SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
(x) QUARTERLY REPORT PURSUANT TO SECTION 13 or 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended
March 31, 1997
Commission File Number 0-3730
Willamette Industries, Inc.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
State of Oregon 93-0312940
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1300 S.W Fifth Avenue, Suite 3800, Portland, Oregon 97201
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (503) 227-5581
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes x No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock, 50 cent par value: 55,367,736, April 30, 1997.
<PAGE>
WILLAMETTE INDUSTRIES, INC. AND SUBSIDIARIES FORM 10-Q
CONSOLIDATED BALANCE SHEETS PART I
(dollar amounts, except per share amounts, in thousands) ITEM 1
<TABLE>
<CAPTION>
March 31, December 31,
ASSETS 1997 1996
------ --------- ------------
Current assets:
<S> <C> <C>
Cash $ 34,950 22,222
Accounts receivable, less allowance
for doubtful accounts of $4,533 and $4,460 283,722 272,709
Inventories (Note 2) 370,527 365,949
Prepaid expenses and deposits on timber cutting contracts 36,681 38,454
Assets held for sale (Note 3) 100,692 160,218
- --------- ---------
Total current assets 826,572 859,552
Timber, timberlands and related facilities, net 1,433,613 1,444,873
Property, plant and equipment, at cost less
accumulated depreciation of $1,828,925 and $1,767,234 2,355,710 2,330,469
Other assets 84,956 85,787
--------- ---------
$ 4,700,851 4,720,681
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current installments on long-term debt $ 4,378 4,512
Notes payable 191,000 200,000
Accounts payable, includes book overdrafts
of $36,223 and $48,005 163,970 185,437
Accrued expenses 161,266 163,362
Accrued income taxes 19,001 17,107
--------- ---------
Total current liabilities 539,615 570,418
Deferred income taxes 379,013 374,246
Other liabilities 34,230 32,819
Long-term debt, net of current installments 1,775,525 1,766,917
Stockholders' equity:
Preferred stock, cumulative, of $.50 par value.
Authorized 5,000,000 shares. - -
Common stock, $.50 par value. Authorized 150,000,000
shares; issued 55,367,041 and 55,353,654 shares. 27,684 27,677
Capital surplus 307,093 306,517
Retained earnings 1,637,691 1,642,087
--------- ---------
Total stockholders' equity 1,972,468 1,976,281
--------- ---------
$ 4,700,851 4,720,681
========= =========
</TABLE>
2
<PAGE>
WILLAMETTE INDUSTRIES, INC. AND SUBSIDIARIES FORM 10-Q
CONSOLIDATED STATEMENTS OF EARNINGS PART I
(dollar amounts, except per share amounts, in thousands) ITEM 1
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-----------------------
1997 1996
---------- ----------
<S> <C> <C>
Net sales $ 837,663 866,112
Cost of sales 728,367 678,166
---------- ----------
Gross profit 109,296 187,946
Selling and administrative expenses 59,633 55,150
---------- ----------
Operating earnings 49,663 132,796
Other income (expense) 686 204
---------- ----------
50,349 133,000
Interest expense 29,143 14,086
---------- ----------
Earnings before provision for income taxes 21,206 118,914
Provision for income taxes 7,889 45,544
---------- ----------
Net earnings $ 13,317 73,370
========== ==========
Weighted average number of
shares outstanding 55,364,124 55,224,168
========== ==========
Per share information:
Net earnings $ 0.24 1.33
========== ==========
Dividends $ 0.32 0.31
========== ==========
</TABLE>
3
<PAGE>
WILLAMETTE INDUSTRIES, INC. AND SUBSIDIARIES FORM 10-Q
CONSOLIDATED STATEMENTS OF CASH FLOWS PART I
(dollar amounts in thousands) ITEM 1
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-------------------------
1997 1996
---------- -------
Cash flows from operating activities:
<S> <C> <C>
Net earnings $ 13,317 73,370
Adjustments to reconcile net earnings to net cash
from operating activities:
Depreciation 65,500 58,570
Cost of fee timber harvested 12,459 3,618
Other amortization 4,392 1,202
Increase in deferred income taxes 4,767 7,287
Changes in working capital items:
Accounts receivable (11,013) 1,533
Inventories (4,578) 32,039
Prepaid expenses and deposits on timber cutting contracts 1,773 9,301
Accounts payable and accrued expenses (23,563) (12,212)
Accrued income taxes 1,894 31,762
---------- -------
Net cash from operating activities 64,948 206,470
---------- -------
Cash flows from investing activities:
Proceeds from sale of equipment - 281
Expenditures for property, plant and equipment (90,603) (102,194)
Expenditures for timber and timberlands (1,817) (4,736)
Expenditures for roads and reforestation (3,261) (2,311)
Acquisitions (Note 3) - (50,796)
Assets held for sale (Note 3) 59,526 -
Other 1,622 1,320
---------- --------
Net cash from investing activities (34,533) (158,436)
---------- --------
Cash flows from financing activities:
Net change in operating lines of credit 51,094 (11,000)
Debt borrowing 210 28,045
Proceeds from sale of common stock 552 107
Cash dividends paid (17,713) (17,117)
Payment on debt (51,830) (21,105)
---------- --------
Net cash from financing activities (17,687) (21,070)
---------- --------
Net change in cash 12,728 26,964
Cash at beginning of period 22,222 17,961
---------- --------
Cash at end of period $ 34,950 44,925
========== ========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest (net of amount capitalized) $ 34,963 16,393
========== ========
Income taxes $ 1,228 6,495
========== ========
</TABLE>
4
<PAGE>
FORM 10-Q
PART I
ITEM 1
WILLAMETTE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1997
Note 1 The information furnished in this report reflects all adjustments which
are, in the opinion of management, necessary to a fair statement of the
results for the interim periods presented.
Note 2 The components of inventories are as follows (thousands of dollars):
March 31, December 31,
1997 1996
-------- ------------
Finished product $ 116,984 108,090
Work in process 7,211 6,182
Raw material 169,816 175,480
Supplies 76,516 76,197
-------- --------
$ 370,527 365,949
======== ========
Note 3 On May 15, 1996, the Company acquired approximately 1,088,000 acres of
timberland, a sawmill and related assets from Cavenham Forest
Industries, Inc. As of March 31, 1996, the Company had made a deposit
of $50 million toward the purchase. Simultaneous to the purchase, the
company sold 542,000 acres of the acquired property to third parties.
As of March 31, 1997, approximately $101 million of the properties
remain to be conveyed and are classified as assets held for sale.
Note 4 Certain items previously reported have been reclassified to conform
with the 1997 presentation.
Other notes have been omitted pursuant to Rule 10-01(a)(5) of
Regulation S-X.
5
<PAGE>
FORM 10-Q
PART I
ITEM 2
WILLAMETTE INDUSTRIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
March 31, 1997
The Company's two basic businesses, paper products and building materials, are
affected by changes in general economic conditions. Paper product sales and
earnings tend to follow the general economy. Building materials activity is
closely related to new housing starts and to the availability and terms of
financing for construction. Both industry segments use wood fiber as the basic
raw material. The cost of wood fiber is sensitive to various supply and demand
factors, including environmental issues affecting supply.
SEGMENT INFORMATION
-------------------
SALES AND GROSS PROFIT BY QUARTER
---------------------------------
Sales:
BUILDING MATERIALS GROUP PAPER GROUP
------------------------ --------------------------
% %
1997 1996 Change 1997 1996 Change
---- ---- ------ ---- ---- ------
1st Qtr. $ 301,387 226,438 33.1% 536,276 639,674 (16.2%)
- -------------------------------------------------------------------------------
6
<PAGE>
Gross Profit and Gross Profit Margins (GPM) :
BUILDING MATERIALS GROUP PAPER GROUP
------------------------ -------------------------
GPM GPM GPM GPM
1997 % 1996 % 1997 % 1996 %
---- - ---- - ---- - ---- -
1st Qtr. $ 40,994 13.6% 23,769 10.5% 68,302 12.7% 164,177 25.7%
- -----------------------------------------------------------------------------
RESULTS OF OPERATIONS
---------------------
1st Quarter 1997 vs. 1st Quarter 1996
-------------------------------------
Net sales decreased 3.3% in the first quarter of 1997 compared with the first
quarter of 1996, as decreases in paper product sales outpaced increases in
building materials sales. Total paper product sales decreased by 16.2% in the
first quarter of 1997 as sales prices decreased in all paper product lines,
except hardwood market pulp which increased 12.3%. Sales price erosion continued
from 1996 and ranged from 3.1% for grocery bags to 30.0% for cut sheets, as the
market continues to adjust for supply and demand imbalances and industry
inventory corrections. The decrease in sales prices were partially offset by
increased unit shipments in all paper product lines over unit shipments in the
first quarter of 1996, excluding paper bags which decreased 12.8%. The most
significant increase in unit shipments occurred in cut sheets as the volume in
the first quarter of 1997 from the new sheeter at Owensboro, Kentucky
significantly exceeded its first quarter 1996 start-up volume.
Building materials sales increased 33.1% over the first quarter of 1996, as the
results of 1996 acquisitions and strengthened lumber markets provided the spark
in the first quarter of 1997. The acquisition of the Cavenham lands has allowed
the Company to utilize its resources more efficiently, thereby providing the
opportunity to enter the export market. As a result, the
7
<PAGE>
Company has been able to put Douglas fir logs into the export stream and realize
more attractive returns than those achieved domestically. Furthermore, the
acquisition of Medite of Europe (Medite), a medium density fiberboard (MDF)
plant in Clonmel, Ireland, has been profitable since the purchase in November,
1996. The positive gains were not all attributed to activities abroad, however,
as sales prices and unit volumes increased in the domestic lumber markets by
10.8% and 51.6%, respectively, over the first quarter of 1996. A significant
portion of the volume increase is attributable to the Warrenton, Oregon Sawmill
purchased in the Cavenham acquisition in May of 1996.
The structural panel and composite board markets showed mixed results in the
first quarter of 1997. Plywood prices trended up slightly in the first quarter
increasing 2.0% over the same period in 1996. However, unit shipments decreased
6.7%, more than offsetting the price increases. The volume decline was primarily
weather related, as three of the Company's southern plants were shut down for
two weeks because of log shortages caused by weather hampering logging
operations. In April, 1996, the Company began producing oriented strand board
("OSB") at its new plant in Arcadia, Louisiana. Since start up, unit sales
volumes have consistently improved with volumes showing a 22.4% increase for the
first quarter of 1997 over the fourth quarter of 1996. While unit sales volume
has increased, continued pricing pressures from supply and demand imbalances in
the structural panel market has reduced OSB sales prices 10.4% from the fourth
quarter of 1996.
In the composite board markets, unit shipments of MDF increased 104.2% over the
first quarter of 1996 primarily attributable to the late March 1996 start-up of
the newly-converted Eugene, Oregon plant and the fourth quarter 1996
8
<PAGE>
acquisition of Medite. Sales prices in the US domestic market decreased 12.5%
from the first quarter of 1996, due to continued over supply in the market.
However, the European market, serviced by Medite, remained stable showing a
slight 2.5% increase in sales prices from the fourth quarter of 1996.
Particleboard stayed consistent with the trend in the domestic market reflecting
an 11.2% increase in unit shipments and a 5.5% decrease in sales prices from the
first quarter of 1996.
Gross profit margins decreased to 13.0% in the first quarter of 1997 from 21.7%
in the first quarter of 1996. Total paper product gross margins decreased to
12.7% from 25.7% in the first quarter of 1996 with average sales prices
declining in all paper product lines, except hardwood market pulp as previously
discussed. Additionally, the Company's new corrugated box plant in Plant City,
Florida, began production in late March, 1997 and incurred normal start-up costs
in the first quarter of 1997. Partially offsetting the unfavorable sales prices
and start-up costs was a 5.9% decline in old corrugated container (OCC) costs
and a 5.4% decrease in chip costs in the first quarter of 1997, compared with
the same period in 1996.
Building materials gross margins were 13.6% in the first quarter of 1997 which
is up from 10.5% realized in the first quarter of 1996. The increase in margins
is the result of new markets created from the addition of Medite and export
logging operations, and increasing prices in lumber and plywood in the first
quarter of 1997 compared to 1996. In addition, start-up costs such as those
associated with the Eugene, Oregon MDF plant and the OSB plant in Acradia,
Louisiana that came on line in early 1996 were not incurred in the first quarter
of 1997.
9
<PAGE>
Selling and administrative expenses increased $4.5 million or 8.1% mostly due to
expansion of Company operations. The ratio of selling and administrative
expenses to net sales increased to 7.1% for the first quarter of 1997 compared
with 6.4% for the same period in 1996. The increase in the ratio was due to
lower net sales, primarily from declines in sales prices, and higher selling and
administrative expenses.
Interest expense was $29.1 million in the first quarter of 1997 compared with
$14.1 million in the first quarter of 1996. Interest expense increased due to
increased borrowings in connection with the May 15, 1996, Cavenham acquisition.
Partially offsetting the increased borrowings was the decrease in the Company's
effective interest rate on average outstanding debt from 7.79% for the first
quarter of 1996 to 6.98% for the same period in 1997. In addition, capitalized
interest increased from $2.5 million in the first quarter of 1996 to $3.5
million in 1997.
Financial Condition as of March 31, 1997
----------------------------------------
For the first three months of 1997 cash flows from operating activities were
$64.9 million, a decrease of 68.5% from the first three months of 1996. The
decrease was primarily attributable to a decline in net earnings of 81.8% for
the first quarter of 1997 compared to 1996. Internally generated cash flows
funded 67.9% of total capital expenditures of $95.7 million in the first quarter
of 1997. The total debt to capital ratio has slightly increased to 50.0% at
March 31, 1997 from 49.9% at December 31, 1996. The Company anticipates that it
can maintain its present capital spending commitments and
10
<PAGE>
still bring its debt to capital ratio back below 40% by 1999. Net working
capital was $287.0 million at March 31, 1997, consistent with the $289.1 million
at December 31, 1996. The Company believes it has the resources available to
meet its short-term and long-term liquidity requirements. Resources include
internally generated funds, short-term borrowing arrangements and the unused
portion of the revolving loan available under a Credit Agreement.
On April 15, 1997, the Board of Directors of the Company voted to pay a
quarterly cash dividend of $.32 share in the second quarter of 1997; however,
there is no assurance as to future dividends as they are dependent upon
earnings, capital requirements and financial condition. Also, in August, 1995,
the Board of Directors of the Company authorized the repurchase of up to $100
million of the Company's common stock. As of March 31, 1997, the Company had
repurchased 50,000 shares of its common stock for $2.7 million. The Company does
not anticipate further purchases until such time as debt ratios are lower than
current levels.
Forward-looking statements
--------------------------
Statements contained in this report that are not historical in nature, including
the discussion of the anticipated reduction in the Company's debt to capital
ratio and the adequacy of the Company's liquidity resources, are forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995. Forward-looking statements are subject to risks and uncertainties that may
cause actual future results to differ materially. Such risks and uncertainties
with respect to the Company include
11
<PAGE>
the effect of general economic conditions; the level of new housing starts and
remodeling activity; the availability and terms of financing for construction;
competitive factors, including pricing pressures; the cost and availability of
wood fiber; the effect of natural disasters on the Company's timberland; and the
impact of environmental regulations and the construction and other costs
associated with complying with such regulations.
12
<PAGE>
FORM 10-Q
PART II
OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
- ------- ---------------------------------------------------
The annual meeting of the Company's shareholders was held April 15, 1997.
The following directors were elected at the annual meeting for terms of office
expiring in the indicated year by the vote indicated below:
Expiration Abstentions and
of Term For Withheld Broker Non-votes
------- --- -------- ----------------
Kenneth W. Hergenhan 1998 47,126,506 733,682 0
G. Joseph Prendergast 1999 46,526,997 1,333,191 0
Gerard K. Drummond 2000 45,355,237 2,504,951 0
Paul N. McCracken 2000 47,131,806 728,382 0
Stuart J. Shelk, Jr. 2000 47,139,924 720,264 0
Samuel C. Wheeler 2000 47,142,801 717,387 0
The following individuals continue to serve as directors:
Expiration
of term
-------
Robert M. Smelick 1998
Benjamin R. Whiteley 1998
C.W. Knodell 1999
Steven R. Rogel 1999
William Swindells 1999
Item 6. Exhibits and Reports on Form 8-K
- -----------------------------------------
(a) Exhibits
--------
Exhibit No. Exhibit
----------- -------
12 Computation of
Ratio of Earnings
to Fixed Charges.
27 Financial Data Schedule.
(b) Reports on Form 8-K
-------------------
No reports on Form 8-K were filed during the quarter for which
this report is filed.
13
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
WILLAMETTE INDUSTRIES, INC.
By /s/J. A. Parsons
J. A. Parsons
Executive Vice President
Principal Financial Officer)
Date: May 13, 1997
Exhibit 12
WILLAMETTE INDUSTRIES, INC. AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
Three Months Ended
Year Ended December 31, March 31,
------------------------------------------- ----------------
1992 1993 1994 1995 1996 1996 1997
------- ------- ------- ------- ------- ------- -------
Fixed Charges:
<S> <C> <C> <C> <C> <C> <C> <C>
Interest cost $ 73,776 79,194 80,807 77,237 103,338 16,631 32,635
One-third rent
expense 4,495 4,819 5,227 5,976 6,906 1,612 1,810
------ ------- ------- ------- ------- ------- -------
Total Fixed Charges $ 78,271 84,013 86,034 83,213 110,244 18,243 34,445
========= ======= ======= ======= ======= ======= =======
Add (Deduct):
Earnings before
income taxes $ 129,452 189,168 288,923 823,804 306,086 118,914 21,206
Interest capitalized (7,354) (15,904) (9,294) (6,187) (10,534) (2,545) (3,492)
------ ------- ------- ------- ------- ------- -------
Earnings for
Fixed Charges $ 200,369 257,277 365,663 900,830 405,796 134,612 52,159
========= ======= ======= ======= ======= ======= =======
Ratio of Earnings to
Fixed Charges 2.56 3.06 4.25 10.83 3.68 7.38 1.51
========= ======= ======= ======= ======= ======= =======
</TABLE>
15
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
Exhibit 27
WILLAMETTE INDUSTRIES, INC.
FINANCIAL DATA SCHEDULE
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S CONSOLIDATED BALANCE SHEETS AND RELATED CONSOLIDATED STATEMENTS OF
EARNINGS FOR THE PERIOD ENDED March 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 34,950
<SECURITIES> 0
<RECEIVABLES> 288,255
<ALLOWANCES> 4,533
<INVENTORY> 370,527
<CURRENT-ASSETS> 826,572
<PP&E> 5,618,248
<DEPRECIATION> 1,828,925
<TOTAL-ASSETS> 4,700,851
<CURRENT-LIABILITIES> 539,615
<BONDS> 1,775,525
0
0
<COMMON> 27,684
<OTHER-SE> 1,944,784
<TOTAL-LIABILITY-AND-EQUITY> 4,700,851
<SALES> 837,663
<TOTAL-REVENUES> 837,663
<CGS> 728,367
<TOTAL-COSTS> 728,367
<OTHER-EXPENSES> 58,947
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 29,143
<INCOME-PRETAX> 21,206
<INCOME-TAX> 7,889
<INCOME-CONTINUING> 13,317
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 13,317
<EPS-PRIMARY> .24
<EPS-DILUTED> .24
</TABLE>
