"^Weyerhaeuser Annual Report 1981

Uri:\/EUi,r{ OF VA.'ASH:rJG.TOr.' —Face hm^ef^y^f^frfilter, a logged -K: works amidst volcanic ash remaining from the ilwell E. Mohi festor Relations, Weyerh May 18, 1980 eruption of Mount St. Helens. [>any, Tacoma, WA 98471* Salvage of the timber blown down by the moun­ IA copy will be provided at no char Corporate Mailing Address tain's explosion is two-thirds complete on the Weyerhaeuser Company Tacoma, WA 98477 Weyerhaeuser lands involved, and by the end Director of Investor Relations of 1982 more than 15,000 acres will have Lowell E, Moholt Annual Meeting been reforested by planting crews ivho follow the Aptil 15, 1982 loggers. The company's large Longview, Weyerhaeuser Headquarters Building Washington, manufacturing complex has been Federal Way, Washington Pfoxy material will be mailed almost entirely supplied by wood salvaged on or about March 3, 1982 to from the blast zone, since September, 1980. each holder of record of voting shares. Dividends and Change of Address Communications concerning dividends and change of address shoufd be directed to the Cotp- Contents: orate Secretary, Weyerhaeuser Company, Tacoma, WA 98477. Transfer Agent Presidents Message 2 Communications concerning transfer requirements and lost stock certificates should be Timberlands and Raw Materials 6 addressed to the Transfet Agent. The First Jcfsey National Bank ^! One Exchange Place Wood Products 12 Jersey City, NJ 07 303 Dividend Investment Plan Fiber Products 16 A dividend investment plan is available to holders ul common shares. For brochure and enroll­ Weyerhaeuser Real Estate Company 20 ment forms write to the Corp­ orate Secretary, Weyerhaeuser Diversified Businesses 23 Company, Tacoma, WA 98477. Common Shares Traded on: New Vbrk Stock Exchange, Financial and Statistical Report 23 Midwest Stock Exchange, Pacific Stock Exchange Preferred and $4-50 Preference Shares Traded on: New York Stock Exchange 5.20%, 7.65%, 8-5/8%. 8.90%o and 7.95%: Debentures and 8%c Notes Traded on: New \bfk Stock Exchange Highlights Weyerhaeuser Company and Subsidiaries

1981 1980 Net sales $4,501,512,000 $4,535,814,000 Earnings before extraordinary charges i 234,444,000 $ 321,487,000 Extraordinary charges, net of related tax effects $ 6,100,000 $ 43,500,000 Net earnings $ 228,344,000 $ 277,987,000 Depreciation, amortization and fee stumpage $ 372,227,000 $ 410,761,000 Cash flow from operations $ 673,732,000 $ 806,918,000 Capital expenditures $ 768,351,000 I 768,403,000 Dividends paid: Common $ 163,858,000 $ 162,931,000 Preferred $ 11,155,000 $ 11,160,000 Preference $ 10,812,000 $ 354,000 Working capital $ 574,415,000 $ 508,435,000 Long-term debt, including current maturities $1,417,217,000 $1,299,388,000 Shareholders' interest $3,107,865,000 $2,836,754,000

DATA PER COMMON SHARE: Net earnings: 1st quarter 2nd quarter .55 .76 3rd quarter .34 .23"' 4th quarter .30") .27"' $ 1.62 $ 2.12

Dividends: 1st quarter $ .321/2 $ .321/2 2nd quarter .321/2 .321/2 3rd quarter .321/2 .321/2 4th quarter .321/2 .321/2 $ 1.30 $ 1.30 Market prices—high/low: 1st quarter 4034-321/4 $ 375/8-28 2nd quarter 391/4-331/2 361/2-28 3rd quarter 36/4-26^8 38 -32 4th quarter 311/2-24V8 36^4-30

Shareholders' interest 21.44 20.96

NUMBER OF SHAREHOLDER ACCOUNTS AT END OF YEAR: Common 43,306 44,274 Preferred 2,970 3,312 Preference 1,290 3

"'After extraordinary charge of $ .05 per common share. *^'After extraordinary charge of $.29 per common share. '"After extraordinary charge of $. 06 per common share and disposal and closure costs of $. 19 per common share. ^president's Message In this report last year, I Net Sales #-^uggested that 1981 would be a more "normal"

72 73 74 75 76 77 78 79 80 81 Columbus, Mississippi, aiming at mid-year 1982 Startup and entry into this new product line. We will Earnings and Cash also be adding lightweight linerboard grades to our Dividends* product mix, with startup of a new machine at Val­ (PerCommon Share) liant, Oklahoma, and will enter the structural compo­ site panel industry when our new Grayling, Michigan I\ mill begins producing Structurwood® late this t year. Meanwhile, our new-technology lumber mill iiiini at Raymond, Washington, is well up into its startup 78 79 80 81

curve, and we have several significant energy projects i Cash Dividends 'Before extraordinary charges oft.33 in 1978, S.35 ii underway. Engineering planning for modernization of 1980 andS-05 in 198!. our kraft pulp mill at Longview, Washington — where Weyerhaeuser Company first entered the pulp and paper industry 50 years ago—will be completed in 1982. When will recovery begin? How fast will it occur? It's impossible to make firm predictions, in view of the uncertainties we see immediately ahead. The range of possible market conditions spans from further deterioration to rapid recovery. With that much uncertainty, we are preparing ourselves for the worst case. But, we are anticipating a middle ground — bad conditions in the first two quarters, as the housing recession continues, with improvement in Japanese markets being offset by softness in some pulp, paper, and packaging markets . . . with gradual recovery in the second half and a stronger 1983. Inflation is being squeezed out of the economy, albeit with attendant difficulties and severe strains. In a dramatic reversal of half a century of policy, incentives are being provided for savings and productive investment in the United States. The housing and forest products industries have been casualties during the Total Taxes transition period. But, like all other segments of the (Per Common Share) economy, we will benefit in the longer term if these policies and programs succeed. Even so, the United J States and the world in the 1980s are facing a slower- growth, more turbulent economic environment than anyone could have guessed even a few years ago. There

72 73 74 75 76 77 78 79 80 81 has been a significant transfer of wealth and income Total Wages, Salaries from both the developed and developing world to the and Ben^ts OPEC nations — a transfer that still continues, al­ (Per Common Share!) though at a slower pace. In response, the developed nations, including the United States, are allocating a significant portion of capital investment toward lower­ ing energy use and to allow use of nonpetroleum fuels. I One inevitable result will be slower growth rates in the developed economies than had been expected. 72 7J 74 75 76 However, the growth rates in consumption, driven by population growth and standards of living, will still require large new supplies of basic commodities, including those that we pro­ duce and rriarket. Companies such as ours which possess strong financial positions should face strong growth prospects in the 1980s — provided they understand the changing needs of their markets and have matched their manufacturing and marketing capabilities to those changes. Our balance sheet remained strong even in such a wretched year as 1981, as did our cash flow. We were able to continue to rebalance and expand our manufacturing and marketing efforts. And, we increased the productivity of our total system, with new equipment and facilities utilizing improved processes and controls. We are also implementing changes in the structure of our organization itself, to assure the maximum benefit from the commitment, creativity, and skills of our people. This organizational redesign will be a major 1982 priori­ ty. The worldwide marketing capability that we have built in the past two decades, the facility development programs that we have been able to continue through this down-cycle, our industry-leading technological and forestry capability, and our organizational and human strengths should giyt us an increasing competitive advantage in this turbulent decade. The decade opened for us with catastrophies — the explosive eruption of Mount St. Helens, the longest and deepest housing recession since the 1930s, and a double-dip recession in the United States, mirrored by world-wide low growth and depressed trade flows. Salvage of our trees blown down by St. Helens now is nearly two-thirds complete, and millions of young trees which we have re­ planted are speeding the recovery of the devastated zone. The hous­ ing crash and recessions are precursors to recovery in an economy too long mismanaged. These natural and economic events have tested our company severely in very different ways. We are meeting these challenges, and I believe will emerge a stronger, leaner, and more flexible organization as a result of them, ready to meet the more positive prospects and problems of the rest of the 1980s. imberlands and Raw Materials Timber is in abundant supply in the United States. Growth f nationally still exceeds harvest by .approximately 30 percent! ,/i ^f the trees that are growing in the United States, some 20 < percent will be consumed by insects, disease, fire, and other natural disasters before harvest. % Massive volumes still rot, unuse<; in the nation's forests each year. Why, then, have timber values in certam areas •and specifically, those in our ownership— appreciate d in value in real terms for many decades? There are wo reasons: location of those areas, and the qualities of the imber growing in them. Wood is an organic material with varying species and character- istics, which dictate the products'^ which can best be manufactured and the economic value that can be obtained from manufacturing. In turn, the economics of capturing those values depends significantly on the ability to place primary manufacturing plants adjacent to a concen­ trated wood resource which is well located, from a transportation .*N- standpoint, to serve the appropriate end-product markets. Those producers with the best matchups of wood, markets, and converting facilities have strategic and economic advantage. ±he commercial Where the resource / geography mix gives such an forest cycle begins advantage, the economic values over time tend to flow with a recently planted seedling, back primarily to the resource, and thus to the land­ opposite, and ends owner, whether public or private. Even in the United decades later, be­ States, manufacturer ownership of the resource tends to low, with wood chips produced in be the exception, and Weyerhaeuser Company is in fact lumber and ply­ the only major U.S. forest products company with an wood manufacture awaiting conver­ h t, annual harvest from its own lands that exceeds the sion into pulp and converting requirements of its mills. The Com­ paper. •»«4^,,..,», ...w pany began as a land and timber owner, and as it has grown through the 1900s, has worked continually to maintain its position as a manufacturer and marketer integrated with strategically located and concentrated timber-growing lands. That strategy showed its worth in 1980 and 1981, permitting the Company to main­ Raw Materials Sales tain strong internal cash flows, and thus an industry- and Purchase Volume leading capital investment slate, during the longest and deepest forest products depression since the 1930s. Harvesting and manufacturing im­ provements which improve the utilization of harvested timber are major factors in the continuing increase in value of this underlying Weyerhaeuser Company re­ source. So are marketing efforts, and technological I Raw Materials and Chips Sold improvements in processing which upgrade the prod­ I Logs and Chips Purchased uct mix and thus increase intrinsic wood values. However, a major avenue for increasing the value of the forest asset over time is the management of that resource itself to improve productivity per acre. Weyerhaeuser Company owns more than 5.9 million acres of highly productive commercial forest land, well located to serve both United States and international markets. These lands contain a mer­ chantable timber inventory of nearly 11 billion cubic feet—more than that of any competitor — of which more than 90 percent is prime commercial softwood species, including Southern pines, Douglas fir, ponderosa pine, hemlock, cedar, true firs, and spruce. Not ac­ counted for in that inventory are our young forests, now growing toward merchantability. As of last year, we had planted a total of more than 1.3 billion trees on more than 1.8 million of our acres, lb increase productiv­ ity of the land, we had fertilized a cumulative total of 1.9 niillion acres, and pre-commercially thinned nearly 600,000 acres. In the South, much of our planting is being done with genetically improved seedlings. Outplanting of genetically improved stock is still in its initial stages in the West. To illustrate the magnitude of the potential for productiv­ ity increase: When Weyerhaeuser was formed in 1900 to purchase Pacific Northwest timberlands, the combination of unmanaged forests and of the limited conversion and utilization technologies then known, gave us, in terms o^economically usable wood production, an average annual growth per acre of 13 cubic feet per year. By the time our present High Yield Forest plantations reach merchantable size, on many of those same acres, we expect to be utilizing growth per acre which will have totalled more than 500 cubic feet of biomass per year. Ownership and management of such a resource carries with it substantial risks: political risks, includ­ ing those of changes in tax and regulatory policy, and particularly risks associated with the forces of nature. The most dramatic example of the latter in 1981 continued to be the Mount St. Helens volcano, which damaged 68,000 acres of Weyerhaeuser lands—including 15,000 acres of young timber plantations—in May, 1980. For the past IVi years, our Southwest Washington region manufacturing complex has been supplied almost entirely by logs salvaged from the blast zone. This salvage effort is now two-thirds complete, and by next winter logging activity will again be dispersed through other portions of the 473,000 acre St. Helens Tree Farm. We planted 5,000 acres within the blast zone in 1981, and have scheduled 10,000 acres for planting in 1982. By the time the reforestation effort in the volcanic zone is completed in 1984, 49,000 acres of Weyerhaeuser land will have been put back into production. (Some of the ownership affected included lakes, streams, meadows, and other non-forested acres; other acres were affected by landslides, pyro- clastic flows and mudflows to such extent that they do not yet lend themselves to timber growth.) Meanwhile, various proposals for future management of parts of the St. Helens damage yT. recently thin­ ned stand of area for scientific study and as a future tourist attraction second-growth continue to be part of the political process. All of the timber demonstrates man's impact upon proposals to date include some portion of Weyerhaeuser stimulating forest lands, including still-productive lands. The com­ growth. pany has cooperated with many of these planning ef­ forts. We hope for a relatively quick decision. Our preference of course is that, if any of our lands are to be included in such an area, they be exchanged for public lands in the same general area. That course (as opposed to outright payment for them) minimizes the future impact on our raw material supply in the region. Our Timberlands and Raw Materials oper­ l\lature can ations manage a corporate resource. They supply our intervene drasti­ converting plants, and since our sustainable annual cally in forest harvest is larger than our converting needs, we sell management, as this scene of Mount timber, logs and wood chips to other mills. We St. Helens salvage also conduct operations and forestry prescriptions on logging (opposite) indicates. But, the land owned by others. In the United States, we newly planted provide forestry assistance to 2,650 landowners of seedling, growing 700,000 acres under our Tree Farm Family program, in ash-covered ground, demon­ and provide those owners a future market for their strates man's role harvests. Under harvest license arrangements, we in assisting natu­ also have access to 8.1 million acres in British Colum­ ral recovery. bia and nearly 1 million acres in eastern Canada, and, through a joint venture, to hardwoods in the Malaysian [||j%" state of Sabah. In 1981, domestic log and chip markets and timber markets were soft, with logs and timber impacted by the housing depression. A similar housing slump in Japan and economic problems in Korea also brought the West Coast log market to its lowest point in more than a decade; only China showed stability as an export-log market during most of the year, although the Japanese market — by far the largest—was beginning to recover at year-end. The economic slowdown in Japan also had an adverse impact on chip export markets. T "TT T^oodProducts The largest single market for wood-based building I Jy/materials, for both United States and Canadian producers, is the W new-housing construction industry in the United States. Since 1979, that industry has been in the longest and deepest slump since the Great Depression, brought on by over- due effort^^^l^^ control inflation through restricting growth in the national ^^B|^^oney supply. One result of this long- delayed iction was^^HpFincreasing interest rates for home mort- gages ^to unheard-of levels. Most Americans simply were unable ^to qualify financially for new home mortgages at these rates, even when mortgage funds were available. 1981 saw the lowest level ^of housing starts, and the lowest level of lumber pro- duction, in ithe United States since World War IL At the same time, two of the major export markets for lumber—Europe and Japan— also had declining markets. As the world's largest lumber producer and one of the larger U.S. producers of plywood and composite panels, Weyerhaeuser was of course heavily impacted by the housing depression and the softness in the European and Japanese markets. .he oldest Nevertheless, we kept our major facilities in operation manufactured most of the time, with operating rates much higher wood product— than those reported by the rest of the industry, and lumber sawn from logs —remains the thus were able to soften the impact of the housing dis­ basic building ma­ aster for most of the skilled employees who operate terial in the U. S. and many other our mills. How? Our large amount of fee timber nations. With new provides us with the lowest-cost raw material in the in­ housing depressed, dustry. Our ownership of the resource permits us flexi­ the do-it-yourself market has grown; bility in matching wood qualities with market-mix the new deck, be­ requirements. The integration of our wood products low, is an example. and pulp and paper facilities (which use lumber and plywood manufacturing byproducts as raw materials), and our twenty-year program of developing export markets and distribution systems, also helped provide the answer. We simply have more options than do most of our competitors, and these options, exercised in a timely, coordinated manner, permitted us to maintain strong internal cash flows through most of the year. We maintained a strong position even in some of the soft export markets, and moved increasing volumes to the strong ones, which included the Persian Gulf area, Mexico, and, for most of the year, Australia. In December, we made our first lumber shipment to China. In domestic marketing, we emphasized the repair-and-remodel and home-center markets—which grew, as homeowners who had intended to "upgrade" housing were frustrated by mortgage rates and decided to improve their existing homes rather than to buy new ones. We also continued our long-standing emphasis on industrial and other non- housing markets, and on those of our 69 customer service centers which are located in regional markets which were least impacted by the housing crash. We continued to introduce improved controls and new technology to improve utilization, upgrade values, and lower costs in our existing mills, and, at Raymond, Washington, we began production in a new-technology mill designed to use small logs. We also moved on the organizational front, introducing team-production concepts, productivity incentive systems, and removing excess layers of supervision at several mills. Improved productivity—both through improved technology and improved or­ ganization and management systems—will remain the key to successful competition in the wood products industry through the 1980s, even after housing recovery. We already have made substantial progress in this area. For instance, in the West, it took an average of 5.4 manhours of labor to produce a unit of lumber 10 years ago. In our mills in 1981, it took 4 manhours. The Western plywood industry, on average, requires 4.7 manhours to produce a unit of sanded plywood, according to trade association reports; at our most productive mills, production per man- hour is 20 percent higher. And, for the past five years, our nine Southern plywood plants have occupied eight of the top ten positions of the 21

14 Product Sales Volume plants that report productivity and margins to the American Plywood Association. Our wood products 4.0 ^—^*V^ mills also continue to lead the industry in employee 3.0 safety records. Housing demand in the United 2.5 States has been frustrated by interest rates for the past "° ^0^^""''^^^'''^''^ 1.5 two years, but much of that unfilled demand will be

1.0 ^"~'-'3^3^^sS^ brought to bear on the market in future years. Mean­

1 II lllii^^ 77 78 79 80 81 while, some significant portion of both industry capac­

• Lumbet (1)

H Softwood Plywood a id Veneer(2) ity and of contractor capability has been lost in the

Hardwood Plywood and Veneer (5) • Particleboard (3) current cycle. Inventories, understandably, are low • Hardboard (4) i I) Million board feet throughout the manufacturing and distribution sys­ (2) Million square feet I Wl (3) Million square feet < VA") (4) Million square feet i^he") (5) Million square fe^ tem. Thus, when recovery does begin, it should be reflected in rapidly firming lumber and plywood prices. We will, late in 1982, apply new technology to enter a new wood-products market, with startup scheduled for our new Structurwood® structural panel plant at Grayling, Michigan. This plant will use species of wood not heretofore considered "commercial" to manufacture a composite panel with load-bearing qualities. Even with the growing, un­ satisfied, pent-up demand for new U.S. housing, structural changes which have occurred in the nation's financial markets make it uncertain whether a new-housing "boom"—such as those of recovery cycles during the 1970s — will be characteristic of the coming recovery. We would expect a more gradual recovery, as the housing industry adjusts to its new environment. Nevertheless, even a gradual recovery will require signifi­ cant increments of lumber, plywood, and other panels. Those companies which come through this latest cycle in strong financial position, which understand the changing needs of their markets, and which have con­ tinued to improve and make more productive their manufacturing facilities and organizational capabilities, will have favorable growth prospects in this industry. We believe we are strongly positioned in all of these respects.

15 : w liber Products Products made from pulped TheIhe Company rWwood fibers — pulp, paperboard, paper, news- doubled its news­ JL print, and packaging — were, in contrast to wood print production in products and raw material — operating in strong 1981 with startup of the new machine markets until late in 1981. Although the general eco­ at the North nomic recession began to bring about softness in most Pacific mill at Longview, Wash­ of these markets late in the year, relatively high indus­ ington, opposite. try and company operating rates prevailed. It is in Rising from the this sector of the forest products industry that the Mississippi forest, the new Columbus largest long-term growth opportunities exist, with mill will bring world-wide consumption rising. And, the larger share us into the light­ weight coated of Weyerhaeuser's capital expenditures in 1981 was paper market for directed toward expansions in these product lines. the first time, in Our fiber business observed its 50th anniversary 1982. last November. Since making the decision, at the depth of the Great Depression, to enter this industry, the company has marketed 20 million tons of pulp alone. In 1982 our production capacity for primary fiber products will reach 4.4 million tons per year. In May 1981, our second newsprint machine began operating at Longview, Washington, doubling our manufacturing capacity for this product, sold in the "Western U.S. and in Japan, to more than 400,000 tons per year. By next fall, two other major expansions will go into production — our new lightweight coated paper mill h> at Columbus, Mississippi, and the new lightweight inerboard machine at our Valliant, Oklahoma, mill, newsprint, an industry we entered in 1979, these will new \^products for us, further diversifying and expanding mar- .^^keting mix. We have installed boiler capacity creasing pollution-control capacity at our )gon, linerboard mill to allow future ex- nianufacturing; we also installed there the industry's first extended nip press, which lowers energy demand, in­ creases production volume, and improves product quality. Planning is underway for the modernization of our Longview, Washington, kraft pulp and paper complex. We also acquired a corrugating medium mill at North Bend, Oregon, during 1981 from Menasha Corporation, as well as a shipping container plant at Anaheim, California, and secondary fiber (wastepaper collecting and distribution) operations in Ore­ gon. Our secondary fiber system's capacity now is 600,000 tons per year, operating as a part of our pulp business. We use recyclable papers and paperboards as raw material in our own mills, and sell them to other domestic and international markets. In a sense, these collection and recycling systems help extend the forest resource base. This secondary resource will become increasingly important as a supplemental raw material. Pulp and paper manufacturing has been one of the more energy-intensive industries in the United States. Through improved controls and processes, conservation, and switching from oil and gas to wood and bark waste boilers and coal, however, we will in the ten-year period ending in 1985 have reduced our total use of oil and gas by 50 percent. During the same period, we will have increased our pulp, paper and paperboard production by 40 percent! By constructing leading edge technology mills and through continued infusions of new process controls and modernized equipment in older mills, our JLhe largest use fiber products manufacturing system is aiming at high of pulped wood productivity. Our mills are also exceptionally well fibers is for indus­ located, from a transportation cost standpoint, to serve trial and agricul­ tural packaging. both domestic and all international markets—includ­ Here, a shipping ing those of the Pacific Rim nations, where the most container begins to rapid growth in consumption of pulp and paper prod­ take form. ucts is expected to occur during the remainder of this century. We made a concentrated effort in 1981 to identify production bottlenecks that could be elimi­ nated without significant expenditure. The result: $7 received in 1981 for every dollar expended during the

18 year on this program — and the benefits will continue Product Sales Volume

(Millions) through the future. Leading edge technology and 1.4 technical expertise help give us a productivity advan­ " /""^"^ tage in many of our mills, but organizational efficiency ^. and employee motivation also have major impact upon .6 ^ operations, and we are making major efforts to improve .4 both in all of our mills. ^^i^"i^^^^ ^^^ ^^•^ ^ 77 78 79 80 81

m Pu!p(l) • Shipping Containers (3) M Paperboard (2)* • Milk Cartons (2) Paper(2) • Newsptint<3) il) Air-dry metric torn (2) Torn (i)Metri(Tons "1977 volume includes r.J„

19 Eyerhaeuser Real Estate Company, a wholly owned subsidiary, is one of North America's largest builders of single-family homes. Thus, its 1981 contribution to Weyerhaeuser Company — pre-tax income of $30 million on sales of $407 mil­ lion could be considered surprisingly strong -^ , in view of the year's housing debacle. The company was adversely affected by the housing depression, with reduced sales rates for single-family homes, and with increasing numbers of prospective pur- \JF' __ chasers unable to qualify for or obtain mortgage financing. Its pre-tax contribution was $21 million less than in 1980, and much of the profit that was made last year came from increasing emphasis on commercial development, and from continued strong performance of Weyerhaeuser Mortgage Company, its mortgage-banking arm. The firm also became heavily involved in downtown renovation programs during the year in three major West Coast cities—San Diego, yT. landmark Seattle, and Tacoma — where Weyerhaeuser Company building in Seattle's was founded in 1900. "WRECO's" operating waterfront district, its interior removed companies are mostly located in the nation's areas of for rebuilding and strongest population growth, and thus in areas in its exterior newly which the pent-up demand for new housing is highest cleaned, is part of our six-block and where housing recovery should come most quickly. Waterfront Center Its operating subsidiaries include: • The Babcock project. More typi­ Co., Coral Gables, Florida, one of Florida's major cal is the residen­ tial development, residential builders. • Centennial Homes, Inc., a below. leading Dallas and Ft. Worth, Texas devel­ oper. • Cornerstone Development Co., Seattle, which is rehabilitating historic buildings and building new ones in Waterfront Center, which will be a six- block mixed commercial/residential focal point in Seattle. It also has begun work on a project that will revitalize the core of downtown Tacoma with a new Unit Sales''' hotel, office buildings, and commercial development. Like Waterfront Center, the Tacoma project will pre­ serve and rehabilitate historic buildings, with new J, r^ development blended in. • Pardee Construction Co., Los Angeles, one of the largest residential devel­ opers in the Los Angeles, San Diego, and Las Vegas areas is also taking part in a downtown redevelopment program, the Park Row Marina project in San 77 78

; Single Family Houses Diego. n The Quadrant Corporation, Bellevue, I Multifemily Units (1) Does not include joint-venture developments Washington; it is a residential and commercial devel­ oper in Washington, Oregon and British Columbia. It is well along with the development of the 1,600-acre West Campus planned community near corporate headquarters in Federal Way, Washington, and has begun development of Auburn 400, a major office park facility at Auburn, Washington. • Scarborough Corporation is headquartered in Marlton, New Jersey, with land development activity in New Jersey and Florida and residential developments in New Jersey and northern Vir­ ginia. • Trendmaker Homes, a leading Houston, Texas builder- developer. • Westminster Company, Greensboro, North Carolina, with development activities in North Carolina, South Carolina, and Georgia. • Weyerhaeuser Venture Company, with offices in Los Angeles and Bellevue, Washington, which engages in joint ventures with various residential and commercial development firms. • Win­ chester Homes, Baltimore, Maryland, which engages in residential development in the Maryland suburban counties in the Baltimore — Washington, D.C. area. • In addition, the real estate subsidiary operates Weyerhaeuser Mortgage Company, Los Angeles, a mortgage banking firm which at the end of 1981 was servicing a $4.5 billion mortgage portfolio of 114,000 home mortgages in 27 states. In January, 1982, Weyerhaeuser Mortgage acquired servicing of 84,000 loans, com­ prising an additional servicing portfolio of $3-1 billion, making it now the second-largest mortgage banking firm in the United States.

22 diversified Businesses Weyerhaeuser Company operates four "developing businesses organized into a separate Diversified DBusiness Group. They are Personal Care Products, Nursery Products, Chemicals, and Aquaculture. Personal Care Products is the largest of the four in terms of outside sales. A major producer of absorbent products from fluff pulp, it is the nation's largest supplier of private-label disposable diapers, and it is diversifying into other personal and health-care absorbent products. This business in recent years has had the highest growth rate, on trend, of any Weyerhaeuser Company operation. Chemicals rivals Personal Care Products in total sales—but since Weyerhaeuser Company itself is the business' largest single cus­ tomer, its outside sales total is considerably smaller. This business is a major producer of chlorine and caustic, used in manufacturing pulp and paper. It also produces and sells tall oil and other wood derivatives, and is a marketer of urea fertilizers, some of which are also sold to Weyerhaeuser for forest fertilization. Nursery Products operates wholesale nurseries for landscaping and indoor ornamental plants. Shemin Nurseries, Inc., based in Connecticut, supplies garden and floral products to landscape architects throughout the Eastern United States. Oakdell, headquartered in Florida, markets tropical houseplants through the Eastern and Mid­ western states. Hines Wholesale Nurseries, with facilities in Texas and California, distributes ornamental plants for landscaping nation- ally. Aquaculture, the smallest of the businesses in this group, has

Sales" attracted the most public attention because it is a pioneer in the effort to develop salmon ocean ranching as a viable industry in the United States. This concept, which has been particularly successful in Russia and Japan, involves the hatching, rearing and release of young salmon into the open ocean, recapturing those which return to spawn. The business operates a hatch­ ery at Springfield, Oregon, utilizing warm waste­ waters from our linerboard mill as a heating source (1) Not in eluding sales to Weyerhaeuser Company to promote early growth. Smolt are released from 23 facilities at Newport and Coos Bay, Oregon. Returns of spawning salmon have increased in every year since the start of commercial-scale releases in 1978. However, they have not yet reached a large enough percentage to insure that this developmental venture will grow to a stand-alone busi­ ness. Thus, the businesses now within the group include one sensi­ tive to U. S. birth rates, one somewhat sensitive to construction rates and household incomes, one sensitive to operating rates in the pulp and paper industry, and one sensitive to the survival rates and homing instinct of andronomous fish. Diversified Businesses, as a group, with these and other new ventures, will steadily become a more important factor in the total Weyerhaeuser Company picture.

24 Financial and Statistical Report

Contents: Description of the Business of the Company 26 Financial Review 27 Auditors' Report 30 Consolidated Earnings 31 Consolidated Balance Sheet 32 Consolidated Shareholders' Interest 34 Consolidated Changes in Financial Position 36 Notes to Financial Statements 37 Summary Financial Information— Weyerhaeuser Real Estate Company 30 Historical Summary 32 Statistical Summary 34

?5 Description of the Business of the Company Weyerhaeuser Company and Subsidiaries

Weyerhaeuser Company was incorporated in the state of Washing­ The principal collective bargaining agreemenrs expiring in 1982 ton in January 1900, as Weyerhaeuser Timber Company. Ir is cover approximately 3,300 employees in the Company's solid principally engaged in rhe growing and harvesring of timber and wood businesses in rhe South and Mid-South and 600 employees the manufacture, distribution and sale of foresr producrs. The in the Company's pulp and paper operarions in Wisconsin. segmenrs comprising the forest products business are building Approximarely 2,000 of the Company's employees are involved materials (including lumber, softwood and hardwood plywood in rhe acriviries of its real esrate subsidiaries. and veneer, particleboard, hardboard, logs, chips and timber); The major markers, both domestic and foreign, in which the pulp, newsprint, papet and paperboard products; and container Company sells its forest products are highly competitive, with and packaging products (including shipping containers and milk numerous strong sellers competing in each. Many of the Com­ cartons). Weyerhaeuser Real Estate Company, a wholly owned pany's foresr producrs also compete with substitutes for wood and subsidiary, is engaged in real esrate and related businesses. wood fiber producrs. Weyerhaeuser Real Estate Company also op- At the end of 1981, Company data indicated that the volume erares in highly comperirive markers, compering with numerous of merchanrable rimber on Company-owned forest land in the well-financed and well-managed regional and national firms in United States was approximarely 108 million cunirs (a cunir is both on-site residenrial construction and in morrgage financing. 100 cubic feer of solid wood). The relarionship between cubic In addirion, modular, mobile and prefabricared home production measuremenr and rhe quanriry of end producrs rhat may be pro­ competes with on-site residenrial consrruction. duced from timber varies according ro the species, size and qual­ Weyerhaeuser Company is subjecr to federal, srate and local pollu­ ity of timbet, and will change through time as the mix of these tion control laws and regularions in all areas in which it has variables changes, lb sustain its timber supply, the Company is operaring faciliries. Compliance wirh these laws and tegulations, engaged in extensive planting, seeding, fertilization, suppression principally such federal legislative enactments as the Water Pollu­ of nonmerchantable species, precommercial and commercial thin­ tion Control Acr, Clean Air Act, Resource Conservarion and Re­ ning, all of which increases rhe yield from its timberland acreage. covery Act, Toxic Substances Control Act and the Surface Mining Weyerhaeuser's forest products are sold primarily through the Reclamation and Enforcemenr Acr, usually involves capiral ex- Company's own sales organizations. Building marerials are sold to pendirures as well as operaring cosrs. The Company cannor quan­ wholesalers, rerailers and industrial users. Pulp, newsprinr, paper tify the aggregare future amounrs of capital expenditures and and paper producrs are sold ro indusrrial processors, indusrrial us­ operating costs for compliance with these laws and regulations be­ ers, converrers and wholesalers. Conrainer and packaging prod­ cause in some insrances regularions have nor been issued or per­ ucts are sold primarily to users, including industrial companies formance standards and equipment requirements have not been and food processors. defined. In addition, pollution control facilities and equipment In 1981, rhe Company's sales to customers outside the United meeting compliance standards frequently serve orher purposes States totaled $1.2 billion, or 27% of rotal sales and, the Com­ such as exrension of facility life, increase in capacity and reduction pany believes, contribured a higher proportion of aggregare of raw material requirements. Capital expenditures for facilities operating profirs (see Note 1 of Notes to Financial Statements on and equipment meeting compliance standards, including those pages 37 through 49). All sales ro customers outside the United that also serve other purposes bur reflect relatively low rares of re­ States are subject to risks related to international trade and ro turn on investment, are esrimated by rhe Company to represent political, economic and other factors which vary from country to approximarely 10% of total capital expenditures for facilities and country. equipment. Operarion and maintenance of pollution control re­ lated faciliries do not represenr a marerial porrion of rhe Com­ Substantially all of the Company's 45,000 employees are pany's rotal operaring costs, and the Company does not expect employed in its forest products business, and of this number that its compliance with pollution control laws and regulations approximately 28,000 are covered by collecrive bargaining will have a material adverse effecr on its competitive position. agreements, which generally are negotiated on a multiyear basis.

Sales Total Taxes (Millions of Dollars) i i 11

72 73 74 7' 72 73 74 75 76 77 78 79 80 81

I Taxes Other Than Income

26 Financial Review Weyerhaeuser Company and Subsidiaries

SUMMARY OF CONSOLIDATED EARNINGS

Millions of Dollars Except Per Share Figures 1981 1980 1979 1978 1977 Net sales $4,501.5 $4,535.8 $4,422.6 $3,799.4 $3,282.8 Weyerhaeuser Real Estate Company earnings 30.0 51.2 57.0 52.8 47.2 Other income, net 45.8 33.3 37.0 19.9 14.6 4,577.3 4,620.3 4,516.6 3,872.1 3,344.6 Operating costs 3,723.2 3,594.5 3,325.7 2,869.7 2,543.9 Selling, general and adminisrrative expenses 373.5 336.4 303.5 255.8 229.5 Research and developmenr expenses 54.3 52.2 45.0 51.0 46.3 Interest expense incurred 146.9 121.5 113.3 113.0 103.4 Less interesr capitalized 31.2 13.8 8.7 9.2 8.0 Earnings before income taxes and extraordinary charges 310.6 529.5 737.8 591.8 429.5 Income taxes 76.2 208.0 226.2 179.6 128.4 Earnings before extraordinary charges 234.4 321.5 511.6 412.2 301.1 Exrraordinary charges 6.1 43.5 41.5 Ner earnings $ 228.3 $ 278.0 $ 511.6 $ 370.7 $ 301.1

Per common share: Earnings before extraordinary charges $ 1.67 $ 2.47 $ 4.01 $ 3.18 $ 2.28 Extraordinary charges .05 .35 .33 Net earnings $ 1.62 $ 2.12 $ 4.01 $ 2.85 $ 2.28 Dividends paid $ 1.30 $ 1.30 1 1.071/2 $ .85 $ .80

CONDENSED CONSOLIDATED BALANCE SHEET

December 27, December 28, December 27, December 28, Millions of Dollars 1981 1980 1981 1980

Assets Liabiliries and shareholders' inrerest Current assets: Cash and shorr-rerm Current liabilities: investments $ 104.6 $ 109.4 Notes and accounts payable $ 238.3 $ 266.6 Receivables 606.7 491.7 Accrued liabiliries 357.3 334.7 Inventories 482.8 490.7 Accrued income taxes 51.3 16.7 Prepaid expenses 27.3 34.6 Total currenr liabilities 646.9 618.0 Toral currenr assers 1,221.4 1,126.4 Investment in Weyerhaeuser Long-term debt 1,404.1 1,269.5 Real Estate Company 232.9 220.3 Properry and equipmenr 3,283.5 2,978.9 Capital lease obligations 136.1 147.3 Capiral leases 121.0 135.7 Timber and timberlands 619.8 576.0 Other liabiliries 421.5 367.2 Other investments, receivables and deferred charges 237.9 201.4 Shareholders' inrerest 3,107.9 2,836.7 $5,716.5 $5,238.7 $5,716.5 $5,238.7

^

27 Weyerhaeuser Company and Subsidiaries

Sales in 1981 were $4.5 billion, 1% lower rhan 1980 and net earn­ improved rheir 1981 performance over 1980 as rhey experienced fa­ ings, before extraordinary charges, were $234 million ($1.67 per vorable domestic price and volume movemenr and newsprinr was common share) down 27% from 1980. Both years include exrraor­ positively impacted through higher realizarions and increased vol­ dinary charges for the estimated losses and additional operating ex­ umes as rheir second newsprint machine starred up during rhe year. penses anticipated from the eruprions of Mounr St. Helens in 1980 The strength in these fiber businesses started to soften somewhat as —$.05 per common share in 1981 and $.29 in 1980. An addirional the economy went into recession late in the year. 1980 extraordinary charge of $. 06 per common share represents set­ There has been a significant swing in effective income tax rares tlement of certain anritrusr suits btought against the Company. during rhe 1979-1981 period. The Company, like many others in During 1980 the Company also permanently currailed operations at the foresr producrs industry, normally reports a major porrion of its cettain of its facilities and disposed of additional facilities which, in income as capital gain for federal income tax purposes. The lower the aggregate, reduced afrer-rax earnings by $. 30 per common capital gains tax rare on timber gives recognirion to the extended share. Operating cash flow of $674 million was down 17% from the growing period and relared investment risk enrailed in bringing $807 million generated in 1980. timber to matuiity over a 20 to 50 year period. An exceprion ro this- general pattern occurs, however, during a period of sharp downturn The decrease in earnings before extraordinary charges and mill clo­ in end product prices — such as the decline occasioned by the cur­ sure costs in 1981 and 1980 compared ro 1979 was principally due rent collapse in the domestic housing market. Because timbet mar­ to weakness in raw marerial markets, reflecred in lower volumes ket values, which are rhe basis for establishing the level of capital and prices for export logs and the continuing weakness in markets gain, are set as of the firsr of the year, ir is possible for the resultant relared to United States residenrial construcrion. 1981 operating capital gain to significantly exceed taxable income. In this situa­ earnings in these areas deteriorated rhrough rhe year, with the pace tion, a lower level of current tax payable can resuir from a tax calcu­ of deteriorarion increasing late in the year as the normal seasonal lation based on the application of normal corporare income rax rares slowdown in homebuilding was compounded by conrinuing high ro roral raxable income. While rhis improves cash flow, current year morrgage rates. The Company was able ro mainrain operating rares earnings can be somewhat penalized. The 1980 and 1981 tax provi­ ar its lumber and plywood mills substantially higher rhan those te­ sions are computed on the basis set forrh in rhis paragraph and, as a ported fof the industty as a whole, but many Company operarions consequence, the years' earnings are lower and cash flows grearer were working short work-weeks and raking downtime. rhan would have been the case using the capital gains tax Offsetting the weakened raw marerial markers and the United alternarive. The 1981 effecrive rax rare increase is more rhan offser, States housing slump was the performance in 1980 of mosr of the however, by the significantly increased invesrmenr tax credit and by pulp and paper based businesses. Higher prices for marker pulp, the lower tax rare applicable to the Mount St. Helens log salvage containerboard and printing papers combined wirh shipments of activities. increased volumes of export pulp and containerboard were principal facrors conrributing to this performance. This strength did not to­ Operating costs have increased during rhese periods in parr as a tally carryover inro 1981 as our pulp business was unfavorably im­ funcrion of changing volumes and in parr due to highet raw mare­ pacted by strikes in British Columbia and Norrh Carolina, reducing rial, energy and labor cosrs. Selling, general and administrative and producrion volumes which more rhan offser higher domesric and research and development expenses have also increased as a resuir of exporr prices. In addirion, rhe paper business experienced mechan­ borh rhe Company's expanded operations and higher salaries and ical problems in certain of its facilities, offsetting price increases wages. realized during rhe year. Our paperboard and packaging businesses

Total Wages, Salaries Capital Expenditures and Benefits and Depreciation (Millions of Dollars) (Million s of Dollars) 1400 800 H^ 1300 700 1200 wm • 1100 III 600 .11 1000 ^ 900 • 500 1 III 800 r 400 700 ^ 1

300 • ^^^^EH r 1" ^H 200 ^H ^EH 100

jgH 72 73 74 75 76 77 78 79 80 81 72 73 74 75 76 177 78 79 80 81

Wt Capital Expenditures tt Wages and Salaries Timber and Timberlands. Reforestation I Employee Benefits ffi Capital Expenditures Lands, Roads, Buildings, Machinery and Equipment

I Depreciation, Amortization and Fee Stumpage

28 Weyethaeuser Company and Subsidiaries

The Company's capital expenditures amounted to $768 million As a matter of policy, the Company is committed to the mainte­ during the year but are currently expected to be at a significantly nance of a sound, conservarive capiral strucrure. This commir­ lower rate in 1982 as major projects start up in the second half of ment is based upon two considerarions: The obligation to prorecr the year. The Company had approximately $155 million in capital rhe underlying interesrs of irs shareholders and lenders and rhe expenditures commirted on these major projecrs ar year-end 1981, desire to have access, at all times, to all major financial markets. representing constmction activities at the Company's pulp and paper The basis for the firsr consideration is self-evident. The basis for complex at Columbus, Mississippi, at its Valliant, Oklahoma con­ rhe second is derived from the long-rerm nature of the Company's tainerboard mill and ar its Grayling, Michigan Srructurwood facility. investment decisions and the scale of the permanenr capital needs During rhe year rhe second newsprinr machine was successfully associated with the businesses to which it is committed. starred up at North Pacific Paper Company, a joinr venture mill be­ The important elements of the policy governing rhe Company's tween Jujo Paper Company, Ltd. and Weyerhaeuser Company. capiral srrucrure are as follows: Spending has been in the following ateas (millions): • The proportion of debt and equity comprising rhe Company's permanent capital will reflect both its basic earnings capaciry 1981 1980 1979 1978 1977 and the real value and unique liquidity characreristics of its foresr resource base under adverse business condirions. This Bleached fiber products $266 $150 $128 $137 $295 will assure an appropriate margin of prorecrion for its equity Containerboard and and debt holders. The trend targer rario of long-rerm debr and shipping containers 100 54 78 137 35 capiral lease obligations to total permanent capital is 35%. Raw materials 32 57 50 48 76 This rario, on average, has been approximarely 35% over the Wood producrs 99 161 154 105 89 last five years and stood at 33% at year-end 1981. This ratio, Timber and timberlands 103 88 114 61 93 however, does not give effect to the current value of the Com­ Logging roads 33 35 34 33 33 pany's timberland resources since it is calculated on equity Othet 69 61 49 67 76 based on the historical cost of its assets, including timberlands, $768 $768 $605 $477 $582 rarher than reflecting the current marker value of these assets. • Maturing shorr-rerm debr and the stiucture of long-term debt These capital expenditutes and other corporate requirements have will be managed in a judicious manner to minimize liquidity been met as follows (millions): risk. In rhis connection, the Company had a nominal amounr of shorr-term debt outstanding at year-end and its long-term 1977-1981 debt maturities are as shown in Nore 7 of Nores to the Finan­ cial Statements. Cash sources: As can be seen from rhe rable, the cash needed to meet the Com­ Cash flow from operations $3,537 pany's requiremenrs has been generared largely from its operating Proceeds from new debr and equity 652 cash flow. Cash was also generared from maturing investments in Other transacrions, ner 94^ shorr-term financial assets, the sale of assets, bank borrowings and $4,283 the issuance of commercial paper, debenrures and equity securities. Cash requirements: Capital expenditures 3,200 lb assure its ability to meet future commirmenrs, a $ 130 million, Debr reducrions 180 eight year revolving/term loan credit atrangement has been estab­ Cash dividends 737 lished with a group of banks and the Company, Weyerhaeuser Working capiral 43 Real Esrate Company and Weyerhaeuser Mortgage Company, an Treasury shares acquired 123 unconsolidated wholly owned subsidiary of Weyerhaeuser Real Es­ tate Company, have established various bank lines of credit in the 14,283 maximum aggregare sum of $291 million. In addirion, a portion of the $105 million year-end cash and short-term investment porrfolio as well as $70 million of revenue bond proceeds held by rrustees will be utilized to meet future needs. The Company may also issue new equiry or debentures as marker opporrunities occur and, as in the past, may choose to pre-fund future needs.

29 Weyerhaeuser Company and Subsidiaries

Cash dividends paid on common, preferred and preference shares provides useful insights into the erosive effects of inflarion on rhe amounted to $186 million in 1981. Although 1981 dividends of Company's earnings and return on invested capital. $1.30 per common share represenred a paymenr to common During the year rhe Accounring and Reporting Standards Com- shareholders of 70% of common share earnings before rhe exrraor­ mitree comprised of four outside directors reviewed with the dinary charge, dividends over rhe past five years have averaged Company's management and with its public accountants the scope 38%, which is within the range of rhe Company's srared dividend and resulrs of the Company's internal and external audit activities objecrive over time. and the adequacy of the Company's internal accounring conrrols. Certain supplementary financial informarion is presenred in an at- The Committee also reviewed current and emerging accounring rempr to portray the effect of both general inflation and changes and reporring requiremenrs and practices affecting the Company. in the prices of cerrain specific types of assets upon the Company's financial position and reported results of continuing operations. This informarion is included on pages 47 through 49 of this re­ port. The informarion deals with inflation and changing prices as rhey affecr inventories, planr and equipment and relared costs and

Auditors' Report To the shareholders of Weyerhaeuser Company: rhe results of their operarions and rhe changes in rheir financial We have examined the consolidated balance sheet of Weyerhaeuser posirion for each of the three years in rhe period ended December Company (a Washingron corporarion) and subsidiaries as of De­ 27, 1981, in conformity with generally accepred accounting cember 27, 1981, and December 28, 1980, and the related state­ principles applied on a consistent basis. ments of consolidated earnings, shareholders' interest and changes in financial position for each of the three years in rhe period ended December 27, 1981. Our examinations were made in accordance Seattle, Washington, wirh generally accepted auditing standards and, accordingly, February 8, 1982. included such tests of the accounting records and such other audir- ARTHUR ANDERSEN & CO. ing procedures as we considered necessary in the circumstances. In our opinion, the financial statements referred ro above presenr fairly rhe financial position of Weyerhaeuser Company and sub­ sidiaries as of December 27, 1981, and December 28, 1980, and

30 Consolidated Earnings Weyerhaeuser Company and Subsidiaries

For the three years ended December 27, 1981 Dollar amounts in thousands except per share figures 1981 1980 1979 Net sales $4,501,512 $4,535,814 $4,422,653 Weyerhaeuser Real Estate Company earnings (Notes 1 and 8) 30,017 51,156 57,013 Other income, net (Note 1) 45,750 33,315 37,005 4,577,279 4,620,285 4,516,671 Operating costs 3,723,167 3,594,508 3,325,734 Selling, general and administrative expenses 373,475 336,389 303,541 Research and development expenses 54,322 52,201 44,995 Interest expense incurred 146,860 121,471 113,280 Less interest capitalized 31,189 13,771 8,673 4,266,635 4,090,798 3,778,877 Earnings before income taxes and extraordinary charges 310,644 529,487 737,794 Income taxes (Note 5) 76,200 208,000 226,171 Earnings before extraordinary charges 234,444 321,487 511,623 Extraordinary charges net of related tax effects (Notes 5 and 11) 6,100 43,500 Net earnings $ 228,344 $ 277,987 $ 511,623 Per common share (Note 1): Primary earnings: Earnings before extraordinary charges $ 1.67 % 2.47 $ 4.01 Extraordinary charges .05 .35 Net earnings 1 1.62 $ 2.12 $ 4.01 Fully diluted earnings: Net earnings 1 3.95 Dividends paid $ 1.30 $ 1.30 $ 1.071/2

See notes on pages 3 7 through 49.

31 Consolidated Balance Sheet Weyerhaeuser Company and Subsidiaries Weyerhaeuser Company and Subsidiaries

December 27, December 28, December 27, December 28, Dollar amounts in thousands 1981 1980 1981 1980 Assets Liabilities and shareholders' interest

Current assets: Current liabilities: Cash, including interesr bearing time deposits Notes payable 14,315 $ 2,668 $88,180and $118,616 $ 42,525 $ 68,766 Short-term investments, at cost which approximates market 62,025 40,678 Current maturities of long-term debt 13,135 29,899 Receivables, less allowances $7,301 and $5,575 (Note 5) 606,727 491,684 Current maturities of capital lease obligations (Note 3) 12,114 10,978 Inventories (Note 2): Accounts payable 198,784 223,045 Logs and chips 73,111 93,581 Accrued liabilities: 113,787 Lumber, plywood and panels 99,908 Payroll—wages and salaries, incentive awards and Pulp and paper 36,130 27,823 Paperboard, containers and cartons 60,433 44,427 retirement and vacation pay provisions 169,286 161,931 Other products 78,735 73,574 Taxes—social security, unemployment and real and personal property 47,974 Total product inventories 348,317 353,192 40,007 Interest 33,987 32,211 Other 106,006 100,555 Materials and supplies 134,433 137,486 Accrued income taxes 51,332 16,684 Prepaid expenses • 27,321 34,607 Total current liabilities 646,933 617,978 Total current assets 1,221,348 1,126,413 Long-term debt (Note 7) 1,404,082 1,269,489 Capital lease obligations (Note 3) 136,069 147,254 Weyerhaeuser Real Estate Company, including Defetred income taxes 229,732 151,982 advances (Notes 1 and 8) 232,910 220,254 Deferred pension and other liabilities (Note 6) 164,736 186,567 Other investments and receivables, principally revenue bond proceeds Minority interest in subsidiaries 27,073 28,668 held by trustees, at cost which approximates market 175,527 140,221 Shareholders' interest (Note 8): Property and equipment, at cost (Note 3): Preferred shares: authorized 7,000,000 shares; issued 3,983,720 Land 95,831 84,256 and 3,985,025 shares $2.80 convertible cumulative, Buildings and improvements 654,946 601,452 first series, $ 1.00 par value (liquidation value $50.00 a share) 3,984 3,985 Machinery and equipment 3,638,214 3,363,060 Preference shares: authorized 40,000,000 shares, issued: Rail and truck roads and other 430,888 407,336 272,158 shares convertible cumulative, first series, $ 1.00 par value 4,456,104 4,819,879 (liquidation value $25.00 a share) 272 272 31,998 shares convertible cumulative, second series, $ 1.00 par value Less allowance for depreciation and amortization 2,073,801 1,918,266 (liquidation value $50.00 a share) 32 2,746,078 2,537,838 3,300,000 shares $4.50 convertible cumulative, series A, $ 1.00 par value (liquidation value $50.00 a share) 3,300 Common shares: authorized 140,000,000 shares; issued Construction in progress 537,435 441,084 128,622,462 shares, $ 1.875 par value 241,167 241,167 Leased property under capital leases, principally Other capital 403,528 246,603 ocean-going vessels, less allowance for amortization Retained earnings 2,490,595 2,448,076 $71,938 and $56,190 (Note 3) 121,040 135,712 3,142,878 2,940,103 Timber and timberlands, at cost less fee stumpage Treasury common shares, at cost; 1,048,221 shares and charged to disposals (Note 4) 619,825 575,966 3,094,520 shares 35,013 103,349 Deferred financing and other charges 62,327 61,204 Total shareholders' interest 3,107,865 2,836,754 $5,716,490 $5,238,692 $5,716,490 $5,26-8,692

See notes on pagej 3 7 through 49.

33 Consolidated Shareholders' Interest Weyerhaeuser Company and Subsidiaries Weyerhaeuser Company and Subsidiaries

Number of Shares Outstanding Dollar Amounts in Thousands

Common $2.80 Other Capital Total $2.80 Preferred Preference Common Retained Treasury Shareholders For the three years ended December 27, 1981 Preferred Preference Issued Treasury Shares Shares Shares Preferred Preference Common Earnings Shares Interest Balance at December 31, 1978 4,000,000 128,622,462 4,656,535 $4,000 $ — $241,167 $191,794 $ — $58,101 $1,976,406 $(157,676) $2,313,792 Net earnings — — — — — 511,623 — 511,623 Cash dividends: $2.80 Preferred—$2.80 a share — — — — — (11,197) — (11,197) Preference — $. 336 a share — — — — — (92) — (92) Common — $1,075 a share — — — — — (133,948) — (133,948) Stock options exercised (7,706) — — — — (20) — 262 242 Purchases of treasury common shares 41,900 — — — — — — (1,213) (1,213) Treasury common shares used in acquisitions (1,473,735) — — — — (6,290) — 49,875 43,585 Preference shares used in acquisitions 272,158 — 272 — — 7,621 — — — 7,893 Preferred shares converted (1,475) (1,785) (1) — — (71) — 12 — 60 — Othertransactions, net (15,770) — — — — — (64) — 547 483 Balance at December 30, 1979 3,998,525 272,158 128,622,462 3,199,439 3,999 272 241,167 191,723 7,621 51,739 2,342,792 (108,145) 2,731,168 Changes resulting from 1980 poolings-of-interests (116,408) — — — — — (3,834) 1,742 3,888 1,796 Restated 3,998,525 272,158 128,622,462 3,083,031 3,999 272 241,167 191,723 7,621 47,905 2,344,534 (104,257) 2,732,964 Net earnings — — — — — — 277,987 — 277,987 Cash dividends: $2.80 Preferred —$2.80 a share — — — — — — (11,160) — (11,160) Preference — $ 1.30 a share — — — — — — (354) — (354) Common—$1.30 a share — — — — — — (162,931) — (162,931) Stock options exercised (28,304) — — — — — 52 — 953 1,005 Purchases of treasury common shares 295,800 — — — — — — — (8,661) (8,661) Treasury common shares used in acquisitions (216,458) — — — — — 23 — 7,229 7,252 Preferred shares converted (13,500) (16,350) (14) — — (647) — 109 — 552 — Other transactions, net (23,199) — — — — — (183) — 835 652 Balance at December 28, 1980 3,985,025 272,158 128,622,462 3,094,520 3,985 272 241,167 191,076 7,621 47,906 2,448,076 (103,349) 2,836,754 Net earnings — — — — — — 228,344 — 228,344 Cash dividends: $2.80 Preferred —$2.80 a share — — — — — — (11,155) — (11,155) Preference: first series — $ 1.30 a share — — — — — — (354) — (354) second series — $. 70 a share — — — — — — (22) — (22) series A—$3-1625 a share — — — — — — (10,436) — (10,436) Common — $1.30 a share — — — — — — (163,858) — (163,858) Stock options exercised — — — (18,965) — — — — — 64 — 633 697 Preference shares sold — 3,300,000 — — — 3,300 — — 158,194 — — — 161,494 Treasury common shares used in acquisitions — — — (2,031,453) — — — —" — (2,849) — 67,855 65,006 Preference shares used in acquisitions — 31,998 — — — 32 — — 1,568 — — — 1,600 Preferred shares converted (1,305) — — (1,581) (1) — — (63) — 11 — 53 — Other transactions, net — — — 5,700 — — — — — — — (205) (205) Balance at December 27, 1981 3,983,720 3,604,156 128,622,462 1,048,221 $3,984 $3,604 $241,167 $191,013 $167,383 $45,132 $2,490,595 $ (35,013) $3,107,865

See notes on pages 3 7 ttjrough 49.

35 Consolidated Changes in Financial Position Weyerhaeuser Company and Subsidiaries

For the three years ended December 27, 1981 Dollar amounts in thousands 1981 1980 1979 Working capital was increased by: Earnings before extraordinary charges $ 234,444 $ 321,487 $511,623 Earnings charges not affecting working capital: Depreciation, amortization and fee stumpage 372,227 410,761 332,594 Deferred income taxes, net 73,161 118,170 (645) Working capital provided from operations before extraordinary charges 679,832 850,418 843,572 Extraordinary charges 6,100 43,500 — Working capital provided from operations 673,732 806,918 843,572 Proceeds from sale of preference shares 161,494 — — Proceeds from sale of commercial paper/revolving credit agreement and other bank loans 121,592 — — Proceeds from sale of revenue bonds 83,450 104,375 12,810 Market value of treasury common shares and preference shares issued for acquisitions 66,606 7,252 51,478 Property and equipment sales, net 64,977 28,312 13,300 Other transactions, net (19,900) 28,155 45,121 Working capital increases 1,151,951 975,012 966,281 Working capital was decreased by: Expenditures for property and equipment 665,286 680,046 490,981 Expenditures for timber and timberlands, including reforestation 103,065 88,357 113,565 Capital leases, net 12,261 11,014 10,065 Investment in Weyerhaeuser Real Estate Company 12,656 18,825 19,219 Increase in other assets 36,429 130,525 11,076 Payments and other long-term debt changes, net 70,449 19,872 14,945 Cash dividends on preferred, preference and common shares 185,825 174,445 145,237 Purchases of treasury common shares — 8,661 1,213 Working capital decreases 1,085,971 1,131,745 806,301 Net increase (decrease) in working capital 65,980 (156,733) 159,980 Working capital at beginning of year 508,435 665,168 505,188 Working capital at end of year $ 574,415 $ 508,435 $665,168

Detail of increases (decreases) in working capital: Cash and short-term investments $ (4,894) $ (253,482) $116,217 Receivables 115,043 62,161 37,072 Inventories (7,928) 15,609 57,926 Prepaid expenses (7,286) (17,331) 6,139 Notes payable and current maturities of long-term debt and of capital lease obligations 3,981 6,288 1,495 Accounts payable 24,261 (42,518) (21,323) Accrued liabilities (22,549) (37,486) 15,714 Accrued income taxes (34,648) 110,026 (53,260) Net increase (decrease) in working capital $ 65,980 $ (156,733) $159,980

See notes on pages 3 7 through 49.

36 Notes to Financial Statements Weyerhaeuser Company and Subsidiaries

For the three years ended December 27, 1981 Other Income, Net Dollar amounts in thousands except per share figures Other income, net is an aggregarion of non-operaring income Notes involving disclosure of significant accounting and and expense irems, borh recurring and occasional, and as a resuir reporting standards: flucruares from period to period. No individual income or ex­ Note 1 pense irem is significanr in relationship to ner earnings, other Consolidation than interest income of $53,054 in 1981 and $59,521 in 1980 and The consolidated financial statements include all domestic and the gain on redemprion of debentures of $28,121 in 1981. foreign subsidiaries excepr rhe Company's wholly owned real es­ Foreign currency translarion losses which are included in "Orher rate and relared finance and consrruction subsidiaries which are income, net" wete as follows: carried ar equity. Significant intercompany rransacrions and ac­ 1981 $3,736 counrs are eliminared. Summary financial informarion for 1980 1,483 Weyerhaeuser Real Esrate Company and subsidiaries is presenred 1979 1,967 separately on pages 50 and 51, and consolidated financial state­ Foreign Operations ments are provided in the annual reporr on Form 10-K, Parr IV, The following net assets, net sales and net earnings, related to op­ filed wirh rhe Securiries and Exchange Commission. erations outside the United States, are included in the Company's Earnings Per Common Share consolidated financial statements: Earnings per common share are based on rhe average number of common and common equivalenr shares oursranding during rhe December 27, December 28, December 30, respective periods. The preference share issues are common share 1981 1980 1979 equivalenrs, bur for purposes of calcularing primary earnings per common share rhe conversion of rhe $4.50 convertible cumula­ Net assets: tive, series A and convertible cumularive, second series preference Working capital $ 98,562 $167,084 $152,170 shares is not assumed because the effect of their convetsion is not Timber earring righrs 9,481 9,181 9,008 dilutive. The $2.80 converrible cumulative preferred shares are Properry and not common share equivalenrs. equipmenr, ner 180,353 224,664 221,500 Orher assers 21,269 8,515 7,270 Fully dilured earnings for 1981 and 1980 are nor given because the effect of the conversion of rhe preferred and preference shares is 309,665 409,444 389,948 nor dilutive. Long-rerm debt (140,000) (142,036) (142,334) Other liabilities (13,643) (21,327) (20,172) 1981 1980 1979 Net assets $156,022 $246,081 $227,442 Primary: Net Net Ner earnings $228,344 $277,987 $511,623 Sales Earnings Less preferred and preference 1981 $342,119 $ 6,435 share dividends (Nore 8) 22,188 11,160 11,197 1980 493,058 32,774 $206,156 $266,827 $500,426 1979 482,369 65,823 Average common shares Export Sales (OOO's) 127,371 125,637 124,787 The Company is engaged in the sale of producrs for exporr from the United States. These sales consist ptincipally of pulp, news­ Ner earnings per print, logs and wood chips to Japan and pulp, linerboard, lumber common share $ 1.62 $ 2.12 $ 4.01 and plywood ro Europe. The following rable compares rhe Com­ Fully dilured: pany's exporr sales from rhe Unired States to customers in Japan and elsewhere with its total sales to all customers. Net earnings $511,623

Average common shares 124,787 Sales for Export Shares conringently issuable in connection Customers Total Sales with $2.80 converrible Customers Outside Total Export to all cumularive preferred in Japan Japan Sales Customers shares 4,847 1 $525,000 $421,000 $ 946,000 $4,502,000 129,634 0 666,000 474,000 1,140,000 4,536,000 649,000 329,000 978,000 4,423,000 Ner earnings per 9 common share 3.95 Redassifications Cerrain reclassificarions have been made ro conform prior years dara to the currenr format.

37 Weyerhaeuser Company and Subsidiaries

Note 2—Inventories Furure minimimi lease paymenrs under capiral leases, together Inventories are stated at the lower of cosr or market. Cost includes with the presenr value of such paymenrs as of December 27, 1981, labor, marerials and producrion overhead. The last-in, firsr-our follow: (LIFO) method is used to cost substantially all domestic raw ma­ rerials, in process and finished goods inventories; either the firsr- 1982 $ 23,490 in, firsr-out (FIFO) or average cost merhod is used ro cost all other 1983 23,490 inventories. Had the FIFO method been used to cost all inven­ 1984 23,490 tories the amounts at which product inventories are srared would 1985 23,490 have been $208,394 and $207,687 greater ar December 27, 1981 1986 23,490 and December 28, 1980, respectively. Thereafter 94,734 In each of the years, 1981 and 1979, the Company acquired com­ 212,184 panies in transactions accounted for as rax free exchanges for federal Less impured inreresr 64,001 income tax purposes. For financial reporting purposes, under Ac­ counring Principles Board Opinion No. 16, rhese acquisitions are Presenr value of furure minimum lease payments $148,183 required to be accounted lor as purchases, consequently a new basis of accounting for the acquired companies' LIFO invenrories was es­ Neither the Company's noncapitalized financing lease commir­ tablished. Under purchase accounting the acquired companies' menrs nor rhe estimated minimum commitments for payment of LIFO invenrories are greater than those teportable for federal in­ tentals under noncancelable leases expiring more than one year come tax purposes by $5,646, $3,475 and $3,947 ar December 27, from December 27, 1981 were significant. 1981, December 28, 1980 and December 30, 1979, respectively The effect upon income was to increase cosr of goods sold by $289, Note 4—Fee Stumpage $472 and $179 for the years 1981, 1980 and 1979, respecrively Fee stumpage is the cost of standing timber and is charged ro fee timber disposals as fee timber is harvested, lost as the resuir of Note 3—Property and Equipment casualry or sold. Srumpage rates are derermined wirh reference ro The Company's property accounts are mainrained, for the most the cost of timber and the relared volume of rimber esrimared ro parr, on an individual asser basis. Berrermenrs and replacemenrs of be recoverable. major units are capiralized. Maintenance, repairs and minor re­ placemenrs are expensed. Depreciation is provided generally on rhe Note 5—Income Taxes srraight-line or unir-of-producrion merhods ar rates based Deferred income raxes are provided to reflecr riming differences on estimated service lives. In 1981 rhe Company utilized the leasing berween financial and rax reporting. Investment tax credirs are provisions of rhe Economic Recovery Tax Act of 1981 and sold cer­ raken inro income in rhe year in which income taxes are reduced tain of its depreciarion rax benefits. The net proceeds are treared as by rhe credir. a reducrion of the basis of the properry acquired and are reflected in Earnings before income raxes and exrraordinary charges are com­ the determinarion of rhe annual depreciation provision. Amortiza­ prised of rhe following: tion of logging railroads and rruck roads is provided generally as timber is harvesred and is based upon rares derermined with refer­ ence to the volumes of timber estimated to be removed over such 1981 1980 1979 faciliries. Domesric earnings $264,541 $453,589 $630,804 The cost and relared depreciarion of property sold or rerired is re­ Foreign earnings 46,103 75,898 106,990 moved from the properry and allowance for depreciarion accounts $310,644 $529,487 $737,794 and the gain or loss is recorded. In the case of normal disposirion from multiple asset accounts, Included in receivables ar December 27, 1981 is $119,600 for a fed­ the cost of property sold or rerired is removed from rhe property eral income tax refund primarily resulring from the investment tax accounts and chatged to the allowance for depreciation account. credit carryback provisions of rhe federal income rax code. Proceeds of sale are credited to the allowance for depreciarion account and no gain or loss is recorded.

38 Weyerhaeuser Company and Subsidiaries

Provisions for income raxes include rhe following: 1981 and 1980 the Company sold cerrain foreign operarions, pro­ ducing a rax deduction in excess of rhe loss reported in earnings 1981 1980 1979 before income taxes. See also the Financial Review section starting on page 27 for a discussion of rhe effecrive rax rares for rhe years Federal: 1979-81. A reconciliarion between the federal statutory tax rate Currenr $ 13,850 $ 67,100 $180,100 and the Company's effective tax rare follows: Less invesrmenr tax credir 65,200 43,300 36,400

(51,350) 23,800 143,700 1981 1980 1979 Deferred 101,690 149,670 (3,809) Sratutory tax rare 46% 46%o 46% 50,340 173,470 139,891 State income taxes, Srate: net of U.S. tax benefit 1 1 2 Current 3,900 7,100 26,000 Investmenr tax credit (22) (10) (5) Foreign: Reduction attriburable ro Currenr 19,660 26,980 60,130 earnings raxed ar capital Deferred 2,300 450 150 gains rare (8) (1) (13) Reduction attriburable ro 21,960 27,430 60,280 disposition of foreign Income taxes before operations (2) (3) apportionment to Subsidiary preferred extraordinary charges 76,200 208,000 226,171 dividends 1 Income rax apporrionable All orher, net 5 to extraordinary charges: 24% 39% 31% Current (20,900) Deferred (5,200) (12,100) — The deferred porrion of provisions for income taxes is attriburable (5,200) (33,000) — ro rhe following riming differences: Toral $ 71,000 $175,000 $226,171 1981 1980 1979 The Company's provisions for income taxes as a percenr of earn­ ings before income raxes are at rares less rhan rhe 46% federal Depreciarion $ 29,560 $ 38,880 $ (1,790) statutory tax rare due principally to the 28% tax rare applicable ro Insrallmenr sales 3,850 53,960 670 capiral gains from the harvesr of timber and ro invesrment tax Capiralized inreresr 33,580 19,590 2,630 credits. The lower srarurory rax rare on the excess of marker value Involunrary conversions 20,840 14,241 273 of rimber harvesred over its historical cost recognizes rhe unique DISC (2,910) 14,530 342 risks associated with the very long-rerm narure of an invesrmenr Litigation 11,960 — — in planring and mainraining a foresr crop ro maturity. Duting Extraordinary charges (5,200) (12,100) 12,600 All orher, net 7,110 8,919 (18,384) $ 98,790 $138,020 $ (3,659)

39 Weyerhaeuser Company and Subsidiaries

Note 6—Deferred Pension Liability Other Notes: The Company has pension plans covering substantially all U.S. employees. Pension costs are actuarially determined and prior ser­ Note 7—Debt vice cosrs are amorrized generally over twenty years. The plans are Long-term debt obligations, excluding amounrs payable within rrusreed plans and contributions are based on funding srandards one year, are as follows: established by the Employee Retiremenr Income Security Acr of 1974 (ERISA). Cerrain data regarding U.S. plans follow: December 27, December 28, 1981 1980 1981 1980 1979 Sinking fund debentures: Actuarial present value 5.20% issued 1966 due $7,500 of accumulated plan per annum 1982-1991 $ 52,490 $ 56,660 benefits as of 7.65% issued 1969 due $10,000 January 1: per annum 1982-1994 100,000 130,000 Vested $353,163 $323,586 8'/8% issued 1970 due $6,000 Non-vested 18,421 17,245 per annum 1982-1999 90,000 108,000 $371,584 $340,831 8.90% issued 1974 due $7,600 per annum 1982-2003, Assumed rate of rerurn 9!/2% 91/2% $10,000 in 2004 154,400 177,200 Assers available for 7.95% issued 1976 due $7,750 benefits $476,047 $386,830 per annum 1987-2005, $52,750 in 2006 200,000 200,000 Provision for pension costs $ 34,357 $ 38,742 $ 58,613 8% notes due 1985 250,000 250,000 Income debentures due $70,000 In I98O the actuarial assumed rate of return was changed ftom 7% per annum 1983-1984 140,000 140,000 to 9Vi% and, as to the salaried employees plan, the assumed rate Industrial revenue bonds, rates of average annual salary increase was changed from 6% to 7V^%, from 3.80%-10.4%, due which changes had the effect of reducing pension cosrs for 1980 by 1983-2010 263,309 176,657 approximarely $21,000. Revolving credit agreement/ The Company's foreign pension plans, primarily Canadian, are commercial paper 50,416 — nor required to comply with ERISA reporring standatds and the Other 103,467 30,972 actuarial presenr value of accumulated plan benefits is not other­ $1,404,082 $1,269,489 wise derermined. The Canadian plans' assets available for benefirs exceeded actuarially determined vesred benefits at January 1, 1981 The sinking fund debenrure issues provide for (1) redemprion ar and January 1, 1980 by $3,399 and $2,637, respectively par plus decelerating premiimis, (2) oprion to deliver debenrures in lieu of sinking fund paymenrs, and (3) nonrefundabiliry for periods from 5 ro 10 years in anticipation of borrowings ar an inreresr cosr less rhan rhar provided in rhe issue. The income debenrures are the ptimary obligarion of Weyerhaeuser Canada Lrd., a wholly owned subsidiary, and are guaranreed only as ro principal by the Company. Interesr ar a rare equal to one-half the London interbank Eurodollar marker rare plus li^% is payable currently bur only if earned. Inreresr not earned and rherefore nor paid accumulates and, if later earned be­ fore maruriry, only rhen becomes payable. The Company, Weyerhaeuser Real Esrare Company and Weyerhaeuser Morrgage Company, an unconsolidared wholly owned subsidiary of Weyerhaeuser Real Esrare Company, have es­ rablished various bank lines of credir in rhe maximum aggregare sum of $291,500 at December 27, 1981, of which $288,500 can be used by the Company, $227,500 by Weyerhaeuser Real Esrate Company and $174,000 by Weyerhaeuser Morrgage Company.

40 Weyerhaeuser Company and Subsidiaries

These same enriries had established various bank lines of credit in Note 8—Shareholders' Interest the maximum aggregate sum of $455,300 at December 28, 1980, Preferred and Preference Shares of which the total sum could be used by the Company, $367,300 The Company is authorized ro issue 7,000,000 preferred shares by Weyerhaeuser Real Estate Company and $293,000 by having a par value of $1.00 per share, of which 3,983,720 shares Weyerhaeuser Morrgage Company. In each of rhese arrangemenrs have been issued and are outstanding, and 40,000,000 preference either parry rherero, or all rhree, may urilize the credir lines and shares having a par value of $1.00 per share, of which 3,604,156 borrowings rhereunder are evidenced by demand or orher promis­ shares have been issued and are outstanding. The preferred shares sory nores ar current prime rares of interest. Similarly, neirher and rhe preference shares may be issued in one or more series with parry is a guaranror of rhe borrowings of rhe orher. No portion of varying righrs and preferences including dividend rates, redemp­ these lines has been availed of by the Company. Amounts out­ tion rights, conversion terms, sinking fund provisions, values in standing in respecr of Weyerhaeuser Morrgage Company were liquidation and voting righrs. When issued rhe ourstanding pre­ $1,544 at December 27, 1981 and $4,936 ar December 28, 1980. ferred shares rank senior to outstanding preference shares, and No amounts were outstanding in respect of Weyerhaeuser Real oursranding preference shares rank senior ro ourstanding common Estate Company at either of such dares. shares, as ro dividends and assets available on liquidation. During 1981 the Company entered into a five year revolving The $2.80 converrible cumulative preferred shares, firsr series, credir/rhree year rerm loan agreement with a group of banks were nor redeemable before December 15, 1978 but are now which provided for (1) borrowings up to $130,000 at varying redeemable by rhe Company at prices decreasing from $51 to inreresr rates based, at the Company's option, on either rhe Prime $50.50 a share until Decembet 15, 1984 after which they are re­ rate, Vi% over Cerrificate of Deposir rates or V2%o over London deemable ar $50 a share plus, in each case, an amounr equal to ac­ inrerbank Eurodollar marker rates, (2) a commitment fee of %% crued and unpaid dividends. Unless earlier redeemed these shares on the unused amount of credir, (3) conversion of rhe notes as are converrible ar any time at the rare of 1.2121 common shares for of January 15, 1986 ro a three year rerm loan payable in twelve each preferred share. In liquidarion holders are entitled to $50 a equal quarrerly insrallmenrs and bearing inreresr at varying rares, shate plus accrued and unpaid dividends. ar the Company's oprion, based on eirher !4% over Prime rare, The convertible cumularive preference shares, firsr series, are VA%O over Certificate of Deposit rares or M% over London redeemable by the Company at any time on or after Seprember 1, interbank Eurodollar market rates, and (4) maintenance of con­ 1984, ar a price which is rhe grearer of rhe closing price of the solidated working capiral of $90,000, as defined under the common shares, deemed ro be rhe average of rhe daily closing credit agreemenr. Compensating balances are not required to sup­ prices for rhirty consecutive business days commencing on the porr rhis arrangement or any borrowings under rhe agreemenr. forty-fifth business day before rhe redemption date, and $25 plus At December 27, 1981 this credir agreement was not utilized. accrued and unpaid dividends. Dividends on rhese preference The Company from rime ro rime urilizes commercial paper in lieu shares shall be payable ar rhe rare per share which is rhe greater of of borrowings under the revolving credit agreement. To the extent one cenr per annum and rhe amounr ser aside for payment on the that the revolving credir agreemenr is unused an equal amounr of common shares. Each firsr series preference share is converrible ar commercial paper is classifiable as long-term debt. $50,4l6 has any rime inro one common share. In liquidarion holders are enri- been so classified at December 27, 1981. rled ro $25 a share plus accrued and unpaid dividends. Other long-term debt of $103,467 at December 27, 1981 and The convertible cumulative preference shares, second series, were $30,972 ar December 28, 1980 was comprised principally of redeemable by the Company from the date of issue and are now foreign bank loans and domesric rimber purchase contracts. redeemable at prices decreasing from $51 ro $50.50 a share unril Long-teim debt maturiries during rhe nexr five years are: December 14, 1984 after which rhey are redeemable ar $50 a share plus, in each case, an amounr equal ro accrued and unpaid divi­ dends. The dividend rare on rhe second series preference shares is 1982 $ 13,135 $2.80 per share per annum. Each second series preference share is 1983 85,271 converrible ar any rime inro 1.2121 common shares. In liquidarion 1984 76,209 holders are enritled to $50 a share plus accrued and unpaid 1985 288,697 dividends. 1986 104,784 The Company's compensaring balance arrangements were nor significanr.

41 Weyerhaeuser Company and Subsidiaries

The $4.50 convertible cumulative preference shares, series A, Note 9—Commitments are redeemable by the Company at any time on or after March 15, The Company's capital expenditures have averaged abour 1984, ar prices decreasing from $53 ro $50.50 a share unril March $650,000 per year since 1977 and are expected to continue at ap­ 15, 1990 after which rhey are redeemable ar $50 a share plus, in proximately that rare; however, as a consequence of future eco­ each case, an amounr equal to accrued and unpaid dividends. Each nomic conditions, the expenditure level could be increased or series A preference share is convertible at any time into 1.1111 decreased. common shares. In liquidation holders are entitled to $50 a share Weyerhaeuser Real Estate Company sells commercial paper plus accrued and unpaid dividends. guaranteed by the Company and pays it a fee equal to Vi of 1% of Common Shares commercial paper oursranding. Under its agreement wirh rhe Common shares reserved for stock option plans and for conversion Company, Weyerhaeuser Real Estate Company must maintain of the issued and outstanding preferred and preference shares were unused nonguaranreed credit arrangemenrs in an amounr ar leasr 11,354,000 shares ar December 27, 1981 and 7,369,000 shares equal ro irs commercial paper outstanding which at December 27, at December 28, 1980. 1981 was $125,481 and ar December 28, 1980 was $162,861. As to the Company's various stock option plans the following In 1979 Weyerhaeuser Real Estate Company sold to institu­ informarion is provided: tional investors 900,000, $8.50 cumularive preferred shares for $90,000. Weyerhaeuser Real Esrate Company is required to redeem 180,000 of rhese shares in each of the years 1985 through 1981 1980 1979 1989 at a price equal to $ 100 per share plus accrued and unpaid Ar end of year: dividends. Oprioned shares In 1981 Weyerhaeuser Real Estate Company also sold to institu­ outsranding 2,548,134 2,266,947 2,093,126 tional investors 850,000, $11.25 and 160,000 variable rate Oprioned shares cumulative preferred shares for $85,000 and $16,000, respec­ exercisable 1,967,130 1,807,414 1,620,190 rively. Weyerhaeuser Real Estate Company is required ro redeem During rhe year: 202,000 of these shares in each of the years 1987 through 1991 at Shares granred 532,418 407,190 424,067 a price equal ro $100 per share plus accrued and unpaid dividends. Shares exercised 130,978 144,452 65,655 During 1981, Weyerhaeuser Mortgage Company, a wholly owned Shares forfeited 120,253 88,917 78,323 subsidiary of Weyerhaeuser Real Estate Company, sold to institu­ Average prices per share: tional investors 320,000, $12.00 cumulative preferred shares for Options outstanding $35.08 $34.01 $34.68 $32,000. Weyerhaeuser Morrgage Company is required to redeem Options granted $39.06 $29.64 $29.53 64,000 of rhese shares in each of the years 1987 rhrough 1991 at a Options exercised $28.24 $27.64 $25.87 price equal ro $100 per share plus accrued and unpaid dividends. In rhe evenr that Weyerhaeuser Real Esrate Company or Retained Earnings Weyerhaeuser Morrgage Company fails ro make a quarrerly divi­ Retained earnings artriburable to the Company's wholly owned dend paymenr or a mandatory redemprion payment, the holders and unconsolidated subsidiary, Weyerhaeuser Real Esrare of the preferred shares have rhe righr ro exchange their shares for Company, were $119,404 at December 27, 1981 and $112,656 an equal number of rhe Company's preference shares having ar December 28, 1980. Dividends received from Weyerhaeuser equivalenr rerms. Real Esrare Company during rhe years 1981-1979 were $103, none and $30,000, respecrively. The Company has a commitment to Weyerhaeuser Mortgage Company to purchase up to $100,000 of U.S. governmenr insured or guaranreed morrgage nores and orher morrgage nores which meer all eligibility requirements for delivery to the Federal Narional Morrgage Association under firm forward purchase commitmenrs. Wirhin that limitation an amounr nor exceeding $6,000 of Federal National Morrgage Association common stock may be purchased. The commitment expires in July 1983 bur can be extended to July 1984 at Weyerhaeuser Morrgage Com­ pany's oprion. At December 27, 1981 rhe Company had nor pur­ chased morrgage nores or securiries under rhis standby commitment.

42 Weyerhaeuser Company and Subsidiaries

Note 10—Legal Proceedings County, Wisconsin Circuir Court against the Company seeking As described in earlier reports, in 1978 the Company received an penalries as provided by statute for violarions of the Company's unfavorable jury verdict in a civil class acrion antitrust suit involv­ wastewater discharge permit at its Rothschild pulp mill. ing the sale and distriburion of softwood plywood. On February During the fourrh quarrer of 1981, the Company received a cira- 21, 1980 summary judgmenr was entered by the Unired Srares rion for one violarion of water pollution control standards, for District Courr for rhe Easrern District of Louisiana awarding cer­ which a fine of one thousand seven hundred fifty dollars was levied tain plaintiffs damages allegedly owing them pursuant to the jury which, along wirh cerrain other air and warer violation proceed­ verdicr. The Company appealed this judgment to the United ings previously reporred in Company reporrs filed with the Securi­ States Courr of Appeals for the Fifth Circuit. On September 8, ries and Exchange Commission, were pending as of December 27, 1981, the Fifth Circuir affirmed rhe judgmenr in all respecrs and 1981. Three air pollurion and rwo water pollution violation pro­ on November 3, 1981 denied the Company's petition for a rehear­ ceedings were rerminared on paymenrs of fines aggregaring thir- ing and for a rehearing en banc. The Company will seek review of reen thousand five hundred dollars and rwo thousand fifty dollars, the judgment by the United States Supreme Courr. If a judgmenr respectively. Also during rhe fourrh quarter, the Company re­ in favor of all or substantially all class plaintiffs utilizing the jury's porred or received norices of 67 violations relaring to air pollution measure of damages were ro be enrered and should ulrimarely control standards and 23 violations relating to water pollution be upheld on appeal, the damages could be very substantial. The control standatds, for which no fines have been proposed. Finally, Company is also parry ro various other civil antitrust lawsuits, during the fourrh quarter, two administrarive proceedings relar­ some of which are class actions, and other legal proceedings gen­ ing ro air pollurion control standards and one such proceeding re­ erally incidefiral to its business. Although the final outcome of laring ro warer pollurion conrrol standards were initiated by any legal proceeding is subject to a great many variables and can­ governmenral agencies seeking corrective actions to be taken by nor be predicted with any degree of cerrainty, the Company and the Company and were, along wirh orher similar proceedings its General Counsel presently believe that any ultimate liability previously reporred in Company reporrs filed with the Securities resulring from the legal proceedings discussed herein, or all of and Exchange Commission, pending as of December 27, 1981. them combined, would not have a material adverse effecr on rhe Two air pollurion and one warer pollution proceedings were Company's financial position. settled by agreement with the involved agencies that corrective Alrhough not material either individually or in the aggregare, the action had been taken, would be taken on an agreed-upon Securities and Exchange Commission requires disclosure of the schedule, or would not be necessary. following adminisrrarive or judicial proceedings by governmenral aurhorities relaring ro environmental matters. The Company is a named plaintiff in a lawsuit filed in October 1980 in the Western District Court, Roanoke Division of Vir­ ginia, American Paper Institute v. EPA, challenging rhe EPA's con­ solidated permir regularions. On January 15, 1982 the Wisconsin Department of Natural Resources filed suit in the Marathon

43 Weyerhaeuser Company and Subsidiaries

Note 11—Extraordinary Charges The Securities and Exchange Commission recognized rhe prob­ In May 1980 Mount St. Helens erupred and approximately lems involved in arrempring to segment the foresr products in­ 68,000 acres of rhe Company's rimberlands were affecred by rhe dustry but, neverrheless, requires segmentation. Its Accounting explosion of rhe mounrain, slides and flooding. 1980 and 1981 ex­ Series Release No. 244 srates in parr: traordinary charges of $66,700 less related rax effecr of $30,500 "Various corporarions in rhe foresr producrs business argued or $36,200 ($.29 per common share) and $11,300 less related tax that they were in one indusrry segmenr for a number of reasons. effect of $5,200 or $6,100 ($.05 per common share) were made to Forestry business products are all produced from a common raw covet losses of standing timber, logs, buildings and equipmenr marerial, timber. One log may be used to produce various incurred during the initial eruption and, in addition, incremenral producrs such as fuel, plywood, pulp, lumber, sawdusr, shav­ reforesrarion cosrs and added logging and rransportation costs in­ ings and chips. The raw marerial costs relared to the produc­ cident to the salvage of flood-carried, blown-down and scorched tion of rhe producrs may nor be easily dererminable and the timber. Salvage and reforesrarion operarions are expecred ro con- producrion of an individual producr may be dependenr upon rinue for several years. rhe producrion of others. Despire cosr allocarion problems and Also during 1980 rhe Company agreed ro sertle certain antitiust rhe producrion interdependence, rhe srafif believes that com­ suits brought by parries which had opred out of the folding carron panies in the fotestry producrs business may be in at least three class action. 1980 net earnings reflect an extraordinary charge of industry segmenrs: paper and paper products; building mate­ $9,800 less related tax effect of $2,500 or $7,300 ($.06 per rials (e.g., lumber and plywood); and container and packaging common share). products. As to parricular companies, rhe staff undersrands that allocation to the industry segments of the investmenrs in Note 12—Business Segments timberland may nor be pracricable. Of course, allocation diffi­ The fotest producrs business, rhe Company's principal business, culties may be described in a documenr in order ro assure involves a high degree of inregration among irs timber operarions, that investors are nor misled inro rhinking that each segment is irs building materials conversion faciliries and irs pulp, news­ totally independent." print, paper and paperboard primary manufacruring and secon­ The following table sets forth, in the context of the foregoing dary conversion facilities, including extensive transfers of raw discussion, an analysis of rhe Company's operations by business marerials, semi-finished marerials and end products between and segment. "Approximare conrribution to earnings" excludes (i) among these groups. For rhis reason rhe Company views irs forest general, adminisrrarive, cerrain research and other corporate ex­ products business as a unitary business and believes that it can penses, (ii) interest expense, (iii) income taxes, (iv) earnings of best be undersrood when nor segmenred inro smaller unirs be­ rhe Company's unconsolidared real esrare and finance subsidiaries cause accounting for segment profirabiliry involves highly arbi­ accounted for on the equity method, and (v) other unallocable rrary allocarions of joinr raw marerials and conversion cosrs and income such as dividends, interesr and royalries. rhe use of rransfer prices which, while rhey attempt to approxi­ mate currenr marker values, are necessarily arbitrary, and because no segmenred product group should be viewed as independenr of or severable from any orher segmenred group.

44 Weyerhaeuser Company and Subsidiaries

Sales to Approximate Depreciation, Unaffiliated Intersegment Total Contribution Amortization & Capital Business Segments Customers Sales Sales to Earnings Fee Stumpage Expenditures Assets

1981: Building matetials $2,325,981 $ 398,349 $2,724,330 $310,289 $203,623 $266,550 $2,434,602 Pulp, newsprinr, paper and paperboard products 1,140,626 361,911 1,502,537 175,942 112,086 412,823 1,930,464 Container and packaging products 726,658 15,409 742,067 34,914 18,175 19,680 292,632 Othet 308,247 110,781 419,028 31,381 21,876 35,595 318,097 4,501,512 886,450 5,387,962 552,526 355,760 734,648 4,975,795 Eliminations and adjustments: Intersegmenr sales — (886,450) (886,450) — — — — Weyerhaeuser Real Estate Co. — — — 30,017 — — 232,910 General corporate — — — (156,228) 16,467 33,703 507,785 Interesr expense — — — (115,671) — — — Exrraordinary charge. ner of raxes — — — (6,100) — — — Income raxes — — — (76,200) — — — Consolidated $4,501,512 $ — $4,501,512 $228,344 $372,227 $768,351 $5,716,490 1980: Building materials $2,482,440 $ 398,672 $2,881,112 $548,002 $212,032 $341,579 $2,479,013 Pulp, newsprinr, paper and paperboard products 1,148,721 325,607 1,474,328 158,202 150,693 334,641 1,636,406 Container and packaging producrs 730,260 18,088 748,348 20,611 21,324 31,581 286,091 Orher 174,393 82,670 257,063 25,764 10,142 29,849 208,847 4,535,814 825,037 5,360,851 752,579 394,191 737,650 4,610,357 Eliminations and adjustmenrs: Inrersegmenr sales — (825,037) (825,037) Weyerhaeuser Real Estate Co. 51,156 220,254 General corporate (166,548)< 16,570 30,753 408,081 Interesr expense (107,700) Exrraordinary charges, ner of raxes (43,500) Income raxes (208,000) Consolidared 1,535,814 $ ,535,814 $277,987 110,761 $768,403 $5,238,692

'"Includes loss of $22,268 on sale of investments in packaging subsidiaries in Belgium and Spain.

45 Weyerhaeuser Company and Subsidiaries

Sales to Approximate Depreciation, Unaffiliated Intersegment Total Contribution Amortization 8c Capital Business Segments Customers Sales Sales to Earnings Fee Stumpage Expenditures Assets

1979: Building materials $2,710,612 $259,286 $2,969,898 $724,033 $184,157 $352,075 $2,293,179 Pulp, newsprinr, paper and paperboard producrs 887,808 306,041 1,193,849 168,522 107,980 171,403 1,435,153 Conrainer and packaging products 684,596 18,452 703,048 25,223 17,588 32,842 294,584 Other 139,637 67,575 207,212 20,658 8,423 23,310 173,057 4,422,653 651,354 5,074,007 938,436 318,148 579,630 4,195,973 Eliminations and adjustments: Intersegmenr sales — (651,354) (651,354) — — — — Weyerhaeuser Real Esrare Co. — — — 57,013 — — 201,429 General corporare — — — (153,048) 14,446 24,916 564,271 Interesr expense — — — (104,607) — — — Income raxes — — — (226,171) — — — Consolidated $4,422,653 $ — $4,422,653 $511,623 $332,594 $604,546 $4,961,673

Note 13—Unaudited Financial Information Dollar amounts in thousands except per share figures Selected Quarterly Financial Data:

First Second Third Fourth Quarter Quarter Quarter Quarter Net sales: 1981 $1,098,350 $1,182,472 $1,097,150 $1,123,540 1980 1,148,074 1,168,667 1,111,739 1,107,334 Operating margin: 1981 192,086 236,992 169,563 179,704 1980 290,513 277,858 200,099 172,836 Earnings before income taxes: 1981 79,205 144,294 56,652 19,193"' 1980 198,182 174,143 56,836<2' 23,826»> Net earnings: 1981 57,005 74,894 50,052 46,393<" 1980 110,982 97,543 32,836 Net earnings per common share: 1981 $ .43 $ .55 $ .34 $ .30<'><* 1980 .86 .76 .23<» _27(3W) <" Fourth quarter results reflect an extraordinary charge of $11,300 less related tax effect of f 5,200 or $6,100 ($.05 per common share). <2) Third quarter results reflect an extraordinary charge of $66,000 less related tax effect of $30,000 or $36,000 ($.29 per common share). (" Fourth quarter results reflect extraordinary charges of $10,500 less related tax effects of $3,000 or $7,500 ($.06 per common share) and disposal and closure costs of certain facilities of $64,500 less related tax effect of $40,200 or $24,300 ($.19 per common share). ("tt Income tax provisions for interim quarters are based on the current best estimate of the effective tax rate expected to be applicable for the full year The 1981 and 1980 fourth quarter net earnings reflect a year-to-date adjustment in the Company's income tax provision to bring the annual effective income tax rates to 24% and 39%, respectively. Had the annual effective income tax rates been used in each of the quarters during 1981 and 1980, the quarterly net earnings per common share would have been affected as follows: 1st Qtr. 2nd Qtr. 3rd Qtr. 4th Qtr. 1981 $.03 $.28 $(.06) $(.25) 1980 .08 .07 .02 (.17)

46 Weyerhaeuser Company and Subsidiaries

Supplementary Financial Information Required by Financial A c count ing Measuring rhe effecr on financial position and operaring resulrs Standards Board Statement No. 33 —Financial Reporting and Changing of changes in prices generally rhrough the use of an index such Prices: as the CPTU is known as "constant dollar" accounring and rhe Financial Accounring Srandards Board Sratement No. 33 requires intent is to express all elemenrs of financial sratements in terms rhe presenrarion of selected financial informarion which is in- of a common unit of measure, i.e. rhe U.S. dollar in rerms of rended to portray rhe principal effecrs of changing prices — infla­ its currenr value as a medium of exchange. tion—on the Company's financial position and results of conrinu­ Changes in specific prices. This rerm refers ro changes in the prices ing operarions. The porrrayal is experimental and rhe disciplines of rhose parricular commodiries and products puichased and associared wirh the compiling of the informarion conrinue to consumed by the Company. Indices are available to measure evolve. The informarion provides useful insights into the etosive changes in prices paid to producers of approximarely 2,800 effects of inflation on the Company's earnings and return on in­ commodiries and products. A forest producrs company will vested capital. However, because rhe informarion deals with only measure rhe effect of changes in specific prices through the use cerrain aspecrs of inflation and because the compilation of the data of producer price indices which will be different from rhose by its nature is imprecise, an analysis of rhe Company's perform­ used by firms in other indusrries. In rurn, each company's mea­ ance and an assessmenr of irs future prospects based solely on the surement of the effect of changes in specific prices will be dif­ infotmation given is incomplere and likely misleading. Whar ferent from their measuremenrs of the effect of changes in seems clear rhough is that absent a rerurn to the work erhic and its pfices generally. Indices appropriare to the Company's own mix attendant higher producriviry, reduced government spending and of producing assers were selecred for use in compiling rhe re­ enlightened fiscal and taxation policies, the value of our currency quired information. will continue to decline. Pervasive inflarion saps the financial Changes in specific prices of product inventories were measured strengrh of the Company and, in a national context, undermines by changes in the Company's own cost of producing and pur­ rhe economic well-being of each of us. chasing currenrly goods held for sale. Changes in prices of ma­ To berrer undersrand rhe information presented a discussion of terials and supplies were measured by use of an appropriare cerrain rerms follows: producer price index. Changes in prices generally. This term refers ro changes in the The Company's rimber and timberlands, and certain relared as­ prices of a broad range of goods and services purchased by con­ sets, have not been adjusted for changes in specific prices. An sumers. Those changes can be measured by indices which pur- acceprable methodology for doing so is still under considera­ porr ro express changes in rhe general purchasing power of rhe tion by the FASB. United States dollar. There are a number of such indices and Measuring rhe effecr on financial position and operaring results rhe one selecred by rhe Financial Accounring Standards Board (FASB) ro be used in the required presenrarions is rhe Con­ of changes in specific prices is known as "current cosr" account­ sumer Price Index for All Urban Consumers (CPl-U) published ing and the intent is to express all financial srarement elemenrs by rhe federal Bureau of Labor Srarisrics.

47 Weyerhaeuser Company and Subsidiaries

in "matched" dollars, for example, dollars of current year reve­ refers to the fact that in an inflationary environment amounts nues marched with the Company's own current yeat costs. "Re­ owed credirors are repaid wirh dollars having less purchasing placement cost" accounting is another term sometimes applied power than those originally borrowed. to this methodology. Following is rhe supplementaty financial informarion required by Gain from decline in purchasing power of net amounts owed. This term Statement No. 33:

Net Assets Adjusted For Changing Prices

Ad j usted for Changes in

As Prices Specific At December 27, 1981 Reported Generally Prices Producr inventories $ 348,317 $ 527,664 $ 556,711 Materials and supplies 134,433 143,667 143,852 Properry and equipment 3,283,513 4,704,294 4,701,652 Timber and timberlands 619,825 1,556,911 1,556,911 Leased properry under capiral leases 121,040 180,997 180,997 All other assets, net 290,826 290,826 290,826 4,797,954 7,404,359 7,430,949 Deduct net monetary liabilities 1,690,089 1,635,447 1,635,447 Net assets $3,107,865 $5,768,912 $5,795,502

Consolidated Earnings Adjusted For Changing Prices Adjusted for Changes in

As Prices Specific \fear ended December 27, 1981 Reported Generally Prices Ner sales $4,501,512 $4,501,512 $4,501,512 Weyerhaeuser Real Estate Company earnings 30,017 30,017 30,017 Orher income, ner 45,750 37,878 37,843 4,577,279 4,569,407 4,569,372 Operating costs and expenses: Othet than depreciation, amortization and fee stumpage 3,778,737 3,816,210 3,811,849 Depreciarion, amorrizarion and fee srumpage 372,227 600,903 599,499 Interest expense 115,671 115,671 115,671 4,266,635 4,532,784 4,527,019 Eatnings before income taxes and extraordinary charge 310,644 36,623 42,353 Income taxes 76,200 76,200 76,200 Earnings before extraordinary charge 234,444 (39,577) (33,847) Extraordinary charge net of related tax effect 6,100 6,100 6,100 Net earnings $ 228,344 $ (45,677) $ (39,947) Gain from decline in rhe purchasing power of ner amounrs owed $ 142,391 $ 142,391 Per common share: Ner earnings 1 1.62 $ (.53) $ (.49) Gain from decline in the putchasing power of ner amounrs owed 1.12 1.12 Excess of adjustments due to changes in specific prices over adjustments due to changes in prices generally .05 $ 1.62 $ .59 $ .68

48 Weyerhaeuser Company and Subsidiaries

Five Year Comparison of Selected Supplementary Financial Information Presenting Effects of Changing Prices—Stated in 1981 Average Dollars

1981 1980 1979 1978 1977 Net sales $4,501,512 5,007,539 5,541,584 5,296,421 4,927,435 Historical cosr informarion adjusred for changes in prices generally: Earnings before exrraordinary charges $ (39,577) 75,825 418,677 Per common share $ (.48) .50 3.24 Net assets at end of year $5,768,912 5,648,154 5,689,689 — — Hisrorical cost information adjusted for changes in specific prices: Earnings before exrraordinary charges $ (33,847) 60,378 408,261 Per common share $ (.44) .38 3.16 — — Excess of adjustments due to changes in specific prices over adjustments due to changes in prices generally $ 6,112 — Ner assers ar end of year $5,795,502 5,668,632 5,867,436 — Gain from decline in purchasing power of ner amounts owed $ 142,391 193,364 218,035 Dividends per common share $ 1.291/2 1.421/4 1.331/8 1.171/2 1.20 Marker price per common share ar end of year $ 28.44 35.97 37.62 33.07 40.08 Average consumer price index 272.4 246.8 217.4 195.4 181.5

Certain 1979 and 1980 amounts have been restated to conform to (1) 1981 changes in financial statement format and (2) 1981 procedures used to apply these experimental methods.

49 Summary Financial Information Weyerhaeuser Real Esrate Company

Weyerhaeuser Real Estate Company, an unconsolidated subsidiary pany and subsidiaries at December 27, 1981 and December 28, accounted for under rhe equity method in the consolidated finan­ 1980 and operaring resulrs for each of rhe rhree years in rhe period cial statements of Weyerhaeuser Company, is engaged through its ended December 27, 1981 follow. Consolidared financial srare- subsidiaries in on-sire consrrucrion and sale of residenrial unirs, in ments are provided in rhe annual reporr on Form 10-K, Parr IV, morrgage banking and in other real esrare acriviries. A summari- filed wirh the Securiries and Exchange Commission. zarion of the financial position of Weyerhaeuser Real Estate Com­

CONDENSED CONSOLIDATED BALANCE SHEET December 27, December 28, Dollar amounts in thousands 1981 1980

Assers

Cash 6,877 $ 7,243 Accounrs receivable 25,264 16,065 Nores and conrracrs receivable 57,594 48,990 Real esrate in process of developmenr for sale 434,847 372,229 Land being processed for developmenr 269,975 216,033 Rental ptoperties 25,931 24,032 Operating properries 20,780 18,614 Invesrments, including advances 73,666 60,010 Other assets 10,010 8,360 $924,944 $771,576 Liabilities and shareholders' inreresr

Nores payable 197,411 215,670 Current maturities of long-term debt 15,003 18,070 Accounts payable 27,715 24,621 Accrued liabiliries 33,439 29,794 Long-rerm debt 192,995 159,176 Defetred income taxes 37,518 12,396 Redeemable preferred shares 191,000 90,000 Common shares 4,000 4,000 Other capital 106,459 105,193 Retained earnings 119,404 112,656 $924,944 $771,576

50 Weyerhaeuser Real Estate Company

CONDENSED CONSOLIDATED EARNINGS AND RETAINED EARNINGS

For the three years ended December 27, 1981 Dollar amounts in thousands 1981 1980 1979 Net sales $407,225 $410,978 $375,600 Costs and operating expenses 360,769 345,570 313,895 Operating margin 46,456 65,408 61,705 General and administrative expenses 23,433 21,149 18,217 Operating profit 23,023 44,259 43,488 Financial services subsidiaries earnings 14,120 8,447 13,459 Joint venture and limited partnership earnings 1,008 1,508 2,874 Other income 8,525 4,592 4,294 Interest expense (3,192) Earnings before income taxes 46,676 58,806 60,923 Income taxes 23,166 29,719 20,455 Net earnings 23,510 29,087 40,468 Preferred share dividends 16,659 7,650 3,910 Earnings available to parent 6,851 21,437 36,558 Retained earnings at the beginning of the year 112,656 91,219 84,661 119,507 112,656 121,219 Common share dividends paid to parent 103 30,000 Retained earnings at the end of the year $119,404 $112,656 $ 91,219

51 Historical Summary Weyerhaeuser Company and Subsidiaries -j Weyerhaeuser Company and Subsidiaries

Dollar Amounts in Thousands Except Per Share Figures 1981 1980 1979 1978 1977 1976 1975 1974 1973 1972 Per Common Share: Net earnings $ 1.62'» 2.12'a 4.01 2.85'» 2.28 2.32 ^ 1.48 2.17 2.72 1.17 Dividends paid $ 1.30 1.30 1.071/2 .85 .80 .80 .80 .80 .47 .411/2 Shareholders' interest (end of year) $ 21.44 20.96 20.13 17.05 15.49 13.98 12.45 11.74 10.80 8.15 Financial Position: a Current assets $1,221,348 1,126,413 1,319,456 1,102,102 1,036,661 1,006,217 805,661 679,110 494,262 418,836 Current liabilities $ 646,933 617,978 654,288 596,914 495,026 475,300 400,460 382,795 353,258 213,782 Working capital $ 574,415 508,435 665,168 505,188 541,635 530,917 405,201 296,315 141,004 205,054 Current ratio 1.89 1.82 2.02 1.85 2.09 2.12 2.01 1.77 1.40 1.96 Property and equipment $2,746,078 2,537,838 2,500,266 2,212,503 2,055,310 1,857,450 1,585,653 1,242,938 1,114,113 1,102,263 Construction in progress $ 537,435 441,084 170,807 252,307 238,930 167,274 204,743 290,954 102,853 32,951 Capital leases $ 121,040 135,712 150,608 166,128 181,118 — Timber and timberlands $ 619,825 575,966 548,207 491,848 484,561 437,641 421,874 417,032 392,171 381,681 Investments and other assets $ 470,764 421,679 272,329 242,034 225,542 215,788 230,769 223,143 207,984 206,875 Total assets $5,716,490 5,238,692 4,961,673 4,466,922 4,222,122 3,684,370 3,248,700 2,853,177 2,311,383 2,142,606 Long-term debt and capital lease obligations $1,540,151 1,416,743 1,342,561 1,354,761 1,388,283 1,093,426 929,453 915,553 526,437 780,497 Shareholders' interest $3,107,865 2,836,754 2,731,168 2,313,792 2,173,436 1,978,661 1,781,609 1,488,477 1,388,245 1,125,060 Percent return on total capital 5.1% 6.7% 13.2% 10.3% 9.1% 10.6% 7.4% 12.8% 18.2% 8.7% Percent debt to total capitalization 33.1% 33.3% 32.9% 36.9% 39.0% 35.6% 34.2% 38.1% 27.5% 41.0% Percent earned on shareholders' interest 7.7% 10.0% 20.3% 16.5% 14.5% 16.3% 11.5% 19.2% 27.7% 13.7% Operating Results: Net sales $4,501,512 4,535,814 4,422,653 3,799,441 3,282,768 2,868,379 2,421,271 2,529,013 2,301,731 1,675,918 Net earnings $ 228,344 277,987 511,623 370,731 301,067 305,651 188,626 276,516 348,114 158,519 Depreciation, amortization and fee stumpage 1 372,227 410,761 332,594 287,235 255,404 211,461 189,686 170,670 160,992 136,249 Deferred income taxes, net $ 73,161 118,170 (645) 9,203 (10,882) (30,234) 81,192 (2,509) 2,249 5,695 Cash flow from operations $ 673,732 806,918 843,572 667,169 545,589 486,878 459,504 444,677 511,355 300,463 Capital Expenditures: Property and equipment $ 665,286 680,046 490,981 415,419 489,090 416,113 433,352 460,844 228,471 192,877 Timber and timberlands $ 103,065 88,357 113,565 61,254 92,652 50,431 39,525 64,107 37,936 19,570 Total $ 768,351 768,403 604,546 476,673 581,742 466,544 472,877 524,951 266,407 212,447 Statistics: Number of employees 42,812 45,714 47,844 46,040 45,964 45,677 44,251 47,498 46,811 44,404 Salaries and wages $1,008,785 970,107 914,588 855,802 749,893 644,008 560,849 564,706 488,521 435,718 Employee benefits $ 211,583 205,719 216,578 187,893 160,957 126,511 110,226 94,101 74,261 62,868 Timberland ownership (thousands of acres) 5,930 5,900 5,890 5,855 5,837 5,788 5,800 5,753 5,708 5,697 Average common shares outstanding (thousands) 127,371 125,637 124,787 126,121 127,367 127,166 126,858 127,549 126,559 125,721 '"1981 results reflect an extraordinary charge of $11,300 less related taxeffect of $5,200 or $6,100 ($.05 per common share). *^'1980 results reflect extraordinary charges 3f$76,500 less related tax effects of $33,000 or $43,500 ($.35 per common s hare). '"1978 results reflect an extraordinary charg e of $54,100 less related tax effect of $12,600 or $41,500 ($.33 per common share).

•

53 Statistical Summary Weyerhaeuser Company and Subsidiaries

The Company's principal manufacturing facilities are located as follows:

Lumber and plywood Paper Alabama, Arkansas, Mississippi, North Carolina, Oklahoma, Mississippi (under construction). North Carolina, Oregon, Virginia, Washington, Wisconsin Washington and Wisconsin and British Columbia Paperboard and containerboard Particleboard North Carolina, Oklahoma, Oregon and Washington Georgia, North Catolina, Oklahoma, Oregon and Wisconsin Containers and cartons Hardboard California, Florida, Georgia, Illinois, Iowa, Michigan, Oregon Minnesota, Mississippi, New Jersey, New\brk, Oregon, Pulp Washington and Wisconsin North Carolina, Washington and British Columbia Newsprint Washington

The Company's facilities and annual production for the last five years ate summarized by major producr class as follows: Number Product » Basis of Faciliries 1981 1980 1979 1978 1977 Logs Thousand cunits 37 8,263 8,248 8,713 9,253 9,162 Lumber Million board feer 37 2,774 2,747 2,914 3,068 2,898 Softwood plywood and veneer Million square feer (^/s") 15 1,268 1,192 1,454 1,406 1,207 Hardwood plywood and veneer Million square feet 8 729 687 887 995 963 Particleboard Million square feer (^A") 6 399 385 410 442 386 Hardboard Million square feer (Vie") 1 143 110 212 210 187 Market pulp Thousand air-dry metric tons 6 958 1,073 912 917 858 Paper Thousand tons 3 470 509 521 527 471 Paperboard and conrainerboard Thousand tons 7 1,803 1,890 1,973 1,999 1,797 Shipping conrainers Thousand tons 34 1,105 1,177 1,241 1,178 1,046 Carrons Thousand tons 2 53 88 144 144 150 Newsprint Thousand mettic tons 1 301 176 63 — —

54 Weyerhaeuser Company and Subsidiaries

The Company's ner sales by major producr class are as follows (millions): 1981 1980 1979 1978 1977 Raw marerials and chips $ 624 $ 836 $ 812 $ 636 $ 575 Lumber and relared producrs 966 957 1,120 967 780 Plywood, veneer and doors 560 534 599 555 454 Parricleboard and orher panels 176 155 179 188 141 Pulp 460 500 363 301 284 Paper 314 320 306 287 234 Paperboard and containetboard 212 248 195 165 197 Shipping conrainers, carrons and bags 727 730 685 590 539 Newsprint 155 81 24 — — Other 308 175 140 110 79 $4,502 $4,536 $4,423 $3,799 $3,283

The Company's sales volumes by major producr class and its major wood flows and producr purchases are as follows: Basis 1981 1980 1979 1978 1977 Major Product Sales Raw marerials and chips Thousand cunirs 4,300 4,991 4,774 4,988 5,269 Lumber Million board feer 3,349 3,155 3,503 3,384 3,057 Softwood plywood and veneer Million square feer (%") 1,934 1,811 2,033 1,858 1,561 Hardwood plywood and veneer Million square feer 766 715 909 1,051 994 Parricleboard Million square feer (M") 392 382 400 415 376 Hardboard Million square feer (Vie") 156 145 209 201 191 Pulp Thousand air-dry merric tons 827 952 848 875 759 Paper Thousand tons 466 506 520 550 472 Paperboard* Thousand tons 559 704 642 645 820 Shipping conrainers Thousand tons 1,167 1,172 1,227 1,155 1,034 Milk carrons Thousand tons 53 89 145 155 149 Newsprinr Thousand metric tons 295 175 60 — — Major Wood Flows and Product Purchases Logs and chips ro pulp manufacturing Thousand cunits 5,214 5,366 5,008 5,210 4,843 Logs to lumbet manufacturing Thousand cunits 4,145 4,292 4,689 4,843 4,597 Logs to plywood and veneer manufacruring Thousand cunits 874 869 946 1,006 866 Purchases of logs and chips Thousand cunits 3,524 4,430 4,121 4,101 3,832 Purchases of lumber for ourside sales Million board feer 470' 443 548 445 191 Purchases of plywood for ourside sales Million square feet {Vi") 728 658 831 723 528 Purchases of plywood for remanufacture Million square feer 392 363 520 600 574 Purchases of veneer Million square feer 86 83 147 130 172 Purchases of paper waste Thousand rons 466 355 393 375 341 Purchases of pulp Thousand air-dry merric tons 54 60 39 29 35 Purchases of paperboard* Thousand tons 68 248 140 95 380 *Paperboard volumes in 1977 include trades.

55 Directors

Left to right

George H. Weyerhaeuser, 5 5, Robert O. Anderson, 64, a John H. Hauberg, 65, a E. Bronson Ingram, 50, a a director of the Company since director of the Company since director of the Company since director of the Company since i960, has been president and 1978, has been chairman of the 1958, has been president of 1967, has been president and chief executive officer of the board and chief executive officer Pacific Denkmann Company chief executive officer of Ingram Company since I966. He is of Atlantic Richfield Company (tree farms) since 1952. He is Industries Inc. (inland barg­ also a director of The Boeing (producer of petroleum, chemi­ also chairman and trustee of ing and coal, aggregate, and Company, Safeco Corporation, cals and metal products) since the Seattle Art Museum. (3) book sales) since 1978 and prior to that time served in a similar Standard Oil Company of 1965. He is also a director of Harold J. Haynes, 5 5, a position with a predecessor California, and the Federal Re­ Bank Securities, Inc. and Carter director of the Company since company since 1962. He is also serve Bank of San Francisco, and Hawley Hale Stores, Inc., and 1981, was chairman of the board a trustee of Vanderbilt Univer­ a trustee of Rand Corporation. chairman of Diamond A Cattle and chief executive officer of sity (2) (1) Company. (3) Standard Oil Company of Robert B. Wilson, 66, a William H. Clapp, 40, a California until his retirement Robert H. Kieckhefer, 64, director of the Company since director of the Company since in 1981. He is also a ditector of a director of the Company since 1966, has been chairman of the I98I, has been president and The Boeing Company, Carter 1957, has been president of board of the Company since chief executive officer of Hawley Hale Stores, Inc., Kieckhefer Associates, Inc. 1976 and president of Equity Matthew G. Norton Co. (in­ Citicorp and its subsidiary. (investments and trust man­ Management Company since vestments, real estate and sea­ Citibank N.A., Hewlett- agement) since 1976, and prior 1966. He is also a director of food processing) since 1979 Packard Company, PACCAR to that time was self-employed. Burlington Northern, Inc., and prior to that held a similar Inc and Southern Pacific (1)(2) Company. (3) U. S. Bancorp and its subsidiary. position with a predecessor Robert D. O'Brien, 68, a company. He is also a director United States National Bank of Robert S. IngersoU, 68, a director of the Company since of Alaska Airlines, Inc. and Oregon. (1) director of the Company since 1964, is chairman of the board Laird Norton Co. (2) 1976, was deputy chairman of of Univar Corporation (indus­ W. John DriscoU, 52, a the board of trustees of the Uni­ trial merchandising, food prod­ director of the Company since versity of Chicago in the period ucts and specialty chemicals) 1979, has been president of 1976-1981. Prior to that time he and was, until his retirement in Rock Island Company (private served as Deputy Secretary of 1978, chairman of the board of investment company) since State, Assistant Secretary of PACCAR Inc. He is also a di­ 1973. He is also a director of State for East Asian and Pacific rector of Olympia Brewing Burlington Northern, Inc., Affairs, Ambassador to Japan Company, Pacific Northwest Comshare Incorporated, First and chairman and chief execu­ Bell Telephone Company, Puget Midwest Capital Corporation, tive officer, Borg-Warner Corpo­ SoUnd Power & Light Company, The First National Bank of St. ration. He is also a director of Rainier Bancorporation, and its Paul, Gould, Inc., Northern Atlantic Richfield Company, subsidiary. Rainier National States Power Co., and the St. Borg-Warner Corporation, Bank. (1)(3) Paul Companies, Inc., and Caterpillar Tractor Co., Dart & chairman of the board of The Kraft, Inc., First Chicago Cor­ First National Bank of Palm poration and its subsidiary First Beach, Incorporated. (3) National Bank of Chicago, and Royal Group, Inc. (2)

{1) Member of the Executive Committee. Mr. Wilson is Chairman. (2) Member of the Accounting and Re­ porting Standards Committee. Mr. Ingram is Chairman. (3) Member of the Compensation Com­ mittee. Mr. O'Brien is Chairman. SENIOR OFFICERS iRPORATEsi George H. Weyerhaeuser United States Earl Bailey Vice president. facilities plaim PresiJen! and Chief Exvtulive G. C. Meyer Fred R. Fosmire Officer Group vice president. Southern ': Vice president. organization Charles W Bingham Regions planning and development r.xect/fife vice president John H. Wilkinson Walter C. Howe, Jr. Alec M. Fisken Group vice president. Western Vice president, government relations Senior ruel>re\!deni. lacilitits Regions John G. Kauffman planning and!eibn(di>g-) Steven Conway Vice president, transportation H. E. Morgan, Jr. Vi CIS president, Southwest Oregon J. Laurence Kulp Senior vice president, human resource: Region Vice president. research and William D. Ruckelshaus H. S, Jenkins development Senior vice president. luiv and Viie president. Oklahoma Region Keith Lamb corpordte affairs J. Carl Jessup Vice president. Columbus Robert L. Schuyler Via- prisidtnt. Mississippi /Alabama (Mississippi) Project Senior VI-i'president, /inunci.-. Reg,.,,: Robert C Lane pLinntng and dive'-\ified businesses N. E. Johnson Vice president and general counsel John Shethar Vice president. Sorth Carolina John S. Larsen Senior via president, pulp, paper. Region \^icepresident, environment--dI and pa c J: aging George Kovich regulatory affairs Vice prisident and General Manager R- H. Lucas Laslon Ongi-n Vice president. special projects BUSINESSES Thomas M. Luthy William H. Oliver Hans A. Brune Vice president. Northtrn Washington Vice president, communicatiims Cjniup riCi pn M.kn:. pulp and Region Alan T. Smith s>o.nd.n^ h^-y S. C. McKee liceprt-sident. energ\ "lanagenitut Merlyn W Hemphiii ! '^.f pre^hUnt. North Central David B. Smith, Jr. Group rice president. laxid prndu^, .KiglOtI Vice president, labor relations Donakl E. Rush Quincy M. Powers Kenneth J. Stancato Group vice president. timberland.^ Vice president. Willamette i Oregon I I'ice president and controller and raic materials Region William C. Stivers John H. Waechter J. G. Van Bebber, Sr. Vice president and treasurer Group via president. Vice president. Arkansas Region Alan R Vandevert pjpirb'uiu! puA.jging C. H. Wiggins Secretary Peter G. Belluschi Via p'l-hhnl. Southwest Washington Neil R Wissing Vice presidenr. neusprinl R gion Vice president and director of taxes A. A. Broz Robert N. Witter \'ice president. fiber nianufuiiurin;. Vieepresident, 'Iwin Harbors U.S. NATIONAL AFFAIRS (Washington i Region services OFFICE James B. Collett Canada Arthur V Smyth Vice president. domestic D. L. Mclnnes Vice president. Washington. D.C. shipping Container*; Preside'!' tin J , r-n f > \,-L utii e officer. Michael J. Cordry Weyerhaeusir (.anada Ltd. WEYERHAEUSER Vice president. fiber operation:^ COMPANY John W Creighton, Jr. FAR EAST Vice president, shelter FOUNDATION W.E. Fraaklin W. R. Denman Dr. Mary J. Hall President. Weyrbaiuser Par F_ast Vice president, paper Vice presiJent-general i'lanager Ltd.. Hong Kong CarlW. Geist, Jr. Tamma. WA 'JH477 David D. Baskerville Vice president, container'hKV'-d ILxci utn e vu t pres ident. Robert J. Gemmell Weyerhaeuser S. A . —fapan Vice president. diversified busn/iS^c Yoshiharu Nonoyama Clyde R. Kalahan Vice jn-es ident. Weyerhaeuser S.A. — Vice president, panels, hardu <:•:..! fapan and consumer products Paul Kay Vicepn^nhnt. u i.-^.-Jprtnlui:• ,-.s and distribution John P. McMahon Vice president, timberlands in.-,' international proj: ct> W. R. Moore Vice president, lumber L. J. Osterhage Via- president, plywood and structural panels IM^

-^•.-;^'X>.

A Wieyerhaeuser