SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997 Commission file number 1-12545
WILLAMETTE INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
OREGON 93-0312940
(State of incorporation) (I.R.S. Employer
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
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
Title of each class Name of each exchange on which registered
------------------- -----------------------------------------
Common stock, $.50 par value New York Stock Exchange
Preferred stock purchase rights New York Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: None
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 by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
State the aggregate market value of the voting stock held by
non-affiliates of the registrant.
$ 3,137,223,511 at January 30, 1998
Indicate the number of shares outstanding of each of the registrant's
classes of common stock as of the latest practicable date.
Class Outstanding at January 31, 1998
----- -------------------------------
Common Stock, $.50 par value 111,356,556 shares
DOCUMENTS INCORPORATED BY REFERENCE.
Portions of the registrant's definitive proxy statement for its 1998 annual
meeting of shareholders are incorporated by reference into Part III hereof.
<PAGE>
CROSS REFERENCE SHEET
Showing Location in Definitive Proxy Statement of Items Required
By Form 10-K
Item No
- -------
Caption Form 10-K Caption Definitive Proxy Statement
- ------- ----------------- --------------------------
Item 10 Directors and Executive Holders of Common Stock
Officers of the Registrant Election of Directors
Section 16(a) Beneficial
Ownership Reporting Compliance
Item 11 Executive Compensation Executive Compensation
Compensation Committee
Interlocks and Insider
Participation
Compensation of Directors
Employment Agreements
Item 12 Security Ownership of Holders of Common Stock
Certain Beneficial
Owners and Management
Item 13 Certain Relationships and Compensation Committee
Related Transactions Interlocks and Insider
Participation
<PAGE>
INDEX
<TABLE>
Page
----
Part I
- ------
<S> <C> <C>
Item 1. Business..............................................................................1
General...............................................................................1
Business Segment Information..........................................................1
Pulp and Paper........................................................................2
Converted Paper Products..............................................................2
Building Materials....................................................................3
Timberlands...........................................................................3
Energy................................................................................4
Employees.............................................................................4
Environmental Matters.................................................................4
Item 2. Properties............................................................................4
Item 3. Legal Proceedings.....................................................................8
Item 4. Submission of Matters to a Vote of Security Holders...................................8
Executive Officers of the Registrant..................................................9
Part II
- -------
Item 5. Market for Registrant's Common Equity
and Related Stockholder Matters..................................................10
Item 6. Selected Financial Data..............................................................11
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations....................................12
Item 8. Financial Statements and Supplementary Data..........................................18
Item 9. Changes in and Disagreements with
Accountants on Accounting and Financial
Disclosure.......................................................................18
Part III
- --------
Item 10. Directors and Executive Officers of the Registrant...................................19
(See Part I for Executive Officers of the Registrant)
Item 11. Executive Compensation...............................................................19
Item 12. Security Ownership of Certain Beneficial
Owners and Management............................................................19
Item 13. Certain Relationships and Related
Transactions.....................................................................19
Part IV
- -------
Item 14. Exhibits, Financial Statement Schedules
and Reports on Form 8-K..........................................................20
Signatures...........................................................................21
Index to Consolidated Financial Statements...........................................23
Index to Exhibits....................................................................41
</TABLE>
<PAGE>
PART I
Item 1. Business
GENERAL
Willamette Industries, Inc. (the "Company" or "Willamette") was founded in
1906 as the Willamette Valley Lumber Co. in Dallas, Oregon. In 1967, Willamette
Valley and several related firms merged to form Willamette Industries, Inc. Its
stock has been publicly traded since 1968. Willamette is a diversified,
integrated forest products company with 103 manufacturing facilities in 23
states, France, Ireland and Mexico.
The Company's manufacturing facilities produce kraft linerboard, corrugating
medium, bag paper, fine paper, hardwood market pulp, specialty printing papers,
corrugated containers, business forms, cut sheet paper, paper bags, inks,
lumber, plywood, particleboard, medium density fiberboard, oriented strand
board, laminated beams, laminated veneer lumber, wooden I-joists and other
value-added wood products. We own or manage 1,840,000 acres of timberland in the
United States and employ approximately 13,800 people.
We are a medium-sized firm in a very competitive industry consisting of
thousands of companies, some larger and more diversified, others much smaller,
producing only one or two products. Very competitive conditions exist in every
industry segment in which the Company operates. The Company competes in its
markets primarily through price, quality and service. We feel our strengths are
our vertical integration; our geographically diverse, modern, fiber- and
energy-efficient facilities; our engineering and construction capabilities; our
concentration on a focused, related product range; our balance among building
materials and paper products; our 56% raw material self-sufficiency; and an
organizational structure that encourages teamwork as well as individual
initiative.
Willamette is included in the Fortune 500. The Company's common stock trades
on the New York Stock Exchange (NYSE) under the symbol: WLL.
BUSINESS SEGMENT INFORMATION
The Company has two business segments. The paper group manufactures and sells
pulp and paper products. The building materials group manufactures and sells
wood products. Sales and operating data for the paper group and building
materials group for the past five years are set forth in the five year
comparison captioned "Supplementary Business Segment Information" located on
page 29. The Company is not dependent on any one significant customer or group
of customers. Approximately 90% of the Company's total output is sold
domestically.
1
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PULP AND PAPER
Market pulp and fine paper
Four mills in Kentucky, Pennsylvania, Tennessee and South Carolina manufacture
8% of the nation's uncoated free sheet production. Additionally, our mill in
Kentucky produces 4% of the nation's hardwood market pulp, which is sold to
outside customers.
Chips from nearby sawmills, plywood plants and chip mills serve as the primary
fiber source for our bleached paper products.
Unbleached paper
Four paper mills in California, Kentucky, Louisiana and Oregon manufacture 5%
of the nation's production of linerboard, corrugating medium and bag paper.
Nearly all of the product is used or traded for the needs of Willamette's box
and bag manufacturing plants.
In Louisiana and Oregon, our sawmills, plywood plants and timberlands can
provide nearly all of our chip needs for our linerboard mills. Recycled fiber,
in the form of old corrugated containers (OCC), provides 55% of our fiber needs.
CONVERTED PAPER PRODUCTS
Office papers
Seven business forms plants in six states manufacture 14% of the nation's
production of forms. These forms are mostly long-run continuous computer forms.
Additionally, our four cut sheet facilities in four states (a fifth began
production in the first quarter of 1998) make Willcopy(R), Willamette's
photocopy and cut sheet printer paper. Our cut sheets represent 12% of the
nation's cut sheet production. Our business forms and Willcopy(R) cut sheets are
marketed by our own sales force to a variety of consumers and distributors.
Corrugated containers and sheets
Corrugated containers and sheets are manufactured by 35 plants in 21 states,
including a 46% interest in a facility in Mexico acquired in January 1998.
Domestic output accounts for 6% of U.S. corrugated box production. Products
range from colorful store displays to eye-catching preprinted boxes; from sturdy
wax-coated shipping containers to the plain brown box. Corrugated containers are
marketed by our own sales force to a variety of industrial and agricultural
customers.
2
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Bags
Four bag plants in four states make 12% of the nation's paper bags, marketed to
grocery, department, drug and hardware stores in the West, Midwest and South by
our sales force.
BUILDING MATERIALS
Structural panels and lumber
Plywood panels are manufactured at nine plants in Arkansas, the Carolinas,
Louisiana and Oregon. Oriented strand board (OSB) is manufactured at our plant
in Louisiana. The output of these products accounts for 5% and 3%, respectively,
of the nation's production.
Seven sawmills in Oregon and Louisiana manufacture 2% of the nation's lumber
production. An additional small-log sawmill is scheduled for completion in the
third quarter of 1998.
Lumber and structural panel products are marketed through independent
wholesalers and distributors throughout the U.S.
Composite board
Four particleboard plants in Louisiana and Oregon manufacture 13% of the
nation's particleboard. Three medium density fiberboard plants (MDF) in
Arkansas, Oregon and South Carolina produce 23% of the nation's MDF. MDF is also
manufactured at our facility in Clonmel, Ireland, which accounts for 6% of
European production. Additionally, we acquired a new facility in Morcenx,
France, in the first quarter of 1998. The MDF plants produce value-added
products including color-coated, woodgrain-printed, fire-rated and
moisture-resistant boards.
Composite board products are sold nationwide through independent wholesalers
and distributors.
Engineered wood products
Three laminated beam plants in Oregon and Louisiana account for 28% of the
nation's production. Two laminated veneer lumber (LVL) plants and one wooden
I-joist plant, all located in Oregon, manufacture 6% of the nation's total
production of each product. An additional integrated LVL and I-joist facility
under construction in Louisiana is scheduled for completion by the end of 1998.
Engineered wood products, stock and custom made, are sold in both the domestic
and international markets.
TIMBERLANDS
Willamette's 1,840,000 acres of timberland supply approximately 56% of our
long-term log needs. The remainder is purchased through private timber sales and
open market purchases. We manage our own timberlands to supply 85-90% of the
sawlogs for our Western operations and 30-35% of the sawlogs needed for our
Southern operations. Our timberlands are comprised of 735,000 acres in
Louisiana, Arkansas and Texas; 727,000
3
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acres in Oregon and Washington; and 378,000 acres in Tennessee, Missouri and the
Carolinas. We continually look for opportunities to expand our fee timber base
and make purchases when it is profitable to do so.
ENERGY
Through cogeneration, the burning of waste materials and the recycling of
spent pulping liquors, Willamette's manufacturing facilities are able to
generate 57% of their total energy needs.
EMPLOYEES
Willamette employs approximately 13,800 people, of whom about 52.0% are
represented by labor unions with collective bargaining agreements. Agreements
covering approximately 1,700 employees were negotiated in 1997. Agreements
involving about 2,000 hourly employees are subject to renewal in 1998.
Approximately 46% of all salaried employees have been with the Company more than
twelve years.
ENVIRONMENTAL MATTERS
See "Management's Discussion and Analysis of Financial Condition and Results
of Operations--Other Matters" for a discussion of the effect on the Company of
laws relating to environmental matters.
Item 2. Properties
MANUFACTURING FACILITIES
The following table sets forth information regarding the Company's 103
manufacturing facilities at December 31, 1997:
Building Materials Group:
Facility 1998 Forecast
-------- -------------
Western Plywood (3 Plants) M Square Ft. (3/8" Basis)
Dallas, Oregon 100,000
Foster, Oregon 159,000
Springfield, Oregon 119,000
---------
Total Western Plywood 378,000
---------
Southern Plywood (4 Plants)
Dodson, Louisiana 174,000
Emerson, Arkansas 240,000
Ruston, Louisiana 177,000
Zwolle, Louisiana 237,000
---------
Total Southern Plywood 828,000
---------
4
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1998 Forecast
-------------
Atlantic Plywood (2 Plants) M Square Ft. (3/8" Basis)
Chester, South Carolina 255,000
Moncure, North Carolina 109,000
---------
Total Atlantic Plywood 364,000
---------
Total Plywood 1,570,000
---------
Oriented Strand Board (1 plant)
Arcadia, Louisiana 309,000
---------
(1997 Production-
Total Structural Panels 1,879,000 1,847,000)
=========
Western Lumber (5 Mills) M Board Ft.
Coburg, Oregon 136,000
Dallas, Oregon 119,000
Lebanon, Oregon (2 mills) 147,000
Warrenton, Oregon 152,000
---------
Total Western Lumber 554,000
---------
Southern Lumber (3 Mills)
Dodson, Louisiana 119,000
Taylor, Louisiana1 12,000
Zwolle, Louisiana 55,000
---------
Total Southern Lumber 186,000
---------
(1997 Production-
Total Lumber 740,000 624,000)
=========
Particleboard (4 Plants) M Square Ft. (3/4" Basis)
Albany, Oregon 210,000
Bend, Oregon 176,000
Lillie, Louisiana 115,000
Simsboro, Louisiana 104,000
---------
(1997 Production-
Total Particleboard 605,000 593,000)
=========
Medium Density Fiberboard (5 Plants)
Bennettsville, South Carolina 127,000
Clonmel, Ireland 177,000
Eugene, Oregon 64,000
Malvern, Arkansas 140,000
Morcenx, France 2 42,000
(1997 Production-
Total MDF 550,000 466,000)
=========
Engineered Wood Products (8 Plants) M Board Ft.
Laminated Beams
Saginaw, Oregon 25,000
Simsboro, Louisiana 21,000
Vaughn, Oregon 56,000
---------
(1997 Production-
Total Laminated Beams 102,000 93,000)
=========
5
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1998 Forecast
-------------
Laminated Veneer Lumber Cubic Ft.
Albany, Oregon 1,700,000
Simsboro, Louisiana3 0
Winston, Oregon 1,500,000
---------
(1997 Production-
Total LVL 3,200,000 2,700,000)
=========
Structural I-Joists M Lineal Ft.
Woodburn, Oregon 52,000
Simsboro, Louisiana(3) 0
--------- (1997 Production-
Total I-Joists 52,000 36,000)
=========
Other Divisions (4 Facilities)
Coburg Veneer - Coburg, Oregon
Custom Products - Albany, Oregon
Lebanon Machine - Lebanon, Oregon
Finger-jointed Lumber - Lebanon, Oregon
Paper Group:
Pulp and Paper (9 Mills) Tons
Unbleached:
Albany, Oregon 518,000
Campti, Louisiana 846,000
Hawesville, Kentucky 174,000
Oxnard, California 192,000
---------
(1997 Production-
Total Unbleached 1,730,000 1,730,000)
---------
Market Pulp and Fine Paper:
Hawesville, Kentucky
Market Pulp 163,000
Fine Paper 4 360,000
Johnsonburg, Pennsylvania 391,000
Kingsport, Tennessee 224,000
Marlboro, South Carolina 311,000
---------
(1997 Production-
Total Market Pulp and Fine Paper 1,449,000 1,251,000)
(1997 Production-
Total Pulp and Paper 3,179,000 2,981,000)
=========
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1998 Forecast
-------------
Corrugated Container and Sheets(35 Plants) M Square Ft.
Aurora, Illinois 1,010,000
Beaverton, Oregon 958,000
Bellevue, Washington 874,000
Bellmawr, New Jersey 698,000
Bowling Green, Kentucky 859,000
Cerritos, California 824,000
Compton, California 772,000
Dallas, Texas 893,000
Delaware, Ohio 636,000
Elk Grove, Illinois 515,000
Fort Smith, Arkansas 895,000
Fridley, Minnesota 1,023,000
Golden, Colorado 764,000
Griffin, Georgia 970,000
Huntsville, Alabama 926,000
Indianapolis, Indiana 778,000
Kansas City, Kansas 864,000
Lincoln, Illinois 545,000
Louisville, Kentucky 507,000
Lumberton, North Carolina 780,000
Maryland Heights, Missouri 674,000
Matthews, North Carolina 368,000
Memphis, Tennessee 52,000
Mexico City, Mexico5 400,000
Moses Lake, Washington 870,000
Newton, North Carolina 511,000
Plant City, Florida 580,000
Portland, Oregon 489,000
Sacramento, California 693,000
San Leandro, California 1,206,000
Sanger, California 853,000
Sealy, Texas 800,000
St. Paul, Minnesota 609,000
Tulsa, Oklahoma 38,000
West Memphis, Arkansas 902,000
---------
(1997 Production-
Total Corrugated Containers 25,136,000 22,976,000)
==========
Business Forms (7 Plants) Tons
Cerritos, California 57,000
Dallas, Texas 51,000
DuBois, Pennsylvania 23,000
Indianapolis, Indiana 72,000
Langhorne, Pennsylvania 42,000
Rock Hill, South Carolina 55,000
West Chicago, Illinois 62,000
----------
(1997 Production-
Total Business Forms 362,000 345,000)
==========
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1998 Forecast
-------------
Cut Sheets and Other Converting (5 Plants) Tons
Brownsville, Tennesee (6) 55,000
DuBois, Pennsylvania 144,000
Kingsport, Tennessee 122,000
Owensboro, Kentucky 164,000
Tatum, South Carolina 97,000
---------
(1997 Production-
Total Cut Sheets 582,000 500,000)
=========
Kraft Bags and Sacks (4 Plants)
Beaverton, Oregon 40,000
Buena Park, California 33,000
Dallas, Texas 22,000
Kansas City, Missouri 22,000
---------
(1997 Production-
Total Kraft Bags and Sacks 117,000 113,000)
=========
Preprinted Linerboard (2 Plants) M Square Ft.
Richwood, Kentucky 553,000
Tigard, Oregon 1,102,000
---------
(1997 Production-
Total Preprinted Linerboard 1,655,000 1,455,000)
=========
Inks and Specialty Products (2 Plants) Tons
Beaverton, Oregon 5,000
Delaware, Ohio 2,000
---------
(1997 Production-
Total Inks 7,000 7,000)
=========
1 Production to begin in the third quarter of 1998.
2 Acquired in first quarter of 1998.
3 Production to begin in fourth quarter of 1998.
4 Second machine scheduled for start-up in the second quarter of 1998.
5 Acquired in the first quarter of 1998.
6 Production began in the first quarter of 1998.
TIMBERLANDS
For information with respect to the Company's timberlands, see
"Business--Timberlands."
Item 3. Legal proceedings
There are no material legal proceedings pending as of the date hereof.
Item 4. Submission of Matters to a Vote of Security Holders
There were no matters submitted to a vote of security holders during the fourth
quarter of the year ended December 31, 1997.
8
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Executive Officers of the Registrant
The executive officers of the Company are elected annually by the board of
directors. At February 12, 1998 the executive officers of the Company, their
ages at December 31, 1997 and their positions with the Company were as follows:
Name Age Position
---- --- --------
William Swindells 67 Chairman and chief
executive officer
William P. Kinnune 58 Executive vice president-
corrugated containers and
bags
Duane C. McDougall 45 Executive vice president-
building materials group
Michael R. Onustock 58 Executive vice president-
pulp and fine paper marketing
J. A. Parsons 62 Executive vice president
and chief financial
officer, secretary and
treasurer
Each executive officer has been employed by the Company in his present or in
another managerial capacity for more than five years.
9
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PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
The Company's common stock trades on the New York Stock Exchange (NYSE) under
the symbol WLL. Prior to December 31, 1996 the Company's shares traded on NASDAQ
under the symbol WMTT. At December 31, 1997 there were approximately 20,000
holders (beneficial) of the Company's common stock. The following table shows,
for the periods indicated, the high and low closing sales prices of, and the per
share dividends paid on, the Company's common stock. All amounts have been
adjusted for the 2-for-1 stock split on September 12, 1997.
<TABLE>
1997 1996
---------------------------------- ---------------------------
Closing Closing
Dividends Price Dividends Price
Paid High-Low Paid High-Low
---------------------------------- ---------------------------
<S> <C> <C> <C> <C> <C> <C>
1st Quarter... $0.160 34 11/16 - 30 11/16 $0.155 30 1/8 - 24 5/8
2nd Quarter... 0.160 38 7/16 - 30 1/16 0.155 32 1/8 - 28 3/4
3rd Quarter... 0.160 42 3/8 - 35 1/4 0.155 34 - 28 1/4
4th Quarter... 0.160 39 3/16 - 30 0.155 35 1/4 - 31 1/4
</TABLE>
A dividend of $0.16 per share was declared on the common stock for the first
quarter of 1998 representing an indicated annual dividend rate of $0.64 per
share. The Company expects to continue paying regular cash dividends, although
there is no assurance as to future dividends as they are dependent upon
earnings, capital requirements and financial condition.
10
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Item 6. Selected Financial Data
The following table shows selected financial data for the Company for the
periods indicated:
Financial Results
(dollar amounts, except per share amounts, in thousands)
<TABLE>
1997 1996 1995 1994 1993
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Sales $ 3,438,664 3,425,173 3,873,575 3,007,949 2,622,237
===============================================================================================================================
Costs and Expenses:
Depreciation, amortization and cost
of fee timber harvested.................. $ 338,949 302,937 249,165 217,252 194,202
Materials, labor and other operating
expenses................................. 2,628,231 2,495,345 2,528,570 2,239,185 1,997,246
----------------------------------------------------------------------
Gross profit............................. 471,484 626,891 1,095,840 551,512 430,789
Selling and administrative expense......... 245,319 231,862 201,784 184,699 174,413
----------------------------------------------------------------------
Operating earnings....................... 226,165 395,029 894,056 366,813 256,376
Interest expense........................... 116,990 92,804 71,050 71,513 63,290
Other income (expense)..................... 2,088 3,861 798 (6,377) (3,918)
-----------------------------------------------------------------------
Earnings before provision for income
taxes.................................. 111,263 306,086 823,804 288,923 189,168
Provision for income taxes................. 38,300 114,000 309,000 111,300 78,500
----------------------------------------------------------------------
Earnings before accounting changes....... 72,963 192,086 514,804 177,623 110,668
Accounting changes......................... - - - - 26,364
----------------------------------------------------------------------
Net earnings............................. 72,963 192,086 514,804 177,623 137,032
Cash dividends paid........................ 71,005 68,520 62,874 52,807 48,213
Earnings retained in the business.......... 1,958 123,566 451,930 124,816 88,819
Capital expenditures....................... 527,908 485,769 453,523 393,161 386,864
===============================================================================================================================
Financial Condition:
Working capital............................ $ 308,093 289,134 359,258 138,528 157,576
Long-term debt (noncurrent portion)........ 1,916,001 1,766,917 790,210 915,797 941,710
Stockholders' equity....................... 1,994,480 1,976,281 1,846,890 1,387,865 1,257,870
Total assets............................... 4,811,055 4,720,681 3,413,555 3,033,398 2,804,553
===============================================================================================================================
Common Stock:
Number of stockholders (beneficial)........ 20,000 20,000 19,000 17,000 14,000
Shares outstanding (in thousands)(1) ...... 111,350 110,707 110,448 110,072 109,794
===============================================================================================================================
Per Share: (1)
Earnings before accounting changes......... $ 0.66 1.74 4.67 1.62 1.01
Accounting changes......................... - - - - 0.24
----------------------------------------------------------------------
Net earnings............................. 0.66 1.74 4.67 1.62 1.25
Cash dividends paid........................ 0.64 0.62 0.57 0.48 0.44
Stockholders' equity....................... 17.91 17.85 16.72 12.61 11.46
Year-end stock price....................... 32.188 34.813 28.125 23.75 24.75
===============================================================================================================================
Financial Returns:
Percent return on equity before
Accounting changes(2).................... 3.7% 10.4% 37.1% 14.1% 9.5%
Percent return on net sales before
Accounting changes....................... 2.1% 5.6% 13.3% 5.9% 4.2%
===============================================================================================================================
Employment:
Number of employees........................ 13,800 13,700 13,180 12,260 12,040
Wages, salaries and cost of employee
benefits................................. $ 717,693 672,280 627,835 580,561 551,172
===============================================================================================================================
</TABLE>
(1) All share and per share amounts have been adjusted for stock splits.
(2) Calculated on stockholders' equity at the beginning of the year.
11
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Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
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. The sales and earnings of the
building materials business are closely related to new housing starts,
remodeling activity and to the availability and terms of financing for
construction. The cost of wood and recycled fiber, basic raw materials for both
industry segments, is sensitive to various supply and demand factors, including
environmental issues affecting log supply.
RESULTS OF OPERATIONS 1997 VS. 1996
- -----------------------------------
Net sales in 1997 remained stable compared to 1996 as increases in sales from
building materials slightly exceeded decreases in sales from paper products.
Total paper product sales were down 4.5% in 1997, as sales prices declined in
all product lines except specialty paper products and hardwood market pulp.
While specialty paper products were flat compared to 1996, hardwood market pulp
prices increased in every quarter and ended the year up 11.0%. In addition,
fourth quarter price trends were up in all paper product lines over the third
quarter of 1997. Unit shipment increases partially offset sales price decreases
as volumes increased in every product line except grocery bags in 1997. For
unbleached products, corrugated container unit shipments increased 4.8% while
grocery bags decreased 4.6%. Increases achieved in the corrugated container line
were due to the new Portland, Oregon, sheet plant and the new corrugated box
plant in Plant City, Florida, both of which came on line in the first half of
1997. Unit shipments of bleached products showed cut sheets increasing 20.3% and
continuous forms up 1.4%, while market pulp remained steady with 1996 levels.
The cut sheet increase is the result of a growing market share in anticipation
of the #2 paper machine in Hawesville, Kentucky, which comes on line in April
1998.
Building materials sales increased 11.0% in 1997 compared with 1996 as
increases in unit shipments more than offset decreases in sales prices. Unit
shipments increased in all product lines, except plywood, due to capacity
increases achieved through acquisitions and expansion from capital projects.
Increases were realized from a full year of operation at the Warrenton, Oregon,
sawmill; the MDF plant in Clonmel, Ireland; the converted MDF plant in Eugene,
Oregon; and the OSB plant in Arcadia, Louisiana. As a result, unit shipments
showed increases of 16.0% in lumber, 116.6% in OSB and 64.0% in MDF. Plywood
incurred an 11.6% decrease in unit shipments primarily due to the July closure
of the Taylor, Louisiana, plywood facility. Additionally, the Company entered
the export log market in 1997. Sales price decreases partially offset unit
shipment increases as prices declined in all product lines except plywood and
European MDF. Plywood prices remained stable with a slight increase of 4.0% over
1996. In addition, the European MDF market continued to be strong as prices
increased 5.5% over the fourth quarter
12
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of 1996. Sales prices in remaining product lines decreased, ranging from 1.8% in
lumber to 15.9% in OSB, as supply and demand imbalances kept prices trending
downward.
The gross profit margin for all products was 13.7% for 1997 compared with
18.3% for the same period in 1996. Paper product gross margins decreased to
13.1% in 1997 compared with 20.3% in 1996, reflecting the depressed selling
prices in 1997. Also negatively affecting paper margins was the increase in OCC
costs of 12.2% in 1997 over 1996. Building materials gross profit margins
slightly increased to 14.9% in 1997 from 14.0% in 1996. The increase in margins
resulted primarily from the new market opportunities created in European MDF and
export log sales.
Selling and administrative expenses increased to 7.1% of net sales in 1997
compared to 6.8% in 1996. Overall, selling and administrative expenses increased
5.8% over 1996 even with the assimilation of the acquisitions and expansions
that occurred in 1996.
Interest expense was $117.0 million in 1997 compared to $92.8 million in 1996.
Interest expense increased as a result of increased debt related to the 1996
acquisitions discussed in Note 9 to the consolidated financial statements.
Partially offsetting the effects of increased outstanding debt was the decrease
in the Company's weighted average interest rate from 7.12% in 1996 to 7.05% in
1997. In addition, capitalized interest increased from $10.5 million in 1996 to
$19.9 million in 1997 due primarily to the capital expansion at Hawesville,
Kentucky.
RESULTS OF OPERATIONS 1996 VS. 1995
- -----------------------------------
Net sales decreased by 11.6% in 1996 compared with the record levels achieved
in 1995. Pricing in all paper product lines decreased throughout 1996 as the
market adjusted to further corrections of paper inventories. As a result, paper
product sales decreased by 16.6% as selling prices decreased 14.6% or more for
all products. Unit shipments of unbleached products had mixed results in 1996 as
corrugated containers increased 3.7%, while grocery bag shipments declined 9.0%
from 1995. For bleached products, cut sheet shipments increased by 22.0% while
continuous forms remained stable. The cut sheet increase is primarily due to the
sales from the new sheeter production at Owensboro, Kentucky, added in late
1995.
Building materials sales increased 1.6% in 1996 compared with 1995 as
increases in sales volume more than offset decreases in sales price
realizations. Although lumber prices marginally increased 2.7% during 1996,
prices in the structural panel and composite board markets saw declines ranging
from 4.1% to 16.0% due to supply and demand imbalances created by construction
of new facilities. Unit shipments increased in lumber, MDF and OSB primarily due
to capacity increases in 1996, achieved through acquisitions and expansion from
capital projects. A sawmill in Warrenton, Oregon, was acquired in the second
quarter, and a
13
<PAGE>
new MDF plant in Clonmel, Ireland, was acquired in the fourth quarter. In
addition, the newly converted MDF plant in Eugene, Oregon, and the new OSB
facility in Arcadia, Louisiana, came on line in the first half of 1996. As a
result, lumber and MDF sales volumes increased 25.2% and 28.9%, respectively, in
1996.
The gross profit margin for all products was 18.3% for 1996 compared with
28.3% for the same period in 1995. Paper product gross margins decreased to
20.3% in 1996 compared with 30.4% in 1995, reflecting the decrease in selling
prices in 1996 from the record levels in 1995. In addition, increased shutdown
days in 1996 to adjust for inventory buildup in the market and for capital
expansion projects had a negative impact on margins. Partially offsetting the
effect of decreased sales and down time was the decline in OCC costs by 40.0%
from 1995.
Building materials gross margins decreased to 14.0% compared to 22.9% in 1995.
The decrease in building materials margins was the result of declining prices in
the structural panel and composite board markets. Additionally, start-up costs
associated with the new OSB, MDF and LVL facilities and the Custom Products
relocation at Albany, Oregon, negatively impacted 1996 margins.
Selling and administrative expenses increased to 6.8% of net sales in 1996
compared to 5.2% in 1995. While the increase was due primarily to lower net
sales, selling and administrative expenses increased 14.9% in 1996 from 1995 due
to expansion of Company operations and costs of new facility start-ups.
Interest expense was $92.8 million in 1996 compared to $71.0 million in 1995.
Interest expense increased as a result of increased debt related to the
acquisitions discussed in note 9 to the consolidated financial statements.
Partially offsetting the increase in outstanding debt was the decrease in the
Company's weighted average interest rate from 7.67% in 1995 to 7.12% for 1996.
Additionally, capitalized interest increased from $6.2 million in 1995 to $10.5
million in 1996 due to the significant capital projects underway.
14
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Willamette generates funds internally via net earnings adjusted for non-cash
charges against earnings such as depreciation, cost of fee timber harvested and
deferred income taxes. Funds generated externally have usually been through debt
financing.
In 1997, cash flows from operating activities were $389.4 million and
represented a decrease of 40.9% from comparable cash flows in 1996. This
decrease was primarily due to a decline in net earnings during 1997 and
increases in accounts receivable and inventories compared to prior year
decreases. Internally generated cash flows funded 74.0% of capital expenditures
in 1997.
Net working capital increased to $308.1 million at December 31, 1997 from
$289.1 million at December 31, 1996. The increase is primarily attributed to
increases in inventories and receivables largely due to new facilities and
inventory buildups at our cut sheet plants to prepare for the start-up of the
new paper machine at Hawesville.
The Company is continually making capital expenditures at its manufacturing
facilities to improve fiber utilization and labor efficiency and to expand
production. In 1997, the Company made $506.3 million in capital expenditures for
property, plant and equipment.
During 1997 the following major capital projects were completed:
- Expansion of pulping capacity at the Hawesville, Kentucky,
bleached pulp mill.
- Installation of a recovery boiler at the Hawesville, Kentucky,
bleached pulp mill.
- Construction of a new corrugated box plant in Plant City, Florida.
- Modernization of the sawmill at Coburg, Oregon.
Major capital projects underway at December 31, 1997 include the following:
- Addition of a new uncoated free sheet paper machine at Hawesville,
Kentucky.
- Construction and installation of a new biomass boiler at the
Kingsport, Tennessee, bleached pulp mill.
- Expansion of secondary fiber capacity at the paper mill in Campti,
Louisiana.
- Construction of a new cut sheet plant in Brownsville, Tennessee.
- Upgrade of a paper machine at Johnsonburg, Pennsylvania.
- Relocation of a corrugated facility in Sacramento, California.
- Construction of a new integrated LVL and I-joist plant at
Simsboro, Louisiana.
- Construction of a new small-log sawmill at Taylor, Louisiana.
15
<PAGE>
The cost of all major capital projects in progress at December 31, 1997 is
estimated to be approximately $839.3 million, of which $545.7 million has
already been spent. These projects will be funded with internally generated cash
flows and with external borrowings if needed.
In August 1997, the Company filed a shelf registration statement under the
Securities Act of 1933, covering $500.0 million of debt and equity securities.
In January 1998, the Company issued $200.0 million in debentures - $100.0
million at 6.45% due 2005 and $100.0 million at 7.0% due 2018. The proceeds of
the sale are to replace $144.5 million of notes maturing in 1998 and reduce
other bank borrowing. Thus, the issuance had no effect on the Company's total
debt-to-capital ratio.
In May 1996 the Company acquired the timber operations of Cavenham Forest
Industries, Inc. (the Cavenham acquisition) in Louisiana and the Pacific
Northwest as discussed in Note 9 to the consolidated financial statements. The
Company funded the acquisition with cash and $1.1 billion of borrowing under a
Credit Agreement. In July 1996, the Company issued $400.0 million in debentures.
The proceeds from the sale were used to reduce indebtedness under the Credit
Agreement used to fund the Cavenham acquisition. Additionally, in November 1996,
the Company completed the acquisition of Medite of Europe, discussed in Note 9
to the consolidated financial statements, for $61.5 million in cash, plus
certain closing costs.
The total debt-to-capital ratio remained steady at 50.0% at December 31, 1997
compared to 49.9% 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 agreements
and the unused portion of the revolving loan available under the Credit
Agreement.
On August 5, 1997, the Board of Directors declared a 2-for-1 stock split of
its outstanding common stock. The split was implemented as a stock dividend,
payable September 12, 1997 at the rate of one share of common stock for each
share held of record on August 5, 1997.
In April 1996, the Company increased the number of authorized shares of common
stock to 150,000,000 from 75,000,000.
16
<PAGE>
OTHER MATTERS
The Company believes it is in substantial compliance with federal, state and
local laws regarding environmental quality.
The Environmental Protection Agency (EPA) recently signed the final rules
regarding air and water quality referred to as the "cluster rules". The final
rules are expected to be released sometime in the first quarter of 1998 with
implementation required within three years of the date of issuance. Certain
exceptions to the rules extend the time period for specific compliance
requirements up to eight years. The EPA has also provided an incentives program
which will lengthen the compliance timeline if advanced technologies that go
beyond the cluster rules are implemented. In addition to the impact of the
cluster rules on pulp and paper mills, the Company's other operations are faced
with increasingly stringent environmental regulations. Based upon either enacted
or proposed regulations, the Company estimates that over the next five years,
additional capital expenditures to comply with environmental regulations will
not exceed $120.0 million. Although future environmental capital expenditures
cannot be predicted with any certainty because of continuing changes in laws,
the Company believes that compliance with such environmental regulations will
not have a material adverse effect upon the Company's competitive position.
Much attention has been given to the controversy concerning preservationists'
efforts to stop the harvest of timber from Federal timberlands. Concurrent with
these efforts have come increased regulations, limitations and restrictions on
the harvest of timber from privately-owned timberlands. Current rules and
regulations do not significantly impact the Company's ability to manage its
timberlands on a sustained yield basis.
The Company has been working to convert its computer systems to be year 2000
compliant since 1996. The conversion is expected to be completed in 1998 and has
been coordinated with other modifications being made for other purposes. The
costs associated with conversion are primarily being expensed as incurred and
are not expected to have a material impact on the Company's financial position.
Over the years, inflation has resulted in replacement costs higher than those
originally needed to purchase existing plants and equipment. Advancing
technology and environmental concerns also contribute to higher costs.
Productivity gains, because of technological improvements, may partially offset
these increased costs. Our use of LIFO to value inventories allows us to include
these inflationary costs in the cost of sales.
17
<PAGE>
FORWARD-LOOKING STATEMENTS
Statements contained in this report that are not historical in nature,
including without limitation the discussion of forecasted sales and production
volumes, the impact of environmental regulations, the impact of year 2000
compliance 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 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 timberlands; construction
delays; risk of non-performance by third parties; and the impact of
environmental regulations and the construction and other costs associated with
complying with such regulations. In view of these uncertainties, investors are
cautioned not to place undue reliance on such forward-looking statements. The
Company disclaims any obligation to publicly announce the results of any
revisions to any forward-looking statements contained herein to reflect future
events or developments.
Item 8. Financial Statements and Supplementary Data
The financial statements and supplementary data filed as part of this report
follow the signature pages of this report.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
18
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant
Information regarding (i) directors of the Company is set forth in the
Company's definitive proxy statement (the "Proxy Statement") for its 1998 annual
meeting of shareholders, under the heading "Election of Directors" and (ii)
Section 16(a) of the Securities Exchange Act of 1934, is set forth under
"Section 16(a) Beneficial Ownership Reporting Compliance" in the Proxy
Statement, which information is incorporated herein by reference. Information
regarding the executive officers of the Company is set forth under the heading
"Executive Officers of the Registrant" in Part I of this report.
Item 11. Executive Compensation
Information regarding compensation of directors and executive officers of the
Company is set forth in the Proxy Statement under the headings "Executive
Compensation," "Compensation Committee Interlocks and Insider Participation,"
"Compensation of Directors" and "Employment Agreements." Such information is
incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
Information regarding security ownership of management and certain other
beneficial owners is in the Proxy Statement under the heading "Holders of Common
Stock" which information is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions
Information regarding certain relationships and related transactions is set
forth in the Proxy Statement under the heading "Compensation Committee
Interlocks and Insider Participation" which information is incorporated herein
by reference.
19
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
(a) 1. and 2. For a list of the financial statements filed herewith, see the
index to consolidated financial statements following the
signature pages of this report.
(a) 3. For a list of the exhibits filed herewith, see the index to
exhibits following the financial statements filed with this
report. Each management contract or compensatory plan or
arrangement required to be filed as an exhibit to this report
is identified in the list.
(b) Reports on Form 8-K.
On November 17, 1997 the Company filed a current report on
Form 8-K, reporting under Item 5 the resignation of Mr. Steven
R. Rogel as Chief Executive Officer and Director of Willamette
Industries, Inc.
On January 26, 1998, the Company filed a current report on
Form 8-K, reporting under Item 5 the status of an
environmental proceeding and receipt of Section 114
information requests from the Environmental Protection Agency
and the filing under Item 7 of certain exhibits relating to
the $200.0 million debentures issued in January 1998.
20
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
(Registrant)
By /s/ J. A. PARSONS
Dated: February 12, 1998 (J. A. Parsons)
Executive Vice President
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below on February 12, 1998, by the following persons on behalf
of the registrant in the capacities indicated.
Signature Title
--------- -----
Principal Executive Officer
and Director
/s/ WILLIAM SWINDELLS Chairman and Chief Executive Officer
(William Swindells)
Principal Financial Officer
/s/ J. A. PARSONS Executive Vice President and
(J. A. Parsons) Chief Financial Officer, Secretary and
Treasurer
Principal Accounting Officer
/s/ G. W. HAWLEY Vice President-Controller
(G. W. Hawley)
/s/ GERARD K. DRUMMOND Director
(Gerard K. Drummond)
/s/ KENNETH W. HERGENHAN Director
(Kenneth W. Hergenhan)
/s/ C. W. KNODELL Director
(C. W. Knodell)
21
<PAGE>
/s/ PAUL N. MCCRACKEN Director
(Paul N. McCracken)
/s/ G. JOSEPH PRENDERGAST Director
(G. Joseph Prendergast)
/s/ STUART J. SHELK, JR. Director
(Stuart J. Shelk, Jr.)
/s/ ROBERT M. SMELICK Director
(Robert M. Smelick)
/s/ SAMUEL C. WHEELER Director
(Samuel C. Wheeler)
/s/ BENJAMIN R. WHITELEY Director
(Benjamin R. Whiteley)
22
<PAGE>
Index to Consolidated Financial Statements
Page No.
--------
Independent Auditors' Report..................................... 24
Consolidated Balance Sheets as of December 31, 1997 and 1996 .... 25
Consolidated Statements of Earnings for years ended
December 31, 1997, 1996 and 1995............................... 26
Consolidated Statements of Stockholders' Equity
for years ended December 31, 1997, 1996 and 1995............... 27
Consolidated Statements of Cash Flows for years ended
December 31, 1997, 1996 and 1995............................... 28
Supplementary Business Segment Information....................... 29
Selected Quarterly Financial Data................................ 30
Notes to Consolidated Financial Statements....................... 31-40
23
<PAGE>
Independent Auditors' Report
- ----------------------------
The Board of Directors and Stockholders
Willamette Industries, Inc.:
We have audited the accompanying consolidated balance sheets of Willamette
Industries, Inc. and subsidiaries as of December 31, 1997 and 1996 and the
related consolidated statements of earnings, stockholders' equity and cash flows
for each of the years in the three-year period ended December 31, 1997. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Willamette
Industries, Inc. and subsidiaries at December 31, 1997 and 1996, and the results
of their operations and their cash flows for each of the years in the three-year
period ended December 31, 1997 in conformity with generally accepted accounting
principles.
/s/ KPMG PEAT MARWICK LLP
Portland, Oregon
February 12, 1998
24
<PAGE>
<TABLE>
- ------------------------------------------------------------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEETS
====================================================================================================================================
December 31, 1997 and 1996
(dollar amounts, except per share amounts, in thousands)
Assets 1997 1996
--------------- -----------------
Current assets:
<S> <C> <C>
Cash $ 27,600 22,222
Accounts receivable, less allowance for doubtful
accounts of $4,571 (1996 - $4,460) 307,002 272,709
Inventories (note 3) 394,595 365,949
Prepaid expenses and timber deposits 36,991 38,454
Assets held for sale (notes 5 and 9) - 160,218
--------------- -----------------
Total current assets 766,188 859,552
--------------- -----------------
Timber, timberlands and related facilities, net (note 9) 1,396,946 1,444,873
Property, plant and equipment, net (notes 7 and 9) 2,566,291 2,330,469
Other assets 81,630 85,787
--------------- -----------------
$ 4,811,055 4,720,681
=============== =================
Liabilities and Stockholders' Equity
Current liabilities:
Current installments on long-term debt (note 5) $ 17,897 4,512
Notes payable (note 5) 64,000 200,000
Accounts payable, includes book overdrafts of $49,421
(1996 - $48,005) 216,914 185,437
Accrued payroll and related expenses 71,842 72,661
Accrued interest 38,339 38,336
Other accrued expenses 45,272 52,365
Accrued income taxes (note 4) 3,831 17,107
--------------- -----------------
Total current liabilities 458,095 570,418
--------------- -----------------
Deferred income taxes (note 4) 402,896 374,246
Other liabilities 39,583 32,819
Long-term debt, net of current installments (note 5) 1,916,001 1,766,917
Stockholders' equity (note 8):
Preferred stock, cumulative, of $.50 par value.
Authorized 5,000,000 shares - -
Common stock of $.50 par value. Authorized 150,000,000
shares; issued 111,349,956 shares
(1996 - 110,707,308 shares) 55,675 27,677
Capital surplus 294,760 306,517
Retained earnings 1,644,045 1,642,087
--------------- -----------------
Total stockholders' equity 1,994,480 1,976,281
=============== =================
$ 4,811,055 4,720,681
=============== =================
</TABLE>
See accompanying notes to consolidated financial statements.
25
<PAGE>
<TABLE>
- ------------------------------------------------------------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF EARNINGS
====================================================================================================================================
Years ended December 31, 1997, 1996 and 1995
(dollar amounts, except per share amounts, in thousands)
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Net sales $ 3,438,664 3,425,173 3,873,575
Cost of sales 2,967,180 2,798,282 2,777,735
--------- --------- ---------
Gross profit 471,484 626,891 1,095,840
Selling and administrative expense 245,319 231,862 201,784
--------- --------- ---------
Operating earnings 226,165 395,029 894,056
Other income 2,088 3,861 798
--------- --------- ---------
228,253 398,890 894,854
Interest expense 116,990 92,804 71,050
--------- --------- ---------
Earnings before provision for income taxes 111,263 306,086 823,804
Provision for income taxes (note 4) 38,300 114,000 309,000
Net earnings $ 72,963 192,086 514,804
========= ========= =========
Earnings per share(1) $ 0.66 1.74 4.67
========= ========= =========
Earnings per share - assuming dilution(1) $ 0.65 1.73 4.65
========= ========= =========
Weighted average number of shares
outstanding (in thousands):
Earnings per share 110,975 110,536 110,292
========= ========= =========
Earnings per share - assuming dilution(2) 111,550 111,032 110,826
========= ========= =========
</TABLE>
(1) Per share earnings are based upon the weighted average number of shares
outstanding.
(2) Weighted average shares outstanding, assuming dilution, are calculated using
the treasury stock method assuming all stock options are exercised. See note 8.
See accompanying notes to consolidated financial statements.
26
<PAGE>
<TABLE>
- ------------------------------------------------------------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
====================================================================================================================================
Years ended December 31, 1997, 1996 and 1995
(dollar amounts, except per share amounts, in thousands)
1997 1996 1995
-------- -------- --------
Common Stock:
<S> <C> <C> <C>
Balance at beginning of year $ 27,677 27,612 27,518
2-for-1 stock split 27,787 - -
Shares issued for options exercised 211 65 119
Stock repurchased and cancelled - - (25)
--------- ---------- ---------
Balance at end of year $ 55,675 27,677 27,612
========= ========== =========
Capital Surplus:
Balance at beginning of year $ 306,517 300,757 293,756
2-for-1 stock split (27,787) - -
Shares issued for options exercised 16,030 5,760 9,689
Stock repurchased and cancelled - - (2,688)
--------- ---------- ---------
Balance at end of year $ 294,760 306,517 300,757
========= ========== =========
Retained Earnings:
Balance at beginning of year $ 1,642,087 1,518,521 1,066,591
Net earnings 72,963 192,086 514,804
Less cash dividends on common stock
($.64,$.62, and $.57 per share in
1997, 1996 and 1995 respectively) (71,005) (68,520) (62,874)
--------- ---------- ---------
Balance at end of year $ 1,644,045 1,642,087 1,518,521
========= ========== =========
</TABLE>
See accompanying notes to consolidated financial statements.
27
<PAGE>
<TABLE>
- -----------------------------------------------------------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
===================================================================================================================================
Years ended December 31, 1997, 1996 and 1995
(dollar amounts in thousands)
1997 1996 1995
-------- -------- --------
Cash flows from operating activities:
<S> <C> <C> <C>
Net earnings $ 72,963 192,086 514,804
Adjustments to reconcile net earnings
to net cash from operating activities:
Depreciation 268,030 246,638 218,580
Cost of fee timber harvested 52,649 43,381 25,061
Other amortization 18,270 12,918 5,524
Increase in deferred income taxes 28,650 40,717 98,425
Changes in working capital items:
Accounts receivable (34,293) 56,549 (31,015)
Inventories (28,646) 49,575 (135,267)
Prepaid expenses and timber deposits 1,463 14,282 1,262
Accounts payable and accrued expenses 23,568 11,810 18,229
Accrued income taxes (13,276) (8,692) 1,582
---------- --------- --------
Net cash from operating activities 389,378 659,264 717,185
---------- --------- --------
Cash flows from investing activities:
Proceeds from sale of equipment 2,493 1,781 2,000
Expenditures for property, plant & equipment (506,348) (454,744) (411,985)
Expenditures for timber and timberlands (7,782) (16,991) (33,776)
Expenditures for roads and reforestation (13,778) (14,034) (7,762)
Acquisitions (note 9) - (1,019,274) -
Assets held for sale (notes 5 and 9) 160,218 (160,218) -
Other 9,624 (8,517) (8,602)
---------- --------- --------
Net cash from investing activities (355,573) (1,671,997) (460,125)
---------- --------- --------
Cash flows from financing activities:
Net change in operating lines of credit 23,985 28,962 (49,000)
Debt borrowing 175,415 1,211,950 79,010
Proceeds from sale of common stock 16,109 5,697 9,635
Repurchased common stock - - (2,713)
Cash dividends paid (71,005) (68,520) (62,874)
Payment on debt (172,931) (161,095) (225,955)
---------- --------- --------
Net cash from financing activities (28,427) 1,016,994 (251,897)
---------- --------- --------
Net change in cash 5,378 4,261 5,163
Cash at beginning of year 22,222 17,961 12,798
---------- --------- --------
Cash at end of year $ 27,600 22,222 17,961
========== ========= ========
Supplemental disclosures of cash flow
information
Cash paid during the year for:
Interest (net of amount capitalized) $ 116,987 74,896 72,930
========== ========= ========
Income taxes $ 22,926 81,663 208,993
========== ========= ========
See accompanying notes to consolidated financial statements.
</TABLE>
28
<PAGE>
<TABLE>
- ------------------------------------------------------------------------------------------------------------------------------------
SUPPLEMENTARY BUSINESS SEGMENT INFORMATION
====================================================================================================================================
(dollar amounts in thousands)
1997 % 1996 % 1995 % 1994 % 1993 %
--------------- ------------------ ---------------- ------------------ ------------------
Sales to outside customers:
Paper Group:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Fabricated paper products $ 1,718,227 50 1,823,652 53 2,128,428 55 1,475,593 49 1,232,311 47
Pulp and paper 520,457 15 520,260 15 681,094 18 410,365 14 360,014 14
---------------- ------------------ ---------------- ------------------ ------------------
Total Paper Group 2,238,684 65 2,343,912 68 2,809,522 73 1,885,958 63 1,592,325 61
---------------- ------------------ ---------------- ------------------ ------------------
Building Materials Group:
Lumber 248,401 7 218,153 7 169,753 4 188,445 6 184,287 7
Plywood 366,690 11 378,959 11 428,707 11 441,397 15 425,387 16
Particleboard and MDF 349,652 10 277,375 8 272,336 7 292,153 10 234,123 9
Other wood products 235,237 7 206,774 6 193,257 5 199,996 6 186,115 7
---------------- ------------------ ---------------- ------------------ ------------------
Total Building Materials Group 1,199,980 35 1,081,261 32 1,064,053 27 1,121,991 37 1,029,912 39
---------------- ------------------ ---------------- ------------------ ------------------
Total net sales (1) $ 3,438,664 100 3,425,173 100 3,873,575 100 3,007,949 100 2,622,237 100
================ ================== ================ ================== ==================
Intersegment sales at market value:
Building Materials Group $ 47,100 42,692 61,082 36,121 39,113
=========== ============ =========== ============= =============
Gross Profit (GP): GP% GP% GP% GP% GP%
----- ------ ----- ----- -----
Paper Group $ 293,108 13 475,945 20 855,054 30 260,830 14 184,553 12
Building Materials Group 178,376 15 150,946 14 240,786 23 290,682 26 246,236 24
================ ================== ================ ================== ==================
$ 471,484 14 626,891 18 1,095,840 28 551,512 18 430,789 16
================ ================== ================ ================== ==================
Operating earnings:
Paper Group $ 112,919 50 306,463 78 707,234 79 124,856 34 53,655 21
Building Materials Group 113,246 50 88,566 22 186,822 21 241,957 66 202,721 79
---------------- ------------------ ---------------- ------------------ ------------------
Total operating earnings 226,165 100 395,029 100 894,056 100 366,813 100 256,376 100
================ ================== ================ ================== ==================
Other income (expense) 2,088 3,861 798 (6,377) (3,918)
Interest expense 116,990 92,804 71,050 71,513 63,290
Earnings before provision for
----------- ------------ ----------- ------------- -------------
income taxes $ 111,263 306,086 823,804 288,923 189,168
=========== ============ =========== ============= =============
Depreciation, cost of fee timber
harvested and amortization:
Paper Group $ 204,852 194,816 177,888 152,983 129,069
134,097 108,121 71,277 64,269 65,133
=========== ------------ ----------- ------------- -------------
$ 338,949 302,937 249,165 217,252 194,202
=========== ============ =========== ============= =============
Capital Expenditures:
Paper Group $ 438,394 342,268 300,145 298,931 323,952
Building Materials Group 89,514 143,501 153,378 94,230 62,912
----------- ------------ ----------- ------------- -------------
$ 527,908 485,769 453,523 393,161 386,864
=========== ============ =========== ============= =============
Identifiable assets:
Paper Group $ 2,701,778 2,409,719 2,359,462 2,090,399 1,884,017
Building Materials Group 1,991,560 2,034,975 967,193 866,351 845,492
Corporate 117,717 275,987 86,900 76,648 75,044
----------- ------------ ----------- ------------- -------------
$ 4,811,055 4,720,681 3,413,555 3,033,398 2,804,553
=========== ============ =========== ============= =============
</TABLE>
(1) The Company is not dependent on any one significant customer or group of
customers. Approximately 90% of the Company's total output is sold
domestically.
29
<PAGE>
================================================================================
SELECTED QUARTERLY FINANCIAL DATA
================================================================================
(Unaudited)(dollar amounts, except per share amounts, in thousands)
Net Gross Net Earnings
-----------------------------
1997 Sales Profit Amount Per Share
- --------------------------------------------------------------------------------
1st Quarter.............. $ 837,663 109,296 13,317 .12
2nd Quarter.............. 857,742 118,815 17,750 .16
3rd Quarter.............. 872,823 122,668 20,697 .19
4th Quarter.............. 870,436 120,705 21,199 .19
- --------------------------------------------------------------------------------
Total............... $ 3,438,664 471,484 72,963 .66
================================================================================
Net Gross Net Earnings
-----------------------------
1996 Sales Profit Amount Per Share
- --------------------------------------------------------------------------------
1st Quarter.............. $ 866,112 187,946 73,370 .67
2nd Quarter.............. 858,792 153,985 48,254 .43
3rd Quarter.............. 862,674 155,142 43,129 .39
4th Quarter.............. 837,595 129,818 27,333 .25
- --------------------------------------------------------------------------------
Total............... $ 3,425,173 626,891 192,086 1.74
================================================================================
30
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997, 1996 and 1995 (dollar amounts, except per share amounts, in
thousands)
Note 1. Nature of Operations
Willamette Industries, Inc. is a diversified, integrated forest products
company with 103 manufacturing facilities in 23 states, France, Ireland and
Mexico. The Company produces kraft linerboard, corrugating medium, bag paper,
fine paper, hardwood market pulp, specialty printing papers, corrugated
containers, business forms, cut sheet paper, paper bags, inks, lumber, plywood,
particleboard, medium density fiberboard, oriented strand board, laminated
beams, laminated veneer lumber, wooden I-joists and other value-added wood
products. The Company's principal lines of business are paper products and
building materials. Based on sales, paper products represent approximately
two-thirds of the Company's business with the balance consisting of building
materials. The Company sells 90% of its products in the United States domestic
market and its primary foreign markets are Asia and Europe.
Note 2. Summary of Significant Accounting Policies
(a) Principles of Consolidation
The consolidated financial statements include the accounts of all
majority-owned subsidiaries. All material intercompany balances and transactions
have been eliminated upon consolidation.
(b) Inventories
Inventories are valued at the lower of cost or market. Cost is determined
on the last-in, first-out (LIFO) method for all major classes of inventory. All
other inventories are valued at average cost.
(c) Property, Plant and Equipment
Property, plant and equipment is carried at cost and includes expenditures
for new facilities and those which substantially increase the useful lives of
existing plant and equipment. Maintenance, repairs and minor renewals are
expensed as incurred. When properties are retired or otherwise disposed of, the
related cost and accumulated depreciation are removed from the respective
accounts and any profit or loss on disposition is credited or charged to income.
Depreciation is computed using the straight-line method over the useful lives of
the respective assets. Leasehold improvements are amortized over the terms of
the respective leases.
(d) Timber, Timberlands and Related Facilities
These accounts are stated at their cost less the cost of fee timber
harvested and the amortization of logging roads. Both the cost of fee timber
harvested and amortization rates are determined with reference to costs and the
related existing volume of timber estimated to be recoverable.
31
<PAGE>
The Company obtains a portion of its timber requirements from various
sources under timber harvesting contracts. The Company does not incur a direct
liability for, or ownership of, this timber until it has been harvested;
therefore, the timber is not recorded until cut.
(e) Income Taxes
The Company utilizes the liability method of accounting for income taxes.
This method requires that deferred tax liabilities and assets be established
based on the difference between the financial statement and income tax bases of
assets and liabilities using existing tax rates.
(f) Capitalized Interest
Interest is capitalized on funds borrowed during the construction period on
certain assets. Capitalized interest in 1997, 1996 and 1995 was $19,939, $10,534
and $6,187 respectively and is netted against interest expense in the
consolidated statements of earnings. Such capitalized interest will be amortized
over the depreciable life of the related assets.
(g) Use of Estimates
Generally accepted accounting principles require management to make
estimates and assumptions that affect the reported amount of assets, liabilities
and contingencies at the date of the financial statements and the amounts of
revenues and expenses during the period. Actual results could differ from those
estimates.
(h) Business Segments
The Company operates in two principal business segments: paper products and
building materials. Information with respect to these segments is included in
the five-year comparison labeled "Supplementary Business Segment Information" on
page 29.
(i) Restatements and Reclassifications
All share and per share amounts have been restated to reflect the 2-for-1
stock split on September 12, 1997. Certain reclassifications have been made to
prior years' data to conform with 1997 presentation
(j) Stock-Based Compensation
The Company has elected to continue accounting for stock-based compensation
under Accounting Principles Board Opinion #25 and has determined the effects of
adopting SFAS #123 would not have a material effect on the financial statements.
32
<PAGE>
Note 3. Inventories
The major components of inventories are as follows:
December 31,
----------------------------
1997 1996
--------- ---------
Finished product....................... $118,046 108,090
Work in progress....................... 7,404 6,182
Raw material........................... 187,912 175,480
Supplies............................... 81,233 76,197
-------- -------
$394,595 365,949
======== =======
Valued at:
LIFO cost............................ $268,447 249,379
Average cost......................... 126,148 116,570
If current cost rather than LIFO cost had been used by the Company,
inventories would have been approximately $62,662 and $46,261 higher in 1997 and
1996 respectively.
Note 4. Income Taxes
The provision for income taxes includes the following:
1997 1996 1995
------- ------- -------
Payable from taxable earnings.......... $ (4,350) 73,283 261,975
Payable (reduction) due to AMT......... 14,000 - (51,400)
------- ------- -------
Currently payable...................... 9,650 73,283 210,575
Deferred taxes due to temporary
differences for:
Accelerated depreciation........... 23,395 37,501 91,766
Other.............................. 5,255 3,216 6,659
------- ------- -------
Total deferred .................. 28,650 40,717 98,425
------- ------- -------
Total provision.................. $ 38,300 114,000 309,000
======= ======= =======
Federal income taxes................... $ 31,600 97,000 265,500
Other income taxes..................... 6,700 17,000 43,500
------- ------- -------
$ 38,300 114,000 309,000
======= ======= =======
The Company's deferred income tax liability is mainly due to depreciation.
Differences between the effective tax rate and the Federal statutory rate are
shown in the following table as a percentage of pretax income:
1997 1996 1995
----- ----- ----
Federal statutory rate....................... 35.0% 35.0% 35.0%
State income taxes, net of
Federal tax effect......................... 2.3 3.6 3.4
Benefit from foreign taxes................... (1.3) - -
Other........................................ (1.6) (1.4) (.9)
----- ----- -----
34.4% 37.2% 37.5%
===== ===== =====
33
<PAGE>
The Company's consolidated Federal income tax returns through 1993 have been
examined by the Internal Revenue Service and while final settlement has not been
made, management believes that the Company has provided for all deficiencies
that ultimately might be assessed.
The Tax Reform Act of 1986 expanded the corporate alternative minimum tax
(AMT). Under this Act, the Company's tax liability is the greater of its regular
tax or the AMT. To the extent the Company's AMT liability exceeds its regular
tax liability, the AMT liability may be applied against future regular tax
liabilities. At December 31, 1997, the Company had $14,000 in AMT credits.
Note 5. Long-term Debt
Long-term debt consists of the following:
December 31,
----------------------
1997 1996
---------- ----------
Notes payable to public:
7.00%, due in 1998....................... $ 100,000 100,000
9.625%, due in 2000...................... 150,000 150,000
7.75%, due in 2002....................... 100,000 100,000
9.125%, due in 2003...................... 50,000 50,000
9.00%, due in 2021....................... 150,000 150,000
7.35%, due in 2026(1).................... 200,000 200,000
7.85%, due in 2026....................... 200,000 200,000
(1) Holders have the option to demand repayment in 2006.
Medium-term notes, with interest
rates ranging from 5.82% to 7.20%,
due in varying amounts through 2013...... 150,000 150,000
Bank loans, with interest rates
averaging 6.04% and 5.79%, due
in varying amounts through 2001.......... 709,264 705,766
Revenue bonds, with interest
rates averaging 4.94% and 4.69%,
due in varying amounts
through 2026............................. 121,640 121,749
Other long-term debt, with
interest rates averaging
6.76% and 6.50%, due in
varying amounts through 2006............. 2,994 3,914
---------- ---------
1,933,898 1,931,429
Less: Current installments................. 17,897 4,512
Bank loans classified as Notes Payable - 160,000
----------- ---------
$ 1,916,001 1,766,917
=========== =========
34
<PAGE>
Principal payment requirements on the above debt for the four years
subsequent to 1998 are: 1999, $1,005; 2000, $150,370; 2001, $300,216; 2002,
$110,216.
In January 1998, the Company issued $200.0 million in debentures - $100.0
million at 6.45% due 2005 and $100.0 million at 7.0% due 2018. The proceeds of
the sale were used to replace $144.5 million of notes maturing in 1998 and other
bank borrowings. Therefore, the related debt maturing in 1998 has been
classified as long-term at December 31, 1997.
The Company has a revolving loan with a group of banks which provides for
borrowings up to $1.0 billion in principal amount and provides backup for a
Master Note program. At December 31, 1997, the outstanding balance covered under
the revolving loan was $700,000. At December 31, 1996, $160,000 of the bank
loans were classified as "notes payable" and correspond to the 1997 sale of the
"assets held for sale" and concurrent paydown of bank loans.
The Company utilized short-term borrowings with a number of banks at various
times during 1997 and 1996 of which $64,000 was outstanding at December 31,
1997. The weighted average interest rate on short-term borrowings at December
31, 1997 and 1996 was 5.75% and 5.61% respectively. Interest is based upon
prevailing short-term rates in effect at the time of the transaction.
The fair value of the Company's long-term debt is estimated to be
approximately $2,014,421, based on the quoted market prices for the same or
similar issues or on the current rates offered to the Company for debt with the
same remaining maturities.
Note 6. Pension and Retirement Plans
Contributory Plans
The Company covers all salaried employees and some hourly employees under
401(k) plans. The amounts contributed by the Company vary for the plans. Total
plan expenses were $10,903, $10,430 and $8,857 in 1997, 1996 and 1995
respectively.
Defined Benefit Plans
The Company contributes to multi-employer retirement plans at fixed payments
per hour for certain hourly employees. Substantially all other employees of the
Company are covered by noncontributory defined benefit plans. Retirement
benefits are based on years of service and compensation prior to retirement.
Total pension expense in 1997, 1996 and 1995 for all such plans was $10,770,
$10,628 and $6,189 respectively.
As advised by its actuaries, the Company makes such contributions to provide
not only for benefits attributed to past service, but also for those benefits
expected to be earned in the future.
35
<PAGE>
The net periodic pension cost for 1997, 1996 and 1995 included the following
components:
1997 1996 1995
---- ---- ----
Service cost of benefits earned
during the period ................... $ 14,533 13,968 10,278
Interest cost on projected
benefit obligation .................. 22,576 20,132 18,451
Actual return on assets ............... (80,136) (50,017) (70,087)
Net amortization and deferral ......... 48,683 21,538 43,114
------- ------- -------
Net periodic pension cost ............. $ 5,656 5,621 1,756
======= ======= =======
Substantially all plan assets are invested in stocks, bonds and cash
equivalents. The following table sets forth the plans' funded status and amount
recognized in the Company's consolidated financial statements at December 31,
1997 and 1996:
December 31,
------------------------------------------------------------------
1997 1996
------------------------------------------------------------------
Assets Exceed Accumulated Assets Exceed Accumulated
Accumulated Benefits Accumulated Benefits
Benefits Exceed Assets Benefits Exceed Assets
----------- ------------- ----------- -------------
Actuarial present
value of benefit
obligations:
Vested benefit
obligation $(274,498) (953) (221,382) (30,435)
======== ======= ======== =======
Accumulated
benefit
obligation $(291,276) (1,149) (233,562) (34,635)
======== ======= ======== =======
Projected
benefit
obligation $(340,916) (1,149) (276,637) (34,635)
Plan assets
at fair value 459,915 996 358,675 31,701
-------- ------- -------- -------
Plan assets
greater (less)
than projected
benefit
obligation 118,999 (153) 82,038 (2,934)
Unrecognized
net (gain) (129,457) (185) (81,548) (2,528)
Prior service
cost not yet
recognized in
net periodic
pension cost 12,095 285 5,628 3,806
36
<PAGE>
Unrecognized
obligation,
net of
amortization (1,565) (3) (2,060) (111)
-------- --------- --------- ---------
Prepaid pension
cost (pension
liability)
recognized 72 (56) 4,058 (1,767)
======== ========= ========= =========
Weighted average
discount rate 7.25% 7.25% 7.25% 7.25%
======== ========= ========= =========
Future compensation
increase 5.0% 5.0% 5.0% 5.0%
======== ========= ========= =========
Long-term rate
of return 9.0% 9.0% 9.0% 9.0%
======== ========= ========= =========
Postretirement Benefit Plans
The Company has a contributory postretirement health plan primarily covering
its salaried employees. Employees become eligible for these benefits if they
meet minimum age and service requirements.
The Accumulated Postretirement Benefit Obligation (APBO) as of December 31,
1997 and 1996 was:
1997 1996
-------- -------
Retirees........................................ $ 14,653 12,410
Other fully eligible participants............... 6,870 5,401
Other active participants................... 12,754 13,865
-------- -------
34,277 31,676
Unrecognized loss............................... (5,942) (4,998)
-------- -------
APBO recognized in balance sheet................ $ 28,335 26,678
======== =======
Weighted average discount rate.................. 7.25% 7.25%
======== =======
The components of net periodic postretirement expenses are as follows:
1997 1996 1995
---- ---- ----
Service cost benefits earned in period......... $ 1,182 1,065 867
Interest cost on accumulated benefit obligation 2,290 2,103 2,043
Amortization of loss from earlier periods...... 236 166 71
----- ----- -----
Net expense.................................... $ 3,708 3,334 2,981
===== ===== =====
Weighted average discount rate................. 7.25% 7.0% 8.0%
===== ===== =====
For the year 1997, a 9.0% increase in the medical cost trend rate was assumed.
This rate decreases incrementally to an ultimate annual rate of 5.0%. A 1.0%
increase in the medical trend rate would increase the APBO by $3,700 and
increase the net periodic postretirement expense by $470.
37
<PAGE>
Note 7. Property, Plant and Equipment
Property, plant and equipment accounts are summarized as follows:
Principal December 31,
range of ----------------------
useful lives 1997 1996
------------ ---- ----
Land........................ - $ 39,389 37,270
Building Materials Group
manufacturing facilities.. 10 - 20 869,320 831,464
Paper Group
manufacturing and
converting facilities..... 10 - 30 3,197,338 2,889,067
Office equipment............ 3 - 10 85,715 76,870
Leasehold improvements...... life of lease 6,443 6,300
Construction in progress.... - 386,292 256,732
--------- ---------
4,584,497 4,097,703
Accumulated depreciation.... 2,018,206 1,767,234
--------- ---------
$2,566,291 2,330,469
========= =========
Note 8. Stockholders' Equity
The Company's 1995 Long-Term Incentive Compensation Plan (the Plan), which
replaced an earlier plan, provides for grants of stock options, awards of stock
appreciation rights and restricted shares of common stock to directors and key
employees. Options are granted at exercise prices not less than the market value
of the common stock on the date of grant. Options generally become exercisable
after one year in 33 1/3% increments per year and expire ten years from the date
of grant. The Company has reserved 5,500,000 shares for distribution under the
Plan. A summary of stock option activity is as follows:
Option Price
Shares Per Share
------ ---------
Outstanding December 31, 1994....... 2,465,622 $ 8.375-22.688
Granted........................... 599,980 25.75
Exercised......................... 488,688 8.375-22.688
Cancelled or surrendered.......... 13,306 8.375-25.75
----------- -------------
Outstanding December 31, 1995....... 2,563,608 11.625-25.75
Granted .......................... 546,060 30.875
Exercised......................... 251,494 11.625-25.75
Cancelled or surrendered.......... 9,480 11.625-30.875
Outstanding December 31, 1996....... 2,848,694 11.625-30.875
Granted .......................... 776,940 30.563
Exercised......................... 650,092 11.625-30.875
Cancelled or surrendered.......... 126,972 22.685-30.875
----------- -------------
Outstanding December 31, 1997....... 2,848,570 11.625-30.875
=========== =============
Shares exercisable.................. 1,757,822 $11.625-30.875
=========== =============
38
<PAGE>
Restricted shares have been awarded to certain officers at no cost based upon
continued employment and the attainment of performance goals, or both. These
shares will vest in one-third annual increments beginning after three years of
continuous employment. At December 31, 1997, 9,278 restricted shares had not yet
vested.
The Company has a shareholder rights plan providing for the distribution of
rights to shareholders ten days after a person or group becomes the owner of 20%
or more of the Company's common stock or makes a tender or exchange offer which
would result in the ownership of 30% or more of the common stock. Once the
rights are distributed, each right becomes exercisable to purchase, for $280,
1/100th of a share of new series of Company preferred stock, which 1/100th share
is intended to equal four common shares in market value. Each right is
exercisable to purchase, for $280, common shares with a market value of $560.
The rights will expire in 2000.
Note 9. Acquisitions
In May 1996, the Company acquired approximately 1,088,000 acres of
timberland, a sawmill and related assets in Louisiana and the Pacific Northwest
from Cavenham Forest Industries, Inc., an affiliate of Hanson PLC. (the
"Cavenham acquisition"). The purchase price for the properties was $1.588
billion. The Company sold 542,000 acres of the acquired property to third
parties for an aggregate price of $641.0 million. After giving effect to the
sales to third parties, the Company acquired 546,000 acres of timberland, a
sawmill and related assets for $947.0 million, plus certain closing costs of
approximately $10.0 million.
In November 1996, the Company purchased the capital stock of Medite of Europe
Limited ("Medite") for $61.5 million in cash plus certain closing costs. Medite
produces medium density fiberboard at its plant in Clonmel, Ireland.
Both acquisitions were accounted for as purchases. Supplemental information
concerning the two acquisitions follows:
Cavenham Medite
-------- ------
Cash purchase price $957,274 62,000
======== ======
Purchase price was allocated to:
Current assets $ - 29,913
Timber and timberlands 950,380 -
Property, plant and equipment 8,612 60,569
Debt assumed - (20,804)
Other assets and liabilities (1,718) (7,678)
---------- ---------
$957,274 62,000
========== =========
39
<PAGE>
Note 10. Contingencies
There are various lawsuits, claims and environmental matters pending against
the Company. While any proceeding or litigation has an element of uncertainty,
management believes that the outcome of any lawsuit or claim that is pending or
threatened, or all of them combined, will not have a material adverse effect on
the Company's financial condition or operations.
40
<PAGE>
INDEX TO EXHIBITS
EXHIBIT
3A. Third Restated Articles of Incorporation of the registrant, as
amended. Incorporated by reference from Exhibit 3A of the
registrant's quarterly report on Form 10-Q for the quarter ended
March 31, 1996. [16]
3B. Bylaws of the registrant as amended through February 12, 1998.
[21]
4A. Indenture dated as of March 15, 1983, between registrant and The
Chase Manhattan Bank. Incorporated by reference from Exhibit 4A
of the registration statement on Form S-3 effective December 13,
1985 (File No. 33-1876). [89]
4B. Indenture dated as of January 30, 1993 between the registrant and
The Chase Manhattan Bank. Incorporated by reference from Exhibit
4A of the registration statement on Form S-3 effective March 1,
1993 (File No. 33-58044). [82]
4C. Credit Agreement dated as of May 10, 1996, among the registrant,
Bank of America National Trust and Savings Association, ABN Amro
Bank N.V., Morgan Guaranty Trust Company of New York,
Nationsbank, N.A., Wachovia Bank of Georgia, N.A., and other
financial institutions parties thereto, authorized
$1,000,000,000. Incorporated by reference from Exhibit 4 of the
registrant's current report on Form 8-K/A, amendment No. 1, dated
May 15, 1996.
9. Not applicable.
10A. Willamette Industries, Inc. Deferred Compensation Plan for
Directors. Incorporated by reference from Exhibit 10A of the
registrant's annual report on Form 10-K for the year ended
December 31, 1996 ("the 1996 Form-K").* [3]
10B. Willamette Industries, Inc. 1986 Stock Option and Stock
Appreciation Rights Plan, as amended. Incorporated by reference
from Exhibit 10B of the 1996 Form 10-K.* [8]
10C. Willamette Industries, Inc. Retirement Plan for Nonemployee
Directors. Incorporated by reference from Exhibit 10C of the 1996
Form 10-K.* [2]
41
<PAGE>
10D. Willamette Industries Inc. Severance Agreement with Key
Management Group. Incorporated by reference from Exhibit 10D of
the 1996 Form 10-K.* [13]
10E. Willamette Industries 1993 Deferred Compensation Plan.
Incorporated by reference from Exhibit 10E to the registrant's
annual report on Form 10-K for the year ended December 31,
1993.* [16]
10F. Willamette Industries 1995 Long-Term Incentive Compensation Plan.
Incorporated by reference from Exhibit 10F of the registrant's
annual report on Form 10-K for the year ended December 31, 1994.*
[12]
10G. Consulting agreement dated October 1, 1997 between the registrant
and William Swindells.* [4]
10H. Rights Agreement dated as of February 26, 1990, amended December
3, 1996. Incorporated by reference from Exhibit 10 of the
registrant's quarterly report on Form 10-Q for the quarter ended
June 30, 1997. [61]
10I. Asset sale, purchase and transfer agreement dated March 12, 1996,
between Hanson Natural Resources Company, Cavenham Energy
Resources Inc., Cavenham Forest Industries Inc. and the
registrant. Incorporated by reference from Exhibit 2.1 of the
registrant's current report on Form 8-K/A, amendment No. 1, dated
May 15, 1996.
10J. Asset sale, purchase and transfer agreement dated April 11, 1996,
between the registrant and Crown Pacific Limited Partnership.
Incorporated by reference from Exhibit 2.2 of the registrant's
current report on Form 8-K/A, amendment No. 1, dated May 15,
1996.
10K. Asset sale, purchase and transfer agreement dated April 23, 1996,
between the registrant and Temple-Inland Forest Products
Corporation. Incorporated by reference from Exhibit 2.3 of the
registrant's current report on Form 8-K/A, amendment No. 1, dated
May 15, 1996.
10L. Asset sale, purchase and transfer agreement dated April 26, 1996,
between the registrant and John Hancock Mutual Life Insurance
Company, together with Addendum No. 1 thereto dated May 13, 1996.
Incorporated by reference from Exhibit 2.4 of the registrant's
current report on Form 8-K/A, amendment No. 1, dated May 15,
1996.
42
<PAGE>
10M. Management agreement dated May 15, 1996, among the registrant,
John Hancock Mutual Life Insurance Company, Willamette Columbia
Timber Co. and Hancock Natural Resource Group, Inc. Incorporated
by reference from Exhibit 2.5 of the registrant's current report
on Form 8-K/A, amendment No. 1, dated May 15, 1996.
10N. Right of first offer agreement dated May 15, 1996, between the
registrant and John Hancock Mutual Life Insurance Company.
Incorporated by reference from Exhibit 2.6 of the registrant's
current report on Form 8-K/A, amendment No.
1, dated May 15, 1996.
10O. Timber supply agreement dated May 15, 1996, between the
registrant and John Hancock Mutual Life Insurance Company.
Incorporated by reference from Exhibit 2.7 of the registrant's
current report on Form 8-K/A, amendment No. 1, dated May 15,
1996.
11. Computation of per share earnings is obtainable from the
financial statements filed with this annual report on Form 10-K.
12. Computation of Ratio of Earnings to Fixed Charges. [1]
13. Not applicable.
16. Not applicable.
18. Not applicable.
21. Omitted because the registrant's subsidiaries considered in the
aggregate as a single subsidiary do not constitute a significant
subsidiary.
22. Not applicable.
23. Consent of Independent Auditors to the incorporation by reference
of their report dated February 12, 1998, in the registrant's
registration statements on Form S-3 and Form S-8. [1]
24. Not applicable.
27. Financial Data Schedule. [1]
28.-98. Not applicable.
99. Description of capital stock. Incorporated by reference from
exhibit 99 of the registrant's quarterly report on Form 10-Q for
the quarter ended June 30, 1997. [4]
43
<PAGE>
The registrant will furnish a copy of any exhibit to this annual report on
Form 10-K to any security holder for a fee of $0.30 per page to cover the
registrant's expenses in furnishing the copy. The number of pages of each
exhibit is indicated in brackets at the end of each exhibit description.
- ------------------------
*Management contract or compensatory plan or arrangement.
Note: Certain instruments with respect to the long-term debt of the registrant
are not filed herewith where the total amount of securities authorized
thereunder does not exceed 10 percent of the total assets of the registrant and
its subsidiaries on a consolidated basis. The registrant agrees to furnish
copies of such instruments to the Commission on request.
44
BYLAWS
OF
WILLAMETTE INDUSTRIES, INC.
AS AMENDED THROUGH
FEBRUARY 12, 1998
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I Offices..................................................... 1
Section 1. Principal Office........................................ 1
Section 2. Registered Office....................................... 1
ARTICLE II Shareholders................................................ 1
Section 1. Annual Meeting.......................................... 1
Section 2. Special Meetings........................................ 1
Section 3. Place of Meeting........................................ 2
Section 4. Notice of Meeting....................................... 2
Section 5. Quorum; Manner of Acting................................ 2
Section 6. Proxies................................................. 3
Section 7. Voting of Shares........................................ 3
Section 8. Acceptance of Votes..................................... 3
ARTICLE III Board of Directors.......................................... 4
Section 1. General Powers.......................................... 4
Section 2. Number, Tenure and Classification....................... 4
Section 3. Regular Meetings........................................ 4
Section 4. Special Meetings........................................ 5
Section 5. Notice; Waiver.......................................... 5
Section 6. Quorum.................................................. 6
Section 7. Manner of Acting........................................ 6
Section 8. Vacancies............................................... 6
Section 9. Presumption of Assent................................... 6
Section 10. Removal of Directors................................... 6
Section 11. Compensation........................................... 7
Section 12. Retirement............................................. 7
Section 13. Emeritus Director...................................... 7
Section 14. Action Without a Meeting............................... 7
Section 15. Telephonic Meetings.................................... 7
Section 16. Notification of Nominations............................ 8
ARTICLE IV Executive Committee and Other Committees.................... 9
Section 1. Appointment............................................. 9
Section 2. Authority............................................... 9
Section 3. Tenure and Qualifications............................... 10
Section 4. Meetings; Notice; Waiver................................ 10
Section 5. Quorum; Manner of Acting................................ 10
Section 6. Action Without a Meeting................................ 10
Section 7. Vacancies............................................... 10
Section 8. Resignations and Removal................................ 11
Section 9. Procedure............................................... 11
Section 10. Appointment of Other Committees of the
Board of Directors......................................... 11
Section 11. Appointment of Other Committees........................ 11
ARTICLE V Officers.................................................... 12
Section 1. Number.................................................. 12
Section 2. Appointment and Term of Office.......................... 12
Section 3. Removal................................................. 13
Section 4. Vacancies............................................... 13
Section 5. Chairman of the Board................................... 13
Section 6. President............................................... 13
Section 7. Executive Vice-Presidents............................... 14
Section 8. Vice-Presidents......................................... 14
Section 9. Chief Financial Officer................................. 14
Section 10. Secretary.............................................. 14
Section 11. Treasurer.............................................. 15
Section 12. Salaries............................................... 15
ARTICLE VI Contracts, Loans, Checks and Deposits....................... 16
Section 1. Contracts............................................... 16
Section 2. Loans................................................... 16
Section 3. Checks, Drafts, etc..................................... 16
Section 4. Deposits................................................ 16
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ARTICLE VII Certificates For Shares and Their Transfer................... 16
Section 1. Certificates for Shares................................. 16
Section 2. Transfer of Shares...................................... 17
Section 3. Replacement of Certificates............................. 17
Section 4. Transfer Agents and Registrars.......................... 17
ARTICLE VIII Seal......................................................... 18
ARTICLE IX Fiscal Year.................................................. 18
ARTICLE X Amendments................................................... 18
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BYLAWS
OF
WILLAMETTE INDUSTRIES, INC.
AS AMENDED THROUGH
FEBRUARY 12, 1998
ARTICLE I
Offices
Section 1. Principal Office. The principal office of the corporation in
the State of Oregon shall be located in the City of Portland, County of
Multnomah. The corporation may have such other offices, either within or without
the State of Oregon, as the board of directors may designate or as the business
of the corporation may require from time to time.
Section 2. Registered Office. The registered office of the corporation
required by the Oregon Business Corporation Act ("Act") to be maintained in the
State of Oregon may be, but need not be, the same as any of its places of
business in the State of Oregon, and the location of the registered office may
be changed from time to time by the board of directors or the registered agent
of the corporation.
ARTICLE II
Shareholders
Section 1. Annual Meeting. The annual meeting of the shareholders shall
be held on the third Tuesday in April at 10 a.m., for the purpose of electing
directors and for the transaction of such other business as may come before the
meeting.
Section 2. Special Meetings. Special meetings of the shareholders, for
any purpose or purposes, may be called by the chairman of the board, by the
president, or by the board of directors, and shall be called by the chairman of
the board if one or more written demands for a meeting describing the purpose or
purposes for which it is to be held are signed, dated and delivered to the
secretary of the corporation by the holders of at least 10 percent of all votes
entitled to be cast on any issue proposed to be considered at the meeting.
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Section 3. Place of Meeting. The board of directors shall determine the
place of meeting for all annual and special meetings of the shareholders. In the
absence of any such determination, all meetings of shareholders shall be held at
the principal office of the corporation in the State of Oregon.
Section 4. Notice of Meeting. Written or printed notice stating the
place, day and hour of the meeting and, in case of a special meeting, the
purpose or purposes for which the meeting is called, shall be given not earlier
than 60 nor less than ten days before the date of the meeting, either personally
or by mail, by or at the direction of the chairman of the board, the president,
or the secretary, or the persons calling the meeting, to each shareholder of
record entitled to vote at such meeting. If mailed, such notice shall be
effective when deposited in the United States mail, addressed to the shareholder
at his address as shown in the corporation's current record of shareholders,
with postage thereon prepaid. If a meeting is adjourned to a different date,
time or place announced at the meeting before adjournment, notice need not be
given of the new date, time or place unless a new record date is or must be
fixed for the adjourned meeting.
Section 5. Quorum; Manner of Acting. Shares entitled to vote as a
separate voting group may take action on a matter only if a quorum of those
shares exists with respect to the matter. A majority of the votes entitled to be
cast on the matter by voting group, represented in person or by proxy, shall
constitute a quorum of that voting group for action on that matter. If a quorum
exists, action on a matter, other than the election of directors, shall be
approved by a voting group if the votes cast within the voting group favoring
the action exceed the votes cast opposing the action unless the Act requires a
greater number of affirmative votes. Directors shall be elected by a plurality
of the votes cast by the shares entitled to vote in the election at a meeting at
which a quorum is present. Once a share is represented for any purpose at a
meeting, it shall be deemed present for quorum purposes for the remainder of the
meeting and
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for any adjournment of the meeting unless a new record date is or must be set
for the adjourned meeting.
Section 6. Proxies. At all meetings of shareholders, a shareholder may
vote by proxy executed in writing by the shareholder or by his duly authorized
attorney-in-fact. Such proxy shall be filed with the secretary of the
corporation before or at the time of the meeting. No proxy shall be valid after
eleven months from the date of its execution, unless otherwise provided in the
proxy.
Section 7. Voting of Shares. Each outstanding share of the
corporation's common stock shall be entitled to one vote upon each matter
submitted to a vote at a meeting of the shareholders except that shares owned,
directly or indirectly, by another corporation in which the corporation owns,
directly or indirectly, a majority of the shares entitled to vote for the
election of directors of such other corporation shall not be voted at any
meeting or counted in determining the total number of outstanding shares at any
given time.
Section 8. Acceptance of Votes. If the name signed on a vote, consent,
waiver or proxy appointment corresponds to the name of a shareholder, the
corporation shall be entitled to accept the vote, consent, waiver or proxy
appointment and give it effect as the act of the shareholder. If the name signed
on a vote, consent, waiver or proxy appointment does not correspond to the name
of its shareholder, the corporation shall nevertheless be entitled to accept the
vote, consent, waiver or proxy appointment and give it effect as the act of the
shareholder if:
a. The shareholder is an entity and the name signed purports to be
that of an officer or agent of the entity.
b. The name signed purports to be that of an administrator,
executor, guardian or conservator representing the shareholder.
c. The name signed purports to be that of a receiver or trustee in
bankruptcy of the shareholder.
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d. The name signed purports to be that of a pledgee, beneficial owner
or attorney-in-fact of the shareholder.
e. Two or more persons are the shareholder as cotenants or fiduciaries,
the name signed purports to be the name of at least one of the co-owners,
and the person signing appears to be acting on behalf of all co-owners.
The corporation shall be entitled to reject a vote, consent, waiver or
proxy if the secretary or other officer of agent authorized to tabulate votes,
acting in good faith, has reasonable basis for doubt about the validity of the
signature on it or about the signatory's authority to sign for the shareholder.
ARTICLE III
Board of Directors
Section 1. General Powers. The business and affairs of the corporation
shall be managed by its board of directors.
Section 2. Number, Tenure and Classification. The number of directors
shall be ten, divided into three classes, three directors to be designated as
Class A directors, three directors to be designated as Class B directors, and
four directors to be designated as Class C directors. At each annual meeting,
directors to replace those whose terms expire at such annual meeting shall be
elected, each such director to hold office until the third annual meeting next
succeeding his election and until his successor is elected or until his death,
resignation, retirement or removal.
Section 3. Regular Meetings. A regular meeting of the board of
directors shall be held without other notice than this bylaw immediately after,
and at the same place as, the annual meeting of shareholders. The board of
directors may provide by resolution the time and place, either within or without
the State of Oregon, for the holding of additional regular meetings without
other notice than such resolution.
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Section 4. Special Meetings. Special meetings of the board of directors
may be called by or at the request of the chairman of the board or any two
directors. The person or persons authorized to call special meetings of the
board of directors may fix any place, either within or without the State of
Oregon, as the place for holding any special meeting of the board of directors
called by them.
Section 5. Notice; Waiver. Notice of the time, date and place of any
special meeting shall be given at least ten days previously thereto, orally or
by written notice delivered personally or given by telegraph, teletype or other
form of wire communication, or by mail or private carrier, to each director at
his business address. Oral notice shall be effective when communicated if
communicated in a comprehensible manner and written notice shall be effective at
the earliest of the following: (a) when received, (b) five days after its
deposit in the United States mail, as evidenced by the postmark, if mailed
postpaid and correctly addressed, and (c) on the date shown on the return
receipt, if sent by registered or certified mail, return receipt requested, and
the receipt is signed by or on behalf of the director. A director's attendance
at, or participation in, a meeting shall constitute a waiver of notice of such
meeting, except where a director at the beginning of the meeting, or promptly
upon the director's arrival, objects to holding of the meeting or the
transacting of business at the meeting and does not thereafter vote for or
assent to action taken at the meeting. A written waiver of notice of a meeting
signed by the director or directors entitled to such notice, whether before or
after the time stated therein, which specifies the meeting for which notice is
waived and which is filed with the minutes or corporate records shall be
equivalent to the giving of such notice. Neither the business to be transacted
at, nor the purpose of, any regular or special meeting of the board of directors
need be specified in the notice or waiver of notice of such meeting.
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Section 6. Quorum. A majority of the number of directors fixed by
Section 2 of this Article III shall constitute a quorum for the transaction of
business at any meeting of the board of directors, but, if less than such
majority is present at a meeting, a majority of the directors present may
adjourn the meeting from time to time without further notice.
Section 7. Manner of Acting. The affirmative vote of a majority of the
directors present at a meeting at which a quorum is present shall be the act of
the board of directors.
Section 8. Vacancies. Any vacancy occurring in the board of directors,
including a vacancy resulting from an increase in the number of directors, may
be filled by the board of directors or, if the remaining directors constitute
fewer than a quorum, by the affirmative vote of a majority of all the remaining
directors. The term of a director elected to fill a vacancy shall expire at the
next shareholders' meeting at which directors are elected.
Section 9. Presumption of Assent. A director who is present at a
meeting of the board of directors at which corporate action is taken shall be
deemed to have assented to the action taken, unless (a) the director objects at
the beginning of the meeting, or promptly upon the director's arrival, to
holding the meeting or transacting business at the meeting; (b) the director's
dissent or abstention from the action taken is entered in the minutes of the
meeting; or (c) the director delivers written notice of dissent or abstention to
the presiding officer of the meeting before its adjournment or to the
corporation immediately after adjournment of the meeting. Such right to dissent
or abstain shall not apply to a director who voted in favor of such action.
Section 10. Removal of Directors. All or any number of the directors of
the corporation may be removed, with or without cause, at a meeting called
expressly for that purpose, by the affirmative vote of the holders of not less
than 80 percent of the outstanding shares of capital stock of the corporation.
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Section 11. Compensation. By resolution of the board of directors, each
director may be paid an annual fee as director and, in addition thereto, a fixed
sum for attendance at each meeting of the board of directors and executive
committee or other committees and his expenses, if any, of attendance at any
such meeting. No such payment shall preclude any director from serving the
corporation in any other capacity and receiving compensation therefor.
Section 12. Retirement. Each director shall retire from the board of
directors on the date of the regular quarterly meeting of directors next
following the date on which he attains the age of 72 and shall not be eligible
thereafter for reelection.
Section 13. Emeritus Director. The board of directors may elect one or
more emeritus directors to serve at the pleasure of the board of directors.
Persons eligible to serve as emeritus directors shall be former directors of
this corporation or of a predecessor corporation; an emeritus director shall be
entitled to attend meetings of the board of directors but shall not be entitled
to vote on any matter submitted to the board of directors. The board of
directors shall fix the compensation to be paid each emeritus director. Notice
of any meeting of the board of directors need not be given to an emeritus
director, and he shall not be counted for a quorum of the board of directors.
Section 14. Action Without a Meeting. Any action that may be taken by
the board of directors at a meeting may be taken without a meeting if one or
more consents in writing describing the action so taken shall be signed by all
the directors and included in the minutes or filed with the corporate records
reflecting the action taken.
Section 15. Telephonic Meetings. Meetings of the board of directors, or
of any committee designated by the board of directors, may be held by means of
conference telephone or any other means of communication by which all directors
participating in the meeting can hear each other simultaneously during the
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meeting, and such participation shall constitute presence in person at the
meeting.
Section 16. Notification of Nominations. Nominations for the election
of directors may be made by the board of directors or a proxy committee
appointed by the board of directors or by any shareholder entitled to vote in
the election of directors generally. However, any shareholder entitled to vote
in the election of directors generally may nominate one or more persons for
election as directors at a meeting only if written notice of such shareholder's
intent to make such nomination or nominations has been given, either by personal
delivery or by United States mail, postage prepaid, to the secretary of the
corporation not later than (i) with respect to an election to be held at an
annual meeting of shareholders, 90 days in advance of such meeting, and (ii)
with respect to an election to be held at a special meeting of shareholders for
the election of directors, the close of business on the seventh day following
the date on which notice of such meeting is first given to shareholders. Each
such notice shall set forth: (a) the name and address of the shareholder who
intends to make the nomination and of the person or persons to be nominated; (b)
a representation that the shareholder is a holder of record of stock of the
corporation entitled to vote at such meeting and intends to appear in person or
by proxy at the meeting to nominate the person or persons specified in the
notice; (c) a description of all arrangements or understandings between the
shareholder and each nominee and any other person or persons (naming such person
or persons) pursuant to which the nomination or nominations are to be made by
the shareholder; (d) such other information regarding each nominee proposed by
such shareholder as would be required to be included in a proxy statement filed
pursuant to the proxy rules of the Securities and Exchange Commission, had the
nominee been nominated, or intended to be nominated, by the board of directors;
and (e) the consent of each nominee to serve as a director of the corporation if
so elected. The chairman of the meeting may refuse to acknowledge the
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nomination of any person not made in compliance with the foregoing procedure.
ARTICLE IV
Executive Committee
and Other Committees
Section 1. Appointment. The board of directors by resolution adopted by
a majority of the full board may appoint an executive committee to consist of a
chairman and two or more other directors. The chairman of the committee shall be
a director and shall be selected by the board of directors from the members of
the executive committee. The designation of such committee and the delegation
thereto of authority shall not operate to relieve the board of directors, or any
member thereof, of any responsibility imposed by law.
Section 2. Authority. The executive committee, when the board of
directors is not in session, shall have and may exercise all the authority of
the board of directors except to the extent, if any, that such authority shall
be limited by the resolution appointing the executive committee and except also
that neither the executive committee nor any other committee of the board of
directors appointed pursuant to Section 10 of this Article IV shall have the
authority to (a) authorize distributions; (b) approve or propose to shareholders
actions required by the Act to be approved by shareholders; (c) fill vacancies
on the board of directors or any of its committees; (d) amend articles of
incorporation; (e) adopt, amend or repeal bylaws; (f) approve a plan of merger
not requiring shareholder approval; (g) authorize or approve reacquisition of
shares, except according to a formula or method prescribed by the board of
directors; or (h) authorize or approve the issuance or sale or contract for sale
of shares, or determine the designation and relative rights, preferences and
limitations of a class or series of shares, except that the board of directors
may authorize a committee or a senior executive officer of the corporation to do
so within limits specifically prescribed by the board of directors.
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Section 3. Tenure and Qualifications. Each member of the executive
committee shall hold office until the next regular annual meeting of the board
of directors following his appointment and until his successor is appointed as a
member of the executive committee.
Section 4. Meetings; Notice; Waiver. Regular meetings of the executive
committee or any other committee of the board of directors appointed pursuant to
Section 10 of this Article IV may be held without notice at such times and
places as the committee may fix from time to time by resolution. Special
meetings of the executive committee or any such other committee may be called by
any member thereof upon not less than two days' notice stating the place, date
and hour of the meeting. The provisions of Section 5 of Article III shall apply
to the method for giving of notice of special meetings of the executive
committee or any such other committee and to the waiver of notice of any such
meetings. The notice of a meeting of the executive committee or any such other
committee need not state the business proposed to be transacted at the meeting.
Section 5. Quorum; Manner of Acting. A majority of the members of the
executive committee or any such other committee shall constitute a quorum for
the transaction of business at any meeting thereof, and the act of a majority of
the members present at a meeting at which a quorum is present shall be the act
of the committee.
Section 6. Action Without a Meeting. Any action that may be taken by
the executive committee or any such other committee at a meeting may be taken
without a meeting if one or more consents in writing describing the action so
taken shall be signed by all the members of the committee and included in the
minutes of the committee or filed with the corporate records reflecting the
action so taken.
Section 7. Vacancies. Any vacancy in the executive committee or any
such other committee may be filled by a resolution adopted by a majority of the
full board of directors.
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Section 8. Resignations and Removal. Any member of the executive
committee or any such other committee may be removed at any time with or without
cause by resolution adopted by a majority of the full board of directors. Any
member of the executive committee or any such other committee may resign as a
member of the committee at any time by giving written notice to the chairman of
the board or secretary of the corporation, and, unless otherwise specified
therein, the acceptance of such resignation shall not be necessary to make it
effective.
Section 9. Procedure. The chairman of the executive committee shall be
the presiding officer of the executive committee. The executive committee and
any such other committee shall fix its own rules of procedure which shall not be
inconsistent with these bylaws. The committee shall keep regular minutes of its
proceedings and report the same to the board of directors for its information at
the meeting thereof held next after the proceedings shall have been taken.
Section 10. Appointment of Other Committees of the Board of Directors.
The board of directors may from time to time by resolution adopted by a majority
of the full board, create any other committee or committees of the board of
directors and appoint members of the board to serve thereon. Each such committee
shall have two or more members and, to the extent specified by the board of
directors, may exercise the powers of the board subject to the limitations set
forth in Section 2 of this Article IV.
Section 11. Appointment of Other Committees. The board of directors or
the executive committee or, pursuant to the authority of the board of directors
or the executive committee, the chairman of the board may from time to time
create and appoint any other committee or committees, or subcommittee or
subcommittees, whether composed of directors, officers or employees, with such
duties, responsibilities and authority as may be prescribed by the board of
directors or the executive committee, or by the chairman of the board pursuant
to the
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authority of the board of directors or of the executive committee. Each such
committee or subcommittee shall fix its own rules of procedure. The board of
directors, the executive committee or the chairman of the board with respect to
any such committee or subcommittee created and appointed by him shall have power
to change the members of any such committee or subcommittee at any time, to fill
vacancies and to dissolve any such committee or subcommittee at any time. Any
committee may appoint one or more subcommittees, of its own members, to advise
with such committee, or to apportion the work of such committee.
ARTICLE V
Officers
Section 1. Number. The officers of the corporation shall be a chairman
of the board, a president, one or more executive vice-presidents and
vice-presidents (the number of executive vice-presidents and vice-presidents to
be determined by the board of directors), a chief financial officer, a secretary
and a treasurer, each of whom shall be appointed by the board of directors. The
board of directors may from time to time appoint such assistant officers as may
be deemed necessary or desirable for the business of the corporation. Such
assistant officers shall have such duties as may be prescribed by the board of
directors and shall serve at the pleasure of the board of directors. Any two or
more offices may be held by the same person, except the offices of chairman of
the board or president and secretary.
Section 2. Appointment and Term of Office. The officers of the
corporation shall be appointed annually by the board of directors at the first
meeting of the board of directors held after each annual meeting of the
shareholders. If such appointments shall not be made at such meeting, such
appointments shall be made as soon thereafter as conveniently may be. Each
officer shall hold office until his successor shall have been
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duly appointed or until his death or until he shall resign or shall have been
removed in the manner hereinafter provided.
Section 3. Removal. The board of directors may remove any officer at
any time with or without cause. The election or appointment of an officer shall
not of itself create contract rights; and the resignation or removal of an
officer shall not affect the contract rights, if any, of the corporation or the
officer.
Section 4. Vacancies. A vacancy in any office because of death,
resignation, removal, disqualification or otherwise, may be filled by the board
of directors for the unexpired portion of the term.
Section 5. Chairman of the Board. The chairman of the board shall be a
member of the board of directors and shall preside at meetings of the board of
directors and meetings of shareholders. He shall be the chief executive officer
of the corporation and, subject to the control of the board of directors, shall
in general supervise and control all the business and affairs of the
corporation. He shall have general power to execute deeds, mortgages, bonds,
contracts and other instruments for and on behalf of the corporation, except in
cases where the execution thereof shall be expressly delegated by the board of
directors or by these bylaws to some other officer or agent of the corporation
or shall be required by law to be otherwise executed. He may sign, with the
secretary or any other proper officer of the corporation thereunto authorized by
the board of directors, certificates for shares of the corporation. He shall
perform such additional duties and exercise such authority as from time to time
may be assigned or delegated to him by the board of directors.
Section 6. President. The president shall be the chief operations
officer of the corporation. In the absence of the chairman of the board he shall
preside at meetings of the shareholders. He shall have general power to execute
deeds, mortgages, bonds, contracts and other instruments for and on behalf of
the corporation, except in cases where the execution
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thereof shall be expressly delegated by the board of directors or by these
bylaws to some other officer or agent of the corporation or shall be required by
law to be otherwise executed. He may sign, with the secretary or any other
proper officer of the corporation thereunto authorized by the board of
directors, certificates for shares of the corporation. He shall perform such
additional duties and exercise such authority as from time to time may be
assigned or delegated to him by the chairman of the board or the board of
directors.
Section 7. Executive Vice-Presidents. The executive vice-presidents
shall perform such duties and exercise such authority as from time to time may
be assigned or delegated to them by the chairman of the board, the president, or
the board of directors. An executive vice-president may sign, with the secretary
or any other proper officer of the corporation thereunto authorized by the board
of directors, certificates for shares of the corporation.
Section 8. Vice-Presidents. The vice-presidents shall perform such
duties and exercise such authority as from time to time may be assigned or
delegated to them by the chairman of the board, the president, an executive
vice-president or the board of directors. One or more of the vice-presidents may
be designated senior vice-president. Any vice-president may sign, with the
secretary or any other proper officer of the corporation thereunto authorized by
the board of directors, certificates for shares of the corporation.
Section 9. Chief Financial Officer. The chief financial officer shall
be the principal financial officer of the corporation. He shall in general
perform all duties incident to the office of the chief financial officer and
such other duties as from time to time may be assigned or delegated to him by
the chairman of the board, the president, or the board of directors.
Section 10. Secretary. The secretary shall: (a) keep the minutes of the
shareholders' and of the board of directors' meetings in one or more books
provided for that purpose; (b) see that all notices are duly given in accordance
with the provisions
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of these bylaws or as required by law; (c) be custodian of the corporate records
and of the seal of the corporation and see that the seal of the corporation is
affixed to all documents the execution of which on behalf of the corporation
under its seal is duly authorized; (d) keep a register of the post office
address of each shareholder which shall be furnished to the secretary by such
shareholder; (e) sign with the chairman of the board, the president, an
executive vice-president or a vice-president certificates for shares of the
corporation the issuance of which shall have been authorized by resolution of
the board of directors; (f) have general charge of the stock transfer books of
the corporation; and (g) in general perform all the duties incident to the
office of secretary and such other duties as from time to time may be assigned
to him by the chairman of the board, the president, or the board of directors.
Section 11. Treasurer. The treasurer shall: (a) have charge and custody
of and be responsible for all funds and securities of the corporation; receive
and give receipts for moneys due and payable to the corporation from any source
whatsoever, and deposit all such moneys in the name of the corporation in such
banks, trust companies or other depositaries as shall be selected in accordance
with the provisions of Article VI of these bylaws; and (b) in general perform
all the duties incident to the office of treasurer and such other duties as from
time to time may be assigned to him by the chairman of the board, the president,
the chief financial officer or the board of directors. If required by the board
of directors, the treasurer shall give a bond for the faithful discharge of his
duties in such sum and with such surety or sureties as the board of directors
shall determine.
Section 12. Salaries. The salaries of the officers shall be fixed from
time to time by the board of directors and no officer shall be prevented from
receiving such salary by reason of the fact that he is also a director of the
corporation.
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ARTICLE VI
Contracts, Loans, Checks and Deposits
Section 1. Contracts. The board of directors may authorize any officer
or officers, agent or agents, to enter into any contract or execute and deliver
any instrument in the name of and on behalf of the corporation, and such
authority may be general or confined to specific instances.
Section 2. Loans. No loans shall be contracted on behalf of the
corporation and no evidences of indebtedness shall be issued in its name unless
authorized by a resolution of the board of directors. Such authority may be
general or confined to specific instances.
Section 3. Checks, Drafts, etc. All checks, drafts or other orders for
the payment of money, notes or other evidences of indebtedness issued in the
name of the corporation shall be signed in such manner as shall from time to
time be determined by resolution of the board of directors.
Section 4. Deposits. All funds of the corporation not otherwise
employed shall be deposited from time to time to the credit of the corporation
in such banks, trust companies or other depositaries as the chairman of the
board, the president or the chief financial officer of the corporation may
select.
ARTICLE VII
Certificates For Shares and Their Transfer
Section 1. Certificates for Shares. Certificates representing shares of
the corporation shall be in such form as shall be determined by the board of
directors. Such certificates shall be signed by the chairman of the board, the
president, an executive vice-president or a vice-president and by the secretary
or any other proper officer of the corporation thereunto authorized by the board
of directors and sealed with the corporate seal or a facsimile thereof. The
signatures of such officers upon a certificate may be facsimiles if the
certificate is countersigned by a transfer agent, or registered by a registrar,
other than the corporation itself or one of its
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employees. All certificates for shares shall be consecutively numbered or
otherwise identified. The name and address of the person to whom the shares
represented thereby are issued, with the number of shares and date of issue,
shall be entered on the stock transfer books of the corporation. All
certificates surrendered to the corporation for transfer shall be canceled and
no new certificate shall be issued until the former certificate for a like
number of shares shall have been surrendered and canceled, except as provided in
Section 3 of this Article VII.
Section 2. Transfer of Shares. Transfer of shares of the corporation
shall be made only on the stock transfer books of the corporation by the holder
of record thereof or by his legal representative, who shall furnish proper
evidence of authority to transfer, or by his attorney thereunto authorized by
power of attorney duly executed and filed with the secretary of the corporation,
and on surrender for cancellation of the certificate for such shares. The person
in whose name shares stand on the books of the corporation shall be deemed by
the corporation to be the owner thereof for all purposes.
Section 3. Replacement of Certificates. In the event of the loss,
theft, mutilation or destruction of any certificate for shares, a duplicate
thereof may be issued and delivered to the owner thereof, provided he makes a
sufficient affidavit setting forth the material facts surrounding the loss,
theft, mutilation or destruction of the original certificate and gives a bond
with corporate surety to the corporation, its officers and agents, in an open
penalty amount indemnifying the corporation, its officers and agents, against
any losses, costs and damages suffered or incurred by reason of such loss,
theft, mutilation or destruction of the original certificate and replacement
thereof.
Section 4. Transfer Agents and Registrars. The board of directors or
executive committee may provide for transfer and registration of the stock of
the corporation in Portland, Oregon, and in such other place or places as may be
deemed advisable, and for such purpose may appoint and change from time to time
the necessary transfer agents and registrars. In case there shall be
- 17 -
<PAGE>
more than one transfer agent and more than one registrar, the board of directors
or executive committee may provide for the interchange of certificates
countersigned by the several transfer agents and registrars. A transfer agent of
the corporation may also be designated as the dividend disbursing agent of the
corporation. Resolutions of the board of directors or executive committee
appointing transfer agents and registrars shall provide for such terms and
conditions as may be deemed advisable, including without limitation provisions
for indemnification of the transfer agents and registrars and instructions to
them by designated officers of the corporation.
ARTICLE VIII
Seal
The board of directors shall provide a corporate seal which shall be
circular in form and shall have inscribed thereon the name of the corporation
and the state of incorporation and the words, "Corporate Seal."
ARTICLE IX
Fiscal Year
The fiscal year of the corporation shall begin on the first day of
January and end on the thirty-first day of December in each year.
ARTICLE X
Amendments
These bylaws or any portion hereof may be amended by a vote of a
majority of the full board of directors at any meeting of the directors.
- 18 -
CONSULTING AGREEMENT
THIS AGREEMENT is entered into as of the 1st day of October, 1997, by
and between Willamette Industries, Inc., an Oregon corporation ("Corporation"),
and William Swindells ("Swindells").
WHEREAS, Swindells served as an executive officer of Corporation for
many years, is now its Chairman of the Board and has knowledge and experience of
significant value to Corporation; and
WHEREAS, the Corporation has previously entered into a Consulting
Agreement with Swindells which will expire September 30, 1997; and
WHEREAS, Corporation wishes to continue to avail itself of Swindells'
experience and knowledge by retaining Swindells to provide consulting services
to Corporation with respect to the business of Corporation; and
WHEREAS, Swindells desires to perform such services;
NOW, THEREFORE, in consideration of the foregoing, and of the mutual
agreements herein contained, Swindells and Corporation agree as follows:
1. Consulting Services.
(a) Term of Service. Corporation hereby agrees that it will engage
Swindells, and Swindells agrees that he will serve, as a consultant to
Corporation for a period (the "Term") commencing on October 1, 1997, and ending
on September 30, 1999, or earlier in the event of death or disability of
Swindells. Swindells will be deemed disabled only if, on the basis of medical
evidence acceptable to the Board of Directors of Corporation, Swindells has a
physical or mental condition resulting from unavoidable impairment of mind or
body which can be expected to result in death or to be of long-continued and
indefinite duration and which, in the discretion of the Board of Directors of
Corporation, prevents Swindells from engaging in any employment or occupation
for remuneration or profit. Following September 30, 1999, the Term will extend
for three consecutive one-year periods unless terminated by Corporation or
Swindells upon notice given not less than 30 days prior to the commencement of
any such one-year period; provided however that such extended Term shall not
extend beyond the death or disability of Swindells, or the retirement of
Swindells from the Board of Directors of Corporation.
(b) Nature of Consulting Services. To the extent reasonably
requested by Corporation, Swindells shall consult with and advise Corporation
with respect to acquisitions and strategic planning, capital expenditures,
product development and general corporate and organizational matters. The
Corporation shall not direct the manner or means by which Swindells performs
services under this Agreement. The consulting services shall be provided in
Portland, Oregon at times determined by Swindells except as the parties may
otherwise agree. Corporation shall provide Swindells with adequate information
and
- 1 -
<PAGE>
resources to allow Swindells to perform effectively the services contemplated by
this Agreement.
(c) Nature of Relationship. For all purposes, including that of
determining Swindells' eligibility for participation in Corporation's employee
benefit plans, Swindells' relationship to Corporation during the Term shall be
that of an independent contractor and not an employee.
2. Agreement Not to Compete. Swindells hereby agrees that, during the
Term, he will not, directly or indirectly, either as principal, agent,
stockholder, employee or in any other capacity, without the prior approval of
the Board of Directors of Corporation, engage in any activity or be employed by,
assist or have an equity interest in, any business or other entity that competes
in any material respect with Corporation; provided, however, that such
prohibited activity shall not include the ownership of one percent (1%) or less
of the voting securities of any publicly traded corporation regardless of the
business of such corporation. Swindells acknowledges and agrees that a material
breach by Swindells of the provisions of this Section will constitute such
damage as will be irreparable and the exact amount of which will be impossible
to ascertain and for that reason agrees that Corporation will be entitled to an
injunction to be issued by any court of competent jurisdiction restraining and
enjoining Swindells from violating the provisions of this Section. The right of
injunction shall be in addition to and not in lieu of any other remedy available
to Corporation for such breach or threatened breach, including the recovery of
damages from Swindells.
3. Confidential Information. Swindells shall continue to hold
confidential for the benefit of Corporation all secret or confidential
information, knowledge or data relating to Corporation that shall have been
obtained by Swindells during his employment by Corporation or during the Term
and that shall not have become public knowledge.
4. Fees for Services. In consideration of the consulting services to be
performed by Swindells hereunder and for the covenants of Swindells contained
herein, Corporation shall pay Swindells consulting fees at the rate of $10,000
per month during the Term. The obligation of Corporation to make the foregoing
payments to Swindells shall terminate upon the death or disability of Swindells
except with regard to accrued and unpaid amounts. While receiving fees for
services under this Agreement, Swindells shall not receive annual retainer
payments made to non-employee directors of the Corporation, but shall receive
fees for board and committee meetings attended and all other amounts payable to
non-employee directors of Corporation.
5. Other Matters. During the Term, Corporation shall provide Swindells
with the following:
(a) Expenses. Reimbursement for all reasonable travel and other
business expenses incurred by Swindells in the performance of his duties
hereunder;
(b) Office Space; Secretary. Office space, together with the
services of a secretary, appropriate to the status of Swindells hereunder; and
- 2 -
<PAGE>
(c) Club Expenses. Dues, fees and expenses for the following
clubs: Arlington Club.
(d) Parking in the building in which Swindells' office is located.
6. Scope of Agreement. Nothing in this Agreement shall limit such
rights as Swindells may have under any other agreements with Corporation.
Amounts which are vested benefits or which Swindells is otherwise entitled to
receive under any plan or program of Corporation shall be payable in accordance
with such plan or program.
7. Indemnification. Corporation shall indemnify Swindells and his legal
representatives to the fullest extent permitted by the laws of the state of
Oregon, the Articles of Incorporation, or the Bylaws of Corporation as in effect
as of the date of this Agreement and from time to time thereafter against all
claims, loss, damages, costs, charges and expenses whatsoever incurred or
sustained by him or his legal representatives in connection with any action,
suit or proceeding to which he or his legal representatives may be made a party
by reason of the services performed by Swindells pursuant to this Agreement.
Corporation will, upon request by Swindells, promptly advance or pay any amounts
for costs, charges or expenses (including, but not limited to, reasonable legal
fees and expenses incurred by counsel retained by Swindells) in respect of his
right to indemnification hereunder, subject to a later determination as to
Swindells' ultimate right to receive such payment. Swindells' rights under this
Agreement shall be in addition to, and not in lieu of, any other rights
Swindells may have to indemnification by Corporation.
8. Successors. This Agreement is personal to Swindells and without the
prior written consent of Corporation shall not be assignable by Swindells. This
Agreement shall inure to the benefit of and be binding upon Corporation and its
successors. Corporation will require any successor (whether direct or indirect,
by purchase, merger, consolidation or otherwise) to all or substantially all of
the business of Corporation to expressly assume and agree to perform this
Agreement in the same manner and to the same extent that Corporation would be
required to perform it if no such succession had taken place.
9. Miscellaneous.
(a) Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the state of Oregon, without reference
to principles of conflict of laws.
(b) Notices. All notices and other communications hereunder shall
be in writing and shall be given by hand delivery to the other party or by
certified mail, return receipt requested, postage prepaid, addressed as follows:
If to Swindells:
Mr. William Swindells
1100 S.W. Myrtle Drive
Portland, Oregon 97201
- 3 -
<PAGE>
If to Corporation:
Willamette Industries, Inc.
3800 First Interstate Tower
1300 S.W. Fifth Avenue
Portland, Oregon 97201
Attention: Corporate Secretary
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notice and communications shall be effective
when actually received by the addressee or three days following mailing, as
provided above, whichever shall first occur.
(c) Severability. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement.
(d) Withholding. Corporation may withhold from any amounts payable
under this Agreement such amounts as shall be required to be withheld pursuant
to any applicable law or regulation.
(e) Entire Agreement; Amendment. This Agreement contains the
entire understanding of Corporation and Swindells with respect to the subject
matter hereof, and may not be amended or modified otherwise than by a written
agreement executed by the parties hereto or their respective successors and
legal representatives.
IN WITNESS WHEREOF, Swindells has hereunto set his hand and, pursuant
to the authorization from its Board of Directors, Corporation has caused this
Agreement to be executed in its name on its behalf, all as of the day and year
first above written.
/s/ William Swindells
William Swindells
WILLAMETTE INDUSTRIES, INC.
By /s/ Steven R. Rogel
Steven R. Rogel, President
- 4 -
Exhibit 12
WILLAMETTE INDUSTRIES, INC. AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(DOLLAR AMOUNTS IN THOUSANDS)
Year Ended December 31,
------------------------------------------------
1993 1994 1995 1996 1997
------- ------- ------- -------- --------
Fixed Charges:
Interest Cost $79,194 $80,807 $77,237 $103,338 $136,929
One-third rent 4,819 5,227 5,976 6,906 7,535
------- ------- ------- ------- --------
Total Fixed Charges 84,013 86,034 83,213 110,244 144,464
======= ======= ======= ======= ========
Add (Deduct):
Earnings before
Income Taxes 189,168 288,923 823,804 306,086 111,263
Interest Capitalized (15,904) (9,294) (6,187) (10,534) (19,939)
-------- -------- -------- -------- --------
Earnings for
Fixed Charges $257,277 $365,663 $900,830 $405,796 $235,788
======== ======== ======== ======== ========
Ratio of Earnings to
Fixed Charges 3.06 4.25 10.83 3.68 1.63
======= ======= ======= ======= =======
EXHIBIT 23
Consent of Independent Auditors
The Board of Directors
Willamette Industries, Inc.:
We consent to incorporation by reference in the Registration Statements No.
33-5847, No. 33-59515 and No. 33-59517 on Form S-8 and No. 333-32647 on Form S-3
of Willamette Industries, Inc. of our report dated February 12, 1998, relating
to the consolidated balance sheets of Willamette Industries, Inc. and
subsidiaries as of December 31, 1997 and 1996, and the related consolidated
statements of earnings, stockholders' equity and cash flows for each of the
years in the three-year period ended December 31, 1997, which report appears in
the December 31, 1997 annual report on Form 10-K of Willamette Industries, Inc.
/s/ KPMG PEAT MARWICK LLP
Portland, Oregon
March 18, 1998
<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 DECEMBER 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 27,600
<SECURITIES> 0
<RECEIVABLES> 311,573
<ALLOWANCES> 4,571
<INVENTORY> 394,595
<CURRENT-ASSETS> 766,188
<PP&E> 5,981,443
<DEPRECIATION> 2,018,206
<TOTAL-ASSETS> 4,811,055
<CURRENT-LIABILITIES> 458,095
<BONDS> 1,916,001
0
0
<COMMON> 55,675
<OTHER-SE> 1,938,805
<TOTAL-LIABILITY-AND-EQUITY> 4,811,055
<SALES> 3,438,664
<TOTAL-REVENUES> 3,438,664
<CGS> 2,967,180
<TOTAL-COSTS> 2,967,180
<OTHER-EXPENSES> 243,231
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 116,990
<INCOME-PRETAX> 111,263
<INCOME-TAX> 38,300
<INCOME-CONTINUING> 72,963
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 72,963
<EPS-PRIMARY> 0.66
<EPS-DILUTED> 0.65
</TABLE>
