Item 1. Business
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DESCRIPTION OF THE BUSINESS OF THE COMPANY
Weyerhaeuser Company (the company) was incorporated in the state of Washington in January 1900, as Weyerhaeuser Timber Company. It is principally engaged in growing and harvesting of timber and the manufacture, distribution and sale of forest products, real estate development and construction, and financial services. Its principal business segments include timberlands and wood products, pulp and paper products, real estate, and financial services. A description of each of these business segments follows.
Timberlands and Wood Products
The company owns approximately 5.5 million acres of commercial forestland in the United States (50% in the South and 50% in the Pacific Northwest), most of it highly productive and located extremely well to serve both domestic and international markets. The company has, additionally, long-term license arrangements in Canada covering approximately 17.8 million acres (of which 14 million acres are considered to be productive forestland). The combined total timber inventory on these U.S. and Canadian lands is approximately 245 million cunits (a cunit is 100 cubic feet of solid wood), of which approximately 75% is softwood species. 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 timberland, the company is engaged in extensive planting, suppression of nonmerchantable species, precommercial and commercial thinning and fertilization and operational pruning, all of which increase the yield from its fee timberland acreage.
Weyerhaeuser Company and Subsidiaries
Part I Item 1. Business - Continued
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The company's wood products businesses produce and sell softwood lumber, plywood and veneer; composite panels; oriented strand board; hardboard; hardwood lumber and plywood; doors; treated products; logs; chips and timber. These products are sold primarily through the company's own sales organizations. Building materials are sold to wholesalers, retailers and industrial users.
Sales by volumes by major product class are as follows (millions):
Selected product prices:
Weyerhaeuser Company and Subsidiaries
Part I Item 1. Business - Continued
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Pulp and Paper Products
The company's pulp and paper products businesses include: Pulp, which manufactures chemical wood pulp for world markets; Newsprint, which manufactures newsprint at the company's North Pacific Paper Corporation mill and markets it to West Coast and Japanese newspaper publishers; 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, which is primarily used in the production of corrugated shipping containers and manufactures and markets corrugated shipping containers for industrial and agricultural packaging; Paperboard, which manufactures bleached paperboard that is used for production of liquid containers and is marketed to West Coast and Pacific Rim customers; Recycling, which operates an extensive wastepaper collection system and markets it to company mills and worldwide customers; Chemicals, which produces chlorine, caustic and tall oil, which are used principally by the company's pulp and paper operations; and Personal Care Products, which manufactures disposable diapers sold under the private-label brands of many of North America's largest retailers (this business was sold in February 1993 through an initial public offering of stock).
Sales volumes by major product class are as follows (thousands):
Selected product prices (per ton):
Weyerhaeuser Company and Subsidiaries
Part I Item 1. Business - Continued
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Real Estate
The company, through its real estate subsidiary, Weyerhaeuser Real Estate Company, is a builder/developer of for-sale housing and apartments, develops commercial and residential lots for sale to users and other builders, builds commercial buildings for sale to institutional investors, and is an investor in joint ventures and limited partnerships.
Volumes sold:
Financial Services
The company, through its financial services subsidiary, Weyerhaeuser Financial Services, Inc., is involved in a range of financial services. The principal operating unit is Weyerhaeuser Mortgage Company, which has origination offices in 12 states, with a servicing portfolio of $8.4 billion covering approximately 112,000 loans throughout the country. Mortgages are resold in the secondary market through mortgage-backed securities to financial institutions and investors. Through its insurance services organization, it also offers a broad line of property, life and disability insurance. GNA Corporation, a subsidiary that specialized in the sale of life insurance annuities and mutual funds to the customers of financial institutions, was sold in April 1993. Republic Federal Savings & Loan Association, a subsidiary that operated in Southern California through 1991, was dissolved in 1992.
Volume information (millions):
Weyerhaeuser Company and Subsidiaries
Part I Item 2.
Item 2. Properties
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Timberlands and Wood Products
Facilities and annual production are summarized by major product class as follows (millions):
Principal manufacturing facilities are located as follows:
Softwood lumber and plywood Hardwood doors Alabama, Arkansas, Georgia, Idaho, Wisconsin Mississippi, North Carolina, Oklahoma, Oregon, Composite panels Washington, and Georgia, North Carolina, Alberta, British Columbia, and Oregon and Wisconsin Saskatchewan, Canada Oriented strand board Hardwood lumber Michigan, North Carolina, Arkansas, Oklahoma, Pennsylvania, and Alberta, Canada Washington, and Wisconsin Hardboard Oregon
Weyerhaeuser Company and Subsidiaries
Part I Item 2. Properties - Continued
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Pulp and Paper Products
Facilities and annual production are summarized by major product class as follows (thousands):
Principal manufacturing facilities are located as follows:
Pulp Containerboard Georgia, Mississippi, North North Carolina, Oklahoma, Carolina, Washington, and Oregon, and Washington Alberta, British Columbia, and Saskatchewan, Canada Packaging Arizona, California, Florida, Newsprint Georgia, Hawaii, Illinois, Washington Indiana, Iowa, Kentucky, Maine, Michigan, Minnesota, Paper Mississippi, Missouri, Nebraska, Mississippi, North Carolina, New Jersey, New York, North Washington, Wisconsin, and Carolina, Ohio, Oregon, Saskatchewan, Canada Tennessee, Texas, Virginia, Washington, and Wisconsin Paperboard Washington Recycling California, Colorado, Iowa, Kansas, Maryland, North Carolina, Oklahoma, Oregon, Texas, Virginia, Washington, and British Columbia, Canada
Chemicals Georgia, Mississippi, North Carolina, Oklahoma, Washington, and Saskatchewan, Canada
Weyerhaeuser Company and Subsidiaries
Part I Item 2. Properties - Continued
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Real Estate
Principal operations are located as follows:
Weyerhaeuser Company and Subsidiaries
Part I Item 2. Properties - Continued
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Financial Services
Principal operations are located as follows:
Weyerhaeuser Company and Subsidiaries
Part I Item 3.
Item 3. Legal Proceedings
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Trial began in May 1992 in a federal income tax refund case that the company filed in July 1989 in the United States Claims Court. The complaint seeks a refund of federal income taxes that the company contends it overpaid in 1977 through 1983. The alleged overpayments are the result of the disallowance of certain timber casualty losses and certain deductions claimed by the company arising from export transactions. The refund sought was approximately $29 million, plus statutory interest from the dates of the alleged overpayments. The company has reached an agreement with the United States Department of Justice to settle the portion of the case relating to export transactions. That settlement has been approved by the Joint Committee on Taxation of the U.S. Congress. The tax refund remaining in dispute is approximately $9 million plus statutory interest from the dates of the alleged overpayments. The court has not entered a decision on the remaining issue.
On March 6, 1992, the company filed a complaint in the Superior Court for King County, Washington against a number of insurance companies. The complaint seeks a declaratory judgment that the insurance companies named as defendants are obligated under the terms and conditions of the policies sold by them to the company to defend the company and to pay, on the company's behalf, certain claims asserted against the company. The claims relate to alleged environmental damage to third-party sites and to some of the company's own property to which allegedly toxic material was delivered or on which allegedly toxic material was placed in the past. Since December 1992, the company has agreed to settlements with six of the defendants. In July 1993, the trial court dismissed fourteen of the thirty-five sites named in the complaint. Appeal of those dismissals was heard by the Washington State Supreme Court on February 22, 1994. Trial on two sites is scheduled for October 1994.
In April 1991, the United States Environmental Protection Agency (EPA) issued an amended complaint adding the company as an additional defendant in an administrative proceeding under the Toxic Substances Control Act (TSCA). The proceeding seeks penalties of $171,000 from all defendants with respect to alleged improper storage and record keeping between 1980 and 1989 for certain transformers which contained polychlorinated biphenyls. The transformers, which the company sold in 1980, were located at the company's former hardboard siding mill in Doswell, Virginia. The company is currently negotiating with the EPA to settle the matter with no admission of liability or penalties.
In April 1992, the Georgia Department of Natural Resources, Environmental Protection Division issued a Notice of Violation to the company's Adel, Georgia particleboard plant citing violations of particulate emission standards. A consent order was entered into on September 18, 1992 assessing a $35,000 penalty and a stipulated penalty of $100 per day until the facility is in full compliance with particulate emission requirements. The Consent Order sets a compliance deadline of January 31, 1994. The Consent Order also requires that the company demonstrate that the facility is in compliance with regulations under the Prevention of Significant Deterioration (PSD) regulations under the Clean Air Act. The company has submitted compliance data and is awaiting the State's concurrence that it satisfies the consent order requirements.
The company has undertaken a review of all its wood products facilities for compliance with the PSD regulations and has disclosed PSD compliance issues to certain state agencies and the EPA. The company and the State of Mississippi Department of Environmental Quality (DEQ) have entered into a consent agreement concerning PSD regulations at two company facilities in Mississippi involving penalties of $170,000. The State of Alabama has issued a compliance order with penalties totaling $100,000 for noncompliance with PSD regulations at the company's Millport facility. The company and North Carolina's Division of Environmental Management have entered into a consent agreement for its Elkin, North Carolina facility involving penalties of $140,000 and are currently negotiating a separate consent agreement for its Moncure, North Carolina facility involving penalties of $140,000. The company has signed a consent agreement including penalties of $140,000 relating to PSD issues at the company's Wright City, Oklahoma facility with the State of Oklahoma Department of Environmental Quality. The company is negotiating a consent agreement with the State of Arkansas concerning PSD related issues for two facilities in that state involving $375,000 in total penalties for both facilities. Region V of the EPA has issued a Notice of Violation for permit violations at the company's Grayling, Michigan facility. The company is negotiating settlement of those alleged permit violations and other PSD related issues with the Michigan Department of Natural Resources and the EPA that may involve penalties of up to $416,000. In September 1992, the EPA issued a Section 114 Request for Information concerning PSD compliance at the company's oriented strand board and medium density fiberboard mills. In June 1993, the EPA issued a similar Section 114 request for the company's plywood and particleboard mills. The company is also undertaking a review of its pulp and paper facilities for PSD compliance.
Weyerhaeuser Company and Subsidiaries
Part I Item 3. Legal Proceedings - Continued
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On April 9, 1993, the company entered into a Stipulated Final Order (SFO) with the Oregon Department of Environmental Quality for alleged air emissions in excess of permit levels and PSD noncompliance at the company's North Bend, Oregon containerboard facility. The SFO establishes a compliance schedule for installing control technology. A supplemental SFO assessed upfront penalties of $247,000 and penalties of $500 per day until compliance is demonstrated. The SFO requires demonstrated compliance by December 1993 and a historical evaluation of the facility's PSD status. The company has submitted a plant site PSD review to the state and is awaiting its review.
In August 1992, the EPA issued an administrative complaint for the assessment of $215,000 in civil penalties against the company's Longview, Washington facility. The penalties are based upon alleged violations of the record keeping and storage provisions of the polychlorinated biphenyls rules contained in the TSCA. The company and the EPA settled the complaint for a maximum penalty of $118,150, 50% of which was paid when the settlement was signed. Payment of the remaining 50% was deferred and will be eliminated based on the expenditure of more than $118,150 by the company to dispose of PCB contaminated transformers at Longview during 1993.
On November 2, 1992, an action was filed against the company in the Circuit Court for the First Judicial District of Hinds County, Mississippi on behalf of a purported class of riparian property owners in Mississippi and Alabama whose properties are located on the Tennessee Tombigbee Waterway, Aliceville Lake, Cedar Creek and the Magoway Creek. The complaint seeks $1 billion in compensatory and punitive damages for diminution in property value, personal injuries and mental anguish allegedly resulting from the discharge of purported hazardous substances, including dioxins and furans, by the company's pulp and paper mill in Columbus, Mississippi and the alleged fraudulent concealments of such discharge. The complaint also seeks an injunction prohibiting future releases and the removal of hazardous substances allegedly released in the past. On August 20, 1993, a companion action was filed in Green County, Alabama on behalf of a similar purported class of riparian owners with essentially the same claims as the Mississippi case. The action was removed to the Federal District Court for the Northern District of Alabama, which subsequently remanded the case to state court.
Trial began in January 1994 in the United States District Court for the District of Alaska of claims filed against Weyerhaeuser by two corporations with which Weyerhaeuser had entered into financing arrangements, a marketing agreement, and a technical assistance agreement. The plaintiffs claim that Weyerhaeuser breached contractual and common law duties by allegedly failing to adequately market and ship the plaintiffs' products, misrepresenting its marketing and shipping capabilities, and acting to further its interests at the plaintiffs' expense. The plaintiffs in the First Amended Complaint, filed in May 1992, seek an unstated amount of damages described as more than $50 million in compensatory damages plus not less than $75 million in punitive damages. The claim for punitive damages has been dismissed by the trial court.
The company is also a party to various proceedings relating to the clean up of hazardous waste sites under the Comprehensive Environmental Response Compensation and Liability Act, commonly known as "Superfund," and similar state laws. The Environmental Protection Agency and/or various state agencies have notified the company that it may be a potentially responsible party with respect to other hazardous waste sites as to which no proceedings have been instituted against the company. The company is also a party to other legal proceedings generally incidental to its business. Although the final outcome of any legal proceeding is subject to a great many variables and cannot be predicted with any degree of certainty, the company presently believes that any ultimate liability resulting from the legal proceedings discussed herein, or all of them combined, would not have a material effect on the company's financial position.
Weyerhaeuser Company and Subsidiaries
Part III Item 10. Directors and Executive Officers of the Registrant
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Part IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
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Financial Statements Weyerhaeuser Company and Subsidiaries 1
Financial Statement Schedules Schedule V - Property and Equipment Schedule VI - Allowance for Depreciation and Amortization of Property and Equipment Schedule VIII - Valuation and Qualifying Accounts Schedule IX - Short-term Borrowings Schedule X - Supplementary Income Statement Information
Exhibits Exhibit 3 - Articles of Incorporation and Bylaws Exhibit 10 - Material Contracts (a) Agreement with N. E. Johnson (b) Agreement with W. R. Corbin Exhibit 11 - Statement Re: Computation of Per Share Earnings (incorporated by reference to page 52 of the 1993 Weyerhaeuser Company Annual Report) Exhibit 13 - Portions of the 1993 Weyerhaeuser Company Annual Report specifically incorporated by reference herein Exhibit 22 - Subsidiaries of the Registrant Exhibit 24 - Consents of Experts and Counsel
Reports on Form 8-K The registrant has not filed a report on Form 8-K during the last fiscal quarter of the period for which this Form 10-K is filed.
1 Incorporated in Part II, Item 8