SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
(x) QUARTERLY REPORT PURSUANT TO SECTION 13 or 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended
June 30, 1998
Commission File Number 1-12545
Willamette Industries, Inc.
(Exact name of registrant as specified in its charter)
State of Oregon 93-0312940
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1300 S.W. Fifth Avenue, Suite 3800, Portland, Oregon 97201
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (503) 227-5581
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes x No ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date. Common Stock, 50 cent par
value: 111,432,555 at June 30, 1998.
<PAGE>
WILLAMETTE INDUSTRIES, INC. AND SUBSIDIARIES FORM 10-Q
CONSOLIDATED BALANCE SHEETS PART I
(DOLLAR AMOUNTS, EXCEPT PER SHARE AMOUNTS, IN THOUSANDS) ITEM 1
<TABLE>
JUNE 30, DECEMBER 31,
ASSETS 1998 1997
------ --------- ---------
Current assets:
<S> <C> <C>
Cash $ 21,855 27,600
Accounts receivable, less allowance
for doubtful accounts of $4,747 and $4,571 340,367 307,002
Inventories (Note 2) 380,114 394,595
Prepaid expenses and timber deposits 51,071 36,991
--------- ---------
Total current assets 793,407 766,188
Timber, timberlands and related facilities, net 1,375,278 1,396,946
Property, plant and equipment, at cost less
accumulated depreciation of $2,165,784 and $2,018,206 2,653,129 2,566,291
Other assets 86,197 81,630
--------- ---------
$ 4,908,011 4,811,055
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Current installments on long-term debt (Note 3) $ 20,514 17,897
Notes payable 153,200 64,000
Accounts payable, includes book overdrafts
of $45,984 and $49,421 185,072 216,914
Accrued expenses 175,368 155,453
Accrued income taxes 1,952 3,831
--------- ---------
Total current liabilities 536,106 458,095
Deferred income taxes 403,379 402,896
Other liabilities 42,948 39,583
Long-term debt, net of current installments (Note 3) 1,918,886 1,916,001
Stockholders' equity:
Preferred stock, cumulative, of $.50 par value.
Authorized 5,000 shares. - -
Common stock, $.50 par value. Authorized 150,000
shares; issued 111,433 and 111,350 shares. 55,716 55,675
Capital surplus 296,480 294,760
Retained earnings 1,654,496 1,644,045
--------- ---------
Total stockholders' equity 2,006,692 1,994,480
--------- ---------
$ 4,908,011 4,811,055
========= =========
</TABLE>
2
<PAGE>
WILLAMETTE INDUSTRIES, INC. AND SUBSIDIARIES FORM 10-Q
CONSOLIDATED STATEMENTS OF EARNINGS PART I
(DOLLAR AMOUNTS, EXCEPT PER SHARE AMOUNTS, IN THOUSANDS) ITEM 1
<TABLE>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------- --------------------
1998 1997 1998 1997
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net sales $ 946,390 879,348 $1,846,465 1,734,540
Cost of sales 817,443 760,533 1,593,266 1,506,429
--------- --------- --------- ---------
Gross profit 128,947 118,815 253,199 228,111
Selling and administrative expenses 63,414 61,227 126,155 120,860
--------- --------- --------- ---------
Operating earnings 65,533 57,588 127,044 107,251
Other income (19) 104 2,754 790
--------- --------- --------- ---------
65,514 57,692 129,798 108,041
Interest expense 30,427 29,429 60,999 58,572
--------- --------- --------- ---------
Earnings before provision for income taxes 35,087 28,263 68,799 49,469
Provision for income taxes 11,073 10,513 22,704 18,402
--------- --------- --------- ---------
Net earnings $ 24,014 17,750 $ 46,095 31,067
========= ========= ========= =========
Per share information (1):
Basic earnings per share $ 0.21 0.16 $ 0.41 0.28
========= ========= ========= =========
Diluted earnings per share $ 0.21 0.16 $ 0.41 0.28
========= ========= ========= =========
Dividends $ 0.16 0.16 $ 0.32 0.32
========= ========= ========= =========
Weighted average shares outstanding:
Basic 111,417 110,835 111,390 110,781
========= ========= ========= =========
Diluted (2) 112,050 111,569 112,027 111,339
========= ========= ========= =========
</TABLE>
(1) Per share earnings are based upon the weighted average number of shares
outstanding.
(2) Weighted average shares outstanding (diluted) are calculated using the
treasury stock method assuming all stock options are exercised.
3
<PAGE>
WILLAMETTE INDUSTRIES, INC. AND SUBSIDIARIES FORM 10-Q
CONSOLIDATED STATEMENTS OF CASH FLOWS PART I
(DOLLAR AMOUNTS IN THOUSANDS) ITEM 1
<TABLE>
SIX MONTHS ENDED
JUNE 30,
------------------------
1998 1997
--------- ----------
Cash flows from operating activities:
<S> <C> <C>
Net earnings $ 46,095 31,067
Adjustments to reconcile net earnings to net cash
from operating activities:
Depreciation 139,106 132,258
Cost of fee timber harvested 24,902 25,445
Other amortization 9,738 8,926
Increase in deferred income taxes 6,564 8,972
Changes in working capital items:
Accounts receivable (29,867) (24,337)
Inventories 17,067 2,595
Prepaid expenses and timber deposits (13,439) (4,083)
Accounts payable and accrued expenses (22,379) 51
Accrued income taxes (1,879) (10,964)
--------- ----------
Net cash from operating activities 175,908 169,930
--------- ----------
Cash flows from investing activities:
Proceeds from sale of equipment 1,851 372
Expenditures for property, plant and equipment (204,024) (230,248)
Expenditures for timber and timberlands (5,769) (4,412)
Expenditures for roads and reforestation (6,027) (5,946)
Assets held for sale - 102,499
Other (21,366) 3,061
--------- ----------
Net cash from investing activities (235,335) (134,674)
--------- ----------
Cash flows from financing activities:
Net change in operating lines of credit 88,550 16,162
Debt borrowing 206 100,211
Proceeds from sale of common stock 2,126 7,709
Cash dividends paid (35,644) (35,438)
Payment on debt (1,556) (102,277)
--------- ----------
Net cash from financing activities 53,682 (13,633)
--------- ----------
Net change in cash (5,745) 21,623
Cash at beginning of period 27,600 22,222
--------- ----------
Cash at end of period $ 21,855 43,845
========= ==========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest (net of amount capitalized) $ 58,744 57,056
========= ==========
Income taxes $ 16,123 20,394
========= ==========
</TABLE>
4
<PAGE>
FORM 10-Q
PART I
ITEM 1
WILLAMETTE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998
Note 1 The information furnished in this report reflects all
adjustments which are, in the opinion of management, necessary
to a fair statement of the results for the interim periods
presented.
Note 2 The components of inventories are as follows (thousands of
dollars):
June 30, December 31,
1998 1997
-------- --------
Finished product $ 127,266 118,046
Work in progress 7,601 7,404
Raw material 160,588 187,912
Supplies 84,659 81,233
-------- --------
$ 380,114 394,595
======== ========
Note 3 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. In June 1998, the Company issued $34.7 million of
medium- term notes with interest rates ranging from 6.45% to
6.60% and maturities ranging from 11 to 15 years. The proceeds
from these issuances were used to replace notes and other bank
borrowings of the Company.
Note 4 Certain items previously reported have been reclassified to
conform with the 1998 presentation.
Other notes have been omitted pursuant to Rule 10-01(a)(5) of
Regulation S-X.
5
<PAGE>
FORM 10-Q
PART I
ITEM 2
WILLAMETTE INDUSTRIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
JUNE 30, 1998
The Company's two basic businesses, paper products and building materials, are
affected by changes in general economic conditions. Paper product sales and
earnings tend to follow the general economy. Building materials activity is
closely related to new housing starts and to the availability and terms of
financing for construction. Both industry segments are also influenced by global
economic factors of supply and demand. In addition, both industry segments use
wood fiber as the basic raw material. The cost of wood fiber is sensitive to
various supply and demand factors, including environmental issues affecting
supply.
SEGMENT INFORMATION
-------------------
<TABLE>
Three Months Ended Six Months Ended
June 30, June 30,
---------------------- ----------------------
1998 1997 1998 1997
---------- ---------- ---------- ----------
Sales:
<S> <C> <C> <C> <C>
Paper Group $ 625,974 537,487 1,232,398 1,073,763
Building Materials Group 320,416 341,861 614,067 660,777
---------- ---------- ---------- ----------
$ 946,390 879,348 1,846,465 1,734,540
========== ========== ========== ==========
Operating Earnings:
Paper Group $ 58,623 24,467 118,041 56,577
Building Materials Group 17,237 43,681 30,786 71,168
Corporate (10,327) (10,560) (21,783) (20,494)
---------- ---------- ---------- ----------
$ 65,533 57,588 127,044 107,251
========== ========== ========== ==========
</TABLE>
6
<PAGE>
RESULTS OF OPERATIONS
---------------------
2nd Quarter 1998 vs. 2nd Quarter 1997
-------------------------------------
Consolidated net sales increased 7.6% in the second quarter of 1998 compared
with the second quarter of 1997, as increases in paper product sales outpaced
decreases in building materials sales. Earnings positively reflected the
climbing paper group sales as consolidated operating earnings increased 13.8%
over the prior year.
Total paper product sales increased 16.5% in the second quarter of 1998 over
1997 as sales prices increased in most product lines. For unbleached products,
corrugated container prices increased 11.5% while grocery bag prices increased
8.4% compared to the prior year. Positive results were also achieved for the
bleached product lines as prices increased 5.7% for continuous forms and 11.6%
for cut sheets, while hardwood market pulp prices remained stable with the prior
year.
Unit shipment fluctuations were mixed in the second quarter of 1998 when
compared to the second quarter of 1997. For unbleached products, unit shipments
of corrugated containers were up 11.5% over the prior year, while grocery bag
volume declined by 10.0%. The corrugated container increase was primarily due to
the 1997 addition of our box plant in Plant City, Florida and our sheet plant in
Portland, Oregon, both of which came on line in the first half of 1997. With
respect to bleached products, unit shipments increased 6.8% for cut sheets while
unit shipments decreased 3.9% for hardwood market pulp and 6.6% for continuous
forms. The increased cut sheet volume is the result of building
7
<PAGE>
converting capacity in preparation for the new Kentucky paper machine, which
successfully came on line at the end of the second quarter. The increased
converting capacity was also aided by the startup of our new Brownsville,
Tennessee cutsheet plant which came on line in February 1998.
In addition to price and volume changes, raw material costs also impacted
earnings as old corrugated container (OCC) costs decreased 4.0% while chip costs
increased 12.6% from the second quarter of 1997. Overall, paper group operating
earnings increased 139.6% in the second quarter of 1998 from the comparable
period in the prior year.
Building materials sales decreased 6.3% in the second quarter of 1998, as sales
price declines more than offset increases in unit shipment volumes. Prices
declined in most product lines in the second quarter with lumber being the
hardest hit, showing a decrease of 24.5% from the second quarter of 1997. Other
price decreases included 5.6% for particleboard, 1.6% for plywood, 2.3% for
medium density fiberboard (MDF) and 17.2% for log exports compared to the second
quarter of 1997. The difficulties in the Asian economies and continued pressure
from supply and demand imbalances have kept prices depressed for all these
products since late in the second quarter of 1997. The bright spot for building
materials was in oriented strand board (OSB), which experienced a price increase
of 37.0% over the prior year.
While building materials prices have continued to decline, unit shipment volumes
have remained strong. Lumber unit shipments increased 21.8% over the second
quarter of 1997 as gains were realized from capital project completions.
Composite board products also realized unit shipment gains as particleboard
increased 3.9% and MDF increased 18.5% over volumes achieved in 1997. MDF
8
<PAGE>
unit shipments increased as a result of expansion from capital projects and the
acquisition of a new facility in Morcenx, France in March 1998. Structural panel
volumes were mixed as OSB increased 4.2% while plywood decreased 23.2% from the
prior year. The decrease in plywood unit shipments was primarily related to a
plant closure which occurred in July 1997 at our Taylor, Louisiana plant, and a
halt in production at our Zwolle, Louisiana plant due to a fire that closed the
facility early in the second quarter of 1998. The plant is being renovated and
is expected to start up operations again in August 1998. The Company also closed
an Oregon laminated beam plant during the second quarter due to poor markets in
Japan.
While unit volumes provided some relief, they were not strong enough to offset
the continuous decline in prices. As a result, operating earnings for the
building materials group decreased 60.5% in the second quarter compared to the
prior year.
Selling and administrative expenses increased $2.2 million or 3.6% in the second
quarter mostly due to expansion of Company operations. The ratio of selling and
administrative expenses to net sales was 6.7% for the second quarter of 1998
compared to 7.0% for the same period in 1997.
Interest expense was $30.4 million in the second quarter of 1998 compared with
$29.4 million in the prior year. Interest expense increased between periods as
outstanding debt slightly increased from 1997 to 1998, while the Company's
effective interest rate on average outstanding debt remained steady at 7.1% for
the second quarter of 1998 and 1997. Capitalized interest increased to $6.5
million in the second quarter of 1998 from $4.4 million in 1997.
9
<PAGE>
RESULTS OF OPERATIONS
---------------------
Six Months ended June 30, 1998 vs.
----------------------------------
Six Months ended June 30, 1997
------------------------------
Consolidated net sales increased 6.5% and operating earnings increased 18.5% for
the first six months of 1998 due to stronger performance from the paper group
operations.
Total paper product sales increased 14.8% over the first six months of 1997 due
to a mix of price and volume increases in most product lines. Sales prices
increased in all product lines except hardwood market pulp, which slightly
decreased from the first six months of 1997. In addition, unit shipment volumes
increased in all product lines, except for paper bags and continuous forms, for
the first half of 1998 compared to the same period in the prior year. The
increase in unit shipments was primarily the result of opening new facilities
and building converting capacity for the new Kentucky paper machine which
successfully started up at the end of the second quarter. Increased prices and
unit shipment volumes positively impacted results as operating earnings
increased 108.6% from 1997.
Building materials sales decreased 7.1% from the first six months of 1997
primarily due to the continued price erosion which began late in the second
quarter of 1997. Sales prices were down in all product lines, except for OSB
which increased 29.4% over the prior year. Prices were down dramatically for
lumber, which decreased 20.4% from the first six months of 1997. While prices
were down, unit shipment volumes were up nicely for the first half of 1998 for
10
<PAGE>
lumber, MDF and particleboard due to completion of capital projects and
acquisitions. Plywood unit shipment volumes decreased due to a plant closure and
down time due to a fire at another plywood facility. As a result, building
materials operating earnings decreased 56.7% for the first six months of 1998
compared to the prior year.
Selling and administrative expenses increased $5.3 million or 4.4% primarily due
to expansion of Company operations. The ratio of selling and administrative
expenses to net sales decreased to 6.8% for the first six months of 1998 from
7.0% for the same period in 1997.
Interest expense was $61.0 million for the first six months of 1998 compared
with $58.6 million for the first six months of 1997. The increase is
attributable to increased average debt outstanding and a slight increase in the
Company's effective interest rate from 7.04% for the first six months of 1997 to
7.06% for 1998. Capitalized interest increased to $12.1 million for the first
half of 1998 from $7.9 million in 1997 due primarily to the capital expansion at
Hawesville, Kentucky.
11
<PAGE>
Financial Condition as of June 30, 1998
---------------------------------------
For the first six months of 1998, cash flows from operating activities were
$175.9 million, representing an increase of 3.5% from the same period in 1997.
The increase was primarily attributable to increased earnings and depreciation
as well as reductions in inventories. Net working capital decreased 16.5% to
$257.3 million at June 30, 1998 compared to $308.1 million at December 31, 1997.
The total debt to capital ratio increased to 51.0% at June 30, 1998 from 50.0%
at December 31, 1997.
In June 1998, the Company issued $34.7 million of medium-term notes with
interest rates ranging from 6.45% to 6.60% and maturities ranging from 11 to 15
years. 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 from
these issuances were used to replace notes maturing in 1998 and reduce other
bank borrowings.
The Company believes it has the resources available to meet its short-term and
long-term liquidity requirements. Resources include internally generated funds,
short-term borrowing arrangements and the unused portion of the revolving loan
available under a Credit Agreement.
12
<PAGE>
Forward-Looking Statements
--------------------------
Statements contained in this report that are not historical in nature, including
without limitation the discussion of the adequacy of the Company's liquidity
resources and the impact of environmental regulations, 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.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
- ------------------------------------------------------------------
No disclosure is required under this item.
13
<PAGE>
FORM 10-Q
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
- -------------------------
The discussion regarding a Notice of Violation received by the Company
from the Environmental Protection Agency contained under Item 5 of the
Company's Current Report on Form 8-K dated May 7, 1998, is incorporated
by reference under this item.
Item 6. Exhibits and Reports on Form 8-K
- -----------------------------------------
(a) Exhibits
--------
Exhibit No. Exhibit
----------- -------
12 Computation of
Ratio of Earnings
to Fixed Charges.
27 Financial Data Schedule for six-
month period ended June 30, 1998.
(b) Reports on Form 8-K
-------------------
On May 13, 1998, the Company filed a report on Form 8-K reporting
under Item 5 the receipt of a Notice of Violation from the
Environmental Protection Agency and under Item 7 agreements
relating to the issuance of notes under a medium-term note program.
14
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
WILLAMETTE INDUSTRIES, INC.
By /s/ J. A. Parsons
J. A. Parsons
Executive Vice President
(Principal Financial Officer)
Date: July 30, 1998
14
WILLAMETTE INDUSTRIES, INC. AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------------------- ----------------
1993 1994 1995 1996 1997 1997 1998
------- ------- ------- ------- ------- ------- -------
Fixed Charges:
<S> <C> <C> <C> <C> <C> <C> <C>
Interest cost $ 79,194 80,807 77,237 103,338 136,929 66,472 73,087
One-third rent
expense 4,819 5,227 5,976 6,906 7,535 3,747 3,979
------- ------- ------- ------- ------- ------- -------
Total Fixed Charges $ 84,013 86,034 83,213 110,244 144,464 70,219 77,066
======= ======= ======= ======= ======= ======= =======
Add (Deduct):
Earnings before
income taxes $ 189,168 288,923 823,804 306,086 111,263 49,469 68,799
Interest capitalized (15,904) (9,294) (6,187) (10,534) (19,939) (7,900) (12,088)
------- ------- ------- ------- ------- ------- -------
Earnings for
Fixed Charges $ 257,277 365,663 900,830 405,796 235,788 111,788 133,777
======= ======= ======= ======= ======= ======= =======
Ratio of Earnings to
Fixed Charges 3.06 4.25 10.83 3.68 1.63 1.59 1.74
======= ======= ======= ======= ======= ======= =======
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S CONSOLIDATED BALANCE SHEETS AND RELATED CONSOLIDATED STATEMENTS
OF EARNINGS FOR THE PERIOD ENDED June 30, 1998 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 21,855
<SECURITIES> 0
<RECEIVABLES> 345,114
<ALLOWANCES> 4,747
<INVENTORY> 380,114
<CURRENT-ASSETS> 793,407
<PP&E> 6,194,191
<DEPRECIATION> 2,165,784
<TOTAL-ASSETS> 4,908,011
<CURRENT-LIABILITIES> 536,106
<BONDS> 1,918,886
0
0
<COMMON> 55,716
<OTHER-SE> 1,950,976
<TOTAL-LIABILITY-AND-EQUITY> 4,908,011
<SALES> 1,846,465
<TOTAL-REVENUES> 1,846,465
<CGS> 1,593,266
<TOTAL-COSTS> 1,593,266
<OTHER-EXPENSES> 123,401
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 60,999
<INCOME-PRETAX> 68,799
<INCOME-TAX> 22,704
<INCOME-CONTINUING> 46,095
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 46,095
<EPS-PRIMARY> .41
<EPS-DILUTED> .41
</TABLE>
