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

•

•

•

•

•

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

•

•

•

•

•

•

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.”



8

s e n i o r m a n a g e m e n t t e a m



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

18

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

20


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


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


400

300

200

100

094 95 96 97 98


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 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.


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


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


800

600

400

200

094 95 96 97 98


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 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


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


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.


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.


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


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.


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.


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.


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.


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.


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.


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:


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)


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


53


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


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


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


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.


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



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:


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.


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:


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.


• 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:


Domestic earnings $413 $432 $614Foreign earnings 50 107 106

$463 $539 $720

Provisions for income taxes include the following:


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:


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:


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


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


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:


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:


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


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:


Dwelling units $ 180 $ 207Residential lots 237 223Commercial lots 120 79Commercial projects 27 56Acreage 19 27Other inventories 1 1

$ 584 $ 593

NOTE 10. ACCRUED LIABILITIES


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:


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:


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


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

weyerhaeuser annual reports 1998

Economy & Finance

Transcript of weyerhaeuser annual reports 1998