. This charge was related to the company's decision to sell its composite products business and ply-veneer facility and close a chip export facility. These facilities, with a net book value of $160 million, are located in Springfield, Oregon; Moncure, North Carolina; Adel, Georgia; and Coos Bay, Oregon. The composite products business and ply- veneer facility were sold in the second quarter of 1999. The export chip facility was closed in the fourth quarter of 1999. Also in the 1999 first quarter, the company incurred $3 million related to the disposition of impaired assets. Note 13: Commitments and Contingencies The company's capital expenditures, excluding acquisitions, were $566 million in 1999, and are expected to be approximately $800 million in 2000; however, that expenditure level could be increased or decreased as a consequence of future economic conditions. The company is a party to legal proceedings and environmental matters generally incidental to its business. Although the final outcome of any legal proceeding or environmental matter is subject to a great many variables and cannot be predicted with any degree of certainty, the company presently believes that the ultimate outcome resulting from these proceedings and matters would not have a material effect on the company's current financial position, liquidity or results of operations; however, in any given future reporting period, such proceedings or matters could have a material effect on results of operations. Note 14: Acquisitions MacMillan Bloedel Limited On November 1, 1999, the company completed its acquisition of MacMillan Bloedel Limited (MB) following the approval of the transaction by the shareholders of MB and securing all regulatory approvals in the United States, Canada and other jurisdictions. The total purchase price updated through March 26, 2000, including assumed debt of $703 million, totaled $3,021 million. Through March 26, 2000, the company issued 20 million common shares, and its wholly owned Canadian subsidiary, Weyerhaeuser Company Ltd., issued 14 million Exchangeable Shares to fund the Weyerhaeuser Company - -17- transaction. At the option of the holder, the Exchangeable Shares may be exchanged for Weyerhaeuser common shares on a one-for-one basis. In addition, the company issued replacement options in exchange for outstanding MB options with the number of shares and the exercise price appropriately adjusted by the exchange ratio. With the exception of $247 million of cash and short-term investments acquired, this transaction was a noncash investing activity in which the company acquired assets and assumed liabilities in exchange for common and exchangeable shares as described above. The company accounted for the transaction using the purchase method of accounting. Accordingly, the assets and liabilities of the acquired company were included in the Consolidated Balance Sheet and the operating results were included in the Consolidated Statement of Earnings beginning November 1, 1999. The purchase price to MB shareholders of $2,318 million was calculated as follows: Weyerhaeuser common and exchangeable shares issued through March 26, 2000 33,736, 436 Multiplied by the average market price (U.S.) $ 67.953 -------------- Value of common and exchangeable shares issued $ 2,293 Value of replacement options issued for MB stock options 25 -------------- Total purchase price $ 2,318 ==============
The purchase price to MB shareholders, plus estimated direct transaction costs and expenses, additional accrued liabilities and the deferred tax effect of applying purchase accounting at November 1, 1999, over the historical net assets of MB, was calculated as follows: Dollar amounts in millions Purchase price to MB shareholders $ 2,318 Direct transaction costs and expenses 18 Additional accrued liabilities 87 Deferred tax effect of applying purchase accounting 379 Less: historical net assets (952) -------------- Total excess costs $ 1,850 ==============
The above calculation of excess purchase price is preliminary. The company will finalize this allocation by November 1, 2000. As of March 26, 2000, the excess purchase price was allocated as follows: Dollar amounts in millions Plant, property and equipment, timber and timberlands, and investment in equity affiliates $ 1,030 Goodwill 820 -------------- Total excess costs $ 1,850 ==============
Property, plant and equipment are being depreciated over an average of 20 years. The cost of timber and timberlands is charged to expense as the related timber is harvested, estimated to be 25 to 40 years. Goodwill is being amortized on a straight-line basis over 40 years. The following summarized unaudited pro forma information, assuming this acquisition occurred at the beginning of fiscal year 1999, is as follows: Pro Forma Information (unaudited) Thirteen weeks ended Dollar amounts in millions March 28, 1999 -------------------- Net sales and revenues $ 3,278 Net earnings before the cumulative effect of a change in an accounting principle 52 Net earnings (loss) (40) Earnings (loss) per share: Basic and diluted (.17)
Weyerhaeuser Company - -18- TJ International On January 6, 2000, the company acquired a controlling interest in TJ International (TJI), a 51 percent owner and managing partner of Trus Joist MacMillan (TJM), through a successful tender offer that represented more than 90 percent of the total number of outstanding shares. The company had acquired a 49 percent interest in TJM through its acquisition of MacMillan Bloedel, completed in November 1999. On January 21, 2000, the company completed the acquisition through the filing of a short-term merger document. This acquisition was completed under the terms of an offer by the company to purchase all outstanding shares of TJ International for $42 per share and stock option cash-outs of certain TJI management personnel. The total purchase price, including assumed debt of $142 million, was $877 million. The company accounted for the transaction using the purchase method of accounting. Accordingly, the assets and liabilities of the acquired company were included in the Consolidated Balance Sheet and the operating results were included in the Consolidated Statement of Earnings beginning January 6, 2000. The purchase price, plus estimated direct transaction costs and expenses, and the deferred tax effect of applying purchase accounting at January 6, 2000, was calculated as follows: Dollar amounts in millions Purchase price of tender offer and stock option cash-out $ 735 Direct transaction costs and expenses 49 Deferred tax effect of applying purchase accounting 116 Less: historical net assets (242) -------- Total excess costs $ 658 ========
The above calculation of excess purchase price is preliminary. The company will finalize this allocation by January 6, 2001. As of March 26, 2000, the excess purchase price was allocated as follows: Dollar amounts in millions Property, plant and equipment $ 288 Goodwill 370 -------- Total excess costs $ 658 ========
Property, plant and equipment are being depreciated over an average of 20 years. Goodwill is being amortized on a straight-line basis over 40 years. Note 15: Business Segments The company is principally engaged in the growing and harvesting of timber and the manufacture, distribution and sale of forest products. The company's principal business segments are timberlands (including logs, chips and timber); wood products (including softwood lumber, plywood and veneer; composite panels; oriented strand board; hardwood lumber; treated products; engineered wood; doors; raw materials; and building materials distribution); pulp, paper and packaging (including pulp, paper, containerboard, packaging, paperboard and recycling); and real estate and related assets. The timber-based businesses involve a high degree of integration among timber operations; building materials conversion facilities; and pulp, paper, containerboard and paperboard primary manufacturing and secondary conversion facilities. This integration includes extensive transfers of raw materials, semi-finished materials and end products between and among these groups. The company's accounting policies for segments are the same as those described in Note 1: Summary of Significant Accounting Policies. Management evaluates segment performance based on the contributions to earnings of the respective segments. Accounting for segment profitability in integrated manufacturing sites involves allocation of joint conversion and common facility costs based upon the extent of usage by the respective product lines at that facility. Transfer of products between segments is accounted for at current market values. Weyerhaeuser Company - -19- An analysis and reconciliation of the company's business segment information to the respective information in the consolidated financial statements is as follows:
Thirteen weeks ended -------------------- March March 26, 28, 2000 1999 -------- -------- Sales to and revenues from unaffiliated customers: Timberlands $ 280 $ 153 Wood products 1,832 1,116 Pulp, paper and packaging 1,476 1,082 Real estate and related assets 278 276 Corporate and other 45 38 -------- -------- 3,911 2,665 -------- -------- Intersegment sales: Timberlands 119 125 Wood products 74 48 Pulp, paper and packaging 44 32 Corporate and other 3 2 -------- -------- 240 207 -------- -------- Total sales and revenues 4,151 2,872 Intersegment eliminations (240) (207) -------- -------- $ 3,911 $ 2,665 ======== ======== Approximate contribution (charge) to earnings (1): Timberlands $ 167 $ 119 Wood products 137 (13) Pulp, paper and packaging 186 41 Real estate and related assets (1) 47 46 Corporate and other (63) (62) -------- -------- 474 131 Interest expense (91) (68) Less capitalized interest 4 2 -------- -------- Earnings before income taxes and the cumulative effect of a change in an accounting principle 387 65 Income taxes (143) (24) -------- -------- Earnings before the cumulative effect of a change in an accounting principle 244 41 Cumulative effect of a change in an accounting principle -- (89) -------- -------- $ 244 $ (48) ======== ========
There were no material changes from year-end 1999 in total assets, basis of segmentation or basis for measuring segment profit or loss. Certain reclassifications have been made to conform prior year's data to the current format. (1) Interest expense of $4 million and $5 million in the thirteen weeks ended March 26, 2000, and March 28, 1999, respectively, is included in the determination of approximate contributions to earnings and excluded from interest expense for financial services businesses. Weyerhaeuser Company - -20- WEYERHAEUSER COMPANY AND SUBSIDIARIES Management's Discussion and Analysis of Financial Condition and Results of Operations Results of Operations Consolidated Results The company reported profit of $244 million, or $1.04 basic and diluted earnings per share, compared to a net loss of $48 million, or 24 cents basic and diluted loss per share in the same quarter last year. The 1999 first quarter results were impacted by two material nonrecurring charges: . An after-tax charge of $89 million, or 45 cents per common share, from the cumulative effect of a change in an accounting policy which required the company to write off the unamortized balance of capitalized start-up costs at year-end 1998. This charge included $9 million for the company's interest in the write-off of unamortized start-up costs in three of its 50 percent-owned equity affiliates. . An after-tax charge of $60 million, or 30 cents per common share, associated with the recognition of impairment of long-lived assets in four of the company's composite products facilities, a ply-veneer facility and a chip export dock. The composite products and ply-veneer facilities were sold in the second quarter of 1999 while the chip export dock was closed in the fourth quarter of 1999. Earnings for the first quarter of 1999 before these charges were $101 million, or 51 cents per share. Consolidated net sales and revenues were $3.9 billion in the quarter, up 47 percent from $2.7 billion for the same period last year. This increase results from the additions of MacMillan Bloedel and Trus Joist, plus price improvements in most of the company's major markets. Timberlands First quarter operating earnings were $167 million, an increase of 40 percent from the $119 million earned in 1999. Sales to unaffiliated customers were $280 million compared to $153 million a year ago. Intersegment sales were $119 million for the quarter, down from $125 million reported a year ago. Volumes in both the domestic and foreign log markets were higher due to increased demand and the addition of MacMillan Bloedel timberlands. Domestic prices and volumes increased over last year's first quarter levels, but prices remained comparable to the 1999 fourth quarter. Export prices, while higher in comparison to the same period a year ago, experienced a slight decline at the end of the quarter. Log production for this segment was 183 million cubic feet in the quarter compared to 129 million cubic feet in the 1999 first quarter. Raw material sales for this segment were 145 million cubic feet, up from last year's volume of 68 million cubic feet. Wood Products Operating earnings increased to $137 million, a 69 percent increase, compared to $81 million, before a $94 million charge for impairment of long- lived assets ($91 million) and related closure costs ($3 million), reported in the same period last year. Including the charge, the segment had a loss of $13 million for the 1999 first quarter. Sales were $1.8 billion, up 64 percent from the 1999 first quarter. The strong earnings are the result of demand for lumber and panel products due to the continued strength of the U.S. construction and remodel markets and improvement in export markets during the quarter, along with the addition of MacMillan Bloedel and Trus Joist operations. Lumber volumes and prices were up compared to the same period last year along with stronger prices for oriented strand board. Weyerhaeuser Company - -21- Third party sales and total production volumes for the major products in this segment for the thirteen weeks ended March 26, 2000, and March 28, 1999, are as follows:
Third Party Sales Total Production ------------------ ----------------- Thirteen weeks Thirteen weeks ended ended ------------------ ----------------- March March March March 26, 28, 26, 28, Products (in millions) 2000 1999 2000 1999 - ------------------------------------ -------- -------- -------- -------- Softwood lumber-board feet 1,528 1,220 1,378 1,019 Softwood plywood and veneer-square feet (3/8") 468 415 359 251 Composite panels-square feet (3/4") 122 152 40 134 Oriented strand board-square feet (3/8") 727 679 781 573 Hardwood lumber-board feet 97 99 95 91 Hardwood doors (thousands) 165 180 170 178 Raw materials-cubic feet 95 68 -- -- Logs-cubic feet -- -- 184 154
Pulp, Paper and Packaging The segment reported operating earnings of $186 million, up significantly from the 1999 first quarter results of $41 million, and 43 percent higher than the fourth quarter 1999 results. Sales for the quarter were $1.5 billion, an increase of 36 percent compared to sales of $1.1 billion reported for the same period last year. Higher prices for all of the company's major product lines, along with improved volumes for corrugated boxes, contributed to the segment's strong performance. The 2000 first quarter results also reflect the addition of MacMillan Bloedel containerboard and packaging operations. Third party sales and total production volumes for the major products in this segment for the thirteen weeks ended March 26, 2000, and March 28, 1999, are as follows:
Third Party Sales Total Production ------------------ ----------------- Thirteen weeks Thirteen weeks ended ended ------------------ ----------------- March March March March 26, 28, 26, 28, Products (in thousands) 2000 1999 2000 1999 - ------------------------------------ -------- -------- -------- -------- Pulp-air-dry metric tons 541 583 587 579 Paper-tons 387 371 395 403 Paperboard-tons 62 61 57 61 Containerboard-tons 294 115 942 597 Packaging-MSF 13,359 11,110 14,117 11,725 Recycling-tons 760 671 1,112 1,027 Real Estate and Related Assets First quarter operating earnings were $47 million compared to $46 million in 1999. Sales and revenues were $278 million, comparable to the $276 million reported for the prior year. Continued strength of the housing markets in which the company operates contributed to the strong performance. Costs and Expenses Excluding the noncash charges of $13 million for integration and closure of facilities, total costs and expenses for the quarter were $3.2 billion in comparison to the $2.2 billion, after total noncash charges of $111 million, incurred last year. The 46 percent increase is in direct proportion with the company's improved sales performance this quarter. Weyerhaeuser's costs of products sold, as a percentage of sales, was 74 percent for the current quarter compared to 77 percent in the 1999 first quarter. Cost reduction efforts, primarily in support services, and acquisition synergies of $22 million contributed to the lower percentage as compared to the 1999 first quarter. Other income (expense) is an aggregation of both recurring and nonrecurring items and, as a result, can fluctuate from year to year. There were no significant individual items in the first quarters of either 2000 or 1999. Weyerhaeuser Company - -22- Liquidity and Capital Resources General The company is committed to the maintenance of a sound, conservative capital structure. This commitment is based upon two considerations: the obligation to protect the underlying interests of its shareholders and lenders and the desire to have access, at all times, to all major financial markets. The important elements of the policy governing the company's capital structure are as follows: . To view separately the capital structures of Weyerhaeuser Company, Weyerhaeuser Real Estate Company and related subsidiaries, given the very different nature of their assets and business activities. The amount of debt and equity associated with the capital structure of each will reflect the basic earnings capacity, real value and unique liquidity characteristics of the assets dedicated to that business. . The combination of maturing short-term debt and the structure of long-term debt will be managed judiciously to minimize liquidity risk. Operations Consolidated net cash provided by operations in the first quarter was $5 million. Net cash from operations, before net changes in working capital, of $410 million was offset by an increased use of funds for working capital. Cash was provided by net income of $244 million and $201 million from depreciation, amortization, fee stumpage and goodwill amortization. These were offset in part by noncash credits of $36 million for pension and other postretirement benefits and $24 million from equity on income of affiliates and unconsolidated entities. Working capital cash requirements for Weyerhaeuser, net of the effects of the acquisition of TJ International, included increases of $79 million in accounts receivable and $151 million in inventories along with a decrease of $171 million in accounts payable and accrued liabilities. The increase in receivables reflects the seasonal increase in sales in late first quarter versus late fourth quarter of 1999. The inventory increase was across all product lines with the inventory turnover rate dropping from 10.9 turns in the 1999 first quarter to 10.3 turns in the current quarter. Real estate and related assets cash outflows included $40 million for the acquisition and development of land and residential lots for construction. Earnings before interest expense and income taxes plus noncash charges for the principal business segments were: . $184 million for the timberlands segment for the current quarter compared to $131 million in 1999. Operating earnings for this segment were $48 million higher than last year. . $203 million for the wood products segment in 2000 first quarter compared to $124 million in the same period last year. The 1999 first quarter includes a noncash charge of $91 million for impairment of long-lived assets. Operating earnings increased $56 million in comparison to the 1999 first quarter prior to the noncash charges. . $291 million for the pulp, paper and packaging segment in the current quarter compared to $133 million in 1999. Operating earnings increased $145 million from last year. Investing Capital expenditures for the quarter were $152 million. The capital spending by segment was $26 million for timberlands, $59 million for wood products, $53 million for pulp, paper and packaging and $14 million for corporate and other. The company currently anticipates capital expenditures, excluding acquisitions, to approximate $800 million for the year; however, this expenditure level could increase or decrease as a consequence of future economic conditions. During the quarter, the company completed its tender offer for the stock of TJ International. Cash of $594 million, net of cash acquired, was used to complete the transaction. The cash needed to meet capital and other needs during the quarter was generated principally from the redemption of short- term securities held at year-end. Weyerhaeuser Company - -23- Financing During the first quarter, Weyerhaeuser decreased its interest bearing debt by $614 million. This was primarily from commercial paper borrowings of $206 million offset in part by debt payments of $825 million. The real estate and related assets segment increased third party debt by $23 million through commercial paper borrowings to finance real estate purchases. The company's debt to total capital ratio was 33 percent at the end of the quarter. This is comparable to the 36 percent ratio at the end of 1999. During the first quarter, the company paid $91 million in cash dividends. The company expended $211 million to purchase 4.1 million shares of its common stock as part of the 12 million share repurchase plan announced in February 2000. The company expects to complete the repurchase plan within one year. Environmental Matters Over the past several years, the National Marine Fisheries Service (NMFS) has listed as threatened or endangered under the Endangered Species Act (ESA) various species of salmon and sea-going trout that spawn in the Pacific Northwest (Washington, Oregon, Idaho and northern California) and some additional populations have been proposed to be listed. The U.S. Fish and Wildlife Service also has listed a number of species as threatened or endangered under the ESA, including the northern spotted owl, marbled murrelet, bull trout and lynx. The ESA automatically prohibits the "take" of species listed as endangered and gives NMFS authority to prohibit the "take" of species it lists as threatened. NMFS proposed rules to prohibit "take" of the species it has listed as threatened, except "incidental take" that may result from activities regulated under state or local programs approved by NMFS. State agencies and local governments are reviewing their environmental regulations regarding forestry and other land use activities and are considering adoption of stronger regulations to help protect habitat for such species and obtain such approvals from NMFS. Requirements to protect habitat for threatened and endangered species have resulted in restrictions in timber harvests on nonfederal timberlands, including some timberlands of the company. For example, during the second quarter of 1999, the Washington State Legislature amended that state's Forest Practices Act to implement a salmon recovery agreement negotiated among state and federal agencies, Indian tribes and forest landowner organizations and in the first quarter of 2000 the Washington Forest Practices Board adopted interim rules to implement that agreement. These rules require additional timber to be left unharvested in riparian zones along streams and impose added road construction and maintenance costs, partially offset by reductions in state timber harvest taxes. The company expects the new rules to require some reductions in timber harvest from its lands and other private and public lands in Washington, but does not expect these reductions to significantly impair its ability to operate its facilities or supply products to its customers. In the future, requirements to protect habitat could result in restrictions on timber harvest and other forest management practices on some of the company's timberlands, could increase operating costs, and could affect timber supply and prices in some regions. The company does not believe that such restrictions will have a significant effect on the company's total harvest of timber in 2000 or 2001, although they may have such an effect in the future. The company has established reserves for remediation costs on all of the approximately 115 active sites across our operations as of the end of March 2000 in the aggregate amount of $51 million, up from $46 million at the end of 1999. This increase reflects the incorporation of new information on all sites concerning remediation alternatives, updates on prior cost estimates and new sites (none of which were significant) less the costs incurred to remediate these sites during this period. The company has accrued remediation costs into this reserve as follows: $7 million and $4 million in the first three months of 2000 and 1999, respectively. The company incurred remediation costs of $2 million in both 2000 and 1999, respectively, and charged these costs against the reserve. Legal Proceedings The company is a defendant in hardboard siding cases that can be divided into two types: . Purported class actions. Of the nine class action cases that have been filed against the company since November 1996: - Four have been resolved without a class being certified. In one of those cases, the plaintiffs have filed an appeal of a summary judgment in favor of the company. - Four statewide cases are pending in Iowa, Oregon, South Carolina and Texas. - A class of plaintiffs has been certified in one case in California. Weyerhaeuser Company - -24- . Primarily multi-family and residential development cases: - Two cases have gone to trial. One resulted in a jury verdict in favor of the company, and the other in a judgment for the plaintiffs of approximately $3.5 million, representing a jury verdict that the company was responsible for 20 percent of the plaintiff's losses and 80 percent were caused by construction defects attributable to the general contractor and certain subcontractors. The company has appealed this decision and has established a reserve in the amount of the judgment. - Twenty-four cases of this type are pending. No pattern was developed that would allow the company to establish a reserve beyond what the company has already established for the existing jury verdict. The company also has hardboard siding product claims that have not been, nor are they anticipated to be, significant in relation to the company's results of operations. Acquisition of TJ International On January 6, 2000, the company acquired a controlling interest in TJ International, a 51 percent owner and managing partner of Trus Joist MacMillan (TJM) through a successful tender offer that represented more than 90 percent of the total number of outstanding shares. On January 21, 2000, the company completed the acquisition through the filing of a short- term merger document. See Note 14: Acquisitions in Notes to Financial Statements. Subsequent Event On March 31, 2000, the company completed the acquisition of two sawmills, with a combined capacity of 171 million board feet of lumber, and related assets, including a 70 percent stake in Pine Solutions, Australia's largest softwood distributor, from CSR Ltd. Of Australia for approximately $55 million in cash. Other . In October 1999, the company announced a new initiative to streamline and improve delivery of internal support services that is expected to result in $150 million to $200 million in annual savings. The company began implementation of these plans during the first quarter of 2000, a process that may take up to three years to complete. Because implementation plans are still under review, the specific number of employees affected, exact timing of the implementation and associated costs have not been finalized. . On March 21, 2000, the company announced that it could not agree on terms regarding the potential sale of the door business in Marshfield, Wisconsin, to Sanders, Karp and Megrue. Contingencies The company is a party to legal proceedings and environmental matters generally incidental to its business. Although the final outcome of any legal proceeding or environmental matter is subject to a great many variables and cannot be predicted with any degree of certainty, the company presently believes that the ultimate outcome resulting from these proceedings and matters would not have a material effect on the company's current financial position, liquidity or results of operations; however, in any given future reporting period such proceedings or matters could have a material effect on results of operations. Quantitative and Qualitative Disclosures About Market Risk As part of the company's financing activity, derivative securities are sometimes used to achieve the desired mix of fixed versus floating rate debt and to manage the timing of finance opportunities. The company does not hold or issue derivative financial instruments for trading. They are used to manage well-defined interest rate and foreign exchange risks. These include: . Foreign exchange contracts, which are hedges for foreign denominated accounts receivable and accounts payable. These contracts generate gains or losses that are recognized at the contracts' respective settlement dates. At March 26, 2000, the net open position of foreign exchange hedges in Canadian dollars, Australian dollars, German DMs and Japanese yen was $65 million. Weyerhaeuser Company - -25- . The company's derivative instruments, which are matched directly against outstanding borrowings, are "pay fixed, receive variable" interest rate swaps with highly rated counterparties in which the interest payments are calculated on a notional amount. The notional amounts do not represent amounts exchanged by the parties and, thus, are not a measure of exposure to the company through its use of derivatives. At March 26, 2000, the company had one interest rate swap with a maturity date of November 6, 2001, and a notional amount of $75 million with a fixed interest rate of 6.85 percent. The variable rate at March 26, 2000, based on the 30-day LIBOR, was 6.13 percent, with the fair value of the swap being a loss of $1.1 million. The amount of the obligation under this swap is based on the assumption that it 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 determined. The company is exposed to credit-related gains or losses in the event of nonperformance by counterparties to these financial instruments; however, the company does not expect its counterparties to fail to meet their obligations. Weyerhaeuser Company - -26- Part II. Other Information Item 1. Legal Proceedings The company conducted a review of its 10 major pulp and paper facilities to evaluate the facilities' compliance with federal Prevention of Significant Deterioration (PSD) regulations. The results of the reviews were disclosed to seven state agencies and the Environmental Protection Agency (EPA) during 1994 and 1995. All PSD compliance issues identified in the review have been resolved, except for PSD issues at the company's Springfield, Oregon, containerboard facility. A final decision is expected to be made by the Lane Regional Air Pollution Control Authority (Lane County, Oregon) concerning alleged PSD and permit violations at the company's Springfield, Oregon, containerboard manufacturing facility upon issuance of the facility's Title V permit in 2000. In addition, the company is conducting a review of one pulp and paper facility and two wood products facilities that were recently acquired to evaluate their compliance with PSD and new source review regulations. In June 1998, a lawsuit was filed against the company in Superior Court, San Francisco County, California, on behalf of a purported class of individuals and entities that own property in the United States on which exterior hardboard siding manufactured by the company has been installed since 1981. The action alleges the company manufactured and distributed defective hardboard siding, breached express warranties and consumer protection statutes and failed to disclose to consumers the alleged defective nature of its hardboard siding. The action seeks compensatory and punitive damages, costs and reasonable attorney fees. In December 1998, the complaint was amended narrowing the purported class to individuals and entities in the state of California. In February 1999, the court entered an order certifying the class. The company has been unable thus far to obtain a reversal of the certification. In September 1998, a lawsuit purporting to be a class action involving hardboard siding was filed against the company in Superior Court, King County, Washington. The complaint was amended, in January 1999, to allege a class consisting of individuals and entities that own homes or other structures in the United States on which exterior hardboard siding manufactured by the company at its former Klamath Falls, Oregon, facility has been installed since January 1981. The amended complaint alleges the company manufactured defective hardboard siding, engaged in unfair trade practices and failed to disclose to customers the alleged defective nature of its hardboard siding. The amended complaint seeks compensatory damages, punitive or treble damages, restitution, attorney fees, costs of the suit and such other relief as may be appropriate. In July 1999, the company's motion for summary judgment was granted in this case. The plaintiffs filed a petition for reconsideration, which was denied in January 2000. The plaintiffs have appealed this decision. A lawsuit was filed against the company in District Court, Johnson County, Texas, in June 1999. The case purports to be a class action on behalf of persons who own structures in the state of Texas with exterior hardboard siding manufactured by the company. The complaint alleges defective design, misrepresentation, negligence, breach of express warranty and fraudulent concealment. The complaint seeks unspecified compensatory damages. In July 1999, a lawsuit was filed against the company in the Court of Common Pleas, Beaufort County, South Carolina. The suit purports to be filed on behalf of all owners of residential structures or other buildings with hardboard siding manufactured by the company. The complaint alleges breach of express and implied warranties, defective design and manufacture, fraud and violation of South Carolina's unfair trade practices act. The plaintiffs seek compensatory damages, treble damages and attorneys' fees. The company is a defendant in two other cases, one in Iowa and the other in Oregon, that purport to be statewide class actions with similar allegations. The company is a defendant in approximately 24 other hardboard siding cases primarily involving multi-family structures and residential developments. In May 1999, two civil antitrust lawsuits were filed against the company in U.S. District Court, Eastern District of Pennsylvania. Both suits name as defendants several other major containerboard and packaging producers. The complaint in the first case alleges the defendants conspired to fix the price of linerboard and that the alleged conspiracy had the effect of increasing the price of corrugated containers. The suit purports to be a class action on behalf of purchasers of corrugated containers during the period October 1993 through November 1995. The complaint in the second case alleges that the company conspired to manipulate the price of linerboard and thereby the price of corrugated sheets. The suit purports to be a class action on behalf of purchasers of corrugated sheets during the period October 1993 through November 1995. Both suits seek damages, including treble damages, under the antitrust laws. Weyerhaeuser Company - -27- Part II Item 1. Legal Proceedings - Continued In May 1999, the Equity Committee ("the Committee") in the Paragon Trade Brands, Inc. bankruptcy proceeding filed a motion in U.S. Bankruptcy Court for the Northern District of Georgia for authority to prosecute claims against the company in the name of the debtor's estate. Specifically, the Committee seeks to assert that the company breached certain warranties in agreements entered into between Paragon and the company in connection with Paragon's public offering of common stock in January 1993. The Committee seeks to recover damages sustained by Paragon as a result of two patent infringement cases, one brought by Procter & Gamble and the other by Kimberly-Clark. In September 1999, the court authorized the Committee to commence an adversary proceeding against the company. The Committee commenced this proceeding in October 1999, seeking damages in excess of $420 million against the company. Subsidiaries of the company, formerly known as MacMillan Bloedel Limited and MacMillan Bloedel (USA) Inc., have agreed to settle a class action suit involving claims in the United States (excluding Colorado) alleging the failure of cement fiber roofing products previously manufactured by American Cemwood Corporation, a company owned by MacMillan Bloedel (USA) Inc. The proposed settlement would create a fund of $105 million, consisting of $65 million in cash and $40 million guaranteed recovery by the class from certain insurance carriers. The settlement is subject to court approval in May 2000. The company has established reserves for liabilities and legal defense costs it believes are probable and reasonably estimable with respect to the proposed settlement and pending suits and claims. The company is also a party to various proceedings relating to the cleanup of hazardous waste sites under the Comprehensive Environmental Response Compensation and Liability Act, commonly known as "Superfund," and similar state laws. The EPA and/or various state agencies have notified the company that it may be a potentially responsible party with respect to other hazardous waste sites as to which no proceedings have been instituted against the company. The company is also a party to other legal proceedings and environmental matters generally incidental to its business. Although the final outcome of any legal proceeding or environmental matter is subject to a great many variables and cannot be predicted with any degree of certainty, the company presently believes that any ultimate outcome resulting from these proceedings and matters, or all of them combined, would not have a material effect on the company's current financial position, liquidity or results of operations; however, in any given future reporting period, such proceedings or matters could have a material effect on results of operations. Item 6. Exhibits and Reports on Form 8-K Exhibits 27 Financial Data Schedules Reports on Form 8-K The registrant filed reports on Form 8-K dated January 24 and April 20, 2000, reporting information under Item 5, Other Events. The registrant filed a Form 8-K on January 10, 2000, which amended a Form 8-K dated November 9, 1999, reporting information under Item 2, Acquisition or Disposition of Assets, and Item 7, Financial Statements and Exhibits.
EX-27 2
5 1,000,000 3-MOS DEC-31-2000 MAR-26-2000 96 0 1,550 0 1,564 3,367 8,243 0 17,951 2,376 4,468 0 0 291 6,898 17,951 3,911 3,911 2,922 2,922 253 2 91 387 143 244 0 0 0 244 1.04 1.04 Receivables are stated net of allowances. Property, plant and equipment is stated net of accumulated depreciation.
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