Download - weyerhaeuser annual reports 1998
w e y e r h a e u s e r 1 9 9 8 a n n u a l r e p o r t
t h e f u t u r e i s g r o w i n g
L E T T E R T O S H A R E H O L D E R S 3 S E N I O R M A N A G E M E N T T E A M 9 T I M B E R L A N D S 1 6 W O O D P R O D U C T S 2 0
P U L P, PA P E R & PA C K A G I N G 3 0 R E A L E S TAT E A N D R E L AT E D A S S E T S 34 S I G N I F I C A N T A C C O M P L I S H M E N T S 35
F I N A N C I A L R E P O R T 3 7 W E Y E R H A E U S E R C O M PA N Y F O U N D AT I O N 7 4 C O R P O R AT E D ATA & S H A R E H O L D E R I N F O R M AT I O N 7 6
t h e 1 9 9 8 w ey e r h a e u s e r a n n u a l r e p o r t
F O R W E Y E R H A E U S E R , this past year
was one of change and growth.
After nearly 100 years as a company,
it may seem strange to change.
We are one of the world’s largest
forest products companies. We own
or manage more softwood timberthan anyone in the world. We are a leading manufacturer of lumber,
pulp and paper products. Our work force of 35,000 is one of the most
dedicated and talented in the industry. But we’re changing to operate with
speed, simplicity and decisiveness. We’re leveraging our enduring valuesand innovative capabilities to create
a promising future. To illustrate
these changes in our annual report
we chose Ning Yeh, an artist whose
landscape watercolors are executed
simply, decisively, with speed.
The portraits of Ning Yeh at work
depict the company we’re becoming.
Forest products is one of the world’s most
important industries. We fulfill needs
fundamental to human well-being: shelter,
communication, commerce. All told,
forest products represent close to
$600 billion in global gross economic output.
Weyerhaeuser is one of the largest
private owners of trees on Earth. And here
is how we’re becoming the world’s best
forest products company...
O u r vt o b e t h e b e s t
c o m p a n y i n
s u p e r i o r s t r a
b u i l d i n g p r o f i t f r o mc u s t o m e r f o c u s
Clearly understand customer
needs and expectations.
Align our resources with the
needs of our customers.
Deliver superior
returns to shareholders.
Align business objectives with our corporate long-range plan.
Develop the capabilitiesof our people.
o n e c o m p a n y • w e y e rt h e f u t u r e i
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Build safety into everything we do.
Deploy reliable processesacross the company.
Engage our people inimproving our operations.
Create a morediverse work force.i s i o n :
f o r e s t p r o d u c t sn t h e w o r l d .
t e g y e x e c u t i o n
s a f e l y d e l i v e r i n gv a l u e t o c u s t o m e r s
Follow a disciplined approachto capital deployment.
Measure and track our progress.
h a e u s e r • o n e v i s i o ni s g r o w i n g TM
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h i g h l i g h t s
dollar amounts in millions except per-share figures. 1998 1997
Net sales and revenues $ 10,766 $ 11,210
Net earnings before nonrecurring items 339 351
Effect of nonrecurring items (1) (45) (9)
Net earnings 294 342
Cash flow from operations, before working capital changes 1,018 1,092
Capital expenditures (excluding acquisitions) 615 656
Total assets 12,834 13,075
Shareholders’ interest 4,526 4,649
1998 1997
before effect of before effect ofnonrecurring nonrecurring nonrecurring nonrecurring
items items(1) net items items(1) net
Basic earnings per common share (2)
First quarter $ .43 $ — $ .43 $ .22 $ (.12) $ .10
Second quarter .34 — .34 .47 .09 .56
Third quarter .56 — .56 .53 .04 .57
Fourth quarter .38 (.23) .15 .54 (.05) .49
$ 1.71 $ (.23) $ 1.48 $ 1.76 $ (.04) $ 1.72
(1) The 1998 nonrecurring items are charges primarily associated with the closure of the Longview, Washington chemical facility; changing the British Columbialumber operations; and the streamlining of pulp and paper operations.
The 1997 nonrecurring items are the net of gains on the sales of Weyerhaeuser Mortgage Company and Saskatoon Chemicals, Ltd., and interest income from afavorable federal income tax decision offset by the loss on the sale of Shemin Nurseries; the consolidation, closure or disposition of certain recycling facilities; andclosure of two plywood facilities, an export lumber mill and a corrugated medium machine.
(2) Diluted earnings per common share by quarter for 1998 and 1997 were $0.43, $0.34, $0.55 and $ 0.15; and $0.10, $0.55, $0.57 and $0.49, respectively.
market prices—high/low 1998 1997
First quarter $ 5715⁄16 - 4415⁄16 $ 505⁄8 - 441⁄2
Second quarter 617⁄16 - 449⁄16 551⁄4 - 425⁄8
Third quarter 477⁄16 - 363⁄4 6315⁄16 - 515⁄8
Fourth quarter 519⁄16 - 413⁄4 603⁄4 - 461⁄16
Year $ 617⁄16 - 363⁄4 $ 6315⁄16 - 425⁄8
The consolidated financial statements include: (1) Weyerhaeuser Company (Weyerhaeuser), principally engaged in the growing and harvesting of timber and themanufacture, distribution and sale of forest products, and (2) Real estate and related assets, principally engaged in real estate development and construction, andother real estate related activities.
When we say “the future is
growing” at Weyerhaeuser, we’re talking about more than
the billions of trees we’ve planted. We’re making a statement
about our ability to further increase shareholder returns.
We’re stating there’s a company in our industry that represents
an outstanding long-term investment opportunity. We’re
saying that company is Weyerhaeuser. Few forest products
companies can match the resources we’re deploying to meet
t o o u r s h a r e h o l d e r s
S T E V E N R R O G E LPresident & Chief Executive Officer
(Chairman, President & Chief Executive Officereffective April 20, 1999)
3
this objective. W E B E G I N W I T H A N O U T S TA N D I N G W O R K F O R C E . Like you, the men
and women of Weyerhaeuser are part owners of this business. Through our
Performance Share Plan, employees receive stock if our performance exceeds
certain measures relative to our peer group and the Standard and Poor’s 500.
This is not automatic, however, as demonstrated by the fact that we have not paid
out on the plan in the years where we’ve failed to meet all of the program’s criteria.
As owners, employees have an additional incentive to improve performance and better
align their interests with those of other shareholders. We’ve
given these employees some of the best assets with which to
work. Our timber is unmatched. We have some great facilities
in place and we’re getting better. Our research capabilities are
world-renowned.We have one of the strongest balance sheets in
the industry. In short, we have the tools to become the best
forest products company in the world. By being the best, we can
deliver superior returns. Some say such optimism is misplaced.
4
They wonder how a company in our industry can
produce superior returns. I don’t deny that we face
challenges. Our industry has struggled recently. In 1998,
the Asian economic situation affected our entire industry.
Imported pulp and paper products found customers
in our markets. Forest product exports originally
bound for Asia glutted domestic markets. Prices sank.
Weyerhaeuser adjusted to these conditions. We took
downtime to balance inventory levels with market conditions.
We found ways to reduce costs. We maintained our focus on
customers. As a result, we fared better in 1998 than many predicted.
But we weren’t untouched by market conditions. N E T E A R N I N G S
before nonrecurring items were $339 million, or $1.71 per common
share. This compares with $351 million, or $1.76 per common share,
before nonrecurring items in 1997. N E T S A L E S were $10.8 billion
compared with $11.2 billion last year. N E T C A S H F L O W from operations,
before working capital changes, was $1 billion compared with $1.1
billion in 1997. It is easy to blame Asia for these disappointing results.
It’s also easy to believe that our troubles will end when Asia’s economy
improves. But such views ignore reality. While we will benefit from
a stronger Asia, we recognize that we cannot rely on that recovery
to solve our problems. Our industry has changed.
We now operate in a global marketplace where the
performance of domestic and international markets
is intertwined. Our task is to change Weyerhaeuser
to succeed in this environment and capitalize on
our potential. It requires that we leverage our
strengths and eliminate our weaknesses to become
the best forest products company in the world.
Weyerhaeuser already was making significant
progress toward this goal when I arrived last year.
5
* Boise Cascade, Bowater, Champion International, Georgia-Pacific,International Paper, Louisiana-Pacific, MacMillian Bloedel, Potlatch,Smurfit-Stone, Temple-Inland, Union Camp, Westvaco, Willamette.
89 90 91 92 93 94 95 96 97 98
$12
11
10
9
8
n e t s a l e s a n d r e v e n u e sbil l ions of dollars
89 90 91 92 93 94 95 96 97 98
$1,000
750
500
250
0
n e t e a r n i n g s(before nonrecurring i tems)mil l ions of dollars
years, we remain comfortably within our target range of 35 to 45 percent of debt to
total capital and have one of the best credit ratings in our industry. We had, and continue
to have, one of the B E S T- P E R F O R M I N G S T O C K S I N T H E I N D U S T RY. Our total shareholder return since
1991 ranks second among our peer group.* Our return on net assets has been in the top
quartile of our industry since 1992—a leadership position we’re committed to improving
even further. But we want to do more than outperform our industry peer group. We want to
excel in manufacturing. We want to operate more safely than anyone else—inside or
outside of our industry. We want to be
an O U T S TA N D I N G I N V E S T M E N T O P P O R T U N I T Y.
This year we began laying the
foundation to achieve these goals. It
started by taking a hard look at
ourselves. What are our strengths?
What are our weaknesses? What chal-
lenges do we face? How do we compare
with successful companies outside our
industry? It was an enlightening process.
We learned what it takes to be the best.
W E W E R E B E C O M I N G M O R E F O C U S E D . Through
steps taken since 1990, we have evolved
to a company that basically does three
things. We grow trees. We convert them
into wood and paper products. And we
develop selected timberland properties
for higher and better uses. This has
allowed us to focus our capital on
sustaining our core businesses. We were
M A I N TA I N I N G A S T R O N G B A L A N C E S H E E T . Despite
difficult market conditions the past two
6
The answer lies in doing three things very well.
E X E C U T I N G O U R S T R AT E G I E S . F O C U S I N G O N C U S T O M E R S .
O P E R AT I N G S A F E LY. These three objectives form
the base of our strategy. The inside front
cover of this report lists these objectives and
their supporting elements. We also learned
that we must develop a system and organiza-
tion to achieve these objectives. It means
operating with speed, simplicity and decisive-
ness—terms not currently associated with
Weyerhaeuser. It means changing our decision-making process, how we’re organized, how we manage this
company. In 1998, we started making those changes. We began R E S H A P I N G I M P O R TA N T F U N C T I O N S to deliver
services in the most cost-effective and efficient manner. We started with engineering and information
technology. Then we combined our environmental, health and safety groups into a single organization.
Finally, we aligned the manufacturing functions of our primary pulp, fine paper and containerboard mills
under a single vice president. All are now company-wide functions accountable for two goals. First, they must
meet the needs of the businesses they support. Second, they are to develop company-wide standards and
reduce redundancy in their functions. From my experience, this approach produces substantial savings.
We’re reviewing other support functions and
in 1999 we’ll organize them to deliver services
in the most cost-efficient and effective manner.
We began R E P L I C AT I N G R E L I A B L E P R O C E S S E S across
the company. One key process involves how
we deploy capital. To help increase the
effectiveness of our investments, we’ve put
in place a disciplined process of reviewing
each request for capital. As we review these
requests, they must demonstrate that they
are the most cost-effective way of supporting
our long-term strategies. Only projects that
meet our strict criteria receive capital.
89 90 91 92 93 94 95 96 97 98
$5.00
3.75
2.50
1.25
0
b a s i c e a r n i n g s p e r c o m m o n s h a r e
(before nonrecurring i tems)dollars
7
89 90 91 92 93 94 95 96 97 98
25
20
15
10
5
0
r e t u r n o n s h a r e h o l d e r s ’ e q u i t y(before nonrecurring i tems)percent
This approach eliminates nonstrategic
efforts, develops better-planned projects, and
eliminates waste and rework. We believe
this process will ultimately increase the
effectiveness of our capital spending by
20 to 30 percent. But our disciplined approach
to capital spending is already producing
results. By applying a “one-company”
approach to investments, we reduced our
capital expenditures, excluding acquisitions,
this year by $41 million compared with our spending in 1997. Other reliable
processes will help us produce a safer and more productive work environment.
We continued to refine H O W W E S E R V E O U R C U S T O M E R S . For example, we’re carefully
aligning our research and development capabilities with key pulp customers.
Through this alignment, we can develop special pulp to meet unique customer
requirements. In the process, we differentiate our products and reduce our exposure
to volatile commodity markets. We began S T R E N G T H E N I N G O U R C O R E B U S I N E S S E S to
withstand down cycles in their markets. This includes growing and optimizing key
businesses: Timberlands, Wood Products, Fine Paper and Containerboard
Packaging. Our purchase of the Dryden,
Ontario, facilities, for example, significantly
enhances our Fine Paper business and
augments our Canadian Lumber position.
We’re also improving the returns in our
Pulp, Paper and Packaging sector by
reducing its exposure to commodity grades,
improving process reliability and maintaining
tight controls on capital spending. We
continued to capture the maximum value
from our timberlands. Weyerhaeuser
currently owns or manages more than 5.3
million acres of timber in the United States.
We hold timber licenses for 27 million acres in
Canada—a position we increased this year by
acquiring additional timber licenses in Ontario
as part of our Dryden acquisition. Over the
years we’ve continually upgraded our timber-
land asset with investments we’ve made in New
Zealand, South America and the southern
United States. In the future, we will continue to
F O C U S O U R I N V E S T M E N T A C T I V I T I E S on these low-cost
regions of the world. We also expect to benefit
from our forestry practices, especially from our land in the United States. Over the
next 10 years, we’ll see a significant increase in the volume of timber we harvest.
At 1997 prices, the pre-tax cash flow generated by these forests will increase by more
than 50 percent. We took some important steps in 1998. Weyerhaeuser is becoming
more efficient, more cost-competitive and better positioned for future growth. Our
work, however, is not done. We must drive
these changes further into our organization.
We must learn to operate more reliably.
We must eliminate redundancy. We must
continue our control on capital spending.
We must look for future growth opportunities.
Weyerhaeuser is a great company. It has a
promising future. Our challenge is to fulfill our
potential. We will do that. We will prove to you
that at Weyerhaeuser “the future is growing.”
S T E V E N R R O G E LPresident & Chief Executive Officer
(Chairman, President & Chief Executive Officereffective April 20, 1999)
8
s e n i o r m a n a g e m e n t t e a m
S T E V E N R R O G E LPresident & Chief Executive Officer
(Chairman, President & Chief Executive Officereffective April 20, 1999)
W I L L I A M C S T I V E R SExecutive Vice President &
Chief Financial Officer
S T E V E N R H I L LSenior Vice President
Human Resources
R I C H A R D C G O Z O NExecutive Vice President
Pulp, Paper & Packaging
W I L L I A M R C O R B I NExecutive Vice President
Wood Products
R I C H A R D E H A N S O NSenior Vice President
Timberlands
N O R M A N E J O H N S O N Senior Vice President, Technology,retired in April after a career with Weyerhaeuser Companyspanning more than four decades.
M A C K L H O G A N SSenior Vice President
Corporate Affairs
T H O M A S M L U T H YSenior Vice President
W I L L I A M C S T I V E R S was elected Executive Vice President and Chief Financial Officer in April. He had served as Senior Vice Presidentand Chief Financial Officer since 1990.
R I C H A R D E H A N S O N was named Senior Vice President, Timberlands,on November 9, 1998 succeeding Corbin. Hanson previously served as Vice President, Western Timberlands.
T H O M A S M L U T H Y Senior Vice President, Wood Products, announced inNovember that he would retire on March 31, 1999 after 31 years atWeyerhaeuser Company. He is succeeded by
G E O R G E H W E Y E R H A E U S E R J R , who had previously served as President and Chief Executive Officer of Weyerhaeuser Canada Ltd, succeededJohnson as Senior Vice President, Technology on May 11, 1998.
During 1998, these changes were made to the Senior Management Team:
W I L L I A M R C O R B I N , Executive Vice President, Timberlands, who becameExecutive Vice President, Wood Products on November 9, 1998.
G E O R G E H W E Y E R H A E U S E R J RSenior Vice President
Technology
s p e e d Watercolor is an exacting art.It relies on foresight and the ability to execute quickly. Weyerhaeuser isapplying the same approach to ourbusiness. Success in a global market
requires one to identify opportunities and thenact quickly. Completing the purchase of theDryden, Ontario, facilities in less than onemonth shows that we are learning to act withspeed. In the future, we will apply the sameapproach to take advantage of opportunitiescritical to our long-term success.
s i m p l i c i t y
seek simplicity. We’re focusing on how to deliver products andservices more efficiently. We’re eliminating wasted motions.Making decisions faster. Being more accountable. Replicatingprocesses throughout the company. The result is greater customer satisfaction and higher shareholder returns.
Chinese brush painting reduces aform to its simplest expression. Onlysignificant elements are put onpaper. There are no wasted motions.The picture emerges from simplebrushstrokes. At Weyerhaeuser, we
d e c i s i v e n e s s
our vision. Decisiveness comes from eliminatingdistracting options. We’ve identified where tofocus our attention. Each decisive action wetake moves us closer to our goal to be the bestforest products company in the world.
The artist has many brushes fromwhich to choose. Only one createsthe desired effect. A clear visionof the finished picture allows the painter to choose the right brush. In business, we have manyopportunities. Only a few create
16
N E T S A L E S 1 9 9 8 1 9 9 7 1 9 9 6 1 9 9 5 1 9 9 4
(millions of dollars)
To unaffiliated customers:Raw materials (logs, chips and timber) $ 599 $ 760 $ 830 $ 850 $ 877Other products 37 37 37 32 25
$ 636 $ 797 $ 867 $ 882 $ 902Intersegment sales $ 488 $ 520 $ 513 $ 574 $ 502
S A L E S V O L U M E S
(millions)
Raw materials—cubic feet 259 235 254 254 271
A N N U A L P R O D U C T I O N C A PA C I T Y
(millions)
Logs—cubic feet 495 476 412 420 392Fee harvest—cubic feet 585 541 496 518 525
s t a t i s t i c a l d a t a
17
t i m b e r l a n d s
F O R N E A R LY 1 0 0 Y E A R S , we have managed our timber-
land asset for growth. What started out as 900,000
acres in 1900 now encompasses more than 5.3 million
acres throughout the United States and timber licenses
on 27 million acres in Canada. We’ve also grown inter-
nationally with joint ventures in New Zealand and
Uruguay. During 1998, this focus on growth once
again produced strong results from our Timberlands
sector. We did, however, feel the effect of the Asian
economic situation. Prices for both export and domestic
logs dropped in response to lower Asian demand and
higher inventories in the United States. This drop was offset somewhat by higher stumpage
values in the southern United States. O P E R AT I N G E A R N I N G S were $487 million compared with $535
million in 1997. N E T S A L E S in 1998 were $636 million compared with $797 million the prior year.
Our Timberlands sector is focusing on three strategies to enhance its earnings potential.
C A P T U R E T H E M A X I M U M VA L U E from our increasing harvest level. Due to our advanced forestry
practices, we’ll see a significant increase in the volume of timber we harvest over the next 10 years.
At 1997 prices, the pre-tax cash flow generated by these forests will increase by more than 50 percent.
In addition, selective pruning will produce knot-free wood for use in high-margin appearance-
grade lumber. I N V E S T I N T I M B E R L A N D S W I T H L O W C O S T A N D H I G H P R O D U C T I O N . The Southern Hemisphere—
especially New Zealand and South
America—represents significant
growth opportunities. We own a
51 percent interest in 193,000
acres of managed forestland and
related assets in New Zealand.
interest in a venture that has acquired 234,000 acres of private agricultural land in
Uruguay that is being converted into plantation forests. L O W E R C O S T S A N D I M P R O V E Q U A L I T Y.
To maximize the returns, we manage our timberlands as if they were a stand-alone opera-
tion. This means reducing costs and improving the quality of our product. We’ve reduced
overhead costs by improving work systems and eliminating redundancy and waste.
To improve quality, we’ve used selective pruning to produce knot-free wood.Within the next
five years, we’ll begin harvesting this timber for use in appearance-grade lumber and other
higher-value products that command higher market values. Weyerhaeuser is a leader in the
development of the Sustainable Forestry Initiative SM (SFI), a comprehensive
program developed by members of the American Forest & Paper Association.
Under SFI, participating private forest landowners follow a land stewardship
ethic that integrates forestry and conservation practices. This ensures that
we meet present needs without compromising the ability of future generations
to access wood and enjoy a healthy environment. We view SFI as a
natural extension of our long-standing
commitment to environmental stewardship
and sustainable forestry. In the future, we
will continue to manage this asset to enhance
its value and generate shareholder value.
As the majority owner,Weyerhaeuser is responsible
for the management and marketing activities of
the joint venture. We’ve also made additional
investments through our partnership with institu-
tional investors known as the World Timberfund.
This partnership currently holds a 97 percent
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W E S T E R N T I M B E R L A N D S Acres owned 1,989,000 Oregon, Washington
Alabama, Arkansas, Georgia, Louisiana, Mississippi,North Carolina, Oklahoma
Alberta, British Columbia, Ontario, Saskatchewan
S O U T H E R N T I M B E R L A N D S Acres owned 3,110,000Acres leased 241,000
3,351,000
C A N A D I A N T I M B E R L A N D S * Acres licensed 27,002,000(of which 18,938,000 acres are productive)
P R I N C I P A L L O C A T I O N S
* Managed by Canadian operations.
600
500
400
300
200
100
094 95 96 97 98
e a r n i n g s(before nonrecurring i tems)mil l ions of dollars
94 95 96 97 98
c a p i t a l s p e n d i n g(excludes acquisi t ions)mil l ions of dollars
19
200
150
100
50
0
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s t a t i s t i c a l d a t a
N E T S A L E S 1 9 9 8 1 9 9 7 1 9 9 6 1 9 9 5 1 9 9 4
(millions of dollars)
Softwood lumber $ 1,793 $ 2,094 $ 1,988 $ 1,648 $ 1,880Softwood plywood and veneer 452 502 519 591 636Oriented strand board, composite and
other panel products 765 594 667 752 750Hardwood lumber 240 272 235 193 175Engineered wood products 330 284 233 207 157Raw materials (logs, chips & timber) 228 232 220 228 91Other products 667 599 511 430 401
$ 4,475 $ 4,577 $ 4,373 $ 4,049 $ 4,090
S A L E S V O L U M E S 1 9 9 8 1 9 9 7 1 9 9 6 1 9 9 5 1 9 9 4
(millions)
Softwood lumber—board feet 4,995 4,869 4,745 4,515 4,402Softwood plywood and veneer—square feet (3/8”) 1,842 2,042 2,172 2,324 2,685Composite panels—square feet (3/4”) 586 551 604 648 660Oriented strand board—square feet (3/8”) 2,697 2,462 2,083 1,931 1,803Hardwood lumber—board feet 339 362 349 293 254Engineered wood products—linear feet 164 137 116 128 71Hardwood doors (thousands) 789 730 652 648 617Raw materials—cubic feet 315 325 304 260 165
A N N U A L P R O D U C T I O N 1 9 9 8 1 9 9 7 1 9 9 6 1 9 9 5 1 9 9 4
(thousands)
Softwood lumber—board feet 4,025 3,968 3,701 3,419 3,249Softwood plywood and veneer
—square feet (3/8”) 960 1,092 1,243 1,292 1,249Composite panels—square feet (3/4”) 510 478 535 583 594Oriented strand board
—square feet (3/8”) 2,179 2,041 1,687 1,654 1,568Hardwood lumber—board feet 342 345 333 278 229Hardwood doors (thousands) 788 740 646 643 597Logs—cubic feet 526 519 500 494 279
P R I N C I PA L M A N U FA C T U R I N G FA C I L I T I E S
Softwood lumber, plywood and veneer Hardwood lumber 12Composite panels Hardwood doors 1Oriented strand board
C A PA C I T Y
4,161
1,017575
2,240386850
—
3256
Our focus on customers and improved
operating efficiencies helped the Wood
Products sector withstand the chal-
lenges of a mixed market. Domestically,
our oriented strand board and plywood
markets benefited from another year of
robust housing starts. This was offset,
however, by the effects of the Japanese
economy on lumber.Weak demand from
Japan pushed import and domestic
lumber into the US market resulting in
low prices despite high demand. In 1998, our Wood Products sector produced: O P E R AT I N G E A R N I N G S
of $208 million, excluding nonrecurring charges associated with changes to our Western Canada
lumber operations to make them more competitive.This compares with $212 million, excluding charges
associated with the closure of two plywood facilities and an export lumber mill, in 1997. N E T S A L E S
of $4.5 billion compared with $4.6 billion in 1997. Over the next five years, we will enhance the
earnings potential of this sector by: F O C U S I N G O N C U S T O M E R S . We develop “value propositions” with
customers so they know what to expect from Weyerhaeuser. It’s an approach that ensures that we
work on those things providing the most value to customers. Such “value propositions” range from
providing large distributors with special lumber grades to developing product and
delivery improvements. Our Installer’s EdgeTM oriented strand board (OSB) is just one outgrowth of
this approach. Early OSB required special installation in wet conditions. Working with customers,
Weyerhaeuser developed a product that addressed this problem. This lowers the cost of installation
for builders and increases use of our product.
Similar “value propositions” result in products with
higher margins and increased customer loyalty.
L E V E R A G I N G T H E I N T E R N A L A L I G N M E N T between our timber,
manufacturing, sales and distribution operations to
efficiently serve target industry segments. Industrial,
treated truss and engineered products are examples of
how we match our focus on industry segments with the
strength of a “one-company” approach to reduce
costs and meet the unique needs of key customers.
w o o d p r o d u c t s
21
E N H A N C I N G I N T E R N A L G R O W T H O P P O R T U N I T I E S . Over the
next five years we will continue to significantly
increase our production capabilities through
modernization. This includes deploying new tech-
nologies that increase the amount of lumber per log
while producing higher-quality lumber. We also
involve our employees to help develop ways to
increase our uptime and reduce the amount of
time it takes to complete projects. As a result, we
expect to increase lumber production by 35 percent
and production of oriented strand board and
plywood by 17 percent at our existing facilities.
S T R AT E G I C A L LY G R O W I N G T H E B U S I N E S S . Wood Products consists of businesses targeted for potential
growth. Most of this growth will come from operational improvements to existing facilities. We also
expect to grow our appearance-grade wood capabilities to maximize our practice of selectively
pruning existing timber. Such pruning reduces knots thereby creating “clear” wood for use in
lumber that produces higher margins. While growth through acquisitions is not a primary strategy
for Wood Products, we will take this approach in selected cases. Our purchase of the Dryden,
Ontario, paper facility, for example, also provided an opportunity to add two mills to our
Canadian lumber position. This acquisition enhances our product mix and allows us to better
serve Eastern markets. Through operational excellence, we expect to achieve our earnings growth
while maintaining capital spending near depreciation levels over the next five years. This will
improve the returns on invested capital and is key to achieving our shareholder return goals.
22
600
500
400
300
200
100
094 95 96 97 98
e a r n i n g s(before nonrecurring i tems)mil l ions of dollars
400
300
200
100
094 95 96 97 98
c a p i t a l s p e n d i n g(excludes acquisi t ions)mil l ions of dollars
United States:
Alabama, Arkansas, Georgia, Louisiana, Mississippi, NorthCarolina, Oklahoma, Oregon, WashingtonCanada:
Alberta, British Columbia,Ontario, Saskatchewan
United States:
Alabama, Arkansas, Oklahoma, Washington (veneer)
United States:
Georgia, North Carolina, Oregon, Wisconsin
S O F T W O O D L U M B E R produces dimension lumber.
P LY W O O D manufactures softwood structural and “appearance”panels for home remodelers, builders and industrial use.
O R I E N T E D S T R A N D B O A R D produces structural sheathing,subflooring, underlayments and other panels for residential and commercial construction.
C O M P O S I T E P R O D U C T S makes industrial particleboard andmedium density fiberboard used primarily in furniture, laminating,countertops, millwork, door manufacturing and for export.
A R C H I T E C T U R A L D O O R S produces architectural doors usedmainly in offices, schools and hospitals.
United States:
Arkansas, Michigan, Oklahoma, Oregon, Pennsylvania,Washington, Wisconsin
United States:
Wisconsin
H A R D W O O D L U M B E R produces hardwood lumber and components for use in manufacturing cabinets and furniture.
P R I N C I P A L L O C A T I O N S
P R O D U C T S
United States:
Michigan, North Carolina, West VirginiaCanada:
Alberta
B U I L D I N G M AT E R I A L S D I S T R I B U T I O N sells a broad range of building materials from a network of in-market customerservice centers, satellites and reload operations located throughoutNorth America.
United States:
Alabama, Arizona, California, Colorado, Florida, Georgia,Idaho, Illinois, Indiana, Iowa, Kansas, Kentucky,Louisiana, Michigan, Minnesota, Missouri, Montana,Nevada, New Jersey, New York, North Carolina, Ohio,Oklahoma, Oregon, Pennsylvania,Tennessee,Texas, Utah,Virginia,Washington,WisconsinCanada:
Alberta, British Columbia, Manitoba, Nova Scotia,Ontario, Quebec
23
i n n o v a t i o nBuilding on the work of precedingmasters, a painter further develops theart form by creating new strokes andtechniques. Such innovation enrichesthe art and enhances the enjoyment
for viewers. We’re using our outstandingresearch and development capabilities toenrich the science of forestry and meet new customer needs. Innovation requiresventuring into new areas. But as we pursuethese opportunities, we’re aligning our capabilities with the needs of customers.
e n d u r i n g v a l u e s
They include being responsible to the communities in which we operate, respecting the environment and developing our employees. It means operatingaccording to the highest ethical standards. As welook to our second hundred years, we’ll continue to steer a course guided by these enduring values.
The values of Chinese brush paintingare centuries old. They create a sense ofpurpose and discipline for the painter.For nearly a century, Weyerhaeuser hasadhered to a set of values to guide us.
t h e f u t u r ePlacing a chop, or stamp, on thewatercolor completes a Chinesebrush painting. Each chop hasa special meaning. This chop
depicts “endless possibilities.” As we look to our future,we believe in endless possibilities. We have the people,the resources, the financial strength and the commit-ment to be the best forest products company in theworld. We will fufill our potential through future growth.
s t a t i s t i c a l d a t a
30
N E T S A L E S 1 9 9 8 1 9 9 7 1 9 9 6 1 9 9 5 1 9 9 4
(millions of dollars)
Pulp $ 935 $ 986 $ 954 $ 1,616 $ 1,012Paper (1) 869 842 803 1,001 664Paperboard and containerboard 298 301 281 325 240Packaging 1,894 1,781 1,921 1,863 1,495Newsprint (2) 37 416 451 508 356Recycling 191 189 140 266 121Other products 88 94 98 103 178
$ 4,312 $ 4,609 $ 4,648 $ 5,682 $ 4,066
S A L E S V O L U M E S 1 9 9 8 1 9 9 7 1 9 9 6 1 9 9 5 1 9 9 4
(millions)
Pulp—air-dry metric tons 2,012 1,982 1,868 2,060 2,068Paper—tons (1) 1,181 1,146 1,007 1,006 998Paperboard—tons 236 243 205 230 201Containerboard—tons 323 389 346 259 254Packaging—MSF 44,299 44,508 42,323 34,342 34,483Newsprint—metric tons (2) 62 684 629 663 638Recycling—tons 2,546 2,229 2,011 1,467 985
A N N U A L P R O D U C T I O N 1 9 9 8 1 9 9 7 1 9 9 6 1 9 9 5 1 9 9 4
(thousands)
Pulp—air-dry metric tons 1,971 2,063 2,004 2,159 2,041Paper—tons (1) 1,235 1,128 1,034 1,060 982Paperboard—tons 237 231 206 229 189Containerboard—tons 2,291 2,381 2,331 2,329 2,357Packaging—MSF 46,410 46,488 44,471 36,041 36,020Newsprint—metric tons (2) 69 704 631 687 651Recycling—tons 3,833 3,655 3,428 2,754 2,042
P R I N C I PA L M A N U FA C T U R I N G FA C I L I T I E S
Pulp 9 Containerboard 4Paper 6 Packaging 44Paperboard 1 Recycling 24
(1) Reflects the acquisition of the Dryden, Ontario, fine paper mill in October 1998.
(2) Reflects the ownership restructuring of the North Pacific Paper Corporation (NORPAC) newsprint facility from a fully consolidated subsidiary to an equity affiliate in February 1998.
C A PA C I T Y
2,2551,594
2302,600
50,000——
I M P R O V E D O P E R AT I N G E F F I C I E N C I E S and a
disciplined approach to capital spending
helped our Pulp, Paper and Packaging sector
withstand difficult market conditions. During
the year, Asian demand for pulp, paper and
containerboard declined while imports of fine
papers into the United States increased
significantly. This led to high inventories and
weak industry prices across most product
lines. The effect of these forces was evident in
our 1998 results: O P E R AT I N G E A R N I N G S were $192 million, unchanged from 1997 levels. 1998 operating
earnings exclude nonrecurring charges associated with the closure of a chlor-alkali facility and
the streamlining of pulp and paper operations. Operating earnings for 1997 exclude a gain for the
sale of a chemical facility and charges associated with the consolidation, closure or disposition of
some recycling facilities. N E T S A L E S were $4.3 billion in 1998 compared with $4.6 billion the prior
year. Although these results are better than many in our industry, we are improving our perform-
ance to deliver superior shareholder returns. We have identified five specific ways to grow revenues
and improve margins from our Pulp, Paper
and Packaging sector. L O W E R C O S T S A N D
I N C R E A S E O U T P U T from existing facilities.
We’ve significantly improved the efficiency of
our operations by engaging employees in the
design and implementation of improved work
systems.This approach has increased the relia-
bility and performance of our mills while
allowing us to maintain stringent control on
overhead costs. In the future, our goal is to use
process improvements to increase output from
existing facilities by 1.5 to 2 percent annually.
p u l p • p a p e r a n d p a c k a g i n g
31
MAINTAIN T IGHT CONTROLS ON CAP ITAL SPENDING. Capital spending
in 1998 was $325 million compared with $315 million last
year. This is the second year we’ve kept spending at, or
below, depreciation levels. It also marks the third consecu-
tive year of positive net cash flows in difficult market
conditions. Such results reflect our strategy of investing
capital to improve operating efficiencies at existing facilities
rather than adding new capacity. G R O W F I N E PA P E R .
In September, we acquired the Dryden, Ontario, fine paper
facility and related assets. The acquisition adds 380,000 short tons of
fine paper a year to our system, gives us additional geographic range
and increases our ability to serve the fast-growing retail paper market.
Our Fine Paper business has a sustained record of performance
improvements that we will extend to the Dryden operations.
S E L E C T I V E LY G R O W C O N TA I N E R B O A R D PA C K A G I N G . As one of the industry’s
largest providers of packaging solutions, we are prudently growing this
business to meet the evolving needs of our customers. In May, we
opened a box plant in Shanghai with SCA Packaging Europe BV
to serve existing customers doing business in China. In October,
we formed a joint venture with Wilton Connor Packaging to
meet the needs of our domestic customers in the rapidly growing
point-of-purchase display market. R E P O S I T I O N M A R K E T P U L P.
We’re improving the competitive position of market pulp
by reducing its exposure to volatile commodity markets.
We’ll build on past successes to reduce this exposure to
less than 50 percent through product enhancements
developed by our extensive research and development
capabilities. By differentiating our pulp, we’ll add
value for customers, improve margins and increase
returns to shareholders. We’re confident we can overcome
our current market challenges to position Weyerhaeuser
as a leader in shareholder return. We will do that by
continuing to improve efficiencies and differentiating
our products in ways customers recognize and value.
32
1,200
1,000
800
600
400
200
94 95 96 97 98
e a r n i n g s(before nonrecurring i tems)mil l ions of dollars
800
600
400
200
094 95 96 97 98
c a p i t a l s p e n d i n g(excludes acquisi t ions)mil l ions of dollars
M A R K E T P U L P manufactures wood pulp for global markets.
United States:
Mississippi, North Carolina,Washington, WisconsinCanada:
Ontario, Saskatchewan
United States:
Arizona, California, Colorado, Connecticut,Florida, Georgia, Hawaii, Illinois, Indiana,Iowa, Kentucky, Maryland, Michigan,Minnesota, Mississippi, Missouri, Nebraska,New Jersey, New York, North Carolina,Ohio, Oklahoma, Oregon, Tennessee, Texas,Virginia, Washington, Wisconsin
United States:
Arizona, California, Colorado, Illinois,Iowa, Kansas, Maryland, Minnesota,Nebraska, North Carolina, Oklahoma,Oregon, Tennessee, Texas, Utah,Virginia, Washington
United States:
Washington
F I N E P A P E R manufactures a range of both coated and uncoatedfine papers and markets its products through paper merchants.
B L E A C H E D PA P E R B O A R D produces and markets bleachedpaperboard to West Coast and Pacific Rim customers for productionof liquid containers such as milk and juice cartons.
C O N TA I N E R B O A R D PA C K A G I N G manufactures containerboard(medium and linerboard) and corrugated boxes.
R E C Y C L I N G operates an extensive wastepaper collection systemto supply company mills and national and international customers.
P R I N C I P A L L O C A T I O N S
P R O D U C T S
33
United States:
Georgia, Mississippi,North Carolina, WashingtonCanada:
Alberta, British Columbia,Ontario, Saskatchewan
34
Continued execution of its strategic plan,
combined with a robust domestic housing
market, resulted in strong earnings for our
Real Estate business. For the year, the
sector reported earnings of $124 million.
This compares with $66 million before
a gain associated with the sale of
Weyerhaeuser Mortgage Company in 1997.
T O M A X I M I Z E I T S E A R N I N G P O T E N T I A L , our Real Estate business focuses on the home-
building and land-development business. Improved earnings resulted from
increased operating efficiencies and improved margins and inventory turnover.
During the year, the backlog of homes sold, both in absolute terms and as
a percentage of in-process inventory, was increased to record levels. Home-
building and land-development sales increased over the prior year.
T H E S E I M P R O V E M E N T S H E L P E D P R O D U C E strong earnings by our real estate operations.
With home-building and land-development activities in Southern California,
Las Vegas, Houston, Maryland, Virginia and the
Puget Sound area in Washington state,Weyerhaeuser
Real Estate Company continues to be among the
largest home builders in its selected markets.
r e a l e s t a t e a n d r e l a t e d a s s e t s
United States:
Arkansas, Georgia, North Carolina, Washington
United States:
Nevada, Southern California
United States:
Texas
L A N D M A N A G E M E N T
PA R D E E C O N S T R U C T I O N C O M PA N Y
Q U A D R A N T C O R P O R AT I O N
T R E N D M A K E R H O M E S
W E Y E R H A E U S E R R E A LT Y I N V E S T O R S
United States:
Maryland, Virginia
United States:
California, Washington
W I N C H E S T E R H O M E S
P R I N C I P A L L O C A T I O N S
O P E R A T I O N S
United States:
Washington
35
s i g n i f i c a n t a c c o m p l i s h m e n t s
Received a “Star” plant site designation by the US Department of Occupational Safety and HealthAdministration (OSHA). Flint River is the fifth Weyerhaeuser facility to receive OSHA’s highest award foraccident prevention and on-the-job safety performance.
Accepted into OSHA’s Voluntary Protection Program.Acceptance requires plants to exceed the industry safetyaverage and have active safety processes that exceed OSHA regulations.
Received second consecutive Oregon OSHA Safety & HealthAchievement Recognition Program (SHARP) award. SHARPprovides incentives for Oregon employers to develop andimplement effective injury- and illness-prevention programs.
Received the Plant Safety Award from the National WoodWindow and Door Association for outstanding safety performance in a 12-month period.
P U L P M I L L
Flint River, Georgia
C O N TA I N E R B O A R D PA C K A G I N G P L A N T
Amarillo, Texas
T I M B E R L A N D S O P E R AT I O N
Coos Bay, Oregon
A R C H I T E C T U R A L D O O R B U S I N E S S
Marshfield, Wisconsin
Safety is a core value at Weyerhaeuser and the company’s number one priority. We measure safety by recordable incident rate,which is the number of recordable safety incidents per 100 employees per year. In 1998, our recordable incident rate was 3.9 comparedwith 4.6 in 1997, a 16 percent decrease. The target for 1999 is 2.5. The ongoing goal is a rate of less than one. Those facilities or operations receiving significant external recognition for their efforts to improve safety during 1998 include:
S A F E T Y
Received Dow Chemical Company’s Sales Excellence Awardfor outstanding performance. Dow—the world’s largest producer of Styrofoam™ brand extruded insulationproducts—recognized BMD for doubling its sales ofStyrofoam™ products in three years.
Won Fleetwood Homes’ Circle of Excellence CustomerSatisfaction Award for the second consecutive year.Fleetwood is the largest manufacturer of recreational vehiclesand manufactured homes in the United States.
Presented 1998 Golden Hammer Award for vendor excellencein marketing and partnership by National Home Center News.This is the second consecutive year Weyerhaeuser has won the award.
B U I L D I N G M AT E R I A L S
Distribution Business
Building Materials Distribution;Southern, Western and Canadian Lumber; Plywood;Eastern and Western Oriented Strand Board;Composite Products; Hardwood Lumber
C U S T O M E R S / S U P P L I E R S
36
Received the Oregon Department of Fish and Wildlife and the Oregon Department of Forestry’s Fish and WildlifeSteward Award for Forest Lands in the industrial landownercategory. The award recognizes private landowners that improve fish and wildlife resources through forest stewardship activities.
Won the American Forest & Paper Association Environmentand Energy Achievement Award for Pollution Prevention.The award recognizes the progress made by the forest products industry in the areas of environment, safety, energyand wildlife stewardship.
Received the WD Littleford Award sponsored by theAmerican Business Press. The award, given to recognizeWeyerhaeuser’s commitment to environmental improve-ments, was shared with Chemical Engineering magazine.
Achieved 100 percent environmental compliance in one ofthe most stringent provinces in Canada. The operationsinclude a pulp mill, two sawmills and forestlands.
Received the Arkansas Environmental Federation’s 1998Waste Minimization/Pollution Award for water dischargesimprovement. The federation, an environmental educationassociation focused on businesses, recognizes companies thattake extra efforts to protect the environment.
Designated Landowner of Merit by the Washington StateDepartment of Natural Resources. This designation is awarded to forest landowners that demonstrate advanced forest management and planning skills, including superiorcompliance with Washington’s Forest Practices Rules andproactive resource protection.
W E Y E R H A E U S E R C O M PA N Y
Southwest Georgia
W E Y E R H A E U S E R C O M PA N Y
Flint River, Georgia, Pulp Mill
G R A N D E P R A R I E / G R A N D E C A C H E O P E R AT I O N S
Alberta, Canada
P LY W O O D A N D L U M B E R M I L L
Mountain Pine, Arkansas
VA I L T R E E FA R M
Western Timberlands Organization
Was ranked number one in responsibility to the community and environment among forest and paper products companiesby Fortune magazine’s Corporate Reputation Survey.
W E Y E R H A E U S E R C O M PA N Y
C I T I Z E N S H I P
D E S C R I P T I O N O F T H E B U S I N E S S O F T H E C O M PA N Y 3 8 F I N A N C I A L R E V I E W 4 3 R E P O R T O F I N D E P E N D E N T P U B L I C A C C O U N TA N T S 5 0
C O N S O L I D AT E D S TAT E M E N T O F E A R N I N G S 5 1 C O N S O L I D AT E D B A L A N C E S H E E T 5 2
C O N S O L I D AT E D S TAT E M E N T O F C A S H F L O W S 5 4 C O N S O L I D AT E D S AT E M E N T O F S H A R E H O L D E R S ’ I N T E R E S T S 5 6
N O T E S T O F I N A N C I A L S TAT E M E N T S 5 7 H I S T O R I C A L S U M M A RY 7 2
t h e 1 9 9 8 f i n a n c i a l r e p o r t
38
Weyerhaeuser Company (the company) was incorporated
in the state of Washington in January 1900 as Weyerhaeuser
Timber Company. It is principally engaged in the growing
and harvesting of timber and the manufacture, distribu-
tion and sale of forest products, real estate development
and construction, and other real estate related activities.
The company has 35,000 employees, of whom 34,000
are employed in its timber-based businesses, and of this
number, approximately 18,000 are covered by collective
bargaining agreements, which generally are negotiated on
a multi-year basis.
Approximately 1,000 of the company’s employees
are involved in the activities of its real estate and related
assets segment.
The major markets, both domestic and foreign, in which
the company sells its products are highly competitive, with
numerous strong sellers competing in each. Many of the
company’s products also compete with substitutes for wood
and wood fiber products. The company’s subsidiaries in
the real estate and related assets segment operate in highly
competitive markets, competing with numerous regional
and national firms in real estate development and
construction and other real estate related activities.
In 1998, the company’s sales to customers outside the
United States totaled $1.8 billion (including exports of
$1.1 billion from the United States and $700 million of
Canadian export and domestic sales), or 17 percent of
total consolidated sales and revenues, compared with 20
percent in 1997. The company believes these sales
contributed a higher proportion of aggregate operating
profits. All sales to customers outside the United States
are subject to risks related to international trade and to
political, economic and other factors that vary from country
to country.
d e s c r i p t i o n o f t h e b u s i n e s s o f t h e c o m p a n y
Dollar amounts in millions 1998 1997 1996 1995 1994
Sales to unaffiliated customers:Raw materials (logs, chips and timber) $ 599 $ 760 $ 830 $ 850 $ 877Other products 37 37 37 32 25
$ 636 $ 797 $ 867 $ 882 $ 902
Intersegment sales $ 488 $ 520 $ 513 $ 574 $ 502
Approximate contributions to earnings $ 487 $ 535 $ 503 $ 560 $ 565
The company is engaged in the management of 5.1 mil-
lion acres of company-owned and .2 million acres of leased
commercial forestland in the United States (3.3 million
acres in the South and 2 million acres in the Pacific
Northwest), most of it highly productive and located
extremely well to serve both domestic and international
markets. The standing timber inventory on these lands is
approximately 94 million cunits (a cunit is 100 cubic feet
of solid wood). The relationship between cubic
measurement and the quantity of end products that may
be produced from timber varies according to the species,
size and quality of timber, and will change through time as
the mix of these variables changes. To sustain the timber
supply from its fee timberlands, the company is engaged
in extensive planting, suppression of nonmerchantable
species, precommercial and commercial thinning,
fertilization and operational pruning, all of which increase
the yield from its fee timberland acreage.
The company, through its wholly owned subsidiary,
Weyerhaeuser New Zealand Inc., is responsible for the
management and marketing activities of a New Zealand
joint venture located on the northern end of the South
Island consisting of 151,000 acres of Crown Forest
License cutting rights and approximately 42,000 acres of
freehold land.
The company, through its wholly owned subsidiary,
Weyerhaeuser Forestlands International, is a 50 percent
owner in RII Weyerhaeuser World Timberfund, L.L.P., a
joint-venture partnership, which makes investments
outside the United States. This joint venture owns 97
percent of a Uruguayan venture, Colonvade, S.A., which
has acquired over 234,000 acres of private grazing land that
is currently being converted into plantation forests.
BUSINESS SEGMENTS
TIMBERLANDS
39
The company’s wood products businesses produce and sell
softwood lumber, plywood and veneer; oriented strand
board, composite and other panels; hardwood lumber;
doors and treated products. These products are sold
primarily through the company’s own sales organizations.
Building materials are sold to wholesalers, retailers and
industrial users. The raw materials required to produce
these products are purchased from third parties, transferred
at market price from the company’s timberlands, or
obtained from long-term licensing arrangements covering
approximately 27 million acres in Canada (of which 18.9
million acres are considered to be productive forestland).
During the 1998 fourth quarter, the company changed
its British Columbia lumber operations by permanently
closing the Lumby sawmill, converting the Merritt mill to
a planer-only operation and reconfiguring its remaining
four sawmills to achieve improved production.
Dollar amounts in millions 1998 1997 1996 1995 1994
Sales to unaffiliated customers:Softwood lumber $ 1,793 $ 2,094 $ 1,988 $ 1,648 $ 1,880Softwood plywood and veneer 452 502 519 591 636Oriented strand board, composite and other panels 765 594 667 752 750Hardwood lumber 240 272 235 193 175Engineered wood products 330 284 233 207 157Raw materials (logs, chips and timber) 228 232 220 228 91Other products 667 599 511 430 401
$ 4,475 $ 4,577 $ 4,373 $ 4,049 $ 4,090Approximate contributions to earnings(1)(2) $ 183 $ 172 $ 302 $ 248 $ 469(1)After nonrecurring charges totaling $25 million for changes to the British Columbia lumber operations in 1998.(2)After nonrecurring 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
include: Pulp, which manufactures chemical wood pulp
for world markets; Paper, which manufactures and markets
a range of both coated and uncoated fine papers through
paper merchants and printers; Containerboard Packaging,
which manufactures linerboard and corrugating medium,
primarily used in the production of corrugated packaging,
and manufactures and markets industrial and agricultural
packaging; Paperboard, which manufactures and markets
bleached paperboard, used for production of liquid
containers, to West Coast and Pacific Rim customers; and
Recycling, which operates an extensive wastepaper
collection system and markets it to company mills and
worldwide customers.
During the first quarter of 1998, the company completed
the ownership restructure of its newsprint joint venture,
North Pacific Paper Corporation (NORPAC). Through this
restructuring, the ownership changed from 80 percent
company ownership and 20 percent Nippon Paper
Industries Co., Ltd., to 50 percent for each shareholder.
The company provides raw materials, management,
marketing and support services to this joint venture.
The company took charges for the closure of the
Longview, Washington, chlor-alkali facility and the
streamlining of the pulp and paper operations in the 1998
fourth quarter.
In the fourth quarter of 1998, the company completed
the purchase of the Dryden, Ontario, Canada, uncoated
freesheet mill and related assets from Bowater Inc. This
facility has the capacity to produce 380,000 short tons of
fine paper per year and a small amount of bleached
softwood market pulp. Two lumber mills, with 200 million
board feet of capacity, and timber licenses comprising
4.35 million acres were also part of this purchase.
In 1998, the company’s 50 percent owned joint venture,
SCA Weyerhaeuser Packaging Holding Company Asia Ltd.,
opened a newly constructed containerboard packaging
facility in Shanghai, China. Construction continues on
another facility in Wuhan, China, which is expected to open
in 1999.
WOOD PRODUCTS
40
Dollar amounts in millions 1998 1997 1996 1995 1994
Sales to unaffiliated customers:Pulp $ 935 $ 986 $ 954 $ 1,616 $ 1,012Paper 869 842 803 1,001 664Paperboard and containerboard 298 301 281 325 240Packaging 1,894 1,781 1,921 1,863 1,495Newsprint(1) 37 416 451 508 356Recycling 191 189 140 266 121Other products 88 94 98 103 178
$ 4,312 $ 4,609 $ 4,648 $ 5,682 $ 4,066Approximate contributions to earnings(2)(3) $ 150 $ 164 $ 307 $ 1,181 $ 211(1)As of February 1998, the company’s ownership in its newsprint subsidiary changed from 80 percent to 50 percent; therefore, these results reflectone month’s sales.(2)After nonrecurring charges of $42 million associated with the closure of the Longview, Washington, chlor-alkali facility and streamlining pulpand paper operations in 1998.(3)After the gain of $21 million on the sale of Saskatoon Chemicals, Ltd., and charges totaling $49 million for the closure of a corrugated mediummachine and the restructuring of the recycling business in 1997.
REAL ESTATE AND RELATED ASSETS
The company, through its subsidiary, Weyerhaeuser Real
Estate Company (WRECO), is engaged in developing
single-family housing and residential lots for sale,
including development of master-planned communities.
Operations are concentrated mainly in selected metro-
politan areas in Southern California, Nevada, Washington,
Texas, Maryland and Virginia.
Dollar amounts in millions 1998 1997 1996 1995 1994
Sales to and revenues from unaffiliated customers:Single-family units $ 834 $ 688 $ 573 $ 563 $ 686Multi-family units 36 29 12 — 26Residential lots 103 91 76 60 65Commercial lots 23 57 50 29 7Commercial buildings 100 68 43 4 35Acreage 36 41 25 36 20Interest(1) 18 35 70 76 84Loan origination and servicing fees(1) — 35 100 84 88Other 42 49 60 67 106
$ 1,192 $ 1,093 $ 1,009 $ 919 $ 1,117Approximate contributions to earnings(2) $ 124 $ 111 $ 43 $ (277) $ 18(1)Interest and loan origination and servicing fees relate principally to the company’s operations in financial services through its subsidiary,Weyerhaeuser Mortgage Company, which was sold in the second quarter of 1997.(2)After a $45 million gain on the sale of Weyerhaeuser Mortgage Company in 1997 and a charge of $290 million to dispose of certain real estateassets in 1995.
CORPORATE AND OTHER
Corporate and other includes marine transportation and general corporate expense.
Dollar amounts in millions 1998 1997 1996 1995 1994
Sales to unaffiliated customers $ 151 $ 134 $ 217 $ 256 $ 223Approximate contributions to earnings(1)(2) $ (225) $ (186) $ (183) $ (217) $ (142)(1)After nonrecurring charges of $4 million for streamlining corporate operations in 1998.(2)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 ofShemin Nurseries in 1997.
In the 1998 fourth quarter, the company and Wilton
Connor Packaging, Inc., formed a joint venture, Wilton
Connor LLC, based in Charlotte, North Carolina. This
joint venture, in which the company has a 50 percent
ownership interest, supplies full-service, value-added turn-
key packaging solutions that assist product manufacturers
in the areas of retail marketing and distribution.
41
Since 1990, a number of fish and wildlife species that
occur in streams and timberlands in the Pacific Northwest
(Washington, Oregon, Idaho and northern California) have
been listed as threatened or endangered in at least some
portions of their ranges under the Endangered Species
Act (ESA). These include the northern spotted owl, marbled
murrelet, Umpqua River cutthroat trout, several Snake
River salmon runs, coho salmon, bull trout and steelhead
trout. Petitions have been filed to list other species and
additional populations of some of those species as
threatened or endangered under the ESA. A consequence
of these listings has been, and a consequence of future
listings may be, reductions in the sale and harvest of timber
on federal timberlands in the Pacific Northwest. Federal
and state requirements to protect habitat for threatened
and endangered species have resulted in restrictions on
timber harvest on some nonfederal timberlands in the
Pacific Northwest, including some timberlands of the
company. Additional regulatory actions taken by federal
or state agencies to protect habitat for these species may,
in the future, result in restrictions on timber harvests and
other forest management practices in such states, includ-
ing company timberlands in western Washington and
western Oregon, could increase operating costs, and could
affect timber supply and prices. The company believes that
such restrictions will not have a significant effect on the
company’s total harvest of timber or production of forest
products in 1999, although they may have such an effect in
the future.
The listing of the red-cockaded woodpecker as an
endangered species under the ESA had some effect on
the harvest of public and private timber in the southeastern
United States, but has had little effect on the company’s
operations. Other ESA-listed species (e.g., American
burying beetle and gopher tortoise) occur on or near some
of the company’s southern timberlands, but have had little
effect on the company’s operations.
Other federal ESA listings, or designations of fish and
wildlife species as endangered, threatened or otherwise
sensitive under various state laws, could affect future tim-
ber harvests on some of the company’s timberlands and
could affect timber supply and prices in some regions. In
addition, regulations protecting wetlands may affect future
harvest and forest management practices on some of the
company’s timberlands, particularly in southeastern states.
In February 1995, the company obtained U.S. Fish and
Wildlife Service approval of a Habitat Conservation Plan
(HCP) and Incidental Take Permit with respect to northern
spotted owls on approximately 209,000 acres of its Oregon
coastal timberlands, which is expected to remain in effect
for at least 50 years. In December 1996, the company
applied to the U.S. Fish and Wildlife Service and the
National Marine Fisheries Service for a multiple-species
HCP covering approximately 400,000 acres of company
timberlands in western Oregon. If the HCP is approved
and the related Incidental Take Permit is issued, the com-
pany would be authorized to “take” members of species
currently listed or proposed for listing under the ESA and
members of all or most species that may become listed in
the future in the course of conducting forest management
and other activities on those lands. Under both HCPs, there
are limits on the amounts of covered lands that can be
sold or exchanged unless the new owner agrees to be bound
by the HCP and related documents or the agencies approve
the change in ownership. The company also has obtained
from the U.S. Fish and Wildlife Service an Incidental Take
Permit for the American burying beetle covering
approximately 25,000 acres of lands in Oklahoma and has
entered into agreements with the U.S. Fish and Wildlife
Service to reduce uncertainties under the ESA with respect
to red-cockaded woodpeckers on some of its timberlands
in North Carolina and northern spotted owls on some of
its timberlands in Washington.
Forest practice acts in some of the states in which the
company has timber increasingly affect present or future
harvest and forest management activities. For example,
forest practice acts in Washington and Oregon limit the
size of clearcuts; require that some timber be left
unharvested in riparian areas and sometimes in other areas
to protect water quality, fish habitat and wildlife; regulate
construction of forest roads and conduct of other forest
management activities; require reforestation following
timber harvest; and contain procedures for state agencies
to review and approve proposed forest practice activities.
Other states and some local governments regulate certain
forest practices through various permit programs. Each
state in which the company owns timberlands has
developed “best management practices” (BMPs) to reduce
the effects of forest practices on water quality and aquatic
habitats. Additional and more stringent regulations and
regulatory programs may be adopted by various state and
local governments to achieve water-quality standards under
the Clean Water Act or to preserve aquatic habitats. These
current or future forest practice acts, BMPs and other
programs may reduce the volumes of timber that can be
harvested, increase operating and administrative costs, and
make it more difficult to respond to rapid changes in
markets, extreme weather or other unexpected circum-
stances. However, the company does not anticipate that it
will be disproportionately affected by these programs as
ENVIRONMENTAL MATTERS
42
compared with typical owners of comparable timberlands
or that these programs will significantly disrupt its planned
operations over large areas or for extended periods.
In addition, the company participates in the Sustainable
Forestry InitiativeSM sponsored by the American Forest &
Paper Association, a code of conduct designed to
supplement government regulatory programs with
voluntary landowner initiatives to further protect certain
public resources and values. Compliance with the
Sustainable Forestry InitiativeSM may require some
increases in operating costs.
The combination of the forest management and har-
vest restrictions and effects described in the preceding
paragraphs has increased operating costs, resulted in
changes in the value of timber and logs from the company’s
Pacific Northwest timberlands, and contributed to increases
in the prices paid for wood products and wood chips
during periods of high demand. One additional effect may
be the continuation of some reduced usage of, and some
substitution of other products for, lumber and plywood.
The company does not believe that the restrictions and
effects described in the above paragraphs have had, or in
1999 or 2000 will have, a significant effect on the company’s
total harvest of timber, although they may have such an
effect in the future.
In addition to the foregoing, the company is subject to
federal, state or provincial and local air, water and land
pollution control, solid and hazardous waste management,
disposal and remediation laws and regulations in all areas
in which it has operations and to market demands with
respect to chemical content of some products and use of
recycled fiber. Compliance with these laws, regulations and
demands usually involves capital expenditures as well as
operating costs. The company cannot easily quantify
future amounts of capital expenditures required to comply
with these laws, regulations and demands, or the
effects on operating costs, because in some instances
compliance standards have not been developed or have
not become final or definitive. In addition, compliance with
standards frequently serves other purposes such as
extension of facility life, increase in capacity, changes in
raw material requirements, or increase in economic value
of assets or products. While it is difficult to isolate the
environmental component of most manufacturing capital
projects, the company estimates that capital expenditures
for environmental compliance were approximately
$108 million (18 percent of total capital expenditures
excluding acquisitions) in 1998. Based on its understanding
of current regulatory requirements, the company
expects that average expenditures will range from
$100 million to $110 million (13 to 14 percent of total
capital expenditures) in 1999 and 2000.
The company is involved in the environmental
investigation or remediation of numerous sites. Some of
the sites are on property presently or formerly owned by
the company where the company has the sole obligation
to remediate the site or shares that obligation with one or
more parties, others are third-party sites involving several
parties who have a joint and several obligation to remediate
the site, and some are superfund sites where the company
has been named as a potentially responsible party. The
company’s liability with respect to these sites ranges from
insignificant at some sites to substantial at others,
depending on the quantity, toxicity and nature of materials
deposited by the company at the site and, with respect to
some sites, the number and economic viability of the other
responsible parties.
The company spent approximately $12 million in 1998
and expects to spend $13 million in 1999 on environmental
remediation of these sites. It is the company’s policy to
accrue for environmental remediation costs when it is
determined that it is probable that such an obligation exists
and the amount of the obligation can be reasonably
estimated. Based on currently available information and
analysis, the company believes that it is reasonably possible
that costs associated with all identified sites may
exceed current accruals by amounts that may prove
insignificant or that could range, in the aggregate, up to
approximately $90 million over several years. This estimate
of the upper end of the range of reasonably possible
additional costs is much less certain than the estimates
upon which accruals are currently based and utilizes
assumptions less favorable to the company among the range
of reasonably possible outcomes.
An Environmental Protection Agency (EPA) regulation
under Title V of the Clean Air Act requires updated
comprehensive operating permits at many of the company’s
manufacturing operations. The company will continue to
prepare the permit applications in 1999 and anticipates
that it will be able to obtain the necessary permits.
The EPA published proposed regulations on
December 17, 1993, known as the “Cluster Rules,” which
would establish maximum achievable control technology
standards for noncombustion sources under the Clean Air
Act, and revised wastewater effluent limitations under the
Clean Water Act. The original proposal has been modified
on two occasions. The final rule was approved by the
administrator of the EPA in November 1997 and went into
effect in early 1998. The Cluster Rules will require the com-
pany to commit over the next several years approximately
$80 million of additional capital to further reduce air
emissions and wastewater discharges.
43
f i n a n c i a l r e v i e w
Consolidated net sales and revenues for 1998 were
$10.8 billion, a decrease of 4 percent over the prior year’s
$11.2 billion. Lower average prices in the major products
were the principal factor in this unfavorable variance
compared with 1997. In total, revenue changes as a result
of volume variances were unchanged from the prior year.
1998 net earnings were $294 million, or $1.48 basic
earnings per common share, a 14 percent decrease from
$342 million, or $1.72 basic earnings per common share
in 1997. The 1998 results reflect an after-tax charge of
$45 million, or 23 cents per common share, primarily
associated with streamlining pulp and paper operations,
the closure of the Longview chlor-alkali facility and changes
to the British Columbia lumber operations. During the year,
the company also incurred pretax charges of $42 million
on Year 2000 remediation work. 1997 earnings included an
after-tax net charge of $9 million, or 4 cents per common
share, related to the closure of operating facilities, offset in
part by the gain on sale of businesses. Diluted earnings
per common share, which are based upon the inclusion of
outstanding stock options in the weighted average num-
ber of shares outstanding, were $1.47 and $1.72 for 1998
and 1997, respectively.
The timberlands segment’s operating earnings for 1998
were $487 million compared with $535 million in 1997.
The current year’s results were hurt by a soft export
market early in the year that weakened prices for both
domestic and export logs. Net sales for the year were
$636 million compared with $797 million in 1997. Export
log prices did improve throughout the year and were above
1997 fourth-quarter levels at year-end.
Operating earnings for the wood products segment were
$208 million before the $25 million nonrecurring pretax
charge associated with changes in the British Columbia
lumber operations. This compares with the $212 million
earned before nonrecurring pretax charges of $40 million
for the closure of two plywood facilities and an export saw-
mill in 1997. This segment posted net sales of $4.5 billion
for the year, comparable to $4.6 billion in the prior year.
Oriented strand board enjoyed a strong year with both
volumes and prices above 1997 levels. Lower prices for lum-
ber, however, offset the effects of higher volume driven by
domestic housing starts.
The pulp, paper and packaging segment had operating
earnings of $192 million in 1998 before the nonrecurring
pretax $42 million charge associated with streamlining pulp
and paper operations and the closure of the Longview,
Washington, chlor-alkali facility. This is comparable to the
$192 million earned in 1997 before a pretax nonrecurring
charge of $28 million, which is the net of a $49 million
charge for facility closures, offset in part by a $21 million
gain on the sale of the Saskatoon, Saskatchewan, Canada,
chemical business. Sales for the segment were $4.3 billion
for the year compared with $4.6 billion in the prior year.
Prices for most grades of pulp and paper were below 1997
levels. The ownership restructuring of the North Pacific
Paper Corporation newsprint facility from a fully consoli-
dated subsidiary to a 50 percent owned equity affiliate in
February 1998 also unfavorably impacted segment sales
for the year.
The real estate and related assets segment posted
operating earnings of $124 million in 1998, compared with
1997 earnings of $66 million, before the gain of $45 million
on the sale of Weyerhaeuser Mortgage Company.
Improved operating performance and the strong housing
market contributed to stronger earnings. Net sales and
revenues were $1.2 billion in 1998 compared with
$1.1 billion in 1997. This increase was primarily from the
sale of single-family units, offset in part by the elimination
of loan origination and service fees generated in previous
years by the mortgage banking business. The sale of
commercial properties was essentially unchanged from year
to year.
Weyerhaeuser’s costs of products sold were $398 mil-
lion or 5 percent less in 1998 than 1997. This is consistent
with the reduction in Weyerhaeuser net sales and main-
tains the costs of products sold as a percentage of sales at
78 percent, the same as 1997. Charges of $71 million in
1998 and $89 million in 1997 for the closure or disposition
of facilities were included in costs and expenses. The
product inventory turnover rate was 11.8 turns for the year,
slightly less than the 12.1 turns in 1997.
The real estate and related assets segment costs and
operating expenses rose in 1998 on par with the increase
in sales and revenues. Selling, general and administrative
expenses decreased by $43 million for 1998 due principally
to the sale of the mortgage banking business.
Other income (expense) is an aggregation of both
recurring and occasional income and expense items and,
as a result, can fluctuate from year to year. There were no
significant individual items in 1998. Significant items in
1997 for Weyerhaeuser were interest income of $18 mil-
lion from a favorable federal income tax decision, a loss of
$8 million from the sale of the wholesale nursery business
RESULTS OF OPERATIONS
1998 COMPARED WITH 1997
44
and a gain of $21 million from the sale of the Saskatoon
chemical facility. The real estate and related assets segment
had a gain of $45 million from the sale of the mortgage
banking business in 1997.
CHARGE FOR CLOSURE OR DISPOSITION OF FACILITIES
In 1998 and 1997, the company took pretax charges of
$71 million and $89 million, respectively, for closure or
disposition of facilities. The operating results of these
facilities prior to these exit activities were not material to
the company’s results of operations. The company expects
the principal portion of these exit activities to be completed
by 1999 year-end. These charges were related to the
following facilities or activities:
1998:
• $25 million for changes in the British Columbia
lumber operations — Due to increased costs, the market
impact of U.S. lumber quotas and the effect of the size and
location of the mills on the business’ competitiveness, the
company is repositioning its British Columbia lumber
operations. This includes permanently closing a sawmill
in Lumby, converting the Merritt mill to a planer-only
operation, and reconfiguring the company’s remaining
four sawmills in the province to achieve improved pro-
duction capacity. Approximately 200 jobs are affected by
these changes.
• $22 million for closure of the Longview, Washington,
chlor-alkali facility — The company is closing this facility
by the end of the first quarter of 1999 because of current
market conditions and the need to invest significant
capital to ensure continued safe operation of the plant.
This closure completes the company’s exit from chemical
manufacturing. Approximately 100 jobs will be eliminated
by this closure.
• $20 million for pulp and paper operations reorga-
nization — Streamlining efforts in these businesses will
affect approximately 460 employees.
• $4 million for corporate operations streamlining —
The outsourcing of the company’s employee benefits
administration and the closure of the urban waste recovery
business will result in the elimination of approximately
80 positions.
These costs are categorized in the aggregate as follows:
Dollar amounts in millions 1998
Termination and other employee-related costs $ 39Dispositions of property and equipment
at net book value 16Write-off of inventories 1Environmental cleanup 9Other exit activities 6
$ 71
1997:
• $34 million for the closure, consolidation or disposi-
tion of recycling facilities — The company is making
adjustments to the nationwide system to meet the needs
of internal and external customers in an increasingly
competitive marketplace. Approximately 330 jobs are
affected by these changes.
• $15 million for the permanent closure of the corru-
gated medium machine and administrative reorganization
at the Longview, Washington, plant site — The company
determined that the machine was not large enough to be a
cost-competitive operation and after examining the limited
options available decided to permanently close the opera-
tion. No employees were affected in 1997 by the machine
closure; however, the administrative reorganization dis-
placed 29 employees.
• $25 million for the closures of the Plymouth, North
Carolina, and Philadelphia, Mississippi, plywood
facilities — These closures were a part of the company’s
long-term strategy to align its wood products manufac-
turing facilities with the changing future sources of
raw materials.
The company closed the Plymouth facility rather than
modernize it due to market conditions and high raw
material values. In addition, this facility lacked an inde-
pendent energy source, a problem that would have required
a substantial investment. Approximately 240 jobs were
eliminated by this closure.
The closure of the Philadelphia facility allowed the
company to strengthen the production capability of a
sawmill that operates on the same site. This was the
company’s oldest and smallest plywood operation and was
located in a very competitive woodbasket in which raw
material costs have risen significantly in recent years. The
closure resulted in the elimination of approximately 165
plywood related jobs.
• $15 million for the closure of the Coos Bay, Oregon,
export sawmill and scaling back of related logging
operations — Changing customer requirements, including
declining demand for post-and-beam style housing and
increased customer acceptance of substitute products in
the Japanese market, eroded demand for products from
this mill. Japanese homebuilders are using more dimension
lumber, laminated beams and prefabricated panels,
a trend that will further erode demand for post-and-beam
lumber. This closure resulted in the loss of an estimated
200 positions at the mill.
These costs are categorized in the aggregate as follows:
Dollar amounts in millions 1997
Termination and other employee-related costs $ 20Dispositions of property and equipment
at net book value 45Write-off of goodwill at net book value 14Write-off of inventories 4Environmental cleanup 2Leasehold termination costs 1Other exit activities 3
$ 89
45
During 1997, the company’s consolidated net sales and
revenues were $11.2 billion compared with $11.1 billion
in the prior year. Sales were relatively even from year to
year in all the operating segments, with increased volumes
in most product lines offsetting unfavorable price variances.
While the real estate and related assets segment included
only four months of revenues from Weyerhaeuser
Mortgage Company due to the sale of this business in May,
the lost revenues were more than offset by increased
revenues from real estate activity.
Net earnings for the year were $342 million, or $1.72
basic earnings per common share, compared with
$463 million, or $2.34 basic earnings per common share,
in 1996. The 1997 earnings included an after-tax net charge
of $9 million, or 4 cents per common share, related to the
charges incurred for closures of operating facilities, offset
in part by the gain on sale of businesses. Diluted earnings
per common share, which is based upon the weighted
average number of shares outstanding plus shares the
company may be obligated to issue to satisfy stock options,
were $1.72 and $2.33 for 1997 and 1996, respectively.
1997 operating earnings in the timberlands segment
were $535 million compared with $503 million in 1996.
The wood products segment earned $212 million, before
nonrecurring charges totaling $40 million for the closure
of two plywood facilities and an export sawmill in 1997,
compared with $302 million in 1996. The combined
decrease from year to year in these two segments was the
combination of weak export demand for logs and lumber
and lower domestic structural panel prices, offset somewhat
by a stronger domestic lumber market.
The pulp, paper and packaging segment had operating
earnings of $192 million in 1997 before a net charge of
$28 million compared with $307 million in the previous
year. The net charge included a $49 million charge for the
consolidation, closure or disposition of certain recycling
facilities, the closure of a corrugated medium machine, and
a gain of $21 million from the sale of a chemical facility
in Saskatoon, Saskatchewan, Canada. Volume increases
in all product lines were more than offset by weaker average
prices when compared with 1996, although pulp,
paper and packaging markets improved each quarter in
1997. The paper and packaging markets continued this
improvement through the fourth quarter; however, pulp
markets began to weaken during the quarter due to a
decline in demand in Asia.
The real estate and related assets segment earned
$66 million for the year before a $45 million gain on the
sale of the company’s wholly owned subsidiary,
Weyerhaeuser Mortgage Company, reflecting stronger
real estate markets, an increased focus on the home
building and land development businesses, and improved
operating efficiencies.
The increase in Weyerhaeuser’s costs of products sold,
as a percentage of sales, to 78 percent in 1997 compared
with the prior year’s 75 percent can be attributed to the
price weaknesses described above. Charges of $89 million
incurred for the closure of production facilities were a
factor in the increase in costs and expenses for 1997 over
the prior year. The product inventory turnover rate was
12.1 turns for the year compared with 10.3 turns in 1996.
The increase in costs and operating expenses in the
real estate and related assets segment is consistent with
the increased revenues from the strong real estate markets.
Reduced selling, general and administrative expenses, com-
pared with the prior year, are due primarily to the sale of
the mortgage banking business.
Other income (expense) is an aggregation of both
recurring and occasional income and expense items and,
as a result, can fluctuate from year to year. Individual items
significant in relation to net earnings in 1997 were: a gain
of $45 million from the sale of the mortgage banking
business, interest income of $18 million from the favorable
federal income tax decision related to timber casualty losses
incurred in the eruption of Mount St. Helens in 1980, a
loss of $8 million from the sale of the wholesale nursery
business, and a gain of $21 million from the sale of the
Saskatoon chemical facility. There were no significant
individual items in 1996.
1997 COMPARED WITH 1996
46
Consolidated net sales and revenues were $11.1 billion in
1996, a decrease of 6 percent from the record $11.8 billion
posted in 1995. This change is the net of decreases of $1 bil-
lion in the pulp, paper and packaging segment and
$15 million in timberlands, offset in part by an increase of
$324 million in wood products. Pulp, paper, corrugated
packaging and recycled products experienced material
unfavorable price variances offset, in part, by favorable
volume variances in the packaging business related to the
acquisition of nine facilities in late 1995. Wood products
benefited from favorable price and volume variances
in lumber.
Net earnings for 1996 were $463 million, or $2.34
basic earnings per common share, compared with record
earnings of $799 million, or $3.93 basic earnings per
common share, in 1995. The 1995 earnings were net of
an after-tax charge of $184 million ($290 million pretax),
or 90 cents per common share, for the disposal of certain
real estate assets in the real estate and related assets
segment. Lower prices in the pulp, paper and packaging
segment, which were in sharp contrast with the record 1995
levels, accounted for the decline in 1996 earnings.
The timberlands segment operating earnings were
$503 million, down from 1995 earnings of $560 million.
Wood products segment earnings were $302 million
in 1996, up significantly from 1995 earnings of $248 million.
Tight supplies and disruptions related to countervailing
duties on imports from Canada contributed to strong
lumber results. The panel markets were negatively impacted
by the excess capacity of oriented strand board as new
facilities came on line in 1996.
The pulp, paper and packaging segment reported
operating earnings of $307 million in 1996 compared with
a record performance of $1.2 billion in 1995. The down-
turn in pulp and paper prices, which began in the fourth
quarter of 1995 as customers cut back on purchases in
order to reduce excess inventories, continued as prices were
significantly lower than the prior year.
The real estate and related assets segment earned
$43 million from operations in 1996 compared with
$13 million, before the charge for disposal of certain real
estate assets, in 1995. Real estate benefited from several
major commercial project closings and increased
residential property sales along with reduced costs as the
result of the disposition of certain impaired properties.
Improved financial services results reflected the sale of
capitalized servicing rights and increased loan originations
in the company’s mortgage banking business.
Weyerhaeuser’s costs of products sold, as a percentage
of sales, increased to 75 percent in 1996 compared with 69
percent in 1995, reflecting the significant decline in pulp,
paper and packaging pricing. Additionally, inventory
turnover rates were lower in 1996 compared with the higher
rates experienced in the peak price periods of 1995.
The real estate and related assets segment costs and
operating expenses in 1996 rose 7 percent over the 1995
level, consistent with the 10 percent increase in revenues
from year to year. The decline in depreciation and
amortization was directly related to the disposition of
certain impaired assets and sale of substantially all of the
capitalized servicing rights in the mortgage banking busi-
ness. Selling, general and administrative expenses increased
over 1995 primarily due to the opening of additional branch
offices in 1996 by the mortgage banking business.
Other income (expense) is an aggregation of both
recurring and occasional nonoperating income and
expense items and, as a result, may fluctuate from period
to period. No individual income or expense item in 1995
or 1996 was significant in relation to net earnings.
1996 COMPARED WITH 1995
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 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 assets, 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. Long-term debt maturities are
shown in Note 12 of Notes to Financial Statements.
LIQUIDITY AND CAPITAL RESOURCES
47
Capital expenditures in 1998, excluding acquisitions, were
$615 million, down 6 percent from the $656 million spent
in 1997. They are currently expected to approximate
$785 million, excluding acquisitions, in 1999; however, these
expenditures could be increased or decreased as a conse-
quence of future economic conditions.
Capital spending by segment, excluding acquisitions,
over the past three years was as follows:
Dollar amounts in millions 1998 1997 1996
Timberlands $ 87 $ 75 $ 72Wood products 169 239 346Pulp, paper
and packaging 325 315 415Corporate and other 34 27 46
$ 615 $ 656 $ 879
In 1998, the company acquired the Dryden, Ontario,
Canada, paper mill and sawmills at a cost of $494 million
for property and equipment and $49 million for working
capital. Acquisitions of property in 1997 amounted to
$13 million, with an additional $2 million for working
capital. Also in 1997, the company expended $190 million
to acquire a 51 percent interest in a forestry joint venture
in New Zealand.
The cash needed to meet capital and other
Weyerhaeuser needs in 1998 was generated by internal cash
flow, proceeds from the NORPAC equity restructuring and
dividends from subsidiaries, which are eliminated upon
consolidation. In the real estate and related assets segment,
proceeds from the sale of mortgage-related financial
instruments, reduction of holdings in equity affiliates and
sale of property accounted for the cash provided by
investing activities.
In 1997, the sale of the wholesale nursery business and
the Saskatoon chemical facility provided $76 million of
cash to Weyerhaeuser, while the sale of the mortgage
banking business provided $192 million of cash to the
real estate and related assets segment.
INVESTING
OPERATIONS
Consolidated net cash provided by operations was $1.1 bil-
lion in 1998, an increase of 8 percent over the prior year.
$1 billion of this amount was provided by cash flow from
operations before changes in working capital, while
decreases in working capital accounted for $104 million.
In 1997, cash flow from operations before changes in
working capital provided $1.1 billion with working capital
increases using $54 million.
Cash flow from operations before changes in working
capital by segment was as follows:
Dollar amounts in millions 1998 1997 1996
Timberlands $ 533 $ 606 $ 584Wood products 373 384 462Pulp, paper
and packaging 528 566 660Real estate and
related assets 22 9 68Corporate and other (438) (473) (527)
$1,018 $1,092 $1,247
Consolidated cash flow from operations before changes
in working capital in 1998 was provided by net earnings of
$294 million along with noncash charges of $616 million
from depreciation, amortization and fee stumpage, deferred
taxes of $160 million, and noncash charges of $71 million
for closure or disposition of facilities. This was offset in
part by a noncash pension and other postretirement
benefits net credit of $39 million and equity in income of
affiliates, joint ventures and limited partnerships net
credit of $42 million. In 1997, net earnings of $342 million
and noncash charges from depreciation, amortization and
fee stumpage of $628 million, deferred taxes of $75 million
and noncash charges of $89 million for closure or disposi-
tion of facilities were the significant items in cash provided
from operations before changes in working capital. Non-
cash credits came from the gain on disposition of
businesses, principally $45 million from the sale of the
mortgage banking business in the real estate and related
assets segment.
Weyerhaeuser’s 1998 working capital, net of the effects
of the NORPAC equity restructuring from a fully consoli-
dated subsidiary to an equity affiliate and the purchase of
the Dryden paper mill and sawmills, decreased by $86 mil-
lion. Cash was provided by decreases in receivables,
inventories and prepaid expenses. In 1997, increases in
receivables along with decreases in accounts payable and
accrued liabilities were the principal items in a cash use of
$44 million.
Net working capital in the real estate and related assets
segment provided funds of $18 million in 1998 compared
with a $10 million use of funds in 1997. The principal cause
was the decrease in mortgage-related financial instruments
in 1998 as a result of the company’s exit from the mortgage
banking business.
48
During the year, Weyerhaeuser reduced its interest-
bearing debt by $35 million. Debt payments of $87 million
were offset, in part, by the sale of $48 million of
industrial revenue bonds. The company’s debt to total
capital ratio was 39 percent at the end of the year com-
pared with 38 percent at the prior year-end.
The real estate and related assets segment reduced its
long-term debt by $331 million during the year while
increasing its short-term notes and commercial paper by
a similar amount, leaving interest-bearing debt virtually
unchanged from the end of 1997.
Cash dividends of $319 million were paid during the
year; comparable to the $317 million paid in 1997.
Although common share dividends have exceeded the
company’s target ratio in recent years, the intent, over time,
is to pay dividends to common shareholders in the range
of 35 to 45 percent of common share earnings.
Weyerhaeuser also received intercompany dividends of
$190 million and $150 million from Weyerhaeuser Real
Estate Company and Weyerhaeuser Financial Services,
Inc., in 1998 and 1997, respectively. These dividends are
eliminated on a consolidated basis.
During the 1998 first quarter, the company expended
$42 million to purchase 925,000 shares of its common
stock. This completed the 11 million-share repurchase pro-
gram that commenced in 1995.
To ensure its ability to meet future commitments,
Weyerhaeuser Company and Weyerhaeuser Real Estate
Company have established unused bank lines of credit in
the maximum aggregate sum of $1,050 million. Neither of
the entities is a guarantor of the borrowings of the other
under any of these credit facilities.
FINANCING
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. 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. The company is exposed
to credit-related gains or losses in the event of non-
performance by counterparties to these financial instru-
ments; however, the company does not expect any counter-
parties to fail to meet their obligations. Interest rate swaps
are described as follows:
MARKET RISK OF FINANCIAL INSTRUMENTS
Dollar amounts in millions Variable Rate at December 27, 1998
Notional Amount Maturity Date Fixed Rate % % Based On Fair Value of Swap(1)
$ 27 5/1/99 6.70 8.20 11.95% — Kenny index $ .175 12/6/99(2) 6.85 5.63 30 day LIBOR (3.1)
$102 $(3.0)(1)The amount of the obligation under each swap is based on the assumption that such swap had terminated at the end of the fiscal period,and provides for the netting of amounts payable by and to the counterparty. In each case, the amount of such obligation is the net amountso determined.(2)Includes the value of an option, by the counterparty, to extend for two years at maturity date.
CONTINGENCIES
The company is a party to legal proceedings and envi-
ronmental 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 opera-
tions. (See Note 14 of Notes to Financial Statements.)
Weyerhaeuser, like all other companies using computers
and microprocessors, is faced with the task of addressing
the Year 2000 problem before the end of 1999. The Year
2000 challenge arises from the nearly universal practice in
the computer industry of using two digits rather than four
digits to designate the calendar year (e.g., DD/MM/YY). This
can lead to incorrect results when computer software
performs arithmetic operations, comparisons or data field
sorting involving years later than 1999. The company has
conducted a comprehensive inventory to identify where
YEAR 2000
49
this problem may occur in its information technology,
manufacturing and facilities systems. The company is
engaged in modifying or replacing its affected systems in a
manner that will minimize any detrimental effects on opera-
tions and has substantially completed its goal of correct-
ing affected systems that would have a critical effect on its
business operations. While some significant components
remain uncorrected, the company believes that all such
systems have been identified and has plans in place to cor-
rect such systems by the end of second quarter of 1999.
The company expects to complete the testing and veri-
fication of such systems during 1999.
While it is difficult at present to fully quantify the overall
cost of this work, the company estimates that the overall
cost of remediation could approach $100 million. The
company presently believes that such costs will not have a
material effect on the company’s current financial position
or liquidity; however, in any given future reporting period,
such costs could have a material effect on results of opera-
tions. Through the fourth quarter of 1998, the company
has incurred $54 million of remediation costs, of which
$1 million was incurred in 1997 and $11 million has been
capitalized for new hardware and software. The company
expects substantial additional costs to be incurred in the
first and second quarters of 1999.
Depending on whether suppliers, customers and other
entities with which the company does business are able to
successfully address the Year 2000 issue, the company’s
results of operations could be materially adversely affected
in any given future reporting period during which such a
Year 2000 event occurred. As a result, the company is
communicating with such entities to determine their state
of readiness. The company is also developing contingency
plans to allow primary operations of the company to
continue if the company’s significant systems or such
entities are disrupted by the Year 2000 problem. The
company currently expects that its contingency plans will
be developed by the end of the second quarter of 1999. In
addition, the company has initiated a process to develop
joint contingency plans with its customers and suppliers.
The company currently expects that it will be prepared in
the event of systems failures to continue to do business,
although such operations may be at a higher cost.
These estimates and conclusions contain forward-
looking statements that are subject to risks and uncer-
tainties that could cause actual results to differ materially.
The company’s current estimates of the amount of time
and the costs necessary to address the Year 2000 problem
are based on the facts and circumstances existing at this
time. The estimates were derived using multiple
assumptions of future events, including the continued
availability of certain resources, implementation success
and other factors. New developments may occur that could
affect the company’s estimates, such as the amount of
planning and modification needed to achieve full resolu-
tion of the Year 2000 problem; the availability and cost of
resources; the company’s ability to discover and correct all
Year 2000 sensitive computer code and equipment; and
the ability of suppliers, customers and other entities to
bring their systems into compliance.
During the year, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards
No. 133, “Accounting for Derivative Instruments and
Hedging Activities,” which is effective for all fiscal quarters
of fiscal years beginning after June 15, 1999, which for the
company is the fiscal year 2000.
Also in 1998, the American Institute of Certified
Public Accountants Accounting Standards Executive
Committee issued the following Statements of Position
(SOP) that are effective for fiscal years beginning after
December 15, 1998:
• SOP 98-1, “Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use.”
• SOP 98-5, “Reporting on the Costs of Start-
Up Activities.”
These statements are described in “Note 1.
Summary of Significant Accounting Policies” of Notes
to Financial Statements.
ACCOUNTING MATTERS
PROSPECTIVE PRONOUNCEMENTS
During the year, the Accounting and Reporting Standards
Committee, comprised of four outside directors, reviewed
with the company’s management and with its independent
public accountants the scope and results of the company’s
internal and external audit activities and the adequacy
of the company’s internal accounting controls. The
committee also reviewed current and emerging account-
ing and reporting requirements and practices affecting
the company.
ACCOUNTING AND REPORTING STANDARDS COMMITTEE
50
r e p o r t o f i n d e p e n d e n t p u b l i c a c c o u n t a n t s
To the shareholders of Weyerhaeuser Company:
We have audited the accompanying consolidated balance sheets of Weyerhaeuser Company (a Washington corporation)
and subsidiaries as of December 27, 1998, and December 28, 1997, and the related consolidated statements of earnings,
cash flows and shareholders’ interest for each of the three years in the period ended December 27, 1998. These financial
statements are the responsibility of the company’s management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial posi-
tion of Weyerhaeuser Company and subsidiaries as of December 27, 1998, and December 28, 1997, and the results of
their operations and their cash flows for each of the three years in the period ended December 27, 1998, in conformity
with generally accepted accounting principles.
Seattle, Washington,February 10, 1999 ARTHUR ANDERSEN LLP
51
c o n s o l i d a t e d s t a t e m e n t o f e a r n i n g s
For the three-year period ended December 27, 1998Dollar amounts in millions except per-share figures 1998 1997 1996
Net sales and revenues:
Weyerhaeuser $ 9,574 $ 10,117 $ 10,105
Real estate and related assets 1,192 1,093 1,009
Total net sales and revenues 10,766 11,210 11,114
Costs and expenses:
Weyerhaeuser:
Costs of products sold 7,468 7,866 7,610
Depreciation, amortization and fee stumpage 611 616 601
Selling, general and administrative expenses 649 646 702
Research and development expenses 57 56 54
Taxes other than payroll and income taxes 130 142 151
Charge for closure or disposition of facilities (Note 15) 71 89 —
Charge for Year 2000 remediation 42 1 —
9,028 9,416 9,118
Real estate and related assets:
Costs and operating expenses 1,016 909 726
Depreciation and amortization 5 12 16
Selling, general and administrative expenses 53 96 173
Taxes other than payroll and income taxes 8 8 11
1,082 1,025 926
Total costs and expenses 10,110 10,441 10,044
Operating income 656 769 1,070
Interest expense and other:
Weyerhaeuser:
Interest expense incurred 264 271 273
Less interest capitalized 7 15 21
Equity in income (loss) of affiliates (Note 3) 28 (7) 5
Other income (expense), net (Note 4) 15 (10) (63)
Real estate and related assets:
Interest expense incurred 77 110 132
Less interest capitalized 61 69 65
Equity in income of joint ventures and limited partnerships (Note 3) 14 14 5
Other income, net (Note 4) 23 70 22
Earnings before income taxes 463 539 720
Income taxes (Note 5) 169 197 257
Net earnings $ 294 $ 342 $ 463
Per common share (Note 2):
Basic net earnings $ 1.48 $ 1.72 $ 2.34
Diluted net earnings $ 1.47 $ 1.72 $ 2.33
Dividends paid $ 1.60 $ 1.60 $ 1.60
See notes on pages 57 through 73.
52
c o n s o l i d a t e d b a l a n c e s h e e t
Dollar amounts in millions December 27, 1998 December 28, 1997
ASSETS
Weyerhaeuser
Current assets:
Cash and short-term investments (Note 1) $ 28 $ 100
Receivables, less allowances of $5 and $6 886 913
Inventories (Note 7) 962 983
Prepaid expenses 294 298
Total current assets 2,170 2,294
Property and equipment (Note 8) 6,692 6,991
Construction in progress 315 354
Timber and timberlands at cost, less fee stumpage charged to disposals 1,013 996
Investments in and advances to equity affiliates (Note 3) 482 249
Other assets and deferred charges 262 187
10,934 11,071
Real estate and related assets
Cash and short-term investments, including restricted deposits of $16 in 1997 7 22
Receivables, less discounts and allowances of $6 and $6 81 62
Mortgage-related financial instruments, less discounts and allowances
of $9 and $27 (Notes 1 and 13) 119 173
Real estate in process of development and for sale (Note 9) 584 593
Land being processed for development 854 845
Investments in and advances to joint ventures and limited partnerships,
less reserves of $4 and $6 (Note 3) 120 116
Other assets 135 193
1,900 2,004
Total assets $ 12,834 $ 13,075
See notes on pages 57 through 73.
53
Dollar amounts in millions December 27, 1998 December 28, 1997
LIABILITIES AND SHAREHOLDERS’ INTEREST
Weyerhaeuser
Current liabilities:
Notes payable $ 5 $ 25
Current maturities of long-term debt 88 17
Accounts payable (Note 1) 699 694
Accrued liabilities (Note 10) 707 648
Total current liabilities 1,499 1,384
Long-term debt (Notes 12 and 13) 3,397 3,483
Deferred income taxes (Note 5) 1,404 1,418
Deferred pension, other postretirement benefits and other liabilities (Note 6) 488 498
Minority interest in subsidiaries — 121
Commitments and contingencies (Note 14)
6,788 6,904
Real estate and related assets
Notes payable and commercial paper (Note 11) 564 228
Long-term debt (Notes 12 and 13) 701 1,032
Other liabilities 255 262
Commitments and contingencies (Note 14)
1,520 1,522
Total liabilities 8,308 8,426
Shareholders’ interest (Note 16):
Common shares: authorized 400,000,000 shares, issued
206,072,890 shares, $1.25 par value 258 258
Other capital 416 407
Retained earnings 4,372 4,397
Cumulative other comprehensive expense (208) (123)
Treasury common shares, at cost: 7,063,917 and 6,586,939 (312) (290)
Total shareholders’ interest 4,526 4,649
Total liabilities and shareholders’ interest $ 12,834 $ 13,075
54
c o n s o l i d a t e d s t a t e m e n t o f c a s h f l o w s
For the three-year period ended December 27, 1998 Consolidated
Dollar amounts in millions 1998 1997 1996
Cash provided by (used for) operations:
Net earnings $ 294 $ 342 $ 463
Noncash charges (credits) to income:
Depreciation, amortization and fee stumpage 616 628 617
Deferred income taxes, net 160 75 181
Pension and other postretirement benefits (39) 23 34
Charge for closure or disposition of facilities 71 89 —
Equity in (income) loss of affiliates, joint ventures and limited partnerships (42) (7) (10)
Decrease (increase) in working capital:
Accounts receivable 1 (9) 67
Inventories, real estate and land 56 (13) 56
Prepaid expenses 16 (10) 12
Mortgage-related financial instruments 28 (64) 19
Accounts payable and accrued liabilities 3 42 (113)
(Gain) loss on disposition of assets (2) 5 1
(Gain) loss on disposition of a business — (58) —
Other (40) (5) (39)
Cash provided by operations 1,122 1,038 1,288
Cash provided by (used for) investing activities:
Property and equipment (562) (610) (829)
Timber and timberlands (53) (46) (50)
Property and equipment and timber and timberlands from acquisitions (494) (13) (448)
Working capital from acquisitions (49) (2) (33)
Investments in and advances to equity affiliates 6 (182) (2)
Proceeds from sale of:
Property and equipment (Note 15) 66 85 74
Businesses — 268 —
Mortgage-related financial instruments 66 55 106
Restructuring the ownership of a subsidiary 218 — —
Intercompany advances — — —
Other (15) (21) 28
Cash provided by (used for) investing activities (817) (466) (1,154)
Cash provided by (used for) financing activities:
Issuances of debt 165 632 142
Sale of industrial revenue bonds 48 38 33
Notes and commercial paper borrowings, net 328 (577) 534
Cash dividends (319) (317) (317)
Intercompany cash dividends — — —
Payments on debt (577) (359) (513)
Purchase of treasury common shares (42) (22) (45)
Exercise of stock options 19 61 20
Other (14) 23 (1)
Cash provided by (used for) financing activities (392) (521) (147)
Net increase (decrease) in cash and short-term investments (87) 51 (13)
Cash and short-term investments at beginning of year 122 71 84
Cash and short-term investments at end of year $ 35 $ 122 $ 71
Cash paid (received) during the year for:
Interest, net of amount capitalized $ 282 $ 287 $ 322
Income taxes $ 66 $ 21 $ 168
See notes on pages 57 through 73.
55
Weyerhaeuser Company Real Estate and Related Assets
1998 1997 1996 1998 1997 1996
$ 214 $ 271 $ 434 $ 80 $ 71 $ 29
611 616 601 5 12 16
149 88 121 11 (13) 60
(37) 22 33 (2) 1 1
71 89 — — — —
(28) 7 (5) (14) (14) (5)
30 (17) 75 (29) 8 (8)
40 15 (42) 16 (28) 98
16 (10) 12 — — —
— — — 28 (64) 19
— (32) (86) 3 74 (27)
8 13 8 (10) (8) (7)
— (13) — — (45) —
8 (10) (13) (48) 5 (26)
1,082 1,039 1,138 40 (1) 150
(560) (607) (820) (2) (3) (9)
(53) (46) (50) — — —
(494) (13) (448) — — —
(49) (2) (33) — — —
(41) (221) (3) 47 39 1
42 39 61 24 46 13
— 76 — — 192 —
— — — 66 55 106
218 — — — — —
(3) 42 (26) 3 (42) 26
(13) (18) 15 (2) (3) 13
(953) (750) (1,304) 136 284 150
6 618 12 159 14 130
48 38 33 — — —
(2) (695) 637 330 118 (103)
(319) (317) (317) — — —
190 150 — (190) (150) —
(87) (78) (174) (490) (281) (339)
(42) (22) (45) — — —
19 61 20 — — —
(14) 23 (1) — — —
(201) (222) 165 (191) (299) (312)
(72) 67 (1) (15) (16) (12)
100 33 34 22 38 50
$ 28 $ 100 $ 33 $ 7 $ 22 $ 38
$ 261 $ 244 $ 255 $ 21 $ 43 $ 67
$ (4) $ 54 $ 188 $ 70 $ (33) $ (20)
56
c o n s o l i d a t e d s t a t e m e n t o f s h a r e h o l d e r s ’ i n t e r e s t
1998 1997 1996
For the three-year period ended December 27, 1998 Comprehensive Comprehensive ComprehensiveDollar amounts in millions Total Income Total Income Total Income
Common stock issued:
Balance at end of year $ 258 $ 258 $ 258
Other capital:
Balance at beginning of year 407 407 415
Stock options exercised (1) (11) (8)
Other transactions (net) 10 11 —
Balance at end of year 416 407 407
Retained earnings:
Balance at beginning of year 4,397 4,372 4,226
Net earnings 294 $ 294 342 $ 342 463 $ 463
Cash dividends on common shares (319) (317) (317)
Balance at end of year 4,372 4,397 4,372
Cumulative other comprehensive expense:
Balance at beginning of year (123) (93) (90)
Other comprehensive expense:
Foreign currency translation adjustments (90) (44) (4)
Income tax benefit on foreign currency
translation adjustments 13 14 1
Excess additional pension liability (13) — —
Income tax benefit on excess additional
pension liability 5 — —
Net other comprehensive expense (85) (85) (30) (30) (3) (3)
Comprehensive income 209 312 460
Balance at end of year (208) (123) (93)
Common stock held in treasury:
Balance at beginning of year (290) (340) (323)
Purchase of treasury common shares (42) (22) (45)
Stock options exercised 20 72 28
Balance at end of year (312) (290) (340)
Total shareholders’ interest:
Balance at end of year $4,526 $4,649 $4,604
1998 1997 1996
Shares of common stock (in thousands):
Issued at end of year 206,073 206,073 206,073
In treasury:
Balance at beginning of year 6,587 7,737 7,303
Purchase of treasury common shares 925 496 1,086
Stock options exercised (448) (1,646) (642)
Used in acquisition of capital assets — — (10)
Balance at end of year 7,064 6,587 7,737
Outstanding at end of year 199,009 199,486 198,336
See notes on pages 57 through 73.
57
n o t e s t o f i n a n c i a l s t a t e m e n t s
For the three-year period ended December 27, 1998
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CONSOLIDATION
The consolidated financial statements include the
accounts of Weyerhaeuser Company and all of its majority-
owned domestic and foreign subsidiaries. Significant
intercompany transactions and accounts are eliminated.
Investments in and advances to equity affiliates that are
not majority owned or controlled are accounted for using
the equity method.
Certain of the consolidated financial statements and
notes to financial statements are presented in two group-
ings: (1) Weyerhaeuser (the company), principally engaged
in the growing and harvesting of timber and the manu-
facture, 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
5.1 million acres of company-owned and .2 million acres
of leased commercial forestland in the United States
(3.3 million acres in the South and 2 million acres in the
Pacific Northwest).
• 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
27 million acres of forestland in Canada under long-term
licensing arrangements (of which 18.9 million acres are
considered to be productive forestland).
• 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.
FISCAL YEAR-END
The company’s fiscal year ends on the last Sunday of the
year. Fiscal years 1996 through 1998 each had 52 weeks.
ACCOUNTING PRONOUNCEMENTS IMPLEMENTED
In 1998, the company implemented the following
pronouncements of the Financial Accounting Standards
Board (FASB):
• Statement of Financial Accounting Standards (SFAS)
No. 130, “Reporting Comprehensive Income,” which
establishes standards for reporting and display of compre-
hensive income and its components (revenues, expenses,
gains and losses) in a full set of financial statements.
• SFAS No. 131, “Disclosure about Segments of an
Enterprise and Related Information,” which requires com-
panies to determine segments based on how management
makes decisions about allocating resources to segments
and measuring their performance. Disclosures for each
segment are similar to those required under current
standards, with the addition of certain quarterly
requirements. This statement also requires entity-wide
disclosure about products and services, the countries in
which the company holds material assets and reports
material revenues, and its significant customers. Previously
reported segment information has been restated to conform
to the requirements of this new pronouncement.
• SFAS No. 132, “Employers’ Disclosures about
Pensions and Other Postretirement Benefits, an amend-
ment of FASB Statements No. 87, 88 and 106,” which
revises employers’ disclosures about pensions and other
postretirement benefit plans. It does not change the
measurement or recognition of those plans. It standard-
izes the disclosure requirements for pensions and other
postretirement benefits to the extent practicable, requires
additional information on changes in benefit obligations
and fair values of plan assets that will facilitate financial
analysis, and eliminates certain disclosures that are no
longer considered useful.
PROSPECTIVE ACCOUNTING PRONOUNCEMENTS
In 1998, the FASB issued 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. This
58
statement is effective for all fiscal quarters of fiscal years
beginning after June 15, 1999, which for the company is
the fiscal year 2000. 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.
Also during 1998, the American Institute of Certified
Public Accountants Accounting Standards Executive Com-
mittee issued the following Statements of Position (SOP):
• SOP 98-1, “Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use,” which
provides guidelines on the accounting for internally
developed computer software. This SOP is effective for
fiscal years beginning after December 15, 1998. The
company believes that the future adoption of this SOP will
not have a significant impact on its results of operations or
financial position.
• SOP 98-5, “Reporting on the Costs of Start-Up
Activities,” which requires the costs of start-up activities
be expensed as incurred. This SOP must be adopted in
fiscal years beginning after December 15, 1998. When this
SOP is adopted, the company must record a cumulative
effect of a change in accounting principle to write off any
unamortized start-up costs that remain on the balance sheet
at the date the new SOP is adopted. The company
estimates that the pretax impact of this pronouncement,
when implemented in the first quarter of 1999, will be from
$135 million to $145 million ($85 million to $92 million
after-tax, or $.43 to $.46 basic earnings per common share).
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.
FINANCIAL INSTRUMENTS
The company has, where appropriate, estimated the
fair value of financial instruments. These fair value
amounts may be significantly affected by the assumptions
used, including the discount rate and estimates of cash
flow. Accordingly, the estimates presented are not nec-
essarily indicative of the amounts that could be realized in
a current market exchange. Where these estimates
approximate carrying value, no separate disclosure of fair
value is shown.
Financial instruments that potentially subject the
company to concentrations of credit risk consist of real
estate and related assets receivables and mortgage-related
financial instruments, of which $68 million and
$119 million are in the western geographical region of the
United States at December 27, 1998, and December 28,
1997, respectively.
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 finan-
cial instruments but does not expect any counterparties to
fail to meet their obligations. The company deals only with
highly rated counterparties.
The notional amounts of these derivative financial
instruments are $102 million and $492 million at
December 27, 1998, and December 28, 1997, 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 finan-
cial 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.
59
INVENTORIES
Inventories are stated at the lower of cost or market.
Cost includes labor, materials and production over-
head. 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
$253 million and $246 million at December 27, 1998,
and December 28, 1997, 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
$228 million and $237 million greater at December 27,
1998, and December 28, 1997, respectively.
PROPERTY AND EQUIPMENT
The company’s property accounts are maintained on an
individual asset basis. Betterments and replacements of
major units are capitalized. Maintenance, repairs and
minor replacements are expensed. Depreciation is provided
generally on the straight-line or unit-of-production method
at rates based on estimated service lives. Amortization of
logging railroads and truck roads is provided generally as
timber is harvested and is based upon rates determined
with reference to the volume of timber estimated to be
removed over such facilities.
The cost and related depreciation of property sold
or retired is removed from the property and allowance
for depreciation accounts and the gain or loss is included
in earnings.
TIMBER AND TIMBERLANDS
Timber and timberlands are carried at cost less fee
stumpage charged to disposals. Fee stumpage is the cost of
standing timber and is charged to fee timber disposals as
fee timber is harvested, lost as the result of casualty or
sold. Depletion rates used to relieve timber inventory are
determined with reference to the net carrying value of
timber and the related volume of timber estimated to be
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 cost of products sold as these
inventories are disposed of.
ACCOUNTS PAYABLE
The company’s banking system provides for the daily
replenishment of major bank accounts as checks are
presented for payment. Accordingly, there were negative
book cash balances of $139 million and $185 million at
December 27, 1998, and December 28, 1997, 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
10 years before retirement. Plans covering hourly
employees generally provide benefits of stated amounts
for each year of service. Contributions to U.S. plans are
based on funding standards established by the Employee
Retirement Income Security Act of 1974 (ERISA).
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
In addition to providing pension benefits, the company
provides certain health care and life insurance benefits for
some retired employees and accrues the expected future
cost of these benefits for its current eligible retirees and
some employees. All of the company’s salaried employees
and some hourly employees may become eligible for these
benefits when they retire.
RECLASSIFICATIONS
Certain reclassifications have been made to conform prior
years’ data to the current format.
REAL ESTATE AND RELATED ASSETS
With the sale of the mortgage banking business in 1997,
the financial services segment was no longer material to
the results of the company. Therefore, the remaining
activities in financial services that are principally real
estate related were combined with real estate into one
segment entitled real estate and related assets in 1997.
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 com-
parable 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.
60
Mortgage-related financial instruments include
mortgage loans receivable, mortgage-backed certificates
and other financial instruments. Mortgage-backed
certificates (see Note 13) are carried at par value, adjusted
for any unamortized discount or premium. These
certificates and other financial instruments are pledged
as collateral for the collateralized mortgage obligation
(CMO) bonds and are held by banks as trustees. Principal
and interest collections are used to meet the interest pay-
ments and reduce the outstanding principal balance of the
bonds. Related CMO bonds are the obligation of the
issuer, and neither the company nor any affiliated com-
pany has guaranteed or is otherwise obligated with
respect to the bonds.
Basic net earnings per common share are based on the
weighted average number of common shares outstanding
during the respective periods. Diluted net earnings per
common share are based on the weighted average number
of common shares outstanding and stock options out-
standing at the beginning of or granted during the
respective periods.
NOTE 2. NET EARNINGS PER COMMON SHARE
Weighted AverageDollar amounts in millions except per-share figures Net Earnings Shares (000) Per-Share Amount
1998:Basic $ 294 198,914 $ 1.48Stock options granted — 336Diluted $ 294 199,250 $ 1.47
1997:Basic $ 342 198,967 $ 1.72Stock options granted — 573Diluted $ 342 199,540 $ 1.72
1996:Basic $ 463 198,318 $ 2.34Stock options granted — 486Diluted $ 463 198,804 $ 2.33
Options for which the exercise price was greater than
the average market price of common shares for the period
were not included in the computation of diluted earnings
per share. These options to purchase shares were
as follows:
Year Options to Purchase Exercise Price
1998 1,332,080 $51.09586,539 $56.78150,000 $53.06
1997 150,000 $53.061996 1,216,400 $45.94
4,700 $47.131,178,400 $48.13
WEYERHAEUSER
The company’s investments in affiliated companies that
are not majority owned or controlled are accounted for
using the equity method. Investments carried at equity are:
• Cedar River Paper Company — A 50 percent owned
joint venture in Cedar Rapids, Iowa, that manufactures liner
and medium containerboard from recycled fiber.
• 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. Currently, one facility is in operation and another is
under construction in China.
• RII Weyerhaeuser World Timberfund, L.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.
• North Pacific Paper Corporation — A 50 percent
owned joint venture that has a newsprint manufacturing
facility in Longview, Washington. This venture was formed
in February 1998 through a restructuring of the company’s
80 percent ownership, which was fully consolidated, to
50-50 ownership with Nippon Paper Industries Co., Ltd.
NOTE 3. EQUITY AFFILIATES
61
• Wilton Connor LLC — A 50 percent owned joint
venture in Charlotte, North Carolina, formed in October
1998. This venture supplies full-service, value-added
turnkey packaging solutions that assist product
manufacturers in the areas of retail marketing and
distribution. Unconsolidated financial information for
affiliated companies that are accounted for by the equity
method is as follows:
Dollar amounts in millions December 27, 1998 December 28, 1997
Current assets $ 165 $ 94Noncurrent assets 1,325 678Current liabilities 77 56Noncurrent liabilities 702 420
1998 1997
Net sales and revenues $ 696 $ 214Operating income 110 14Net income (loss) 52 (14)
The company provides goods and services to these
affiliates, which vary by entity, in the form of raw materials,
management and marketing fees, 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
The company may charge management and/or
development fees to the joint ventures or limited
partnerships. The aggregate total of these transactions is
not material to the results of operations of the company.
Other income (expense) is an aggregation of both recur-
ring and occasional income and expense items and, as a
result, can fluctuate from year to year. Individual income
(expense) items significant in 1997 in relation to net
earnings were:
Weyerhaeuser:
• The interest income of $18 million from the favor-
able federal income tax decision related to timber casualty
losses incurred in the eruption of Mount St. Helens in 1980.
NOTE 4. OTHER INCOME (EXPENSE), NET
Investments in and advances to joint ventures and
limited partnerships that are not majority owned or
controlled are accounted for using the equity method
with taxes provided on undistributed earnings as
appropriate. Unconsolidated financial information for
joint ventures and limited partnerships that are accounted
for by the equity method is as follows:
Dollar amounts in millions December 27, 1998 December 28, 1997
Current assets $ 1,755 $ 1,689Noncurrent assets 230 284Current liabilities 1,241 1,306Noncurrent liabilities 136 145
1998 1997
Net sales and revenues $ 244 $ 242Operating income 133 136Net income 103 108
• The loss of $8 million from the sale of the wholesale
nursery business.
• The gain of $21 million from the sale of the
Saskatoon chemical facility.
Real estate and related assets:
• The gain of $45 million from the sale of the mortgage
banking business.
There were no significant individual items in 1998
or 1996.
62
NOTE 5. INCOME TAXES
Earnings before income taxes are comprised of the following:
Dollar amounts in millions 1998 1997 1996
Domestic earnings $413 $432 $614Foreign earnings 50 107 106
$463 $539 $720
Provisions for income taxes include the following:
Dollar amounts in millions 1998 1997 1996
Federal:Current $ (7) $ 65 $ 41Deferred 138 86 166
131 151 207State:
Current 8 6 2Deferred 10 3 16
18 9 18Foreign:
Current 8 45 33Deferred 12 (8) (1)
20 37 32$169 $197 $257
A reconciliation between the federal statutory tax rate and the company’s effective tax rate follows:
1998 1997 1996
Statutory tax on income 35.0% 35.0% 35.0%State income taxes, net of federal tax benefit 2.8 1.3 2.4All other, net (1.3) .2 (1.7)Effective income tax rate 36.5% 36.5% 35.7%
The net deferred income tax (liabilities) assets include the following components:
Dollar amounts in millions December 27, 1998 December 28, 1997
Current (included in prepaid expenses) $ 98 $ 90Noncurrent (1,404) (1,418)Real estate and related assets (included in other assets) 16 28
Total $ (1,290) $ (1,300)
The deferred tax (liabilities) assets are comprised of the following:
Dollar amounts in millions December 27, 1998 December 28, 1997
Depreciation $ (1,260) $ (1,352)Depletion (207) (176)Capitalized interest and taxes — real estate development (68) (71)Other (240) (189)
Total deferred tax (liabilities) (1,775) (1,788)Pension and other postretirement benefits 100 128Charges for impairment of long-lived assets 39 43Alternative minimum tax credit carryforward 69 63Other 277 254
Total deferred tax assets 485 488$ (1,290) $ (1,300)
As of December 27, 1998, the company has available
approximately $69 million of alternative minimum tax
credit carryforward, which does not expire, and foreign
tax credit carryforwards of $1 million, $1 million and
$1 million expiring in 2001, 2002 and 2003, respectively.
The company intends to reinvest undistributed earn-
ings of certain foreign subsidiaries; therefore, no U.S. taxes
have been provided. These earnings totaled approximately
$789 million at the end of 1998. While it is not practicable
to determine the income tax liability that would result from
repatriation, it is estimated that withholding taxes payable
upon repatriation would approximate $40 million.
63
The company sponsors several qualified and nonqualified
pension and other postretirement benefit plans for its
employees. The following table provides a reconciliation
of the changes in the plans’ benefit obligations and fair
value of plan assets over the two-year period ending
December 27, 1998:
NOTE 6. PENSION AND OTHER POSTRETIREMENT BENEFIT PLANS
The company funds its qualified pension plans and accrues
for nonqualified pension benefits and health and life
postretirement benefits. The funded status of these plans
at December 27, 1998, and December 28, 1997, is as follows:
The assets of the U.S. and Canadian pension plans, as
of December 27, 1998, and December 28, 1997, consist of
a highly diversified mix of equity, fixed income and real
estate securities.
Approximately 1,500 employees are covered by union-
administered multi-employer pension plans to which the
company makes negotiated contributions based generally
Pension Other Postretirement Benefits
Dollar amounts in millions 1998 1997 1998 1997
Reconciliation of benefit obligation:Benefit obligation at beginning of year $ 1,736 $ 1,594 $ 213 $ 232Service cost 54 57 4 5Interest cost 134 128 19 16Plan participants’ contributions — — 3 2Actuarial (gain)/loss 97 57 53 (27)Foreign currency exchange rate changes (15) (6) (1) (1)Benefits paid (143) (129) (15) (14)Plan curtailments, settlements and special
termination benefits 3 1 — —Plan amendments 62 36 (2) —Business combinations and divestitures 94 (2) 3 —Benefit obligation at end of year $ 2,022 $ 1,736 $ 277 $ 213
Reconciliation of fair value of plan assets:Fair value of plan assets at beginning
of year (actual) $ 2,420 $ 1,959 $ 2 $ 2Actual return on plan assets 481 584 — —Foreign currency exchange rate changes (13) (5) — —Employer contributions 7 6 — —Plan participants’ contributions — — — —Benefits paid (138) (124) — —Plan settlements — (2) — —Business combinations and divestitures 92 — — —Fair value of plan assets at end of
year (estimated) $ 2,849 $ 2,418 $ 2 $ 2
Pension Other Postretirement Benefits
Dollar amounts in millions December 27, 1998 December 28, 1997 December 27, 1998 December 28, 1997
Funded status $ 827 $ 683 $ (260) $ (200)Unrecognized net liability/(asset) 1 2 — —Unrecognized prior service cost 142 97 (2) —Unrecognized net (gain)/loss (991) (867) (2) (55)Unrecognized net transition
(asset)/obligation (15) (19) — —Prepaid/(accrued) benefit cost $ (36) $ (104) $ (264) $ (255)Amounts recognized in balance sheet
consist of:Prepaid benefit cost $ 21Accrued benefit liability (75)Intangible asset 10Cumulative other
comprehensive expense 8Net amount recognized $ (36)
64
For measurement purposes, a 7.5 percent annual rate
of increase in the per capita cost of covered health care
benefits was assumed for 1998. Beginning in 1999, the rate
is assumed to decrease by 0.5 percent annually to a level of
4.5 percent for the year 2004 and all years thereafter.
The accrued (prepaid) pension costs for the projected
benefit obligation, accumulated benefit obligation and fair
value of plan assets for pension plan(s) with accumulated
benefit obligations in excess of plan assets were $178 mil-
lion, $203 million and $102 million, respectively, as of
December 27, 1998, and $54 million, $81 million and
$4 million, respectively, as of December 28, 1997.
Assumed health care cost trend rates have a significant
effect on the amounts reported for the health care plans.
A one percent change in assumed health care cost trend
rates would have the following effects:
As of December 27, 1998Dollar amounts in millions 1% Increase 1% Decrease
Effect on total of service and interest cost components $ 1 $ (1)Effect on accumulated postretirement benefit obligation 12 (11)
NOTE 7. INVENTORIES
Dollar amounts in millions December 27, 1998 December 28, 1997
Logs and chips $ 108 $ 103Lumber, plywood and panels 143 154Pulp, newsprint and paper 190 185Containerboard, paperboard and packaging 96 107Other products 150 152Materials and supplies 275 282
$ 962 $ 983
on fixed amounts per hour per employee. Contributions
to these plans were $5 million in 1998, $7 million in 1997
and $5 million in 1996.
The company sponsors multiple defined benefit post-
retirement plans for its U.S. employees. Medical plans
have various levels of coverage and plan participant con-
tributions. Life insurance plans are noncontributory.
Canadian employees are covered under multiple defined
benefit postretirement plans that provide medical and life
insurance benefits.
Weyerhaeuser sponsors various defined contribution
plans for U.S. salaried and hourly employees. The basis for
determining plan contribution varies by plan. The amounts
charged to operations and contributed to the plans for
participating employees were $37 million, $34 million and
$32 million in 1998, 1997 and 1996, respectively.
The assumptions used in the measurement of the company’s benefit obligations are as follows:
Pension Other Postretirement Benefits
1998 1997 1996 1998 1997 1996
Discount rate 7.25% 7.75% 7.75% 7.25% 7.75% 7.75%Expected return on plan assets 11.50% 11.50% 11.50% 5.75% 5.75% 5.75%Rate of compensation increase:
Salaried 4.50% 4.50% 4.50% 4.50% 4.50% 4.50%Hourly 3.00% 3.00% 3.00% 3.00% 3.00% 3.00%
The components of net periodic benefit costs are:
Pension Other Postretirement Benefits
Dollar amounts in millions 1998 1997 1996 1998 1997 1996
Service cost $ 54 $ 56 $ 51 $ 4 $ 5 $ 5Interest cost 134 128 115 18 15 16Expected return on plan assets (236) (194) (171) — — —Amortization of (gain)/loss (23) 8 14 (1) (2) (1)Amortization of prior service cost 14 10 7 — — —Amortization of unrecognized transition
(asset)/obligation (4) (4) (4) — — —(Gain)/loss due to closure, sale and other 1 1 2 — — —
$ (60) $ 5 $ 14 $ 21 $ 18 $ 20
65
NOTE 8. PROPERTY AND EQUIPMENT
Dollar amounts in millions December 27, 1998 December 28, 1997
Property and equipment, at cost:Land $ 157 $ 158Buildings and improvements 1,667 1,721Machinery and equipment 9,732 9,954Rail and truck roads 555 550Other 111 97
12,222 12,480Less allowance for depreciation and amortization 5,530 5,489
$ 6,692 $ 6,991
NOTE 9. REAL ESTATE IN PROCESS OF DEVELOPMENT AND FOR SALE
Properties held by the company’s real estate and related assets segment include:
Dollar amounts in millions December 27, 1998 December 28, 1997
Dwelling units $ 180 $ 207Residential lots 237 223Commercial lots 120 79Commercial projects 27 56Acreage 19 27Other inventories 1 1
$ 584 $ 593
NOTE 10. ACCRUED LIABILITIES
Dollar amounts in millions December 27, 1998 December 28, 1997
Payroll — wages and salaries, incentive awards, retirement andvacation pay $ 305 $ 268
Taxes — Social Security and real and personal property 46 53Interest 87 91Income taxes 16 42Other 253 194
$ 707 $ 648
NOTE 11. SHORT-TERM DEBT
BORROWINGS
Real estate and related assets segment short-term bor-
rowings were $564 million with a weighted average
interest rate of 5.5 percent at December 27, 1998, and
$228 million with a weighted average interest rate of 5.7
percent at December 28, 1997.
LINES OF CREDIT
The company has short-term bank credit lines that provide
for borrowings of up to the total amount of $650 million
and $425 million, all of which could be availed of by the
company and Weyerhaeuser Real Estate Company
(WRECO) at December 27, 1998, and December 28, 1997,
respectively. No portions of these lines have been availed
of by the company or WRECO at December 27, 1998, or
December 28, 1997. None of the entities referred to herein
is a guarantor of the borrowings of the others.
66
NOTE 12. LONG-TERM DEBT
DEBT
Weyerhaeuser long-term debt, including the current portion, is as follows:
Dollar amounts in millions December 27, 1998 December 28, 1997
83⁄8% debentures due 2007 $ 150 $ 1507.50% debentures due 2013 250 2507.25% debentures due 2013 250 25071⁄8% debentures due 2023 250 2509.05% notes due 2003 200 20081⁄2% debentures due 2025 300 3007.95% debentures due 2025 250 2506.95% debentures due 2017 300 3006.95% debentures due 2027 300 300Industrial revenue bonds, rates from 2.5% (variable) to 9.85% (fixed),
due 1999–2028 779 784Medium-term notes, rates from 6.43% to 8.91%, due 1999–2005 246 246Commercial paper/credit agreements 192 194Other 18 26
$ 3,485 $ 3,500
Portion due within one year $ 88 $ 17
Long-term debt maturities are (millions):1999 $ 882000 1002001 812002 1992003 210Thereafter 2,807
Real estate and related assets segment long-term debt, including the current portion, is as follows:
Dollar amounts in millions December 27, 1998 December 28, 1997
Notes payable, unsecured; weighted average interest rates areapproximately 6.9% and 7% $ 531 $ 652
Bank and other borrowings, unsecured; weighted average interest ratesare approximately 5.5% and 5.9% 100 250
Notes payable, secured; weighted average interest rates areapproximately 8.4% and 8.2% 13 30
Collateralized mortgage obligation bonds 57 100$ 701 $ 1,032
Portion due within one year $ 121 $ 350
Long-term debt maturities are (millions):1999 $ 1212000 1272001 2622002 802003 78Thereafter 33
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.
Weyerhaeuser Financial Services, Inc. (WFS), a wholly
owned subsidiary, paid down a revolving credit facility
agreement effective June 1998. $75 million was outstanding
under this facility at December 28, 1997. WFS has
67
negotiated a new set of term credit facility agreements
with a group of banks that provide for borrowings of up
to $175 million. At December 27, 1998, $100 million had
been drawn and is outstanding.
To the extent that these credit commitments expire more
than one year after the balance sheet date and are unused,
an equal amount of commercial paper is classifiable as
long-term debt. Amounts so classified are shown in the
tables in this note.
No portion of these lines has been availed of by the
company, WRECO or WFS at December 27, 1998, or
December 28, 1997, except as noted above.
The company’s compensating balance agreements
were not significant.
The methods and assumptions used to estimate fair
value of each class of financial instruments for which it is
practicable to estimate that value are as follows:
• Long-term debt, including the real estate and related
assets segment, is estimated based on quoted market prices
for the same issues or on the discounted value of the
future cash flows expected to be paid using incremental
rates of borrowing for similar liabilities.
• Mortgage loans receivable are estimated based on the
discounted value of estimated future cash flows using
current rates for loans with similar terms and risks.
• Mortgage-backed certificates and other pledged
financial instruments (pledged to secure collateralized
mortgage obligations) are estimated using the quoted
market prices for securities backed by similar loans and
restricted deposits held at cost.
LEGAL PROCEEDINGS
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. On February 4, 1999, the
court entered an order certifying the class. The company
intends to seek a review of that order. 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 struc-
tures in the United States on which exterior hardboard
siding manufactured by the company at its former
Klamath Falls, Oregon facility, had been installed from
January 1981. The amended complaint alleges the com-
pany 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. The
company is a defendant in approximately twenty-four other
hardboard siding cases, one of which purports to be a state-
wide class action on behalf of purchasers of single or multi-
family residences in Iowa that contain the company’s
hardboard siding.
NOTE 14. LEGAL PROCEEDINGS, COMMITMENTS AND CONTINGENCIES
NOTE 13. FAIR VALUE OF FINANCIAL INSTRUMENTS
December 27, 1998 December 28, 1997
Dollar amounts in millions Carrying Value Fair Value Carrying Value Fair Value
Weyerhaeuser:Financial liabilities:
Long-term debt (includingcurrent maturities) $ 3,485 $ 3,820 $ 3,500 $ 3,859
Real estate and related assets:Financial assets:
Mortgage loans receivable 53 58 64 74Mortgage-backed certificates and
other pledged financial instruments 66 69 109 117Total financial assets 119 127 173 191Financial liabilities:
Long-term debt (includingcurrent maturities) 701 718 1,032 1,044
68
ENVIRONMENTAL
It is the company’s policy to accrue for environmental
remediation costs when it is determined that it is probable
that such an obligation exists and the amount of the
obligation can be reasonably estimated. Based on currently
available information and analysis, the company believes
that it is reasonably possible that costs associated with all
identified sites may exceed current accruals by amounts
that may prove insignificant or that could range, in the
aggregate, up to approximately $90 million over several
years. This estimate of the upper end of the range of
reasonably possible additional costs is much less certain
than the estimates upon which accruals are currently based,
and utilizes assumptions less favorable to the company
among the range of reasonably possible outcomes. In
estimating both its current accruals for environmental
remediation and the possible range of additional future
costs, the company has assumed that it will not bear the
entire cost of remediation of every site to the exclusion of
other known potentially responsible parties who may be
jointly and severally liable. The ability of other potentially
responsible parties to participate has been taken into
account, based generally on each party’s financial condi-
tion and probable contribution on a per-site basis. No
amounts have been recorded for potential recoveries from
insurance carriers.
The company is a party to legal proceedings and envi-
ronmental matters generally incidental to its business.
Although the final outcome of any legal proceeding 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, including
those described in this note, would not have a material
effect on the company’s current financial position, liquid-
ity or results of operations; however, in any given future
reporting period, such proceedings or matters could have
a material effect on results of operations.
OTHER ITEMS
The company’s 1998 capital expenditures, excluding acqui-
sitions, were $615 million and are expected to approxi-
mate $785 million in 1999; however, the 1999 expenditure
level could be increased or decreased as a consequence of
future economic conditions.
During the normal course of business, the company’s
subsidiaries included in its real estate and related assets
segment have entered into certain financial commitments
comprised primarily of guarantees made on $40 million of
partnership borrowings and limited recourse obligations
associated with $98 million of sold mortgage loans. The
fair value of the recourse on these loans is estimated to be
$4 million, which is based upon market spreads for sales
of similar loans without recourse or estimates of the
credit risk of the associated recourse obligation.
In 1998 and 1997, the company took pretax charges of
$71 million and $89 million, respectively, for the closure
or disposition of facilities. (See “Charge for Closure or
Disposition of Facilities” in the company’s Financial
Review, page 44.)
In 1996, the company sold its Klamath Falls, Oregon,
hardboard, particleboard and plywood manufacturing
operations; 600,000 acres of predominantly pine timber-
lands; and its nursery and seed orchard facilities.
Proceeds from the sale of the property and equipment in
this transaction amounted to $33 million. The resulting
gain on this transaction was not material to the company’s
pretax income. The timberlands portion of this transac-
tion involved a like-kind exchange for other timberlands,
primarily private commercial timberlands in southeastern
Louisiana and southern Mississippi previously owned by
Cavenham Forest Industries.
PREFERRED AND PREFERENCE SHARES
The company is authorized to issue:
• 7,000,000 preferred shares having a par value of $1.00
per share, of which none were issued and outstanding at
December 27, 1998, and December 28, 1997; and
• 40,000,000 preference shares having a par value of
$1.00 per share, of which none were issued and outstanding
at December 27, 1998, and December 28, 1997.
The preferred and preference shares may be issued in
one or more series with varying rights and preferences
including dividend rates, redemption rights, conversion
terms, sinking fund provisions, values in liquidation and
voting rights. When issued, the outstanding preferred and
preference shares rank senior to outstanding common
shares as to dividends and assets available on liquidation.
NOTE 16. SHAREHOLDERS’ INTEREST
NOTE 15. CLOSURE, DISPOSITION OR SALE OF FACILITIES
69
The company’s Long-Term Incentive Compensation Plan
(the “Plan”) was approved at the 1992 Annual Meeting of
Shareholders. The Plan provides for the purchase of the
company’s common stock at its market price on the date
of grant by certain key officers and other employees of the
company and its subsidiaries who are selected from time
to time by the Compensation Committee of the Board of
Directors. No more than 10 million shares may be issued
under the Plan. The term of options granted under the
Plan may not exceed 10 years from the grant date.
Grantees are 25 percent vested after one year, 50 percent
after two years, 75 percent after three years, and 100 percent
after four years.
The company accounts for all options under APB
Opinion No. 25 and related interpretations, under which
no compensation has been recognized. Had compensa-
tion costs for the Plan been determined consistent with
SFAS No. 123, “Accounting for Stock-Based Compen-
sation,” net income and earnings per share would have
been reduced to the following pro forma amounts:
1998 1997 1996
Net income (in millions):As reported $ 294 $ 342 $ 463Pro forma 279 332 454
Basic earnings percommon share:
As reported $ 1.48 $ 1.72 $ 2.34Pro forma 1.40 1.67 2.29
Diluted earnings percommon share:
As reported $ 1.47 $ 1.72 $ 2.33Pro forma 1.40 1.66 2.28
Because the SFAS No. 123 method of accounting has
not been applied to options granted prior to fiscal year
1995, the resulting pro forma compensation cost may not
be representative of that to be expected in future years.
The fair value of each option grant is estimated on the
date of the grant using the Black-Scholes option pricing
model with the following weighted average assumptions
used for grants:
1998 1997 1996
Risk-free interest rate 5.60% 6.42% 5.81%Expected life 4.3 years 4.9 years 6.4 yearsExpected volatility 27.08% 26.21% 25.61%Expected dividend yield 3.03% 3.44% 3.48%
Changes in the number of shares subject to option are
summarized as follows:
1998 1997 1996
Shares (in thousands):Outstanding, beginning
of year 5,848 6,243 5,972Granted 1,981 1,563 1,222Exercised 512 1,864 925Forfeited 95 91 26Expired — 3 —Outstanding, end of year 7,222 5,848 6,243Exercisable, end of year 5,304 4,309 5,022
Weighted averageexercise price:
Outstanding, beginningof year $43.32 $40.56 $38.17
Granted 52.85 46.54 45.94Exercised 38.98 36.70 32.11Forfeited 50.37 44.68 43.46Expired — 37.75 —Outstanding, end of year 46.15 43.32 40.56
Weighted average grantdate fair value of options 12.31 11.26 11.40
The following table summarizes information about stock options outstanding at December 27, 1998:
Weighted Average Weighted AveragePrice Range Options Outstanding Options Exercisable Exercise Price Remaining Contractual Life
$20–$35 228 228 $25.34 1.77 years$35–$46 4,012 4,012 $43.44 6.55 years$47–$57 2,982 1,064 $51.38 8.01 years
7,222 5,304
NOTE 18. BUSINESS SEGMENTS
The company is principally engaged in the growing and
harvesting of timber and the manufacture, distribution and
sale of forest products. The 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; doors; raw materials; and build-
ing materials distribution); pulp, paper and packaging
(including pulp, paper, containerboard, packaging, paper-
board 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.
NOTE 17. STOCK-BASED COMPENSATION PLAN
70
An analysis and reconciliation of the company’s business segment information to the respective information in the
consolidated financial statements is as follows:
For the three-year period ended December 27, 1998Dollar amounts in millions 1998 1997 1996
Sales to and revenues from unaffiliated customers:Timberlands $ 636 $ 797 $ 867Wood products 4,475 4,577 4,373Pulp, paper and packaging 4,312 4,609 4,648Real estate and related assets 1,192 1,093 1,009Corporate and other 151 134 217
$ 10,766 $ 11,210 $ 11,114Intersegment sales:
Timberlands $ 488 $ 520 $ 513Wood products 184 190 246Pulp, paper and packaging 74 95 88Corporate and other 13 35 35
759 840 882Total sales and revenues 11,525 12,050 11,996Intersegment eliminations (759) (840) (882)
$ 10,766 $ 11,210 $ 11,114Approximate contribution (charge) to earnings:(1)
Timberlands $ 487 $ 535 $ 503Wood products 183 172 302Pulp, paper and packaging 150 164 307Real estate and related assets 124 111 43Corporate and other (225) (186) (183)
719 796 972Interest expense(1) (324) (341) (338)Less capitalized interest 68 84 86Earnings before income taxes 463 539 720Income taxes (169) (197) (257)
$ 294 $ 342 $ 463Depreciation, amortization and fee stumpage:
Timberlands $ 55 $ 72 $ 79Wood products 188 171 148Pulp, paper and packaging 348 353 355Real estate and related assets 5 12 16Corporate and other 20 20 19
$ 616 $ 628 $ 617Noncash charges for closure or disposition of facilities:
Wood products $ 25 $ 40 $ —Pulp, paper and packaging 42 49 —Corporate and other 4 — —
$ 71 $ 89 $ —Equity in income/(loss) from equity affiliates, joint ventures
and limited partnerships:Timberlands $ 1 $ 3 $ —Pulp, paper and packaging 27 (10) 5Real estate and related assets 14 14 5
$ 42 $ 7 $ 10
Capital expenditures (including acquisitions):Timberlands $ 87 $ 75 $ 505Wood products 212 240 361Pulp, paper and packaging 776 327 415Real estate and related assets 2 3 9Corporate and other 32 24 37
$ 1,109 $ 669 $ 1,327Investments in and advances to equity affiliates,
joint ventures and limited partnerships:Timberlands $ 218 $ 216 $ —Pulp, paper and packaging 264 33 35Real estate and related assets (less reserves) 120 116 115
$ 602 $ 365 $ 150Assets:
Timberlands $ 1,675 $ 1,676 $ 1,578Wood products 2,129 2,128 2,080Pulp, paper and packaging 6,346 6,589 6,721Real estate and related assets 1,900 2,004 2,628Corporate and other 1,164 1,160 1,184
13,214 13,557 14,191Less: Intersegment eliminations (380) (482) (595)
$ 12,834 $ 13,075 $ 13,596
Certain reclassifications have been made to conform prior years’ data to the current format.(1)Interest expense of $17 million, $40 million and $67 million in 1998, 1997 and 1996, respectively, is included in the determination of“approximate contribution to earnings” and excluded from “interest expense” for financial services businesses.
71
Selected information related to the company’s operations by geographical area is as follows:
For the three-year period ended December 27, 1998Dollar amounts in millions 1998 1997 1996
Sales to and revenues from unaffiliated customers:United States $ 8,999 $ 8,985 $ 8,676Japan(1) 604 1,032 1,320Canada 514 510 473Europe 338 354 323Other foreign countries 311 329 322
$ 10,766 $ 11,210 $ 11,114Export sales from the United States:
Japan(1) $ 501 $ 893 $ 1,185Other 588 634 573
$ 1,089 $ 1,527 $ 1,758Earnings before income taxes:
United States $ 413 $ 432 $ 614Foreign entities 50 107 106
$ 463 $ 539 $ 720Long-lived assets:
United States $ 6,649 $ 7,426 $ 7,562Canada 1,345 903 930Other foreign countries 26 12 5
$ 8,020 $ 8,341 $ 8,497(1)1998 export sales to Japan include only one month’s sales of newsprint due to the company’s change in ownership of its newsprint subsidiary from80 percent to 50 percent in February.
NOTE 20. SELECTED QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
Dollar amounts in millions except per-share figures First Quarter Second Quarter Third Quarter Fourth Quarter Year
Net sales:1998 $ 2,603 $ 2,676 $ 2,736 $ 2,751 $10,7661997 2,608 2,909 2,823 2,870 11,210
Operating income:1998 188 161 225 82 6561997 104 212 233 220 769
Earnings before income taxes:1998 135 109 175 44 4631997 33 172 180 154 539
Net earnings:1998 85 69 110 30 2941997 21 109 114 98 342
Net earnings per common share:Basic
1998 .43 .34 .56 .15 1.481997 .10 .56 .57 .49 1.72
Diluted1998 .43 .34 .55 .15 1.471997 .10 .55 .57 .49 1.72
Dividends per common share:1998 .40 .40 .40 .40 1.601997 .40 .40 .40 .40 1.60
Market prices — high/low:1998 5715⁄16–4415⁄16 617⁄16–449⁄16 477⁄16–363⁄4 519⁄16–413⁄4 617⁄16–363⁄41997 505⁄8–441⁄2 551⁄4 –425⁄8 6315⁄16–515⁄8 603⁄4–461⁄16 6315⁄16–425⁄8
NOTE 19. GEOGRAPHICAL AREAS
The company attributes sales to and revenues from
unaffiliated customers in different geographical areas on
the basis of the location of the customer.
Export sales from the United States consist princi-
pally of pulp, paperboard, logs, lumber and wood chips
to Japan; containerboard, pulp, lumber and recycling
material to other Pacific Rim countries; and pulp and hard-
wood lumber to Europe.
Long-lived assets consist of timber and timberlands and
property and equipment used in the generation of revenues
in the different geographical areas.
72
NOTE 21. HISTORICAL SUMMARY
Dollar amounts in millions except per-share figures 1998 1997 1996 1995 1994
PER COMMON SHARE:
Basic net earnings (loss) from continuingoperations, before extraordinary item andeffect of accounting changes $ 1.48 1.72 2.34 3.93 2.86
Extraordinary item(4) $ — — — — —Effect of accounting changes $ — — — — —Basic net earnings (loss) $ 1.48 1.72 2.34 3.93 2.86Diluted net earnings (loss) from continuing
operations, before extraordinary item andeffect of accounting changes $ 1.47 1.72 2.33 3.92 2.86
Extraordinary item(4) $ — — — — —Effect of accounting changes $ — — — — —Diluted net earnings (loss) $ 1.47 1.72 2.33 3.92 2.86Dividends paid $ 1.60 1.60 1.60 1.50 1.20Shareholders’ interest (end of year) $ 22.74 23.30 23.21 22.57 20.86
FINANCIAL POSITION:
Total assets:Weyerhaeuser $ 10,934 11,071 10,968 10,359 9,750Real estate and related assets $ 1,900 2,004 2,628 2,894 3,408
$ 12,834 13,075 13,596 13,253 13,158Long-term debt (net of current portion):
Weyerhaeuser:Long-term debt $ 3,397 3,483 3,546 2,983 2,713Capital lease obligations $ 2 2 2 2 —Convertible subordinated debentures $ — — — — —Limited recourse income debenture $ — — — — —
$ 3,399 3,485 3,548 2,985 2,713Real estate and related assets:
Long-term debt $ 580 682 814 1,608 1,873Shareholders’ interest $ 4,526 4,649 4,604 4,486 4,290Percent earned on shareholders’ interest 6.4% 7.4% 10.2% 18.2% 14.3%
OPERATING RESULTS:
Net sales and revenues:Weyerhaeuser $ 9,574 10,117 10,105 10,869 9,281Real estate and related assets $ 1,192 1,093 1,009 919 1,117
$ 10,766 11,210 11,114 11,788 10,398Net earnings (loss) from continuing
operations before extraordinary itemand effect of accounting changes:
Weyerhaeuser $ 214 271 434 981 576Real estate and related assets $ 80 71 29 (182)(3) 13
$ 294(1) 342(2) 463 799 589Extraordinary item(4) $ — — — — —Effect of accounting changes $ — — — — —Net earnings (loss) $ 294 342 463 799 589
STATISTICS (UNAUDITED):
Number of employees 35,032 35,778 39,020 39,558 36,665Salaries and wages $ 1,645 1,706 1,781 1,779 1,610Employee benefits $ 347 355 370 408 357Total taxes $ 437 478 557 736 618Timberlands (thousands of acres):
U.S. fee ownership 5,099 5,171 5,326 5,302 5,587Long-term license arrangements 27,002 23,715 22,863 22,866 17,849
Number of shareholder accounts at year-end:Common 19,559 20,981 22,528 23,446 24,131Preferred — — — — —Preference — — — — —
Average common and common equivalentshares outstanding (thousands) 198,914 198,967 198,318 203,525 205,543
73
1993 1992 1991 1990 1989 1988
2.58 1.83 (.50) 1.87 1.56 2.68.25 — — — — —— — (.30) — — —
2.83 1.83 (.80) 1.87 1.56 2.68
2.56 1.82 (.50) 1.87 1.56 2.68.25 — — — — —— — (.30) — — —
2.81 1.82 (.80) 1.87 1.56 2.681.20 1.20 1.20 1.20 1.20 1.15
19.34 17.85 17.25 19.21 18.55 18.14
9,087 8,566 7,551 7,556 7,371 6,9833,670 9,720 9,435 8,800 8,605 8,401
12,757 18,286 16,986 16,356 15,976 15,384
2,998 2,659 2,195 2,168 1,502 1,644— — — 7 23 37— 193 193 193 — —— 188 204 204 204 198
2,998 3,040 2,592 2,572 1,729 1,879
2,086 2,411 2,421 2,637 2,006 2,3183,966 3,646 3,489 3,864 4,148 4,04415.2% 10.4% (4.4)% 9.8% 8.3% 14.6%
8,315 7,744 7,167 7,447 8,355 7,8611,230 1,522 1,606 1,619 1,826 1,4679,545 9,266 8,773 9,066 10,181 9,328
459 332 (25) 340 377 51668 40 (76) 54 (36) 50
527 372 (101)(5) 394 341(6) 56652 — — — — —— — (61) — — —
579 372 (162) 394 341 566
36,748 39,022 38,669 40,621 45,214 46,9761,585 1,580 1,476 1,531 1,563 1,423
347 323 321 318 325 292577 443 173 446 403 511
5,512 5,592 5,488 5,592 5,664 5,77517,845 18,828 13,491 13,491 13,324 13,324
25,282 26,334 26,937 28,187 29,847 30,379— — — — 12 25— — — — 443 351
204,866 203,373 201,578 203,673 204,331 207,785
(1)1998 results reflect nonrecurring charges of $71 million less relatedtax effect of $26 million, or $45 million.
(2)1997 results reflect net nonrecurring charges of $13 million lessrelated tax effect of $4 million, or $9 million.(3)1995 results reflect a charge for disposal of certain real estate assetsof $290 million less related tax effect of $106 million, or $184 million.(4)1993 results reflect an extraordinary net gain as a result ofextinguishing certain debt obligations of $86 million less related taxeffect of $34 million, or $52 million.(5)1991 results reflect restructuring and other charges of $445 millionless related tax effect of $162 million, or $283 million.(6)1989 results reflect net nonrecurring items of $401 million less relatedtax effect of $141 million, or $260 million.
w e y e r h a e u s e r c o m p a n y f o u n d a t i o n
G R A N T S AWA R D E D B Y G E O G R A P H Y D O L L A R A M O U N T P E R C E N TA G E
(thousands of dollars)
Northwest (Oregon and Washington) $ 2,577 36%South (Alabama, Arkansas, Georgia, Mississippi, North Carolina and Oklahoma) 1,802 26%Other (United States, Canada and other international ) 2,680 38%Total $ 7,059 100%
G R A N T S AWA R D E D B Y P R I O R I T Y D O L L A R A M O U N T
(thousands of dollars)
Education $ 2,607Civic, Community, Environment 1,933Culture and Arts 580United Way 914Other Health and Human Services 1,025Total $ 7,059
In 1998, the Weyerhaeuser Company Foundation celebrated its
5 0 T H Y E A R O F C O R P O R AT E P H I L A N T H R O P Y . Since 1948, the Foundation
has invested more than $122 million in grants to help fund thou-
sands of projects and has supported volunteer efforts on hundreds
of other activities—all with the goal of making a positive differ-
ence in the quality of people’s lives. The Weyerhaeuser Company
Foundation is one of the few sources of corporate giving in small
communities across the United States and Canada. We believe Weyerhaeuser’s success is linked to the health and
well-being of the communities where we do business and where our employees live, work and play. With the input of
more than 95 local employee-advisory committees, the Weyerhaeuser Company Foundation carefully directs millions of
dollars annually to these communities. Our grants support needs such as education, human services, community devel-
opment, arts and culture, and the environment.The increasing number of requests we receive each year reminds us that
we can do only so much with the funds we have. What we do, however, has a significant positive impact—especially
when paired with volunteer efforts. For that reason, and to bring volunteerism into the foreground of corporate
philanthropy, we’re proud to be “Making Waves” (Weyerhaeuser Active Volunteer
Employees).Through this program, employees make “waves” in their communi-
ties by initiating volunteer projects and nominating local nonprofit organizations
for cash awards.To date, more than 100 projects involving hundreds of volunteers,
and representing more than 100,000 volunteer hours, have been completed.
This is just one small way the Weyerhaeuser Company Foundation helps us
thank the many people and communities where we maintain operations, shows
the neighborly face of a large company, and shares our many skills and talents.
74
75
t e r m e x p i r e s 2 0 01
S T E V E N R R O G E L
Rogel, 56, has been president, chief executive officer and adirector of the company since December 1, 1997. He hadpreviously served as president and chief executive officerof Willamette Industries since 1995. He is also a director of Fred Meyer, Inc., and the Pacific Harbors Council BoyScouts of America and a trustee of Pacific University. (1)(5)
W I L L I A M D R U C K E L S H A U S
Ruckelshaus, 66, a director of the company since 1989,has been chairman of Browning-Ferris Industries, Inc.(waste services), since October 1988 and was chief execu-tive officer until his retirement in 1995. He has been president of William D Ruckelshaus Associates since 1987.He was administrator, Environmental Protection Agency,in the period 1983–85 and a senior vice president ofWeyerhaeuser Company in the period 1976–83. He is alsoa director of Cummins Engine Company, Inc, Coinstar, Inc,Monsanto Company,Nordstrom, Inc, and Solutia,Inc, (1)(2)(4)
R I C H A R D H S I N K F I E L D
Sinkfield, 56, a director of the company since 1993, is anexecutive vice president and a director of United AutoGroup, Inc (automobile retailing), a senior partner in thelaw firm of Rogers and Hardin in Atlanta and has been apartner in the firm since 1976. He is also a director of the Metropolitan Atlanta Community Foundation, Inc,and the Atlanta College of Art. He is a member of theBoard of Trust of Vanderbilt University and the Board ofGovernors of the State Bar of Georgia. He is a formerchairman of the board of Atlanta Urban League, Inc. (2)
J A M E S N S U L L I VA N
Sullivan, 61, a director of the company since 1998, is vice chairman of the board of Chevron Corporation (inter-national oil company) where he has been a director since1998. He joined Chevron in 1961 as a process engineer,was elected a vice president in 1983 and assumed his present position in 1989. He is a member of the Board ofTrustees of the University of San Francisco, the CaliforniaAcademy of Sciences, and the Committee for EconomicDevelopment. Mr Sullivan is a director of the AmericanPetroleum Institute and the United Way of the Bay Area.(3)
t e r m e x p i r e s 2 0 00
W J O H N D R I S C O L L
Driscoll, 69, a director of the company since 1979, waschairman of Rock Island Company (private investmentcompany) until his retirement in 1994. He is also a director of Comshare Incorporated, Northern States PowerCompany, The St Paul Companies, Inc, and John Nuveen & Company. (3)(4)
P H I L I P M H AW L E Y
Hawley, 73, a director of the company since 1989, is chairmanand chief executive officer of Krause Furniture, Inc.(retailing). He was chairman and chief executive officer ofBroadway Stores, Inc (formerly Carter Hawley Hale Stores,Inc), until his retirement in 1993. He was chairman of theCalifornia Retailers Association in the period 1993–95.He is a director of Aeromovel USA, Inc, and a trustee ofthe Haynes Foundation. (3)(4)
R T. H O N . D O N A L D F M A Z A N K O W S K I
Mazankowski, 63, a director of the company since 1997,was a Member of Parliament, Government of Canada, from1968-93, and served as a Deputy Prime Minister from 1986-93 and Minister of Finance from 1991-93. He is also adirector of the Power Group of Companies, CanadianUtilities Ltd, Shaw Communications Inc, IMC Global,Inc, Gulf Canada Resources Ltd, Gulf Indonesia ResourcesLtd, Golden Star Resources Ltd, Canada Brokerlink, GreatWest Life Assurance, Investor’s Group, and WeyerhaeuserCanada Ltd, a wholly owned subsidiary of the company.He is also a member of the Board of Governors of theUniversity of Alberta. (2)
t e r m e x p i r e s 1 9 9 9
M A R T H A R I N G R A M
Ingram, 63, a director of the company since 1995, has been chairman of Ingram Industries Inc (book and videodistribution, inland barging and insurance) since 1995, amember of the board since 1981 and was director of Public Affairs in the period 1979–95. She is also a directorof Ingram Micro, Inc, Baxter International, Inc, and First American Corporation. Mrs Ingram was the chairmanof the 1996 Tennessee Bicentennial Commission andserves on the boards of Vassar College, Ashley Hall andVanderbilt University. (2)
J O H N I K I E C K H E F E R
Kieckhefer, 54, a director of the company since 1990, hasbeen president of Kieckhefer Associates, Inc (investmentand trust management), since 1989 and was senior vicepresident prior to that time. He has been engaged in commercial cattle operations since 1967 and is a trustee ofJ W Kieckhefer Foundation, an Arizona charitable trust. (3)
G E O R G E H W E Y E R H A E U S E R
Weyerhaeuser, 72, a director of the company since 1960,has been chairman of Weyerhaeuser Company since 1988.Mr Weyerhaeuser joined the company in 1949, became itspresident in 1966 and was its chief executive officer in theperiod 1966–91. He is also a director of The Boeing Company,Chevron Corporation and SAFECO Corporation, and is amember of The Business Council. (1)(4)
(1) Member of the Executive Committee. Mr Weyerhaeuser is chairman.
(2) Member of the Accounting and Reporting StandardsCommittee. Mr Ruckelshaus is chairman.
(3) Member of the Compensation Committee. Mr Hawleyis chairman.
(4) Member of the Nominating and Management Organization Committee. Mr Driscoll is chairman.
(5) Mr Rogel has been elected chairman effective April 20, 1999.
b o a r d o f d i r e c t o r s
SENIOR OFFICERS
S T E V E N R R O G E L
President andChief Executive Officer
(Chairman, President & Chief Executive Officereffective April 20, 1999)
W I L L I A M R C O R B I N
Executive Vice President,Wood Products
R I C H A R D C G O Z O N
Executive Vice President,Pulp, Paper and Packaging
W I L L I A M C S T I V E R S
Executive Vice President andChief Financial Officer
R I C H A R D E H A N S O N
Senior Vice President,Timberlands
S T E V E N R H I L L
Senior Vice President,Human Resources
M A C K L H O G A N S
Senior Vice President,Corporate Affairs
T H O M A S M L U T H Y
Senior Vice President
G E O R G E H W E Y E R H A E U S E R J R
Senior Vice President,Technology
WEYERHAEUSER REAL ESTATE COMPANY
C S T E P H E N L E W I S
President
WEYERHAEUSER CANADA LTD.
C W I L L I A M G AY N O R
President andChief Executive Officer
WEYERHAEUSER ASIA LTD
H J A M E S F I T Z G E R A L D
President
WESTWOOD SHIPPING LINES
A R N F I N N G I S K E
President
WEYERHAEUSER FORESTLANDSINTERNATIONAL
C O N O R W B O Y D
President
WASHINGTON DC OFFICE
F R E D E R I C K S B E N S O N
Vice President, Federal and International Government Affairs
TIMBERLANDS
J C A R L J E S S U P
Vice President, South
S C O T T R M A R S H A L L
Vice President, Policy,Finance and Strategic Planning
R E X M CC U L L O U G H
Vice President,Forestry Research
J O H N P M CM A H O N
Vice President, Timberlands,External and Regulatory Affairs
J A C K P. TAY L O R J R
Vice President, West
WOOD PRODUCTS & DISTRIBUTION
L E E T A L F O R D
Vice President,Mississippi/Louisiana Operations
B I L L B L A N K E N S H I P
Vice President,Appearance Wood Business Group
J A M E S M B R A N S O N
Vice President, Plywood
R O D N E Y J D E M P S T E R
Vice President,Oriented Strand Board—West
LY N N E E N D I C O T T
Vice President,Southern Lumber
R E Y N O L D H E R T
Vice President,Canadian Lumber
D A N I E L M M CC O R M I C K
Vice President,Composite Products
H O W A R D S M E C K
Vice President,Oriented Strand Board—East
E D W A R D P R O G E L
Vice President,Human Resources
D AV I D K S H A R P
Vice President,Western Lumber
D AV I D T S T I L L
Vice President and General Manager,Building Materials Distribution
PULP, PAPER AND PACKAGING
C H A R L E S E C A R P E N T E R
Vice President, Fine Paper,Newsprint and Bleached Paperboard
C A R L W G E I S T J R
Vice President, Pulp
G E O R G E D H E N S O N
Vice President,Process Improvement
M I C H A E L A J A C K S O N
Vice President, Recycling
J A M E S R K E L L E R
Vice President,Containerboard Packaging
PA U L J K I F F E
Vice President,Manufacturing
R I C H A R D E L O D M I L L
Vice President, Chemicals
S U S A N M M E R S E R E A U
Vice President,Organizational Effectiveness,Containerboard Packagingand Recycling
P E T E R W S H E R L A N D
Vice President,Finance and Planning
CORPORATE
C R E I G H H A G N E W
Vice President, GovernmentAffairs and CorporateContributions
R I C H A R D B B A N K H E A D
Vice President, Engineering
J O H N S C O AT E S
Vice President and Managing Director,Pension Fund Investments
R O B E R T A D O W D Y
Vice President andGeneral Counsel
R I C H A R D L E R I C K S O N
Vice President,Environment, Healthand SafetyJ U D D H AV E R F I E L D
Vice President, Quality,Business Services and Aviation
M O N T Y E C M A L E
Vice President, Communications
R O S E M A RY F M AT T I C K
Vice President,Procurement and SupplyManagement
S A N D Y D M CD A D E
SecretaryH E N RY M M O N T R E Y
Vice President, Corporate R&D
T H O M A S A P E D
Vice President,Information Technology,Chief Information Officer
L A R RY W P O L L O C K
Vice President andDirector of Taxes
D A R I E N E R O S E E N
Vice President,Strategic Planning
K E N N E T H J S TA N C AT O
Vice President andControllerR I C H A R D J TA G G A R T
Vice President and TreasurerG R E G O RY H Y U C K E R T
Vice President,Labor Relations
c o r p o r a t e d a t a
76
C O R P O R AT E M A I L I N G A D D R E S S A N D T E L E P H O N E
Weyerhaeuser CompanyPO Box 2999Tacoma, Washington 98477-2999253-924-2345
W E Y E R H A E U S E R W O R L D W I D E W E B A D D R E S S
http://www.weyerhaeuser.com
A N N U A L M E E T I N G
April 20, 1999George Hunt Walker Weyerhaeuser BuildingFederal Way, Washington
Proxy material will be mailed on or about March 9, 1999to each holder of record of voting shares.
T R A N S F E R A G E N T A N D R E G I S T R A R
ChaseMellon Shareholder Services, LLCOverpeck Centre85 Challenger RoadRidgefield Park, New Jersey 07660
S H A R E H O L D E R S E R V I C E S
For address changes, to request information on electronicdeposit of dividends, to obtain information about youraccount, to obtain the quarterly earnings, or to requestinformation on the Dividend Investment Plan, please call:
Inside the United States800-561-4405800-231-8354 hearing-impaired
Outside the United States201-329-8660201-329-8354 hearing-impaired
G E N E R A L I N Q U I R I E S
ChaseMellon Shareholder Services, LLCShareholder RelationsPO Box 3315South Hackensack, New Jersey 07606
ChaseMellon has the ability to respond to many shareholderinquiries via the Internet.
Its web address is http://www.chasemellon.com
S T O C K E X C H A N G E S A N D S Y M B O L S
Weyerhaeuser Company Common Stock is listed on theNew York Stock Exchange (NYSE), the Chicago StockExchange and the Pacific Stock Exchange. The company’sNYSE symbol is WY.
A N N U A L R E P O R T S , F O R M 1 0 - K
To order a copy of Weyerhaeuser’s 1998 Annual Report,Form 10-K or the 1998 Annual Environmental PerformanceReport, call 800-551-4803, or write:
Weyerhaeuser CompanyCH 1K35CPO Box 2999Tacoma, Washington 98477-2999
A copy will be provided at no charge.
I N V E S T O R R E L AT I O N S C O N TA C T
Richard J Taggart253-924-2058
Bruce D Amundson253-924-3047
F O R WA R D L O O K I N G S TAT E M E N T S
This annual report may contain statements concerningthe company’s future results and performance that areforward looking statements within the meaning of thePrivate Securities Litigation Reform Act of 1995.The accuracy of such statements is subject to a number ofrisks, uncertainties and assumptions that may cause actual results to differ materially from those projected,including, but not limited to, the effect of general eco-nomic conditions, including the level of interest rates andhousing starts; market demand for the company’s prod-ucts; the effect of forestry, land use, environmental andother governmental regulations; the risk of losses fromfires, floods and other natural disasters and the company’sability to execute management’s strategy as described inthis annual report. The company is also a large exporterand is affected by changes in economic activity in Europeand Asia, particularly Japan, and by changes in currencyexchange rates and restrictions on international trade.These and other factors that could cause or contribute toactual results differing materially from such forward look-ing statements are discussed in greater detail in this annu-al report and other Securities and Exchange Commissionfilings of the company.
This report is printed entirely on Weyerhaeuser papers. Soy-based inks were usedwhich are more easily separated from the paper fiber in the repulping process.
The cover and main text portions of the report are printed on Weyerhaeuser Cougar.
The entire report can be recycled in most high-grade office paper recycling programs.Thank you for recycling.
The future is growing” is a trademark of Weyerhaeuser Company.
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To learn more about howWeyerhaeuser is becoming the
world’s best forest productscompany, visit us online at
For a report on the environment andWeyerhaeuser’s enduring values; visit
w w w. w e y e r h a e u s e r. c o m