Weyerhaeuser's Bad News: A Lot Is In Accounting

When the Weyerhaeuser Co. announced its first annual loss since 1933 and the possible closure of its Everett mill Friday, it sounded like stunningly bad news from the timber-industry giant.

It wasn't nearly as bad as it looked.

In fact, the company's dramatic action was more a reflection of the style of Weyerhaeuser's new management than an indication of severe financial problems.

The company said Friday it would lose $172 million when it reports its final 1991 figures later this month. The loss results from the company recording on its books that unprofitable ventures and other expenses will cost it $344 million after taxes.

Most of the red ink - $283 million - came from Weyerhaeuser's decision to charge itself now for expenses it would have recorded in future years. These included real estate that had lost its value, the cost of plant modernization or closures and environmental cleanup of plants and sites.

The rest came from new federal tax rules on how the company accounts for pension funds. Even though Weyerhaeuser didn't have to comply until 1993, it charged itself $61 million in 1991.

By taking future losses now, financial analysts say, the company will start with a clean slate in 1992. Last year was going to be a "lousy year" anyway for paper and forest-products companies, said Mike Diverio , a forest-products analyst with Shearson Lehman Brothers.

"So you may as well put all the trash in `91 and start with

`92," Diverio says.

That is a marked difference from past years.

Under former Chief Executive Officer George Weyerhaeuser, who retired in August, the company tended to take a cautious approach toward losses, generally taking them in bits and pieces through the years, sometimes looking for a good market to bail it out.

By year-end, things usually looked good.

Apparently, Wall Street agreed with the shift in philosophy. Weyerhaeuser's stock ended the week at $28.18, up $1.25 for the week.

RECESSION A FACTOR

In many ways, Weyerhaeuser has been hit by the same forces that have hit many large U.S. corporations - the recession, the savings-and-loan collapse, the cost of meeting stricter environmental standards.

The biggest chunk - $131 million - of the recorded loss was for plant closures, modernization, bad debts and worker layoffs. But almost as large was the $100 million Weyerhaeuser took on soured real-estate ventures.

Conditions in the timber industry gave Weyerhaeuser problems at some sites. But, because the company is one of the world's largest timber owners, it generally hasn't been as bedeviled by timber-supply problems as most. And its timber reserves will stand it in good stead once timber prices, now in the doldrums due to low housing starts, begin to rise.

Some analysts see Friday's action as a continuation of earlier efforts to get the company shipshape. But that 1989 restructuring fell short of expectations and was generally criticized for failing to trim enough fat.

This time around, a combination of economic conditions forced it to take a harder look at itself, says financial analyst Dan Nelson. Weyerhaeuser has been in the business a long time so it has some old pulp and paper mills and sawmills that weren't state-of-the-art. It may have been able to ignore inefficient plants during good times.

MORE VULNERABLE

But "the recession puts a lot of pressure on your business," said Nelson, of Ragen MacKenzie. "It shows you the areas that are more vulnerable."

Weyerhaeuser will close an Oregon sawmill and consider closing the Everett pulp mill and possibly two other mills. This, analysts say, shows that during tough times in the timber industry even the giants are vulnerable in some areas.

Certainly, the roll call of companies that have fallen, or faltered, is sobering.

-- WTD Industries, the nation's fourth-largest lumber producer in the late 1980s, filed for bankruptcy reorganization a year ago. Even though it was based in Portland, WTD had about a dozen mills in Washington when it filed.

-- Bohemia was a small- to medium-size Oregon company that seemed to be doing all the right things. It owned efficient plants and some timber and was manufacturing the kind of products companies are being told to turn to, such as laminated beams. But it couldn't get enough timber and was liquidated last year.

-- Boise Cascade has fallen on hard times. By the end of September, it had lost $64 million - nearly as much as it had made in the same period a year before.

-- Longview Fibre watched its earnings for 1991 slide 73 percent from the previous year.

In Weyerhaeuser's case, the Everett mill might be closed because it's a small, older plant. Some speculate that a new, state-of-the-art Weyerhaeuser pulp plant in Mississippi is taking Everett's business away. The company denies it.

CRUNCH TIME HAS ARRIVED

But now it's crunch time. Prices for wood chips, a byproduct of sawmilling, are high, especially for the Everett mill, which is not close to Weyerhaeuser timber lands and has to buy most of its wood chips from other companies.

But prices for the pulp and paper they make are low, so low that certain grades of pulp have dropped from more than $800 a ton to under $500 a ton in the last two years.

The plant may have made good money in 1988 and 1989, when pulp and paper commanded high prices. But now it's probably losing money and the average price for paper this year likely will be lower than last.

Environmental costs also are a factor weighing against the Everett plant, said John Creighton Jr., Weyerhaeuser's president and chief executive officer.

And those increasing environmental costs "result in increased cost of operation without any, if you will, operating benefits," Creighton said.

By no means are Weyerhaeuser's environmental problems limited to the Everett plant, however. Creighton says there are "over 50 current and past operating sites" the company will have to clean up. It has allocated another hunk of the charge - $52 million - for the job.

The Everett mill's uncertain status is no surprise in the battered pulp and paper industry. Other pulp mills are shutting down and some that were on the drawing boards a few years ago never got off the ground.