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
September 30, 1999
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: 111,561,494 at October 31, 1999.
<PAGE>
WILLAMETTE INDUSTRIES, INC. AND SUBSIDIARIES FORM 10-Q
CONSOLIDATED BALANCE SHEETS PART I
(AMOUNTS, EXCEPT PER SHARE AMOUNTS, IN THOUSANDS) ITEM 1
<TABLE>
SEPTEMBER 30, DECEMBER 31,
ASSETS 1999 1998
------ --------- ---------
Current assets:
<S> <C> <C>
Cash $ 20,149 31,359
Accounts receivable, less allowance
for doubtful accounts of $4,689 and $4,300 400,521 306,332
Inventories (Note 2) 419,330 411,316
Prepaid expenses and timber deposits 41,657 45,316
--------- ---------
Total current assets 881,657 794,323
Timber, timberlands and related facilities, net 1,069,495 1,112,180
Property, plant and equipment, at cost less
accumulated depreciation of $2,447,901 and $2,253,551 2,744,187 2,707,146
Other assets 81,613 84,019
--------- ---------
$ 4,776,952 4,697,668
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current installments on long-term debt $ 3,871 2,267
Notes payable 41,096 47,252
Accounts payable, includes book overdrafts
of $51,632 and $55,030 196,229 196,134
Accrued expenses 184,583 165,743
Accrued income taxes 22,028 16,081
--------- ---------
Total current liabilities 447,807 427,477
Deferred income taxes 464,731 404,518
Other liabilities 43,778 42,159
Long-term debt, net of current installments 1,681,288 1,821,083
Stockholders' equity:
Preferred stock, cumulative, of $.50 par value
Authorized 5,000 shares - -
Common stock, $.50 par value. Authorized 150,000
shares; issued 111,561 and 110,981 shares 55,781 55,490
Capital surplus 302,800 285,140
Retained earnings 1,780,767 1,661,801
--------- ---------
Total stockholders' equity 2,139,348 2,002,431
--------- ---------
$ 4,776,952 4,697,668
========= =========
</TABLE>
2
<PAGE>
WILLAMETTE INDUSTRIES, INC. AND SUBSIDIARIES FORM 10-Q
CONSOLIDATED STATEMENTS OF EARNINGS PART I
(AMOUNTS, EXCEPT PER SHARE AMOUNTS, IN THOUSANDS) ITEM 1
<TABLE>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1999 1998 1999 1998
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net sales $1,087,899 956,794 $3,018,721 2,803,259
Cost of sales (Note 3) 844,980 805,486 2,431,683 2,398,752
--------- --------- --------- ---------
Gross profit 242,919 151,308 587,038 404,507
Selling and administrative expenses 67,368 62,771 198,429 188,926
--------- --------- --------- ---------
Operating earnings 175,551 88,537 388,609 215,581
Other income (expense) - net (Note 4) (9,791) 1,751 (10,186) 4,505
--------- --------- --------- ---------
165,760 90,288 378,423 220,086
Interest expense 31,068 36,953 95,437 97,952
--------- --------- --------- ---------
Earnings before provision for income taxes 134,692 53,335 282,986 122,134
Provision for income taxes 52,734 17,600 106,120 40,304
--------- --------- --------- ---------
Net earnings $ 81,958 35,735 $ 176,866 81,830
========= ========= ========= =========
Per share information (1):
Basic earnings per share $ 0.74 0.32 $ 1.59 0.73
Diluted earnings per share ========= ========= ========= =========
$ 0.73 0.32 $ 1.58 0.73
========= ========= ========= =========
Dividends $ 0.18 0.16 $ 0.52 0.48
========= ========= ========= =========
Weighted average shares outstanding:
Basic 111,552 111,399 111,307 111,393
========= ========= ========= =========
Diluted (2) 112,218 111,696 111,938 111,877
========= ========= ========= =========
</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>
NINE MONTHS ENDED
SEPTEMBER 30,
------------------------
1999 1998
--------- ---------
Cash flows from operating activities:
<S> <C> <C>
Net earnings $ 176,866 81,830
Adjustments to reconcile net earnings to net cash
from operating activities:
Depreciation (Note 3) 179,982 217,046
Cost of fee timber harvested 35,532 42,447
Other amortization 12,494 14,823
Increase in deferred income taxes 60,294 15,346
Changes in working capital items:
Accounts receivable (87,518) (36,320)
Inventories (5,081) (758)
Prepaid expenses and timber deposits 17,727 (15,352)
Accounts payable and accrued expenses 11,755 (22,462)
Accrued income taxes 5,892 1,343
--------- ---------
Net cash from operating activities 407,943 297,943
--------- ---------
Cash flows from investing activities:
Proceeds from sale of equipment 4,869 2,851
Expenditures for property, plant and equipment (181,334) (303,735)
Expenditures for timber and timberlands (7,351) (2,699)
Expenditures for roads and reforestation (10,966) (12,255)
Other (33,124) (21,517)
--------- ---------
Net cash from investing activities (227,906) (337,355)
--------- ---------
Cash flows from financing activities:
Net change in operating lines of credit (6,156) 109,627
Debt borrowing 27,770 206
Proceeds from sale of common stock 17,913 2,748
Purchase of Company stock - (6,516)
Cash dividends paid (57,900) (53,473)
Payment on debt (172,874) (8,605)
--------- ---------
Net cash from financing activities (191,247) 43,987
--------- ---------
Net change in cash (11,210) 4,575
Cash at beginning of period 31,359 27,600
--------- ---------
Cash at end of period $ 20,149 32,175
========= =========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest (net of amount capitalized) $ 106,676 106,579
========= =========
Income taxes $ 35,067 21,585
========= =========
</TABLE>
4
<PAGE>
FORM 10-Q
PART I
ITEM 1
WILLAMETTE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
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):
September 30, December 31,
1999 1998
-------- --------
Finished product $ 142,983 131,383
Work in progress 7,728 6,909
Raw material 172,029 184,734
Supplies 96,590 88,290
-------- --------
$ 419,330 411,316
======== ========
Note 3 Effective January 1, 1999, the Company changed its accounting
estimates relating to depreciation. The estimated service
lives for much of the Company's machinery and equipment was
extended five years. The change was based upon a study
performed by the Company's engineering department, comparisons
to typical industry practices and the effect of the Company's
extensive capital investments which have resulted in a mix of
assets with longer productive lives due to technological
advances.
As a result of the change, the Company's net income was
increased $38.6 million, or $0.35 per share, for the nine
months ended September 30, 1999, and $12.3 million, or $0.11
per share, for the third quarter of 1999. The Company
estimates the change will increase net income in 1999 by
approximately $51.5 million, or $0.46 per share.
Note 4 In September 1999, the Company took a $10.0 million charge
related to an estimate of environmental penalties expected to
result from a federal Clean Air Act assessment of the building
materials operations. The amount has been included in other
income/(expense).
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
SEPTEMBER 30, 1999
The Company's three basic businesses, building materials, brown paper and white
paper, are affected by changes in general economic conditions. Building
materials activity is closely related to new housing starts and to the
availability and terms of financing for construction. White and brown paper
sales and earnings tend to follow the general economy. All industry segments are
influenced by global economic factors of supply and demand. In addition, the
cost of wood and recycled fiber, basic raw materials for all segments, are
sensitive to various supply and demand factors, including environmental issues
affecting supply.
SEGMENT INFORMATION
-------------------
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------- ----------------------
1999 1998 1999 1998
---------- ---------- ---------- ----------
Sales:
Building Materials $ 399,201 328,640 $1,120,522 943,142
Brown Paper 393,924 350,162 1,080,809 1,045,026
White Paper 294,774 277,992 817,390 815,091
---------- ---------- ---------- ----------
$1,087,899 956,794 $3,018,721 2,803,259
========== ========== ========== ==========
Operating Earnings:(1)
Building Materials $ 88,499 34,216 $ 215,120 65,002
Brown Paper 62,804 43,500 151,957 127,834
White Paper 36,877 21,748 58,058 55,455
Corporate (12,629) (10,927) (36,526) (32,710)
---------- ---------- ---------- ----------
$ 175,551 88,537 $ 388,609 215,581
========== ========== ========== ==========
(1) Operating earnings for 1999 include the positive impact of a change in
estimate for depreciable lives of property, plant and equipment. The
increase in operating earnings attributable to this change is approximately
as follows:
Three Months Ended Nine Months Ended
September 30, 1999 September 30, 1999
------------------ ------------------
Building Materials $5,500 $16,600
Brown Paper 5,900 17,700
White Paper 9,200 27,500
6
<PAGE>
RESULTS OF OPERATIONS
---------------------
Third Quarter 1999 vs. Third Quarter 1998
-----------------------------------------
Consolidated net sales increased 13.7% and operating earnings increased 98.3% in
the third quarter of 1999 compared with the third quarter of 1998. The sales and
earnings increases were driven by increased average sales prices for virtually
all domestic building materials products, resulting in record earnings for the
building materials segment, and unit shipment volume increases for the brown and
white paper segments. Also contributing to the increased earnings was a
previously announced change in estimate for depreciable lives of property, plant
and equipment. The change was based upon a study performed by the Company's
engineering department, comparisons to typical industry practices and the effect
of the Company's extensive capital investments, which have resulted in a mix of
assets with longer productive lives due to technological advances. The change in
estimate increased third quarter 1999 operating earnings $20.6 million and net
income $12.3 million, or $0.11 per share.
The building materials segment continued its strong performance in the third
quarter, as net sales increased 21.5% and operating earnings increased 158.6%
(142.6% before the effects of the depreciation change) compared to the same
period in the prior year. Increases in average sales prices for lumber and
structural panels and increased unit shipment volumes for most products led to
the record operating earnings for the quarter. Prices for lumber increased
25.6%, plywood increased 24.1% and oriented strand board (OSB) increased 19.0%
over the third quarter of 1998. Composite panel average sales prices for the
third quarter of 1999 showed domestic particleboard increasing 2.4% while MDF
decreased 7.8% from the prior year. As a result of rising prices, the gross
7
<PAGE>
profit margin for building materials increased to 25.9% from 14.5% in the third
quarter of 1998. While prices were generally up over the prior year, they peaked
in mid-August before dropping significantly in the later part of the month in
anticipation of the normal fourth quarter slow-down in demand for building
materials.
Unit shipment volumes were strong in the third quarter of 1999, as all product
lines, except for OSB, experienced increases over the third quarter of 1998.
Lumber unit shipments increased 5.9% over the prior year as gains were realized
from capital project completions, including the start-up of our new small-log
sawmill in Taylor, Louisiana, in August 1998. Structural panel unit shipments
showed plywood increasing 17.5% and OSB declining 0.9%. The increase in plywood
unit shipments was partially due to increased production at our Zwolle,
Louisiana plant, which was closed early in the second quarter of 1998 due to a
fire. Composite panel products also realized unit shipment gains as MDF
increased 1.8% and particleboard increased 21.1% due to the June 1999
acquisition of a particleboard facility in Linxe, France.
Brown paper net sales increased 12.5% while operating earnings increased 44.4%
(30.8% before the depreciation adjustment) in the third quarter of 1999 over
1998. Corrugated container average sales prices were up 5.0% and grocery bags
increased 2.6% over the prior year. Unit shipment volumes were strong in the
third quarter as corrugated containers increased 6.2%, while grocery bags
increased 5.3%. The Company has continued to increase volume through capital
project improvements and increasing market share. Raw material costs were mixed
in the third quarter as old corrugated container (OCC) costs increased 30.2% and
chip costs decreased 11.3% from the comparable period in 1998. The
8
<PAGE>
gross profit margin for the brown paper segment increased to 22.3% in the third
quarter of 1999 compared to 19.3% in the prior year.
White paper net sales increased 6.0% and operating earnings increased 69.6%
(27.3% before the effect of the depreciation change) in the third quarter of
1999 compared to 1998. Prices were mixed in the third quarter. Average sales
prices increased 7.5% for fine paper and 19.7% for hardwood market pulp, while,
even after a price increase announced in September, cut sheets declined 3.6% and
continuous forms declined 1.1% from the previous year. With supply and demand
imbalances being addressed and another price increase announced in October, a
positive trend is anticipated into the fourth quarter.
White paper unit shipments continued to be strong, driving the increase in sales
and earnings for the quarter. Continuous forms increased 7.5% and cut sheets
increased 17.4% over the prior year. The increase in continuous forms was the
result of the Company's continued focus on the resale market (sales to office
superstores). Increased cut sheet unit shipments resulted from increased
internal converting volumes to absorb the production from the new Kentucky paper
machine ("K-2"), which successfully came on-line at the end of the second
quarter of 1998, and increased production at our new Brownsville, Tennessee, cut
sheet plant which came on-line in February 1998. Raw material costs had minimal
impact on white paper results, as chip costs increased 0.7% over the third
quarter of 1998. For the quarter, the gross profit margin for white paper
increased to 17.4% from 12.9% in the prior year.
Selling and administrative expenses increased $4.6 million or 7.3% in the third
quarter mostly due to expansion of Company operations. The ratio of
9
<PAGE>
selling and administrative expenses to net sales was 6.2% for the third quarter
of 1999 compared to 6.6% for the same period in 1998.
Other income/(expense) decreased $11.5 million in the third quarter of 1999 when
compared to the prior year. The decrease was due to a $10.0 million charge taken
during the quarter related to an estimate of environmental penalties expected to
result from a federal Clean Air Act assessment of our building materials
operations.
Interest expense was $31.1 million in the third quarter of 1999 compared with
$37.0 million in the prior year. The decrease in interest expense was driven by
a decrease in average debt outstanding. Also contributing to this decrease was
an increase in capitalized interest from $0.4 million in the third quarter of
1998 to $1.1 million for the third quarter of 1999. The Company's effective
interest rate increased slightly to 7.20% compared to 7.11% for the same period
in 1998.
Nine Months Ended September 30, 1999 vs. Nine Months Ended September 30, 1998
- -----------------------------------------------------------------------------
Consolidated net sales increased 7.7% and operating earnings increased 80.3% for
the nine months ended September 30, 1999, compared to the prior year. The
increase in sales and operating earnings was due to strong results from our
building materials segment for the first nine months of the year. In addition,
the previously announced change in estimate for depreciable lives of property,
plant and equipment increased operating earnings $61.8 million and net income
$38.6 million, or $0.35 per share, for the nine months ended September 30, 1999.
10
<PAGE>
Building materials net sales increased 18.8% and operating earnings increased
230.9% (205.4% before the effects of the depreciation change) for the first nine
months of 1999. As the housing market continued to be strong, structural panels
performed well with OSB average sales prices increasing 30.1% and plywood prices
increasing 23.3% over the prior year. In addition, lumber prices continued to
strengthen throughout the period as average sales prices were up 15.3% over
1998. The building materials segment showed record earnings into late August
when prices for lumber and structural panels dropped significantly in
anticipation of a normal fourth quarter slow-down. Composite panels average
sales prices showed domestic particleboard increasing 0.5% and MDF decreasing
6.3% from the same period in 1998. Increased prices resulted in an increase in
building materials gross profit margin to 23.0% from 11.2% in 1998.
Unit shipment volumes were strong for the nine month period ended September 30,
1999, as volumes increased for all products. Lumber increased 9.1%, plywood
16.5%, OSB 5.8%, particleboard 7.4% and MDF was up 4.9% over the prior year.
Volume increases were the result of a strong housing market, a full nine months
of production at our Zwolle plywood plant, our new MDF and particleboard
facilities in France acquired in March 1998 and June 1999, respectively, and a
new small-log sawmill in Louisiana which came on-line in August 1998.
Brown paper net sales increased 3.4% while operating earnings increased 18.9%
(5.0% before the effects of the depreciation change) compared to the same period
in 1998. The increase in net sales was the result of increased unit shipments,
which offset lower average sales prices in all product lines when
11
<PAGE>
compared to the prior year. Average sales prices for corrugated containers
declined 0.2% while grocery bags decreased 2.7%. While prices were down compared
to the prior year, average sales prices increased throughout the period and
finished at a price above that in 1998. Increased unit shipment volumes and
declines in manufacturing costs helped drive the increase in operating earnings.
The two primary raw material components, OCC and chips, declined 3.2% and 11.6%,
respectively, over the prior year. The gross margin for the first nine months of
1999 was 21.0% compared to 19.1% in 1998.
After beginning the year at low pricing levels, the white paper markets
continued to strengthen through the first nine months of 1999. Net sales ended
relatively flat and operating earnings increased 4.7% (a decrease of 44.9%
before the effects of the depreciation change) as compared to 1998. Average
sales prices were down compared to 1998 in all product lines through the first
nine months, except for hardwood market pulp, which increased 9.6%. However,
after a price increase in July and another announced price increase in October,
the trends are positive. Unit shipment volumes continued to rise in 1999 as
volumes increased 11.3% for business forms, 22.6% for cut sheets and 4.4% for
hardwood market pulp over the prior year. The increase in forms unit shipments
was due to the continued focus on the resale market (sales to office
superstores), while the cut sheet increase was the result of increased
converting volumes to absorb the production from "K-2". Raw material costs also
negatively impacted operating results as chip costs increased 2.8% over the same
period in 1998.
Selling and administrative costs increased $9.5 million or 5.0% for the first
nine months of 1999 due to expansion of Company operations. The ratio of
12
<PAGE>
selling and administrative expenses to net sales decreased from 6.7% for the
first nine months of 1998 to 6.6% for the same period in 1999.
Other income/(expense) includes a $10.0 million charge taken during the third
quarter relating to an estimate of expected penalties from a federal Clean Air
Act assessment.
Interest expense decreased to $95.4 million from $98.0 million in the prior year
as average debt outstanding continued to decrease throughout the period. The
decrease in interest expense was achieved despite a decrease in capitalized
interest from $12.5 million in 1998 to $2.3 million for the first nine months of
1999. The Company's effective interest rate increased slightly to 7.12% compared
to 7.08% in 1998.
Financial Condition as of September 30, 1999
--------------------------------------------
For the first nine months of 1999, cash flows from operating activities were
$407.9 million, representing an increase of 36.9% from the same period in 1998.
The increase was primarily attributable to increased earnings offset by various
fluctuations in working capital items, primarily accounts receivable. Net
working capital increased 18.3% to $433.9 million at September 30, 1999,
compared to $366.8 million at December 31, 1998. The total debt to capital ratio
decreased to 44.7% at September 30, 1999, from 48.3% at December 31, 1998.
13
<PAGE>
On April 20, 1999, the Board of Directors of the Company voted to raise the
quarterly cash dividend from $0.16 to $0.18 per share, which was a 12.5%
increase over the previous quarterly rate; however, there is no assurance as to
future dividends as they depend on earnings, capital requirements and financial
condition.
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.
YEAR 2000 READINESS
-------------------
The year 2000 (Y2K) issue, which is common to most businesses, arises from the
inability of systems and certain software application programs to properly
recognize and process dates and date sensitive information on and beyond January
1, 2000. In 1996, the Company began working to address the possible effects of
the Y2K issue on its information, financial and manufacturing systems. These
efforts include inventory assessment, modification and testing of these key
systems. Willamette is fortunate in that many of the Company's systems have been
replaced during the past few years as we implemented new technology. Many of
these new systems are currently Y2K ready. To date, the Company has spent $7.2
million on Y2K readiness and currently estimates that total spending will
approximate $8.6 million. These costs are being expensed as incurred and are not
expected to have a material impact on the Company's financial position.
14
<PAGE>
As of September 30, 1999, 100% of the Company's critical financial and
information systems and 99% of the manufacturing systems have been modified,
tested and deemed Y2K ready. The remaining systems are nearing completion and
will be completed by November 30, 1999. To date, no significant issues have been
identified with the Company's systems.
The Company has also been surveying its major vendors, suppliers and customers
to assess the potential impact on its operations of these key third-party
relationships. This process includes obtaining a letter of certification from
vendors and suppliers on their Y2K readiness and monitoring the status of key
customers. To date, no significant compliance issues have been identified with
these third parties. The Company plans to continually update and evaluate
compliance with these key third parties throughout 1999.
The most reasonably likely worst-case scenario facing the Company is the
occurrence of unscheduled down-time at its facilities resulting from internal
system difficulties or third-party failures that could have a significant
adverse effect on the Company's earnings. While it is the Company's belief that
all of its systems will be assessed and modified before January 1, 2000, there
can be no guarantee that issues will not arise pertaining to these systems or
that vendors, suppliers and customers will adequately address their Y2K
readiness requirements. The Company has developed contingency plans relating to
mission-critical systems and key third parties. These include identifying
alternative suppliers and manufacturing systems, and working with major
customers who may be affected by Y2K issues. The Y2K readiness effort is
continuously monitored by a special task force which makes regular reports to
senior management and the audit committee of the Board of Directors.
15
<PAGE>
Forward-Looking Statements
--------------------------
Statements contained in this report that are not historical in nature, including
without limitation trends in pricing levels, adequacy of the Company's liquidity
resources, the impact of environmental regulations and risks associated with the
Year 2000 problem, 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 from those projected. Such risks and uncertainties with
respect to the Company, in addition to those included with the forward-looking
statements, include but are not limited to, 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.
16
<PAGE>
FORM 10-Q
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
- -------------------------
As first reported in the Company's Form 8-K report filed January 26, 1998,
beginning in the fourth quarter of 1997, the Company has received from the
Environmental Protection Agency (EPA) a series of requests for information under
Section 114 of the Clean Air Act (the Act) with respect to the Company's
building materials operations. The requests have been focused on compliance with
regulations under the Prevention of Significant Deterioration (PSD) Program
under the Act. On May 7, 1998, the EPA issued a Notice of Violation (NOV)
alleging violations of the Act and related state regulations, and on December
11, 1998, issued a second NOV supplementing and clarifying the first NOV. The
Company has responded to the allegations contained in the NOVs and has had
several meetings and extensive correspondence with the EPA and the U.S.
Department of Justice to attempt to negotiate a resolution of the issues raised
by the NOVs. Settlements by other companies in the wood products industry that
have received NOVs under the Act have involved the payment of substantial fines
and agreements to install emission control equipment and undertake supplemental
environmental projects. In September 1999, the Company recorded a charge of $10
million relating to an estimate of penalties expected to result from these
proceedings.
In November 1998 the Company received from the EPA a request for information
under Section 114 of the Act with respect to the Company's Johnsonburg,
Pennsylvania, pulp and paper mill. This request also focused on compliance with
the PSD regulations. Subsequently, on April 19, 1999, the Company received an
NOV relating to its Johnsonburg mill. The NOV asserts violations of the Act
relating to two alleged major modifications to the plant, allegedly without
proper PSD permits and without complying with applicable PSD requirements. The
Company is reviewing the allegations contained in this NOV and has been meeting
with federal and state officials to discuss the issues raised by the NOV. In
August 1999, the Company received another Section 114 information request from
the EPA relating to the Company's paper mill in Campti, Louisiana. The Company
believes that additional NOVs may be issued with respect to one or more of the
Company's other paper mills.
The Company has undertaken a review of its Albany, Oregon, pulp and paper mill
for compliance with the PSD regulations and the New Source Performance Standards
and has voluntarily disclosed possible historic compliance issues to the Oregon
Department of Environmental Quality (ODEQ). The Company is working with the ODEQ
to further evaluate compliance issues and to negotiate a settlement of potential
noncompliance issues. Such settlements by the Company and others typically have
included the payment of penalties.
The Company believes that the outcome of the foregoing proceedings will not have
a material adverse effect on the Company's financial position.
17
<PAGE>
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 nine-
month period ended September 30,
1999.
(b) Reports on Form 8-K
-------------------
No reports on Form 8-K were filed during the quarter for which
the report is filed.
18
<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: November 10, 1999
19
WILLAMETTE INDUSTRIES, INC. AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------------------- ----------------
1994 1995 1996 1997 1998 1998 1999
------- ------- ------- ------- ------- ------- -------
Fixed Charges:
<S> <C> <C> <C> <C> <C> <C> <C>
Interest cost $ 80,807 77,237 103,338 136,929 145,579 110,465 97,727
One-third rent
expense 5,227 5,976 6,906 7,535 8,075 6,032 5,932
------- ------- ------- ------- ------- ------- -------
Total Fixed Charges $ 86,034 83,213 110,244 144,464 153,654 116,497 103,659
======= ======= ======= ======= ======= ======= =======
Add (Deduct):
Earnings before
income taxes $ 288,923 823,804 306,086 111,263 132,783 122,134 282,986
Interest capitalized (9,294) (6,187) (10,534) (19,939) (13,589) (12,513) (2,290)
------- ------- ------- ------- ------- ------- -------
Earnings for
Fixed Charges $ 365,663 900,830 405,796 235,788 272,848 226,118 384,355
======= ======= ======= ======= ======= ======= =======
Ratio of Earnings to
Fixed Charges 4.25 10.83 3.68 1.63 1.78 1.94 3.71
======= ======= ======= ======= ======= ======= =======
</TABLE>
20
<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 SEPTEMBER 30, 1999, AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
WILLAMETTE INDUSTRIES, INC.
FINANCIAL DATA SCHEDULE
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 20,149
<SECURITIES> 0
<RECEIVABLES> 405,210
<ALLOWANCES> 4,689
<INVENTORY> 419,330
<CURRENT-ASSETS> 881,657
<PP&E> 6,261,583
<DEPRECIATION> 2,447,901
<TOTAL-ASSETS> 4,776,952
<CURRENT-LIABILITIES> 447,807
<BONDS> 1,681,288
0
0
<COMMON> 55,781
<OTHER-SE> 2,083,567
<TOTAL-LIABILITY-AND-EQUITY> 4,776,952
<SALES> 3,018,721
<TOTAL-REVENUES> 3,018,721
<CGS> 2,431,683
<TOTAL-COSTS> 2,431,683
<OTHER-EXPENSES> 208,615
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 95,437
<INCOME-PRETAX> 282,986
<INCOME-TAX> 106,120
<INCOME-CONTINUING> 176,866
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 176,866
<EPS-BASIC> 1.59
<EPS-DILUTED> 1.58
</TABLE>
