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NOTE 16: LEGAL PROCEEDINGS, COMMITMENTS AND
CONTINGENCIES This note provides details about our: • legal proceedings; • environmental matters; and • commitments and other contingencies. LEGAL PROCEEDINGS Major legal proceedings involving us described in this section are: • hardboard siding claims; • alder antitrust litigation; • OSB antitrust litigation; and • Paragon Trade Brands, Inc. litigation. We are also a party to other legal matters generally incidental to our business. The ultimate outcome of any legal proceeding: • is subject to a great many variables; and • cannot be predicted with any degree of certainty. However, whenever probable losses from litigation could reasonably be determined – we believe that we have established adequate reserves. In addition, we believe the ultimate outcome of the legal proceedings: • could have a material adverse effect on our results of operations, cash flows or financial position in any given quarter or year; but • will not have a material adverse effect on our long-term results of operations, cash flows or financial position. Hardboard Siding Claims This is a nationwide claims-based settlement of hardboard siding class action cases against us. Under the settlement – which we entered into in June 2000 – all persons who own or owned structures in the U.S. on which our hardboard siding had been installed from January 1, 1981 through December 31, 1999 can file claims. An independent adjuster reviews claims submitted and determines payment. Claims are paid as submitted over a nine-year period. The right to file claims expire in three six-year increments and claims for the first two periods may no longer be filed. The expiration dates are: • 2003 – persons who had our hardboard siding installed from 1981 to 1986. • 2006 – persons who had our hardboard siding installed from 1987 to 1993. • 2009 – persons who had our hardboard siding installed from 1994 to 1999. Status. Total claims paid through the end of our fiscal year 2007 were $109 million. The reserve for future claim payments was $21 million at the end of fiscal year 2007. We have recovered $52 million through negotiated settlements with our insurance carriers. We have no litigation pending with any individuals or entities that have opted out of the class. However, it is possible that individuals or entities that have opted out may file claims in the future. We believe our reserve balance is adequate. However, determining reserves required to fund any future claims involves judgments and projections of future claims rates and amounts. At this time, we are unable to estimate the amount of additional charges – if any – we may need for these claims in the future. Claims Activity and Average Damage Award Paid 
Events and Claims. Here is a chronology of the settlement: • 2000 – We entered into a nationwide settlement of hardboard siding class action cases and recognized a $130 million pretax charge to cover the estimated cost of the settlement and related claims. • 2001 – We reassessed the adequacy of our reserve and increased it by $43 million. • 2003 – The right to file claims from the first six-year period (1981-1986) expired. • 2004 – We reduced our reserve by $20 million based on actual claims and litigation. • 2006 – The right to file claims from the second six-year period (1987-1993) expired. • 2006 – We reduced our reserve by another $23 million based on actual claims and litigation. Alder Antitrust Litigation There have been several lawsuits filed against us since 2000 alleging we had monopoly power or attempted to gain monopoly power for alder logs and finished alder lumber in the Pacific Northwest market. The legal proceedings have included cases we refer to as: • Initial Alder Case and Complaint in Equity; • Washington Alder; and • Civil Class Action Antitrust Lawsuit. Initial Alder Case and Complaint in Equity The Initial Alder Case – filed against us in U.S. District Court in Oregon – alleged that from 1996 to 2001 we had monopoly power or attempted to gain monopoly power in the Pacific Northwest market for alder logs and finished alder lumber. Complaint in Equity – filed against us in U.S. District Court in Oregon – asked that the judgment in the Initial Alder Case against a plaintiff who did not prevail be set aside and the matter retried. Status. The U.S. Supreme Court vacated the lower court decision in the Initial Alder Case that had imposed $79 million in trebled damages against us. We reversed a $79 million reserve into income in the fourth quarter of fiscal year 2006. The U.S. Supreme Court held that – because the plaintiff had conceded that it had not satisfied the test established by the U.S. Supreme Court – the claim on which the damage award was based could not be supported. We settled the Initial Alder Case and the related Complaint in Equity in the second quarter of fiscal year 2007 and recorded an after-tax charge of $11 million. Events and Rulings. Here is a chronology of the litigation: • 2000 –The Initial Alder case was filed against us in U.S. District Court in Oregon. • 2003 – A jury verdict imposed $79 million in trebled damages against us and we recognized a charge of $79 million in the first quarter of 2003. • 2003 – We appealed the jury verdict to the U.S. Court of Appeals for the Ninth Circuit. • 2005 – A Complaint in Equity was filed against us in U.S. District Court in Oregon on behalf of a plaintiff who did not prevail in the Initial Alder Case. The complaint alleged that a fraud was committed on the court and alleged $20 million in trebled damages. • 2005 – The U.S. Court of Appeals for the Ninth Circuit upheld the jury verdict in the Initial Alder Case. • 2006 – We were granted discretionary review of the Initial Alder Case by the U.S. Supreme Court. • 2007 – The U.S. Supreme Court vacated the decision by the U.S. Court of Appeals for the Ninth Circuit and remanded the matter to the Ninth Circuit for further action. • 2007 – The Court of Appeals for the Ninth Circuit vacated the judgment of the District Court and remanded the matter to the District Court for further proceedings. We recognized income for the reversal of the $79 million reserve for this matter in the fourth quarter of 2006. • 2007 – We settled the Initial Alder Case and a related Complaint in Equity and recorded an after tax charge of $11 million in the second quarter of 2007. Washington Alder This lawsuit – filed against us in U.S. District Court in Oregon – alleged monopolization of the alder log and lumber markets. The plaintiff asked for: • $36 million in trebled damages; • divestiture of our Northwest Hardwoods Division; and • divestiture of our alder sawmills in Oregon, Washington and British Columbia. Status. The U.S. Court of Appeals for the Ninth Circuit vacated the lower court decision imposing $16 million in trebled damages against us and remanded the Washington Alder case to the U.S. District Court in Oregon because of the U.S. Supreme Court decision in the Initial Alder Case. It held that because the jury award in Washington Alder had been based on the jury verdict in the Initial Alder Case it also had to be reconsidered. We reversed a $16 million reserve into income in the fourth quarter of fiscal year 2006. We settled the Washington Alder case in August 2007 and recorded an after-tax charge of $3 million. Events and Rulings. Here is a chronology of the litigation: • 2003 – Washington Alder filed the antitrust lawsuit against us in U.S. District Court in Oregon. • 2004 – A jury verdict imposed $16 million in trebled damages against us and we recognized a charge of $16 million in the second quarter of 2004. • 2004 – We appealed the jury verdict to the U.S. Court of Appeals for the Ninth Circuit. • 2007 – The U.S. Court of Appeals for the Ninth Circuit issued an order vacating the judgment and remanded the case to the U.S. District Court in Oregon for further proceedings. We recognized income for the reversal of the $16 million reserve for this matter in the fourth quarter of 2006. • 2007 – We settled the case and recorded an after-tax charge of $3 million. Civil Class Action Antitrust Lawsuit This lawsuit – filed against us in U.S. District Court in Oregon – claims that as a result of our alleged monopolization of the alder sawlog market in the Pacific Northwest we also had monopolized the market for finished alder and charged monopoly prices for finished alder lumber. The claimed damages, when trebled, fall within a range of $91 million to $133 million, depending on many factors. There have been no claims by persons or entities opting out of the class but sales for the class period to opt outs are approximately $100 million. We have not established a reserve for this matter. We are also unable to estimate at this time the amount of charges – if any – that may be required in the future. Status. A class has been certified and trial is set for April 2008. We deny the allegations in the complaint and intend to vigorously defend the matter. We have no litigation pending with any entity or individual who has opted out of the class. However, it is possible that entities or individuals who have opted out of the class may file lawsuits against us in the future. Events and Rulings. Here is a chronology of the litigation: • 2004 –The civil class action antitrust lawsuit was filed against us in U.S. District Court in Oregon. • 2004 – The judge issued an order certifying the plaintiff as class representative for all U.S. purchasers of finished alder lumber between April 28, 2000, and March 31, 2004 for purpose of awarding monetary damages. • 2005 – Class counsel notified the court that 5 percent of the class members opted out of the class action lawsuit. • 2007 – The U.S. District Court in Oregon granted the plaintiff’s motion to file a second amended complaint, extended the claims period to December 31, 2006, and scheduled trial on the matter for April 2008. • 2007 – The U.S. District Court in Oregon denied our motion to decertify the class. • 2007 – The U.S. District Court in Oregon granted plaintiff’s request to file a third amended complaint, which eliminated all allegations of overbidding and overbuying of alder sawlogs as a mechanism to affect the price of alder lumber. • 2007 – We filed a motion for summary judgment with the U.S. District Court. • 2008 – The U.S. District Court denied our motion for summary judgment. OSB Antitrust Litigation In 2006 a series of lawsuits that had been filed were consolidated into one case in the U.S. District Court in Pennsylvania on behalf of persons and entities who directly or indirectly purchased oriented strand board (OSB) between June 2002 and February 2006 from us or from Louisiana-Pacific, Georgia- Pacific, Potlatch, Ainsworth Lumber, Tolko Forest Products, Grant Forest Products, Norbord or J.M. Huber Corp. The lawsuit alleges: • these companies conspired to fix and raise OSB prices in the U.S. during the class period, and • plaintiffs paid artificially inflated prices for OSB during that period. No specific damages were alleged but the direct and indirect plaintiffs have estimated total damages from all defendants, with trebling, at $4.9 billion. This is lower than previously reported because the plaintiffs’ experts have modified their opinions and because the class period ending is now February 2006 rather than “to the present”. Status. The U.S. District Court in Pennsylvania has issued a number of rulings approving class action status for various classes of direct and indirect purchasers for the period from June 2002 through February 2006. J.M. Huber, Georgia-Pacific and Ainsworth have reached settlement with the direct and indirect purchasers. A June 2008 trial has been scheduled and motions for summary judgment on behalf of the remaining defendants, including us, have been filed. We have not established a reserve for this matter. In addition, we are not able to estimate at this time the amount of charges – if any – that may be required in the future. Events and Rulings. Here is a chronology of the litigation: • 2006 – Numerous individual cases were consolidated into one lawsuit filed in U.S. District Court in Pennsylvania seeking class action status for direct purchasers of OSB. • 2006 – Additional lawsuits filed on behalf of indirect purchasers of OSB in different states where such claims are possible under state law were consolidated in U.S. District in Pennsylvania. • 2006 – The court dismissed with prejudice the claims filed by the Pennsylvania indirect purchasers. • 2007 – The U.S. District Court in Pennsylvania:
• 2007 – Individual and joint motions for summary judgment were filed in December on behalf of the remaining defendants, including us. • 2007 – The court moved the trial date from March to June 2008 in order to more fully consider the summary judgment motions. Paragon Trade Brands, Inc. Litigation The Equity Committee filed claims against us in 1999 in the Paragon Trade Brands, Inc. bankruptcy proceeding in the U.S. Bankruptcy Court for the Northern District of Georgia. The Equity Committee (later replaced by a litigation claims representative) asserted we breached certain warranties in our agreements with Paragon connected with its public offering of common stock in February 1993. The Equity Committee sought to recover damages sustained by Paragon in two patent-infringement cases – one brought by Procter & Gamble and the other by Kimberly-Clark. Status. In 2005 the U.S. Bankruptcy Court imposed damages of approximately $470 million on us. We appealed the liability and damages determinations to the U.S. District Court for the Northern District of Georgia. In September 2007, the U.S. District Court for the Northern District of Georgia issued an order reversing the U.S. Bankruptcy Court’s decision and directed the court clerk to enter judgment in our favor. In October 2007 the Litigation Claims Representative appealed the decision to the U.S. Court of Appeals for the Eleventh Circuit. We have not established a reserve for this matter. In addition, we are not able to estimate at this time the amount of charges – if any – that may be required in the future. Events and Rulings. Here is a chronology of the litigation: • 1999 – The Equity Committee in the Paragon Trade Brands, Inc. bankruptcy proceeding began its proceeding against us in U.S. Bankruptcy Court for the Northern District of Georgia. • 2002 – The Bankruptcy Court held us liable for breaches of warranty. • 2005 –The Bankruptcy Court imposed damages of $470 million on us. • 2005 – We appealed the liability and damages determination to the U.S. District Court for the Northern District of Georgia and posted a $500 million bond. • 2007 – The U.S. District Court for the Northern District of Georgia issued an order reversing the U.S. Bankruptcy Court’s decision and directing the court clerk to enter judgment in our favor. • 2007 – the Litigation Claims Representative appealed the U.S. District Court’s decision to the U.S. Court of Appeals for the Eleventh Circuit and we cancelled the $500 million bond that had been posted. ENVIRONMENTAL MATTERS The issues we have concerning environmental matters are: • site remediation; and • asbestos removal. Site Remediation Under the Comprehensive Environmental Response Compensation and Liability Act – commonly known as the Superfund – and similar state laws, we: • are a party to various proceedings related to the cleanup of hazardous waste sites, and • have been notified that we may be a potentially responsible party related to the cleanup of other hazardous waste sites for which proceedings have not yet been initiated. Our Established Reserves. We have established reserves for estimated remediation costs on the active Superfund sites and other sites for which we are responsible. Changes in the Reserve for Environmental Remediation  The changes in our reserves for remediation costs reflect: • new information on all sites concerning remediation alternatives; • updates on prior cost estimates and new sites; and • costs incurred to remediate sites. Estimates. We believe it is reasonably possible – based on currently available information and analysis – that remediation costs for all identified sites may exceed our reserves by up to $37 million. That estimate – in which those additional costs may be incurred over several years – is the upper end of the range of reasonably possible additional costs. The estimate: • is much less certain than the estimates on which our accruals are currently based; and • uses assumptions that are less favorable to us among the range of reasonably possible outcomes. In estimating our current accruals and the possible range of additional future costs, we: • assumed we will not bear the entire cost of remediation of every site; • took into account the ability of other potentially responsible parties to participate; and • considered each party’s financial condition and probable contribution on a per-site basis. We have not recorded any amounts for potential recoveries from insurance carriers. Asbestos Removal We have not recognized a liability for the removal and disposal of encapsulated asbestos from facilities and equipment. That is because we cannot reasonably: • estimate the fair value of our obligations; or • determine the settlement dates. When we are able to reasonably estimate the fair value, we will establish a liability under FASB Interpretation No. 47, Accounting for Conditional Asset Retirement Obligations – an Interpretation of FASB Statement No. 143. COMMITMENTS AND OTHER CONTINGENCIES Our commitments and contingencies include: • guarantees of debt and performance; • warrantees on homes; • purchase obligations for goods and services; and • operating leases. Guarantees. Weyerhaeuser Company has guaranteed $46 million of debt that expires in 2008, but that can be extended annually. We have also guaranteed the performance of the buyer/lessee of a timberlands lease we sold in 2005. Future payments on the lease – which expires in 2023 – are $24 million. We recorded a $3 million liability for this guarantee when the sale of the lease closed. As of December 30, 2007, our Real Estate segment has guaranteed $30 million of debt of unconsolidated entities. Expiration dates of the guarantees are: • $28 million in 2008; • $1 million in 2010; and • $1 million in 2015. Our Real Estate segment also has guaranteed the performance of the buyer/lessee on a ground lease we sold. Future payments on the lease – which expires in 2041 – are $27 million. Warranties Our warranty liability was: • $25 million at December 30, 2007; and • $27 million at December 31, 2006. These warranties – provided by our WRECO subsidiary – are on homes that we have built. The terms of the warranties vary according to: • competitive industry practice; and • state and local laws. We determine the reserves needed to fund the warranties by applying the provisions of Statement 5. Purchase Obligations Our purchase obligations as of December 30, 2007 were: • $438 million in 2008; • $82 million in 2009; • $54 million in 2010; • $32 million in 2011; • $36 million in 2012; and • $450 million beyond 2012. Purchase obligations for goods or services are agreements that: • are enforceable and legally binding; • specify all significant terms; and • cannot be cancelled without penalty. The terms include: • fixed or minimum quantities to be purchased; • fixed, minimum or variable price provisions; and • an approximate timing for the transaction. Our purchase obligations include items such as: • stumpage and log purchases; • energy; and • other service and supply contracts. Operating Leases Our rent expense for the last three years was: • $176 million in 2007; • $188 million in 2006; and • $177 million in 2005. We have operating leases for: • various equipment – including aircraft, vessels, rail and logging equipment, lift trucks, automobiles and office equipment; • office and wholesale space; • model homes; and • real estate ground lease. Commitments. Our operating lease commitments were $722 million as of December 30, 2007. Operations Lease Commitments  Operating lease commitments for the Real Estate segment have not been reduced by minimum sublease rental income of $82 million that is due in future periods under noncancelable sublease agreements. |