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, 1998 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. [ ]
State the aggregate market value of the voting stock held by
non-affiliates of the registrant.
$ 3,257,282,315 at January 31, 1999
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, 1999
----- -------------------------------
Common Stock, $.50 par value 110,988,980 shares
DOCUMENTS INCORPORATED BY REFERENCE.
Portions of the registrant's definitive proxy statement for its 1999 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 Election of Directors
Officers of the Registrant 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
-----
Page
----
Part I
- ------
Item 1. Business............................................................1
General.............................................................1
Business Segment Information........................................1
White Paper.........................................................1
Brown Paper.........................................................2
Building Materials..................................................2
Timberlands.........................................................3
Energy .............................................................3
Employees...........................................................3
Environmental Matters...............................................3
Item 2. Properties..........................................................4
Item 3. Legal Proceedings...................................................7
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 7A. Quantitative and Qualitative Disclosures About Market Risk.........19
Item 8. Financial Statements and Supplementary Data........................19
Item 9. Changes in and Disagreements with
Accountants on Accounting and Financial Disclosure.............19
Part III
- --------
Item 10. Directors and Executive Officers of the Registrant.................20
(See Part I for Executive Officers of the Registrant)
Item 11. Executive Compensation.............................................20
Item 12. Security Ownership of Certain Beneficial
Owners and Management..........................................20
Item 13. Certain Relationships and Related
Transactions...................................................20
Part IV
- -------
Item 14. Exhibits, Financial Statement Schedules
and Reports on Form 8-K........................................21
Signatures.........................................................22
Index to Consolidated Financial Statements.........................24
Index to Exhibits..................................................41
<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 100 manufacturing facilities in 23
states, France, Ireland and Mexico.
The Company's manufacturing facilities produce kraft linerboard, corrugating
medium, bag paper, paper bags, corrugated containers, hardwood market pulp, fine
paper, specialty printing papers, business forms, cut sheet paper, inks, lumber,
plywood, particleboard, medium density fiberboard, oriented strand board,
laminated beams, laminated veneer lumber, I-joists and other value-added wood
products. We own or manage 1,729,000 acres of timberland in the United States
and employ approximately 14,000 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 white and brown paper products; our 58% saw log 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 operates in three business segments: white paper, brown paper and
building materials. Sales and operating data for the three segments 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.
WHITE PAPER
Market pulp and fine paper
Four mills in Kentucky, Pennsylvania, Tennessee and South Carolina manufacture
9% of the nation's uncoated free sheet production.
1
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Additionally, our mill in Kentucky produces 5% 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 white paper
products.
Forms and cut sheets
Six business forms plants in six states manufacture 21% of the nation's
production of continuous forms bond. These forms are mostly long-run continuous
computer forms. Additionally, our five cut sheet facilities in four states make
private brand and Willamette brand (Willcopy(R)) photocopy and cut sheet printer
paper. Our cut sheets represent 12% of the nation's cut sheet production. Our
business forms and cut sheets are marketed by our own sales force to a variety
of consumers and distributors.
BROWN PAPER
Brown 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 by, 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 56% of the total fiber needs.
Corrugated containers and sheets
Corrugated containers and sheets are manufactured by 35 plants in 20 states
and Mexico. 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.
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
Lumber
Eight sawmills in Oregon and Louisiana manufacture 2% of the nation's lumber
production. Lumber products are marketed through independent wholesalers and
distributors throughout the U.S.
Structural Panels
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 Company's output of these products accounts for 8% and 3%,
respectively, of the nation's
2
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production and is marketed nationwide through independent wholesalers and
distributors.
Composite Panels
Four particleboard plants in Louisiana and Oregon manufacture 13% of the
nation's particleboard. Three medium density fiberboard (MDF) plants in
Arkansas, Oregon and South Carolina produce 22% of the nation's MDF. MDF is also
manufactured at facilities in Clonmel, Ireland, and Morcenx, France, which
together account for 7% of European production. The composite panel plants
produce value-added products including color-coated, woodgrain-printed,
fire-rated and moisture-resistant boards. Composite panel products are sold
nationwide through independent wholesalers and distributors.
Engineered wood products
Two laminated beam plants in Oregon and Louisiana account for 27% of the
nation's production. Two laminated veneer lumber (LVL) plants and one I-joist
plant, all located in Oregon, manufacture 8% and 7%, respectively, of the
nation's total production. An additional integrated LVL and I-joist facility in
Louisiana was completed in late December, 1998. Engineered wood products, stock
and custom made, are sold in both the domestic and international markets.
TIMBERLANDS
Willamette's 1,729,000 acres of timberland supply approximately 58% of our
long-term saw log needs. The remainder is purchased through private timber sales
and open market purchases. Our timberlands are comprised of 736,000 acres in
Louisiana, Arkansas and Texas; 610,000 acres in Oregon; and 383,000 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 59% of total energy needs.
EMPLOYEES
Willamette employs approximately 14,000 people, of whom about 49% are
represented by labor unions with collective bargaining agreements. Agreements
covering approximately 1,180 employees were negotiated in 1998. Agreements
involving about 1,340 hourly employees are subject to renewal in 1999.
Approximately 47% of all salaried employees have been with the Company for 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.
3
<PAGE>
Item 2. Properties
MANUFACTURING FACILITIES
The following table sets forth information regarding the Company's 100
manufacturing facilities at December 31, 1998:
Building Materials:
Facility 1999 Forecast
-------- -------------
Western Plywood (3 plants) M Square Ft. (3/8" Basis)
Dallas, Oregon 118,000
Foster, Oregon 154,000
Springfield, Oregon 120,000
---------
Total Western Plywood 392,000
---------
Southern Plywood (4 plants)
Dodson, Louisiana 229,000
Emerson, Arkansas 240,000
Ruston, Louisiana 120,000
Zwolle, Louisiana 237,000
---------
Total Southern Plywood 826,000
---------
Eastern Plywood (2 plants)
Chester, South Carolina 245,000
Moncure, North Carolina 110,000
---------
Total Eastern Plywood 355,000
---------
Total Plywood 1,573,000
---------
Oriented Strand Board (1 plant)
Arcadia, Louisiana 308,000
-------
(1998 Production-
Total Structural Panels 1,881,000 1,717,000)
=========
Western Lumber (5 mills) M Board Ft.
Coburg, Oregon 177,000
Dallas, Oregon 161,000
Lebanon, Oregon (2 mills) 156,000
Warrenton, Oregon 152,000
---------
Total Western Lumber 646,000
---------
Southern Lumber (3 mills)
Dodson, Louisiana 59,000
Taylor, Louisiana 51,000
Zwolle, Louisiana 56,000
---------
Total Southern Lumber 166,000
---------
(1998 Production-
Total Lumber 812,000 755,000)
=========
4
<PAGE>
1999 Forecast
-------------
Particleboard (4 plants) M Square Ft. (3/4" Basis)
Albany, Oregon 216,000
Bend, Oregon 177,000
Lillie, Louisiana 118,000
Simsboro, Louisiana 107,000
---------
(1998 Production-
Total Particleboard 618,000 616,000)
=========
Medium Density Fiberboard (5 plants)
Bennettsville, South Carolina 126,000
Clonmel, Ireland 180,000
Eugene, Oregon 64,000
Malvern, Arkansas 145,000
Morcenx, France 76,000
---------
(1998 Production-
Total MDF 591,000 540,000)
=========
Engineered Wood Products (7 plants)
Laminated Beams M Board Ft.
Simsboro, Louisiana 24,000
Vaughn, Oregon 51,000
---------
(1998 Production-
Total Laminated Beams 75,000 75,000)
=========
Laminated Veneer Lumber Cubic Ft.
Albany, Oregon 2,469,000
Simsboro, Louisiana 1,849,000
Winston, Oregon 1,901,000
---------
(1998 Production-
Total LVL 6,219,000 3,401,000)
=========
I-Joists M Lineal Ft.
Woodburn, Oregon 53,000
Simsboro, Louisiana 37,000
---------
(1998 Production-
90,000 45,000)
Total I-Joists =========
Other Divisions (3 facilities)
Coburg Veneer - Coburg, Oregon
Custom Products - Albany, Oregon
Lebanon Machine - Lebanon, Oregon
Brown Paper:
Brown Paper (4 mills) Tons
Albany, Oregon 554,000
Campti, Louisiana 898,000
Hawesville, Kentucky 176,000
Oxnard, California 197,000
---------
(1998 Production-
Total Brown Paper 1,825,000 1,792,000)
=========
5
<PAGE>
1999 Forecast
-------------
Corrugated Container and Sheets(35 plants) M Square Ft.
Aurora, Illinois 1,130,000
Beaverton, Oregon 896,000
Bellevue, Washington 775,000
Bellmawr, New Jersey 719,000
Bowling Green, Kentucky 861,000
Cerritos, California 861,000
Compton, California 769,000
Dallas, Texas 1,002,000
Delaware, Ohio 660,000
Elk Grove, Illinois 535,000
Fort Smith, Arkansas 924,000
Fridley, Minnesota 1,025,000
Golden, Colorado 760,000
Griffin, Georgia 1,086,000
Huntsville, Alabama 949,000
Indianapolis, Indiana 771,000
Kansas City, Kansas 825,000
Lincoln, Illinois 579,000
Louisville, Kentucky 569,000
Lumberton, North Carolina 832,000
Maryland Heights, Missouri 690,000
Matthews, North Carolina 432,000
Memphis, Tennessee 41,000
Mexico City, Mexico 452,000
Moses Lake, Washington 924,000
Newton, North Carolina 562,000
Plant City, Florida 823,000
Portland, Oregon 262,000
Sacramento, California 786,000
San Leandro, California 1,298,000
Sanger, California 924,000
Sealy, Texas 840,000
St. Paul, Minnesota 634,000
Tulsa, Oklahoma 51,000
West Memphis, Arkansas 814,000
---------- (1998 Production-
Total Corrugated Containers 26,061,000 24,491,000)
==========
Kraft Bags and Sacks (4 plants) Tons
Beaverton, Oregon 39,000
Buena Park, California 33,000
Dallas, Texas 21,000
Kansas City, Missouri 20,000
---------- (1998 Production-
Total Kraft Bags and Sacks 113,000 105,000)
=========
Preprinted Linerboard (2 plants) M Square Ft.
Richwood, Kentucky 497,000
Tigard, Oregon 787,000
----------
(1998 Production-
Total Preprinted Linerboard 1,284,000 1,185,000)
=========
6
<PAGE>
1999 Forecast
-------------
Inks and Specialty Products (2 plants) Tons
Beaverton, Oregon 5,000
Delaware, Ohio 2,000
---------
(1998 Production-
Total Inks 7,000 7,000)
=========
White Paper:
Market Pulp and Fine Paper (5 mills)
Hawesville, Kentucky
Market Pulp 133,000
Fine Paper 521,000
Johnsonburg, Pennsylvania 407,000
Kingsport, Tennessee 166,000
Marlboro, South Carolina 320,000
----------
(1998 Production-
Total Market Pulp and Fine Paper 1,547,000 1,399,000)
=========
Business Forms (6 plants)
Cerritos, California 61,000
Dallas, Texas 45,000
Indianapolis, Indiana 64,000
Langhorne, Pennsylvania 61,000
Rock Hill, South Carolina 53,000
West Chicago, Illinois 60,000
---------
(1998 Production-
Total Business Forms 344,000 316,000)
=========
Cut Sheets and Other Converting (5 plants)
Brownsville, Tennessee 111,000
DuBois, Pennsylvania 158,000
Kingsport, Tennessee 126,000
Owensboro, Kentucky 179,000
Tatum, South Carolina 99,000
---------
(1998 Production-
Total Cut Sheets 673,000 586,000)
=========
TIMBERLANDS
For information with respect to the Company's timberlands, see
"Business--Timberlands."
Item 3. Legal proceedings
As first reported in the Company's Form 8-K report filed January 26, 1998,
the Company received from the Environment Protection Agency (EPA) a request for
information under Section 114 of the Clean Air Act (the Act) requesting
information for a period covering 22 years. The requests were focused on
compliance with regulations under the Prevention of Significant Deterioration
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 is reviewing
7
<PAGE>
the allegations contained in the NOVs and is meeting with the EPA 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
payment of fines and agreements to install emission control equipment and
undertake supplemental environmental projects.
The Company believes that the outcome of the foregoing proceedings will not
have a material adverse effect on the Company's financial position.
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, 1998.
8
<PAGE>
Executive Officers of the Registrant
The executive officers of the Company are elected annually by the board of
directors. At February 11, 1999 the executive officers of the Company, their
ages at December 31, 1998, and their positions with the Company were as follows:
Name Age Position
---- --- --------
Duane C. McDougall 46 President and chief
executive officer
Marvin D. Cooper 55 Executive vice president -
Pulp and paper mills
William P. Kinnune 59 Executive vice president-
corrugated containers and
bags
J. Eddie McMillan 53 Executive vice president -
building materials group
Michael R. Onustock 59 Executive vice president-
pulp and fine paper
marketing
J. A. Parsons 63 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
<PAGE>
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. At December 31, 1998 there were approximately 22,000 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.
1998 1997
------------------------------ ---------------------------
Closing Closing
Dividends Price Dividends Price
Paid High-Low Paid High-Low
--------- ------------------- -------- -------------------
1st Quarter... $0.16 39 3/4 - 30 13/16 $0.16 34 11/16 - 30 11/16
2nd Quarter... 0.16 40 7/16 - 29 7/8 0.16 38 7/16 - 30 1/16
3rd Quarter... 0.16 32 - 23 1/4 0.16 42 3/8 - 35 1/4
4th Quarter... 0.16 36 - 26 1/4 0.16 39 3/16 - 30
A dividend of $0.16 per share was declared on the common stock for the first
quarter of 1999 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
<PAGE>
Item 6. Selected Financial Data
The following table shows selected financial data for the Company for the
periods indicated:
<TABLE>
<CAPTION>
Financial Results
(dollar amounts, except per share amounts, in thousands)
1998 1997 1996 1995 1994
===========================================================================================================================
<S> <C> <C> <C> <C> <C>
Net Sales $ 3,700,282 3,501,376 3,425,173 3,873,575 3,007,949
===========================================================================================================================
Costs and Expenses:
Depreciation, amortization and cost
of fee timber harvested.................. $ 371,141 338,949 302,937 249,165 217,252
Materials, labor and other operating
expenses................................. 2,813,887 2,690,943 2,495,345 2,528,570 2,239,185
-----------------------------------------------------------------------
Gross profit............................... 515,254 471,484 626,891 1,095,840 551,512
Selling and administrative expenses........ 252,510 245,319 231,862 201,784 184,699
-----------------------------------------------------------------------
Operating earnings......................... 262,744 226,165 395,029 894,056 366,813
Interest expense........................... 131,990 116,990 92,804 71,050 71,513
Other income (expense)..................... 2,029 2,088 3,861 798 (6,377)
-----------------------------------------------------------------------
Earnings before provision for income taxes. 132,783 111,263 306,086 823,804 288,923
Provision for income taxes................. 43,800 38,300 114,000 309,000 111,300
-----------------------------------------------------------------------
Net earnings............................... 88,983 72,963 192,086 514,804 177,623
Cash dividends paid........................ 71,227 71,005 68,520 62,874 52,807
Earnings retained in the business.......... 17,756 1,958 123,566 451,930 124,816
Capital expenditures....................... 441,839 527,908 485,769 453,523 393,161
==========================================================================================================================
Financial Condition:
Working capital............................ $ 366,846 308,093 289,134 359,258 138,528
Long-term debt (noncurrent portion)........ 1,821,083 1,916,001 1,766,917 790,210 915,797
Stockholders' equity....................... 2,002,431 1,994,480 1,976,281 1,846,890 1,387,865
Total assets............................... 4,697,668 4,811,055 4,720,681 3,413,555 3,033,398
==========================================================================================================================
Common Stock:
Number of stockholders (beneficial)........ 22,000 20,000 20,000 19,000 17,000
Shares outstanding (in thousands)(1)....... 110,981 111,350 110,707 110,448 110,072
==========================================================================================================================
Per Share: (1)
Net earnings............................... $ 0.80 0.66 1.74 4.67 1.62
Cash dividends paid........................ 0.64 0.64 0.62 0.57 0.48
Stockholders' equity....................... 18.04 17.91 17.85 16.72 12.61
Year-end stock price....................... 33.50 32.188 34.813 28.125 23.75
==========================================================================================================================
Financial Returns:
Percent return on equity (2)............... 4.5% 3.7% 10.4% 37.1% 14.1%
Percent return on net sales................ 2.4% 2.1% 5.6% 13.3% 5.9%
==========================================================================================================================
Employment:
Number of employees........................ 14,000 13,800 13,700 13,180 12,260
Wages, salaries and cost of employee
benefits.................................. $ 734,068 717,693 672,280 627,835 580,561
==========================================================================================================================
<FN>
(1) All share and per share amounts have been adjusted for stock splits.
(2) Calculated on stockholders' equity at the beginning of the year.
</FN>
</TABLE>
11
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The Company's three basic businesses - white paper, brown paper and building
materials, are affected by changes in general economic conditions. White and
brown 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 the availability and terms of financing
for construction. 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 log supply.
RESULTS OF OPERATIONS 1998 VS. 1997
- -----------------------------------
Consolidated net sales increased 5.7% and operating earnings increased 16.2%
in 1998 compared to 1997. A strong performance from the brown paper segment and
increases in unit shipments for many product lines contributed to the better
results.
Brown paper was the top performing segment in 1998 as operating earnings
increased 141.5% when compared to 1997. Driving the increase in operating
earnings was an increase in net sales of 14.1%, as average sales prices
increased in all product lines. Corrugated container prices increased 7.3% and
grocery bag prices increased 4.8% over the prior year. While price movements
were positive in 1998, unit shipment fluctuations also played a significant
factor in increasing sales and earnings. Corrugated container unit shipments
increased 7.9% over the prior year, however grocery bag unit shipments decreased
7.3%. Approximately 50% of the increase in corrugated container shipments was
due to increased internal converting capacity from capital project enhancements.
The remainder of the increase was a result of a full year of operation at our
box plant in Plant City, Florida, and our sheet plant in Portland, Oregon, both
of which came on line in the second quarter of 1997. In addition, the Company
acquired a 46.0% interest in a box plant in Mexico City, Mexico, in January,
1998.
Raw material costs had a mixed impact on operating earnings during 1998 as OCC
costs declined 16.5% while chip costs increased 14.8% from the prior year.
White paper net sales increased 3.6% over the prior year as increases in unit
shipments more than offset decreases in average sales prices. While sales were
up compared to 1997, operating earnings decreased 20.0% in 1998, primarily as a
result of pricing pressures on market pulp and fine paper. Average sales prices
for cut sheet and continuous forms showed slight increases over the prior year.
Significant price declines from 1997, came from hardwood market pulp, declining
9.0%, and fine paper, declining 9.6%. The price decline was the result of
pricing pressure which existed throughout much of 1998 as difficulties occurring
in the Asian economies impacted markets. Also negatively impacting white paper
results were increased chip costs of 6.6% and start-up costs for the new paper
machine at Kentucky Mills in 1998.
12
<PAGE>
Overall, white paper unit shipments showed positive gains over 1997, which led
to the increase in net sales. Cut sheets increased 12.7% while continuous forms
decreased 5.5%. The increased cut sheet volume was the result of our new
Brownsville, Tennessee, cut sheet plant which came on line in February, 1998.
Hardwood market pulp declined 6.9% while fine paper unit shipments increased
12.7%. The fine paper increase was the result of our new Kentucky paper machine,
which successfully came on line at the end of the second quarter of 1998.
Building materials operating earnings decreased 35.4% in 1998 and net sales
slightly decreased from the prior year. Declining prices were the cause for the
drop in operating earnings. Lumber reflected the most dramatic erosion as
average sales prices decreased 18.7%. Other price declines included 4.9% in
particleboard and 2.4% in medium density fiberboard (MDF). The difficulties in
the Asian economies continued to create supply and demand imbalances, thus
keeping prices depressed for these products in 1998. The pricing exception in
1998 was oriented strand board (OSB), which realized a price increase of 38.3%.
While prices were down for most product lines, strong housing starts and low
interest rates helped fuel unit shipment increases for most product lines in
1998. Lumber was the primary benefactor as unit shipments increased 21.0% over
the prior year. In addition, the start-up of our new small-log sawmill in
Taylor, Louisiana, in August, 1998 and other capital project completions helped
increase unit shipments. Other unit shipment increases included particleboard of
3.8% and MDF of 15.7% over the prior year. MDF increased due to expansion from
capital projects and the acquisition of a new facility in Morcenx, France, in
March, 1998. Decreased plywood shipments of 7.7% were the result of having no
production at our Taylor, Louisiana, mill in 1998, which closed in July, 1997,
and downtime at our Zwolle, Louisiana, mill for six months due to a fire that
halted production in the second quarter of 1998.
In December, 1998, the Company completed the construction of a new integrated
LVL and I-joist plant in Simsboro, Louisiana. While the completion had no volume
impact in 1998, the addition will double the Company's production capacity for
I-joist products in 1999.
Selling and administrative expenses (SG&A) increased 2.9% in 1998 due to
assimilation of acquisitions and expansions that occurred during the year. SG&A
as a percentage of sales, however, decreased to 6.8% for 1998 compared to 7.0%
for 1997.
Interest expense was $132.0 million in 1998 compared to $117.0 million in
1997, a 12.8% increase. The weighted average interest rate remained stable at
7.1% in 1998 and 1997. The increase in expense was primarily due to an increase
of $166.0 million in average outstanding debt and a decrease in capitalized
interest to $13.6 million in 1998 from $19.9 million in 1997, as a result of the
completion of the expansion at Hawesville, Kentucky, in June of 1998.
13
<PAGE>
RESULTS OF OPERATIONS 1997 VS. 1996
- -----------------------------------
Consolidated net sales increased 2.2% while operating earnings decreased 42.7%
compared to 1996, as average sales prices declined for most products.
White paper product sales were down 0.9% 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 11.0% in 1997. Unit shipment increases partially offset sales
price decreases as volumes increased in most product lines. Unit shipments
increased 20.3% for cut sheets and 1.4% for continuous forms, while market pulp
remained steady with 1996 levels. The cut sheet increase was the result of our
development of market share in anticipation of the start-up of the #2 paper
machine in Hawesville, Kentucky. The impact of these changes reduced white paper
operating earnings 51.0% in 1997.
Brown paper products didn't fare much better in 1997 as sales decreased 6.5%
and operating earnings decreased 63.3% from 1996. 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.
Building materials sales increased 16.8% and operating earnings increased
21.6% in 1997 compared with 1996 as increases in unit shipments more than offset
decreases in average sales prices. Unit shipment 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. Additionally, the Company began exporting logs in
January, 1997. Unit shipments increased 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. 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 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.
Selling and administrative expenses (SG&A) increased to 7.0% of net sales in
1997 compared to 6.8% in 1996. Overall, SG&A increased 5.8% over 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
14
<PAGE>
million in 1997 due primarily to the capital expansion at Hawesville, Kentucky.
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 1998, cash flows from operating activities were $435.4 million and
represented an increase of 11.8% from comparable cash flows in 1997. The
increase was primarily achieved through increased net earnings and depreciation
in 1998 compared to the prior year.
Internally generated cash flows funded 98.6% of capital expenditures in 1998.
Net working capital increased to $366.8 million at December 31, 1998 from
$308.1 million at December 31, 1997. The increase was primarily attributable to
increases in inventories resulting from new facilities and decreases in current
notes payable and accounts payable.
The Company is continually making capital expenditures at its manufacturing
facilities to improve fiber utilization and labor efficiency and to expand
production. In 1998, the Company made $417.8 million in capital expenditures for
property, plant and equipment.
During 1998 the following major capital projects were completed:
> Addition of a new uncoated free sheet paper machine at
Hawesville, Kentucky.
> Installation of a new biomass boiler at the Kingsport,
Tennessee, fine paper mill.
> Construction of a new cut sheet plant in Brownsville,
Tennessee.
> Construction of a new, integrated LVL and I-joist plant near
Simsboro, Louisiana.
> Construction of a new small-log sawmill at Taylor, Louisiana.
> Relocation of a corrugated facility in Sacramento, California.
Major capital projects underway at December 31, 1998 include:
> Expansion of secondary fiber capacity at the paper mill in
Campti, Louisiana.
> Upgrade of a paper machine at Johnsonburg, Pennsylvania.
> Construction and installation of a new recovery boiler at the
Albany, Oregon, paper mill.
The cost of all major capital projects in progress at December 31, 1998 is
estimated to be approximately $253.3 million, of which $106.0 million has
already been spent. These projects will be funded with internally generated cash
flows and with external borrowings if needed.
In December, 1998, the Company finalized the sale of 117,000 acres of
southwest Washington timberland for $234.0 million. The Company acquired the
land in 1996 as part of the purchase of Cavenham Forest
15
<PAGE>
Industries. The forest lands were sold as they were not critical to the
long-term fiber supply needs of the Company's Northwest operations. Proceeds of
the sale were used to pay down existing debt.
In June, 1998, the Company initiated a Medium-term Note Program and issued
$100.2 million of notes as of December 31, 1998. The medium-term notes carry
interest rates ranging from 6.45% to 6.60% and maturities from 11 to 15 years.
In addition, in January, 1998, the Company issued $200.0 million in debentures -
$100.0 million at 6.45% due 2005 and $100.0 million at 7.00% due 2018. The
proceeds from both issuances were used to replace notes maturing in 1998 and
reduce other bank borrowing.
The total debt-to-capital ratio decreased to 48.3% at December 31, 1998 from
50.0% at December 31, 1997. 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 a $650.0 million revolving loan available under an existing credit
agreement.
In 1998, the Board of Directors authorized the repurchase of $25.0 million of
the Company's common stock. The Company repurchased 470,900 shares of its common
stock for $13.0 million during the third and fourth quarters of 1998.
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 25, 1997.
OTHER MATTERS
The Company believes it is in substantial compliance with federal, state and
local laws regarding environmental quality.
The U.S. Environmental Protection Agency (EPA) released the final rules
regarding air and water quality referred to as the "cluster rules" in early
1998. Compliance with the cluster rules is required within three years of
enactment, or by 2001. However, certain exceptions to the rules extend the time
period for specific compliance requirements up to eight years. The Company,
through previously completed and future projects, is making significant progress
toward upgrading our mills. The Company plans to have all our mills in
compliance with the cluster rules by the required deadlines.
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. In the first quarter of 1998, the Company received from the EPA a
request for information under Section 114 of the Clean Air Act (the Act)
requesting information for a period covering 22 years. The requests were focused
on compliance with regulations under the Prevention of Significant Deterioration
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 is reviewing the allegations contained in
16
<PAGE>
the NOVs and is meeting with the EPA 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 fines and
agreements to install emission control equipment and undertake supplemental
environmental projects.
In November, 1998, the Company received from the EPA a request for information
under Section 114 of the Act requesting information with respect to the
Company's paper operations. The request, which the Company believes is similar
to requests received by others in the paper industry, also focuses on compliance
with regulations under the Prevention of Significant Deterioration Program under
the Act.
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 $100.0 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 financial 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 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 already Y2K compliant. To date, the Company has spent $3.5
million on Y2K compliance and currently estimates that total spending will
approximate $10.0 million. These costs are being expensed as incurred and are
not expected to have a material impact on the Company's financial position.
As of December 31, 1998, a majority of the Company's mission-critical
financial and information systems have been modified and tested for Y2K
compliance and are expected to be compliant by the second quarter of 1999. In
the manufacturing area, the Company has completed the process of inventorying
and assessing its primary manufacturing systems for Y2K compliance. To date, no
significant issues have been identified with the Company's manufacturing systems
and the Company expects to resolve any compliance issues with these systems by
the third quarter of 1999.
17
<PAGE>
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 as to
their efforts associated with Y2K compliance. 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
compliance requirements. The Company is developing 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 compliance 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.
Over the years, inflation has resulted in replacement costs higher than those
originally needed to purchase existing plant 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.
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.
18
<PAGE>
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
No disclosure is required under this item.
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.
19
<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 1999 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.
20
<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.
No reports on Form 8-K were filed during the last quarter of
the period covered by this report.
21
<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 11, 1999 (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 11, 1999, by the following persons on behalf
of the registrant in the capacities indicated.
Signature Title
--------- -----
Principal Executive Officer
/S/ DUANE C. MCDOUGALL President and Chief Executive Officer
(Duane C. McDougall)
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/ WILLIAM SWINDELLS Chairman of the Board
(William Swindells)
/S/ WINSLOW H. BUXTON Director
(Winslow H. Buxton)
/S/ GERARD K. DRUMMOND Director
(Gerard K. Drummond)
/S/ KENNETH W. HERGENHAN Director
(Kenneth W. Hergenhan)
22
<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)
23
<PAGE>
Index to Consolidated Financial Statements
Page No.
--------
Independent Auditors' Report..................................... 25
Consolidated Balance Sheets as of December 31, 1998 and 1997 .... 26
Consolidated Statements of Earnings for years ended
December 31, 1998, 1997 and 1996............................... 27
Consolidated Statements of Stockholders' Equity
for years ended December 31, 1998, 1997 and 1996............... 28
Consolidated Statements of Cash Flows for years ended
December 31, 1998, 1997 and 1996............................... 29
Supplementary Business Segment Information....................... 30
Selected Quarterly Financial Data................................ 31
Notes to Consolidated Financial Statements.......................32-40
24
<PAGE>
KPMG Peat Marwick LLP
Suite 2000
1211 South West Fifth Avenue
Portland, OR 97204
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, 1998 and 1997 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, 1998. 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 as of December 31, 1998 and 1997, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1998, in conformity with generally accepted
accounting principles.
/S/ KPMG PEAT MARWICK LLP
February 11, 1999
25
<PAGE>
<TABLE>
<CAPTION>
=============================================================================================
CONSOLIDATED BALANCE SHEETS
=============================================================================================
December 31, 1998 and 1997
(dollar amounts, except per share amounts, in thousands)
<S> <C> <C>
Assets 1998 1997
--------------- -------------
Current assets:
Cash $ 31,359 27,600
Accounts receivable, less allowance for doubtful
accounts of $4,300 (1997 - $4,571) 306,332 307,002
Inventories (note 3) 411,316 394,595
Prepaid expenses and timber deposits 45,316 36,991
---------------- -------------
Total current assets 794,323 766,188
---------------- -------------
Timber, timberlands and related facilities, net (note 9) 1,112,180 1,396,946
Property, plant and equipment, net (notes 4 and 9) 2,707,146 2,566,291
Other assets 84,019 81,630
--------------- -------------
$ 4,697,668 4,811,055
=============== =============
Liabilities and Stockholders' Equity
Current liabilities:
Current installments on long-term debt (note 5) $ 2,267 8,633
Notes payable (note 5) 47,252 73,264
Accounts payable, includes book overdrafts of $55,030
(1997 - $49,421) 196,134 206,463
Accrued payroll and related expenses 70,670 71,842
Accrued interest 39,533 38,339
Other accrued expenses 55,540 55,723
Accrued income taxes (note 6) 16,081 3,831
--------------- -------------
Total current liabilities 427,477 458,095
--------------- -------------
Deferred income taxes (note 6) 404,518 402,896
Other liabilities 42,159 39,583
Long-term debt, net of current installments (note 5) 1,821,083 1,916,001
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 110,980,768 shares
(1997 - 111,349,956 shares) 55,490 55,675
Capital surplus 285,140 294,760
Retained earnings 1,661,801 1,644,045
--------------- -------------
Total stockholders' equity 2,002,431 1,994,480
--------------- -------------
$ 4,697,668 4,811,055
=============== =============
See accompanying notes to consolidated financial statements.
</TABLE>
26
<PAGE>
<TABLE>
<CAPTION>
=============================================================================================================
CONSOLIDATED STATEMENTS OF EARNINGS
=============================================================================================================
Years ended December 31, 1998, 1997 and 1996
(dollar and share amounts, except per share amounts, in thousands)
1998 1997 1996
------ ------ ------
<S> <C> <C> <C>
Net sales $ 3,700,282 3,501,376 3,425,173
Cost of sales 3,185,028 3,029,892 2,798,282
--------------- ---------------- ----------------
Gross profit 515,254 471,484 626,891
Selling and administrative expense 252,510 245,319 231,862
--------------- ---------------- ----------------
Operating earnings 262,744 226,165 395,029
Other income 2,029 2,088 3,861
--------------- ---------------- ----------------
264,773 228,253 398,890
Interest expense 131,990 116,990 92,804
--------------- ---------------- ----------------
Earnings before provision for income taxes 132,783 111,263 306,086
Provision for income taxes (note 6) 43,800 38,300 114,000
--------------- ---------------- ----------------
Net earnings $ 88,983 72,963 192,086
=============== ================ ================
Earnings per share(1) $ 0.80 0.66 1.74
=============== ================ ================
Earnings per share - assuming dilution(1) $ 0.80 0.65 1.73
=============== ================ ================
Weighted average shares outstanding 111,302 110,975 110,536
=============== ================ ================
Weighted average shares outstanding - diluted(2) 111,747 111,550 111,032
=============== ================ ================
<FN>
(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 and assuming all stock options are
exercised. See note 8.
</FN>
</TABLE>
See accompanying notes to consolidated financial statements.
27
<PAGE>
<TABLE>
<CAPTION>
=============================================================================================================
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
=============================================================================================================
Years ended December 31, 1998, 1997 and 1996 (dollar amounts, except per share
amounts, in thousands)
<S> <C> <C> <C>
1998 1997 1996
------ ------ ------
Common Stock:
Balance at beginning of year $ 55,675 27,677 27,612
2-for-1 stock split - 27,787 -
Shares issued for options exercised 50 211 65
Stock repurchased and canceled (235) - -
--------------- --------------- --------------
Balance at end of year $ 55,490 55,675 27,677
=============== =============== ==============
Capital Surplus:
Balance at beginning of year $ 294,760 306,517 300,757
2-for-1 stock split - (27,787) -
Shares issued for options exercised 3,124 16,030 5,760
Stock repurchased and canceled (12,744) - -
--------------- --------------- --------------
Balance at end of year $ 285,140 294,760 306,517
=============== =============== ==============
Retained Earnings:
Balance at beginning of year $ 1,644,045 1,642,087 1,518,521
Net earnings 88,983 72,963 192,086
Less cash dividends on common stock
($.64,$.64, and $.62 per share in
1998, 1997 and 1996, respectively) (71,227) (71,005) (68,520)
--------------- --------------- --------------
Balance at end of year $ 1,661,801 1,644,045 1,642,087
=============== =============== ==============
</TABLE>
See accompanying notes to consolidated financial statements.
28
<PAGE>
<TABLE>
<CAPTION>
==============================================================================================================
CONSOLIDATED STATEMENTS OF CASH FLOWS
==============================================================================================================
Years ended December 31, 1998, 1997 and 1996
(dollar amounts in thousands)
<S> <C> <C> <C>
1998 1997 1996
------ ------ ------
Cash flows from operating activities:
Net earnings $ 88,983 72,963 192,086
Adjustments to reconcile net earnings
to net cash from operating activities:
Depreciation 296,466 268,030 246,638
Cost of fee timber harvested 54,376 52,649 43,381
Other amortization 20,299 18,270 12,918
Increase in deferred income taxes 7,683 28,650 40,717
Changes in working capital items:
Accounts receivable 4,167 (34,293) 56,549
Inventories (14,623) (28,646) 49,575
Prepaid expenses and timber deposits (7,778) 1,463 14,282
Accounts payable and accrued expenses (26,381) 23,568 11,810
Accrued income taxes 12,250 (13,276) (8,692)
--------------- --------------- --------------
Net cash from operating activities 435,442 389,378 659,264
=============== =============== ==============
Cash flows from investing activities:
Proceeds from sale of assets 237,422 2,493 1,781
Expenditures for property, plant & equipment (417,772) (506,348) (454,744)
Expenditures for timber and timberlands (8,767) (7,782) (16,991)
Expenditures for roads and reforestation (15,300) (13,778) (14,034)
Acquisitions (note 9) - - (1,019,274)
Assets held for sale (note 9) - 160,218 (160,218)
Other (9,582) 9,624 (8,517)
--------------- --------------- --------------
Net cash from investing activities (213,999) (355,573) (1,671,997)
=============== =============== ==============
Cash flows from financing activities:
Net change in operating lines of credit (27,630) 23,985 28,962
Debt borrowing 591 175,415 1,211,950
Proceeds from sale of common stock 3,117 16,109 5,697
Repurchased common stock (12,979) - -
Cash dividends paid (71,227) (71,005) (68,520)
Payment on debt (109,556) (172,931) (161,095)
--------------- --------------- --------------
Net cash from financing activities (217,684) (28,427) 1,016,994
=============== =============== ==============
Net change in cash 3,759 5,378 4,261
Cash at beginning of year 27,600 22,222 17,961
--------------- --------------- --------------
Cash at end of year $ 31,359 27,600 22,222
=============== =============== ==============
Supplemental disclosures of cash flow information
Cash paid during the year for:
Interest (net of amount capitalized) $ 130,796 116,987 74,896
--------------- --------------- --------------
Income taxes $ 24,369 22,926 81,663
=============== =============== ==============
</TABLE>
See accompanying notes to consolidated financials statements.
29
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
===================================================================================================================================
SUPPLEMENTARY BUSINESS SEGMENT INFORMATION
===================================================================================================================================
(dollar amounts in thousands)
1998 % 1997 % 1996 % 1995 % 1994 %
------------------ ------------------ ------------------- ------------------ --------------------
Sales to outside customers:
White Paper:
Forms and cut sheets $ 725,866 20 683,435 19 722,881 21 829,472 22 435,828 14
Market pulp and fine paper 340,710 9 346,214 10 316,383 9 403,741 10 233,777 8
----------------- ------------------ ------------------- ------------------ --------------------
Total White Paper 1,066,576 29 1,029,649 29 1,039,264 30 1,233,213 32 669,605 22
----------------- ------------------ ------------------- ------------------ --------------------
Brown Paper:
Packaging 1,151,366 31 1,007,765 29 1,077,892 31 1,276,901 33 1,015,792 34
Other 228,512 6 201,270 6 226,756 7 299,408 8 200,561 7
----------------- ------------------ ------------------- ------------------ --------------------
Total Brown Paper 1,379,878 37 1,209,035 35 1,304,648 38 1,576,309 41 1,216,353 41
----------------- ------------------ ------------------- ------------------ --------------------
Building Materials:
Lumber 244,274 7 248,401 7 218,153 7 169,753 4 188,445 6
Structural panels 362,195 10 366,690 10 378,959 11 428,707 11 441,397 15
Composite panels 371,447 10 349,652 10 277,375 8 284,724 7 304,259 10
Other wood products 275,912 7 297,949 9 206,774 6 180,869 5 187,890 6
----------------- ------------------ ------------------- ------------------ --------------------
Total Building Materials 1,253,828 34 1,262,692 36 1,081,261 32 1,064,053 27 1,121,991 37
----------------- ------------------ ------------------- ------------------ --------------------
Total net sales (1) $ 3,700,282 100 3,501,376 100 3,425,173 100 3,873,575 100 3,007,949 100
================= ================== =================== ================== ====================
Intersegment sales at market value:
Building Materials $ 60,813 47,100 42,692 61,082 36,121
============== =============== ================ =============== ================
Gross Profit (GP): GP% GP% GP% GP% GP%
---- ---- ---- ---- ----
White Paper $ 116,728 11 130,987 13 203,569 20 438,713 36 61,951 9
Brown Paper 263,413 19 162,121 13 272,376 21 416,341 26 198,879 16
Building Materials 135,113 11 178,376 14 150,946 14 240,786 23 290,682 26
----------------- ------------------ ------------------- ------------------ --------------------
Total gross profit $ 515,254 14 471,484 13 626,891 18 1,095,840 28 551,512 18
================= ================== =================== ================== ====================
Operating earnings:
White Paper $ 58,654 73,349 149,558 390,208 16,244
Brown Paper 166,680 69,017 187,947 338,079 122,196
Building Materials 80,601 124,697 102,513 198,158 249,272
Corporate (43,191) (40,898) (44,989) (32,389) (20,899)
-------------- -------------- ---------------- ------------- --------------
Total operating earnings $ 262,744 226,165 395,029 894,056 366,813
============== ============== ================ ============= ==============
Other income (expense) 2,029 2,088 3,861 798 (6,377)
Interest expense 131,990 116,990 92,804 71,050 71,513
Earnings before provision for
income taxes -------------- --------------- ---------------- ------------- --------------
$ 132,783 111,263 306,086 823,804 288,923
============== =============== =============== ============= ==============
Depreciation, cost of fee timber
harvested and amortization:
White Paper $ 139,240 114,449 106,250 96,801 85,691
Brown Paper 90,484 90,403 88,566 81,242 67,398
Building Materials 135,018 128,754 103,354 67,385 60,740
Corporate 6,309 5,343 4,767 3,737 3,423
-------------- --------------- ---------------- ------------- --------------
$ 371,141 338,949 302,937 249,165 217,252
============== =============== ================ ============= ==============
Capital expenditures:
White Paper $ 215,503 371,894 275,726 151,662 44,652
Brown Paper 120,827 82,935 82,867 140,861 241,275
Building Materials 101,884 72,075 126,932 157,382 102,509
Corporate 3,625 1,004 244 3,618 4,725
------------- ------------- -------------- ------------- --------------
$ 441,839 527,908 485,769 453,523 393,161
============= ============= ============== ============= ==============
Identifiable assets:
White Paper $ 1,860,673 1,785,493 1,486,842 1,369,101 1,240,596
Brown Paper 1,021,180 987,097 968,624 1,027,664 881,834
Building Materials 1,735,257 1,966,136 2,008,542 946,216 847,673
Corporate 80,558 72,329 256,673 70,574 63,295
------------- ------------- -------------- ------------- --------------
$ 4,697,668 4,811,055 4,720,681 3,413,555 3,033,398
============= ============= ============== ============= ==============
<FN>
(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.
</FN>
See accompanying notes to consolidated financial statements.
</TABLE>
30
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
===============================================================================================================================
SELECTED QUARTERLY FINANCIAL DATA
===============================================================================================================================
(Unaudited)(dollar amounts, except per share amounts, in thousands)
Net Gross Net Earnings
---------------------------------------------
1998 Sales Profit Amount Per Share
- -------------------------------------------------------------------------------------------------------------------------------
1st Quarter.......... ... $ 900,075 124,252 22,081 .20
2nd Quarter.............. 946,390 128,947 24,014 .21
3rd Quarter.............. 956,794 151,308 35,735 .32
4th Quarter.............. 897,023 110,747 7,153 .07
- -------------------------------------------------------------------------------------------------------------------------------
Total............... $ 3,700,282 515,254 88,983 .80
===============================================================================================================================
Net Gross Net Earnings
---------------------------------------------
1997 Sales Profit Amount Per Share
- -------------------------------------------------------------------------------------------------------------------------------
1st Quarter.............. $ 855,192 109,296 13,317 .12
2nd Quarter.............. 879,348 118,815 17,750 .16
3rd Quarter.............. 888,795 122,668 20,697 .19
4th Quarter.............. 878,041 120,705 21,199 .19
===============================================================================================================================
Total............... $ 3,501,376 471,484 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
===============================================================================================================================
</TABLE>
31
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998, 1997 and 1996 (dollar amounts, except per share amounts, in
thousands)
Note 1. Nature of Operations
--------------------
Willamette Industries, Inc. is a diversified, integrated forest products
company with 100 manufacturing facilities in 23 states, France, Ireland and
Mexico. The Company's principal lines of business are white paper, brown paper
and building materials. 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, I-joists and other value-added
wood products. Based on 1998 sales, the Company's business is comprised of 29%
white paper, 37% brown paper and 34% 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.
32
<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 1998, 1997 and 1996 was $13,589,
$19,939 and $ 10,534, 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) Business Segments
The Company adopted SFAS No. 131, "Disclosures About Segments of an
Enterprise and Related Information" in 1998. The Company's various product
lines have been aggregated into three segments, white paper, brown paper and
building materials, based on the similar nature of the products, the economic
conditions affecting those products, and management and reporting of those
products within the Company. Information with respect to the segments is
included in the five-year comparison labeled Supplementary Business Segment
Information on page 29.
(h) 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.
(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 1998 presentation.
33
<PAGE>
Note 3. Inventories
-----------
The major components of inventories are as follows:
December 31,
---------------------------
1998 1997
--------- ---------
Finished product....................... $131,383 118,046
Work in progress....................... 6,909 7,404
Raw material........................... 184,734 187,912
Supplies............................... 88,290 81,233
-------- --------
$411,316 394,595
======== ========
Valued at:
LIFO cost............................ $276,549 268,447
Average cost......................... 134,767 126,148
If current cost rather than LIFO cost had been used by the Company,
inventories would have been approximately $49,548 and $62,662 higher in 1998 and
1997, respectively.
Note 4. Property, Plant and Equipment
-----------------------------
Property, plant and equipment accounts are summarized as follows:
Principal
range of December 31,
---------------------
useful lives 1998 1997
------------ ---------- -------
Land........................ - $ 40,446 39,389
Buildings................... 15 - 30 366,125 342,041
Machinery & equipment....... 5 - 25 4,354,789 3,724,617
Furniture & fixtures........ 3 - 10 90,606 85,715
Leasehold improvements...... life of lease 7,209 6,443
Construction in progress.... - 101,522 386,292
--------- ---------
4,960,697 4,584,497
Accumulated depreciation.... 2,253,551 2,018,206
--------- ---------
$2,707,146 2,566,291
========= =========
Note 5. Long-term Debt
--------------
Long-term debt consists of the following:
December 31,
-----------------------
1998 1997
-------- ---------
Notes payable to public:
7.00%, due in 1998....................... $ - 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
6.45%, due 2005.......................... 100,000 -
7.00%, due 2018.......................... 100,000 -
9.00%, due in 2021....................... 150,000 150,000
34
<PAGE>
7.35%, due in 2026 ...................... 200,000 200,000
7.85%, due in 2026....................... 200,000 200,000
Medium-term notes, with interest
rates ranging from 6.45% to 7.30%,
due in varying amounts through 2013...... 205,700 150,000
Bank loans, with interest rates
averaging 5.52% and 6.04%, due
in varying amounts through 2001.......... 445,000 700,000
Revenue bonds, with interest
rates averaging 4.59% and 4.94%,
due in varying amounts
through 2026............................. 113,800 121,640
Other long-term debt, with
interest rates averaging
7.43% and 6.76%, due in
varying amounts through 2006............. 8,850 2,994
---------- ---------
1,823,350 1,924,634
Less: Current installments................. 2,267 8,633
---------- ---------
$1,821,083 1,916,001
========== =========
Principal payment requirements on the above debt for the four years subsequent
to 1999 are: 2000, $151,166; 2001, $146,187; 2002, $111,095; 2003, $64,134.
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 initiated a Medium-term Note Program and had issued $100.2 million
of notes as of December 31, 1998. The medium-term notes carry interest rates
ranging from 6.45% to 6.60% and maturities from 11 to 15 years. The proceeds of
both issuances were used to replace notes maturing in 1998 and other bank
borrowings.
The Company has a revolving loan with a group of banks which provides for
borrowings up to $650.0 million in principal amount and provides backup for a
Master Note Program. At December 31, 1998, the outstanding balance covered under
the revolving loan was $445.0 million.
The Company utilized short-term borrowings with a number of banks at various
times during 1998 and 1997 of which $47,252 was outstanding at December 31,
1998. The weighted average interest rate on short-term borrowings at December
31, 1998 and 1997 was 5.46% and 5.75%, 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 $1,913,000, based on the quoted market prices for the same
35
<PAGE>
or similar issues or on the current rates offered to the Company for debt with
the same remaining maturities.
Note 6. Income Taxes
------------
The provision for income taxes includes the following:
1998 1997 1996
------- ------- --------
Payable from taxable earnings.......... $ 26,018 (4,350) 73,283
Payable due to AMT..................... 10,100 14,000 -
------- ------- -------
Currently payable...................... 36,118 9,650 73,283
Deferred taxes due to temporary
differences for:
Accelerated depreciation........... 26,974 23,395 37,501
Other.............................. (19,292) 5,255 3,216
------- ------- -------
Total deferred .................... 7,682 28,650 40,717
------- ------- -------
Total provision.................. $ 43,800 38,300 114,000
======= ======= =======
Federal income taxes................... $ 36,664 31,600 97,000
Other income taxes..................... 7,136 6,700 17,000
------- ------- -------
$ 43,800 38,300 114,000
======= ======= =======
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:
1998 1997 1996
----- ----- -----
Federal statutory rate....................... 35.0% 35.0% 35.0%
State income taxes, net of
Federal tax effect......................... 2.3 2.3 3.6
Benefit from foreign taxes................... (3.6) (1.3) -
Other........................................ (0.7) (1.6) (1.4)
----- ----- -----
33.0% 34.4% 37.2%
===== ===== =====
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, 1998, the Company had $24,100 in AMT credits.
36
<PAGE>
Note 7. 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 $11,221, $10,903 and $10,430 in 1998, 1997 and 1996,
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 1998, 1997 and 1996 for all such plans was $8,863,
$10,770 and $10,628, 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.
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 following table sets forth reconciliations of the benefit obligation, plan
assets, funded status and disclosure of assumptions utilized in the December 31
calculations:
<TABLE>
<S> <C> <C> <C>
Postretirement
Defined Benefit Plans Benefit Plans
---------------------------------- ----------------------------------
1998 1997 1998 1997
--------------- --------------- --------------- ---------------
Change in Benefit Obligation:
Benefit obligation - Beginning of year $ 342,065 311,273 34,277 31,676
Service cost 15,401 14,533 1,182 1,182
Interest cost 24,585 22,576 2,428 2,290
Other 1,945 3,883 680 967
Actuarial loss 15,448 2,286 3,072 834
Benefits paid (13,336) (12,486) (4,291) (2,672)
--------------- --------------- --------------- ---------------
Benefit obligation - End of year $ 386,108 342,065 37,348 34,277
=============== =============== =============== ===============
Change in Assets:
Fair value of assets - Beginning of year $ 460,911 390,375 - -
Actual return on plan assets 77,610 80,404 - -
Employer contribution 2,740 3,564 3,611 2,051
Other 531 (946) 680 621
Benefits paid (13,336) (12,486) (4,291) (2,672)
--------------- --------------- --------------- ---------------
Fair value of assets - End of year $ 528,456 460,911 - -
=============== =============== =============== ===============
</TABLE>
37
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
Reconciliation of Funded Status:
Funded status $ 142,348 118,846 (37,348) (34,277)
Unrecognized actuarial (gain)/loss (154,298) (129,642) 8,515 5,628
Unrecognized prior service cost 12,209 12,380 282 314
Unrecognized asset (964) (1,568) - -
------------- ------------- ------------- -------------
Prepaid (accrued) benefit cost $ (705) 16 (28,551) (28,335)
============= ============= ============= =============
Assumptions as of December 31:
Discount rate 7.00% 7.25% 7.00% 7.25%
Expected return on plan assets 9.00% 9.00% - -
Rate of increase in compensation levels 5.00% 5.00% - -
Medical trend rate - - 8.50% 9.00%
</TABLE>
For the year 1998, an 8.5% increase in the medical cost trend rate was
assumed. In the future, the rate decreases incrementally to an ultimate annual
rate of 5.0%. A 1.0% increase in the medical trend rate would increase the
postretirement benefit obligation (PBO) by $4,200 and increase the service and
interest cost by $490. A 1.0% decrease in the medical trend rate would decrease
the PBO by $3,800 and decrease the service and interest cost by $430. Various
pension plans have benefit obligations in excess of plan assets. The following
table sets forth the unfunded status of those plans:
Defined Benefit Plans
1998 1997
---------------- ----------------
Benefit obligation $ 9,491 1,149
================ ================
PLan assets (fair value) $ 8,676 996
================ ================
The components of net periodic benefit cost are as follows:
<TABLE>
<S> <C> <C> <C> <C>
Postretirement
Defined Benefit Plans Benefit Plans
--------------------------------- -----------------------------
1998 1997 1998 1997
-------------- ------------- -------------- ---------
Service cost $ 15,401 14,533 1,182 1,182
Interest cost 24,585 22,576 2,428 2,290
Expected return on plan assets (35,138) (31,107) - -
Amortization of prior service cost 1,841 1,765 31 31
Amortization of net transition obligation (604) (604) - -
Recognized actuarial (gain)/loss (2,625) (1,507) 185 205
----------- ----------- ----------- ---------
Net periodic benefit cost $ 3,460 5,656 3,826 3,708
=========== =========== =========== =========
</TABLE>
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,
38
<PAGE>
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. The Company has elected to account for
stock based compensation under Accounting Principles Board Opinion #25. A
summary of stock option activity is as follows:
Option Price
Shares Per Share
---------- -------------
Outstanding December 31, 1995....... 2,563,608 $11.625-25.75
Granted .......................... 546,060 30.875
Exercised......................... 251,494 11.625-25.75
Canceled 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
Canceled or surrendered.......... 126,972 22.685-30.875
---------- --------------
Outstanding December 31, 1997....... 2,848,570 11.625-30.875
Granted .......................... 626,370 38.6875
Exercised......................... 102,286 13.125-30.875
Canceled or surrendered.......... 28,567 25.75-38.675
---------- -------------
Outstanding December 31, 1998...... 3,344,087 11.625-38.6875
========== ==============
Shares exercisable.................. 2,278,096 $11.625-38.6875
========== ==============
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, 1998, 7,792 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 a 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.
In September, 1998, the Board of Directors authorized the repurchase of up to
$25.0 million of the Company's common stock. The Company repurchased 470,900
shares of common stock for $13.0 million in the third and fourth quarters of
1998.
39
<PAGE>
Note 9. Acquisitions/Dispositions
-------------------------
In December 1998, the Company finalized the sale of 117,000 acres of
timberland in southwestern Washington for $234.0 million. The timberland was
acquired in 1996 as part of the Cavenham acquisition noted below. The timberland
was sold as it was not critical to the long-term supply needs of the Company's
Northwest operations. Proceeds of the sale were used to pay down existing debt.
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
=========== ============
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 December 1, 1998. [23]
4A. Indenture dated as of March 15, 1983, between the 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.
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 10-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]
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
41
<PAGE>
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 December 1, 1998 between the registrant and
William Swindells.* [4]
10H. Rights Agreement dated as of February 26, 1990, amended December 3,
1996 ("Rights Agreement"). 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. Ammendment No.2 to Rights Agreement dated as of November 13, 1997.
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]
21. Omitted because the registrant's subsidiaries considered in the
aggregate as a single subsidiary do not constitute a significant
subsidiary.
23. Consent of Independent Auditors to the incorporation by reference of
their report dated February 11, 1999, in the registrant's registration
statements on Form S-3 and Form S-8. [1]
27. Financial Data Schedule. [1]
99. Description of capital stock. [4]
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.
42
BYLAWS
OF
WILLAMETTE INDUSTRIES, INC.
AS AMENDED THROUGH
DECEMBER 1, 1998
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I ............................................................4
Section 1. Principal Office..................................4
Section 2. Registered Office.................................4
ARTICLE II ............................................................4
Section 1. Annual Meeting....................................4
Section 2. Special Meetings..................................4
Section 3. Place of Meeting..................................5
Section 4. Notice of Meeting.................................5
Section 5. Quorum; Manner of Acting..........................5
Section 6. Proxies...........................................6
Section 7. Voting of Shares..................................6
Section 8. Acceptance of Votes...............................6
ARTICLE III ............................................................8
Section 1. General Powers....................................8
Section 2. Number, Tenure and Classification.................8
Section 3. Regular Meetings..................................8
Section 4. Special Meetings..................................8
Section 5. Notice; Waiver....................................8
Section 6. Quorum............................................9
Section 7. Manner of Acting..................................9
Section 8. Vacancies........................................10
Section 9. Presumption of Assent............................10
Section 10. Removal of Directors.............................10
Section 11. Compensation.....................................10
Section 12. Retirement.......................................11
Section 13. Emeritus Director................................11
Section 14. Action Without a Meeting.........................11
Section 15. Telephonic Meetings..............................11
Section 16. Notification of Nominations......................12
ARTICLE IV ...........................................................13
Section 1. Appointment......................................13
Section 2. Authority........................................13
Section 3. Tenure and Qualifications........................14
Section 4. Meetings; Notice; Waiver.........................14
Section 5. Quorum; Manner of Acting.........................14
Section 6. Action Without a Meeting.........................14
Section 7. Vacancies........................................15
Section 8. Resignations and Removal.........................15
Section 9. Procedure........................................15
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<PAGE>
Section 10. Appointment of Other Committees of the...........15
Board of Directors
Section 11. Appointment of Other Committees..................16
ARTICLE V ...........................................................16
Section 1. Number ..........................................16
Section 2. Appointment and Term of Office...................17
Section 3. Removal..........................................17
Section 4. Vacancies........................................17
Section 5. Chairman of the Board............................17
Section 6. President........................................18
Section 7. Executive Vice-Presidents........................18
Section 8. Vice-Presidents..................................18
Section 9. Chief Financial Officer..........................19
Section 10. Secretary........................................19
Section 11. Treasurer........................................20
Section 12. Salaries.........................................20
ARTICLE VI ...........................................................20
Section 1. Contracts........................................20
Section 2. Loans ...........................................20
Section 3. Checks, Drafts, etc..............................21
Section 4. Deposits.........................................21
ARTICLE VII ...........................................................21
Section 1. Certificates for Shares..........................21
Section 2. Transfer of Shares...............................22
Section 3. Replacement of Certificates......................22
Section 4. Transfer Agents and Registrars...................22
ARTICLE VIII ..........................................................23
ARTICLE IX ..........................................................23
ARTICLE X ..........................................................23
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<PAGE>
BYLAWS
OF
WILLAMETTE INDUSTRIES, INC.
AS AMENDED THROUGH
DECEMBER 1, 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 and chief executive officer, 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
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<PAGE>
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.
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
and chief executive officer, 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
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<PAGE>
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 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,
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<PAGE>
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.
(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.
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<PAGE>
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.
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
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<PAGE>
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.
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.
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<PAGE>
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.
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
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<PAGE>
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 meeting, and such participation shall constitute presence in person at the
meeting.
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<PAGE>
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
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<PAGE>
elected. The chairman of the meeting may refuse to acknowledge the 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
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<PAGE>
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.
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
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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.
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.
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<PAGE>
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 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 and chief executive officer, 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
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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
chief executive officer 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 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 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
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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 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. 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 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 president and chief executive officer,
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
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time to time may be assigned or delegated to them by the president and chief
executive officer, 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 president and chief executive officer, 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 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 and chief executive officer, 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
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president and chief executive officer, 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 president and chief executive
officer, 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.
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
- 20 -
<PAGE>
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 president and chief
executive officer 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 and chief executive officer, 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 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
- 21 -
<PAGE>
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 more than
one transfer agent and more than one registrar, the board of directors or
executive committee may
- 22 -
<PAGE>
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.
CONSULTING AGREEMENT
THIS AGREEMENT is entered into as of the 1st day of December,
1998, by and between Willamette Industries, Inc., an Oregon corporation
("Corporation"), and William Swindells ("Swindells").
WHEREAS, Swindells has served as an executive officer of
Corporation for many years, is now its Chairman of the Board and Chief Executive
Officer and has knowledge and experience of significant value to Corporation;
and
WHEREAS, in order to provide for an orderly management
succession it is presently contemplated that Swindells will retire as Chairman
and Chief Executive Officer of Corporation, effective December 1, 1998; 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 December 1,
1998, and ending on November 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 November 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 resources to allow Swindells to perform effectively the services
contemplated by this Agreement.
-1-
<PAGE>
(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
(c) Club Expenses. Dues, fees and expenses for the
following clubs: Arlington Club.
(d) Parking in the building in which Swindells'
office is located.
-2-
<PAGE>
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.
-----------------------------------------
William Swindells
WILLAMETTE INDUSTRIES, INC.
By -------------------------------------
Duane C. McDougall, President
-4-
AMENDMENT NO. 2 TO RIGHTS AGREEMENT
This Amendment No. 2 dated as of November 13, 1997 (the "Amendment"),
to the Rights Agreement, dated as of February 26, 1990, as amended by Amendment
No. 1 dated as of December 3, 1996 (the "Rights Agreement"), between Willamette
Industries, Inc., an Oregon corporation (the "Company"), and ChaseMellon
Shareholder Services, L.L.C. (the "Rights Agent");
WHEREAS, the Company and the Rights Agent have entered into the Rights
Agreement; and
WHEREAS, on November 13, 1997, the Board of Directors of the Company,
in accordance with Section 27 of the Rights Agreement, determined it desirable
and in the best interests of the Company and its shareholders to supplement and
amend certain provisions of the Rights Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual
agreements herein set forth, the parties hereby agree as follows:
Section 1. Amendment to Section 7(c). Section 7(c) of the Rights
Agreement is amended to read in its entirety as follows:
"(c) The Purchase Price for each one one-hundredth of a Preferred Share
pursuant to the exercise of a Right shall initially be $280, and shall be
payable in lawful money of the United States of America in accordance with
Section 7(d) hereof. The Purchase Price and the number of Preferred Shares to be
acquired upon exercise of a Right shall be subject to adjustment from time to
time as provided in Sections 11 and 13."
Section 2. Amendment to Form of Right Certificate. The Form of Right
Certificate attached as Exhibit B to the Rights Agreement is amended to read in
its entirety as set forth in Exhibit B attached hereto.
Section 3. Amendment to Summary of Rights to Purchase Preferred Stock.
The Summary of Rights to Purchase Preferred Stock attached as Exhibit C to the
Rights Agreement is amended to read in its entirety as set forth in Exhibit C
attached hereto.
Section 4. Effectiveness of Amendment. This Amendment shall be
effective as of the date set forth above and, except as set forth herein, the
Rights Agreement shall remain in full force and effect and be otherwise
unaffected hereby.
- 1 -
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Amendment to be duly
executed as of the date first written above.
WILLAMETTE INDUSTRIES, INC. CHASEMELLON SHAREHOLDER
SERVICES, L.L.C.
By /s/ J. A. Parsons /s/ Dennis Treibel
J. A. Parsons Dennis Treibel
Executive Vice President and Assistant Vice President
Chief Financial Officer,
Secretary and Treasurer
- 2 -
<PAGE>
Exhibit B
---------
[Form of Right Certificate]
Certificate No. R Rights
------
NOT EXERCISABLE AFTER FEBRUARY 26, 2000, OR EARLIER IF REDEEMED. THE
RIGHTS ARE SUBJECT TO REDEMPTION AT $.01 PER RIGHT ON THE TERMS SET
FORTH IN THE RIGHTS AGREEMENT. UNDER CERTAIN CIRCUMSTANCES (SPECIFIED
IN THE RIGHTS AGREEMENT), RIGHTS BENEFICIALLY OWNED BY AN ACQUIRING
PERSON (AS DEFINED IN THE RIGHTS AGREEMENT) OR ANY SUBSEQUENT HOLDER OF
SUCH RIGHTS MAY BECOME NULL AND VOID. [THE RIGHTS REPRESENTED BY THIS
RIGHT CERTIFICATE ARE OR WERE BENEFICIALLY OWNED BY A PERSON WHO WAS OR
BECAME AN ACQUIRING PERSON OR AN AFFILIATE OR ASSOCIATE OF AN ACQUIRING
PERSON (AS SUCH TERMS ARE DEFINED IN THE RIGHTS AGREEMENT).
ACCORDINGLY, THIS RIGHT CERTIFICATE AND THE RIGHTS REPRESENTED HEREBY
MAY BECOME VOID IN THE CIRCUMSTANCES SPECIFIED IN THE RIGHTS
AGREEMENT.] 1
Right Certificate
WILLAMETTE INDUSTRIES, INC.
This certifies that , or registered assigns, is the
--------------------
registered owner of the number of Rights set forth above, each of which entitles
the registered owner thereof, subject to the terms, provisions and conditions of
the Rights Agreement dated as of February 26, 1990, as amended by Amendment No.
1 dated as of December 3, 1996, and as further amended by Amendment No. 2 dated
as of November 13, 1997 (the "Rights Agreement"), between Willamette Industries,
Inc., an Oregon corporation (the "Company"), and ChaseMellon Shareholder
Services, L.L.C. (the "Rights Agent," which term shall include every successor
Rights Agent under the Rights Agreement), to purchase from the Company at any
time after the Distribution Date (as such term is defined in the Rights
Agreement) and prior to 5 p.m. (Portland, Oregon time) on February 26, 2000, at
the office or agency of the Rights Agent or its successor designated for such
purpose, one one-hundredth of a fully paid nonassessable share of Series A
Junior Participating Preferred Stock, $.50 par value (the "Preferred Shares"),
of the Company, at a purchase price initially of $280 per one one-hundredth of a
Preferred Share (the "Purchase Price"), upon presentation and surrender of this
Right Certificate with the Form of Election to Purchase and related certificate
duly executed. As provided in the Rights Agreement, the Purchase Price and the
number of Preferred Shares which may be purchased upon the exercise of the
Rights evidenced by this Right Certificate are subject to modification and
adjustment upon the happening of certain events.
- ----------
1 That portion of the legend in brackets shall be inserted only if applicable
and shall replace the preceding sentence.
- 1 -
<PAGE>
This Right Certificate is subject to all of the terms, provisions and
conditions of the Rights Agreement, which terms, provisions and conditions are
hereby incorporated herein by reference and made a part hereof and to which
Rights Agreement reference is hereby made for a full description of the rights,
limitations of rights, obligations, duties and immunities hereunder of the
Rights Agent, the Company and the holders of the Right Certificates. Copies of
the Rights Agreement are on file at the principal executive offices of the
Company and are available from the Rights Agent or the Company upon written
request.
Upon the occurrence of certain events specified in Section 7(f) of the
Rights Agreement, if the Rights evidenced by this Right Certificate are or were
beneficially owned by an Acquiring Person or an Affiliate or Associate of an
Acquiring Person (as such terms are defined in the Rights Agreement) or, under
certain circumstances, a transferee of any such Acquiring Person, Affiliate or
Associate, such Rights shall become null and void and any holder thereof
(whether or not such holder is an Acquiring Person or an Affiliate or Associate
of an Acquiring Person) shall thereafter have no right to exercise such Rights.
In certain circumstances described in the Rights Agreement, the Rights
evidenced hereby may entitle the holder hereof to purchase capital stock of an
entity other than the Company or receive cash or other assets, all as prescribed
in the Rights Agreement.
This Right Certificate, with or without other Right Certificates, upon
surrender at the office or agency of the Rights Agent designated for such
purpose, may be exchanged for another Right Certificate or Right Certificates of
like tenor and date evidencing Rights equal to the aggregate number of Rights
evidenced by the Right Certificate or Right Certificates surrendered. If this
Right Certificate shall be exercised in part, the holder shall be entitled to
receive upon surrender hereof another Right Certificate or Right Certificates
for the number of whole Rights not exercised.
Subject to the provisions of the Rights Agreement, the Rights evidenced
by this Right Certificate may, but are not required to, be redeemed by the
Company at a redemption price of $.01 per Right or exchanged by the Company at
the rate of one Common Share per Right.
- 2 -
<PAGE>
Fractional Preferred Shares will be issued upon the exercise of any
Right or Rights evidenced hereby only in fractions which are integral multiples
of one one-hundredth of a Preferred Share (which may, at the election of the
Company, be evidenced by depositary receipts). In lieu of the issuance of
fractional shares other than in integral multiples of one one-hundredth of a
Preferred Share, a cash payment will be made as provided in the Rights
Agreement.
No holder of this Right Certificate shall be entitled to vote or
receive dividends or be deemed for any purpose the holder of the Preferred
Shares or of any other securities of the Company which may at any time be
issuable on the exercise hereof, nor shall anything contained in the Rights
Agreement or herein be construed to confer upon the holder hereof, as such, any
of the rights of a shareholder of the Company or any right to vote for the
election of directors or upon any matter submitted to shareholders at any
meeting thereof, to give or withhold consent to any corporate action, to receive
notice of meetings or other actions affecting shareholders (except as provided
in the Rights Agreement), or to receive dividends or other subscription rights,
or otherwise, until the Right or Rights evidenced by this Right Certificate
shall have been exercised as provided in the Rights Agreement.
This Right Certificate shall not be valid or obligatory for any purpose
until it shall have been countersigned by the Rights Agent.
WITNESS the facsimile signature of the proper officers of the Company
and its corporate seal. Dated as of .
----------------------
ATTEST: WILLAMETTE INDUSTRIES, INC.
- ------------------------------ -----------------------------------
Secretary President
Countersigned:
CHASEMELLON SHAREHOLDER SERVICES, L.L.C.
By___________________________
Authorized Signature
- 3 -
<PAGE>
[Form of Reverse Side of Right Certificate]
FORM OF ASSIGNMENT
------------------
(To be executed by the registered holder if such
holder desires to transfer the Right Certificate.)
FOR VALUE RECEIVED hereby sells, assigns
--------------------------
and transfers unto
----------------------------------------------------------
(Please print name and address of transferee)
- --------------------------------------------------------------------------------
this Right Certificate, together with all right, title and interest therein, and
does hereby irrevocably constitute and appoint Attorney,
---------------------
to transfer the within Right Certificate on the books of the within-named
Company, with full power of substitution.
Dated:
--------------------, ----
--------------------------------
Signature
Signature Guaranteed:
Certificate
-----------
The undersigned hereby certifies by checking the appropriate boxes
that:
(1) this Right Certificate [ ] is [ ] is not being sold, assigned and
transferred by or on behalf of a Person who is or was an Acquiring Person or an
Affiliate or Associate of any such Acquiring Person (as such terms are defined
in the Rights Agreement); and
(2) after due inquiry and to the best knowledge of the undersigned, the
undersigned [ ] did [ ] did not acquire the Rights evidenced by this Right
Certificate from any Person who is, was or subsequently became an Acquiring
Person or an Affiliate or Associate of an Acquiring Person.
Dated:
--------------------, ---- --------------------------------
Signature
- 4 -
<PAGE>
[Form of Reverse Side of Right Certificate-continued]
NOTICE
------
The signatures in the foregoing Assignment and Certificate must
correspond to the name as written upon the face of this Right Certificate in
every particular, without alteration or enlargement or any change whatsoever.
The signatures in the foregoing Assignment must be guaranteed by a
member firm of a registered national securities exchange, a member of the
National Association of Securities Dealers, Inc., or a commercial bank or trust
company having an office or correspondent in the United States.
In the event the certification set forth above is not completed, the
Company may deem the beneficial owner of the Rights evidenced by this Right
Certificate to be an Acquiring Person or an Affiliate or Associate thereof (as
such terms are defined in the Rights Agreement) and, in the case of an
assignment, may affix a legend to that effect on any Right Certificates issued
in exchange for this Right Certificate.
- 5 -
<PAGE>
[Form of Reverse Side of Right Certificate-continued]
FORM OF ELECTION TO PURCHASE
----------------------------
(To be executed if holder desires to exercise the Right Certificate.)
To WILLAMETTE INDUSTRIES, INC.
The undersigned hereby irrevocably elects to exercise Rights
----------
represented by this Right Certificate to purchase the Preferred Shares issuable
upon the exercise of such Rights and requests that certificates for such
Preferred Shares be issued in the name of:
- --------------------------------------------------------------------------------
(Please print name and address)
- --------------------------------------------------------------------------------
Please insert social security or other identifying number:
----------------------
If such number of Rights shall not be all the Rights evidenced by this Right
Certificate, a new Right Certificate for the balance remaining of such Rights
shall be registered in the name of and delivered to:
- --------------------------------------------------------------------------------
(Please print name and address)
- --------------------------------------------------------------------------------
Dated:
--------------------, ----
--------------------------------
Signature
Signature Guaranteed:
Certificate
-----------
The undersigned hereby certifies by checking the appropriate boxes
that:
(1) the Rights evidenced by this Right Certificate [ ] are [ ] are not
beneficially owned by an Acquiring Person or an Affiliate or an Associate
thereof (as such terms are defined in the Rights Agreement); and
- 6 -
<PAGE>
[Form of Reverse Side of Right Certificate-continued]
(2) after due inquiry and to the best knowledge of the undersigned, the
undersigned [ ] did [ ] did not acquire the Rights evidenced by this Right
Certificate from any person who is, was or subsequently became an Acquiring
Person or an Affiliate or Associate of an Acquiring Person.
Dated:
--------------------, ---- --------------------------------
Signature
NOTICE
------
The signatures in the foregoing Form of Election to Purchase and
Certificate must correspond to the name as written upon the face of this Right
Certificate in every particular, without alteration or enlargement or any change
whatsoever.
The signatures in the foregoing Form of Election to Purchase must be
guaranteed by a member firm of a registered national securities exchange, a
member of the National Association of Securities Dealers, Inc., or a commercial
bank or trust company having an office or correspondent in the United States.
In the event the certification set forth above is not completed, the
Company may deem the beneficial owner of the Rights evidenced by this Right
Certificate to be an Acquiring Person or an Affiliate or Associate thereof (as
such terms are defined in the Rights Agreement) and, in the case of an
assignment, may affix a legend to that effect on any Right Certificates issued
in exchange for this Right Certificate.
- 7 -
<PAGE>
Exhibit C
---------
WILLAMETTE INDUSTRIES, INC.
SUMMARY OF RIGHTS TO PURCHASE PREFERRED STOCK
On February 7, 1990, the Board of Directors of Willamette Industries,
Inc. (the "Company"), declared a dividend distribution of one Right for each
outstanding share of common stock, $.50 par value (the "Common Stock"), of the
Company to the shareholders of record at the close of business on February 26,
1990 (the "Record Date"). Each Right entitles the registered holder to purchase
from the Company one one-hundredth of a share of Junior Participating Preferred
Stock, $.50 par value (the "Preferred Shares"), at a price of $280 per share
(the "Purchase Price"), subject to adjustment. The description and terms of the
Rights are set forth in a Rights Agreement dated February 26, 1990, as amended
by Amendment No. 1 dated as of December 3, 1996, and as further amended by
Amendment No. 2 dated as of November 13, 1997 (the "Rights Agreement"), between
the Company and ChaseMellon Shareholder Services, L.L.C., as Rights Agent (the
"Rights Agent").
Initially, the Rights will be attached to all Common Stock certificates
representing shares then outstanding, and no separate certificates evidencing
Rights (the "Right Certificates") will be distributed. Until the earlier to
occur of (i) 10 days following a public announcement that a person or group of
affiliated or associated persons (other than the Company, its employee benefit
plans, or a person who acquires his shares in a Sanctioned Tender Offer as
defined below) (an "Acquiring Person"), acquired, or obtained the right to
acquire, beneficial ownership of 20% or more of the outstanding shares of Common
Stock and (ii) 10 business days (or such later date as may be determined by
action of the Board of Directors) following the commencement of (or the
announcement of an intention to make) a tender offer or exchange offer (other
than a Sanctioned Tender Offer) the consummation of which would result in the
beneficial ownership by a person or group of 30% or more of the outstanding
shares of Common Stock, the Rights will be evidenced, with respect to any of the
Common Stock certificates outstanding as of the Record Date, by such Common
Stock certificate. The earlier of the dates described in clauses (i) and (ii)
above is referred to as the "Distribution Date." A "Sanctioned Tender Offer" is
a tender or exchange offer for all outstanding shares of Common Stock at a price
and on terms which a majority of the Board of Directors determines to be fair
and in the best interests of the Company and its shareholders, other than the
person making such offer and his affiliates and associates.
The Rights Agreement provides that, until the Distribution Date, the
Rights will be transferred with and only with the Common Stock. As long as the
Rights are attached to the Common Stock, the Company will issue one Right with
each share of Common Stock that becomes outstanding so that all outstanding
shares will have attached Rights. Until the Distribution Date (or earlier
redemption or expiration of the Rights), (i) Common Stock certificates issued
after the Record Date upon transfer or new issuance of Common Stock will contain
a notation incorporating the Rights Agreement by reference and (ii) the
surrender for transfer of any certificates evidencing Common Stock will also
constitute the transfer of the Rights associated with the Common Stock
represented by such certificate. As soon as practicable following the
Distribution Date, Right Certificates will be mailed to holders of record
- 1 -
<PAGE>
of the Common Stock as of the close of business on the Distribution Date and
such separate Right Certificates alone will evidence the Rights.
The Rights are not exercisable until the Distribution Date. The Rights
will expire at the earliest of (i) February 25, 2000, (ii) upon consummation of
certain approved merger or exchange transactions as described below, and (iii)
upon redemption by the Company as described below.
In the event that any person becomes an Acquiring Person, proper
provision shall be made so that each holder of a Right (except as provided
below) will thereafter have the right to receive upon exercise that number of
shares of Common Stock of the Company having a market value of two times the
exercise price of the Right.
In the event that, at any time following the Distribution Date, the
Company is acquired in a merger or other business combination transaction, or
more than 50% of its assets or earning power is sold, proper provision shall be
made so that each holder of a Right (except as provided below) will thereafter
have the right to receive, upon the exercise at the then current exercise price
of the Right, that number of shares of common stock of the acquiring or
surviving company having a market value of two times the exercise price of the
Right. The Rights will expire in connection with a merger or other business
combination transaction following a Sanctioned Tender Offer if shareholders are
offered the same price and form of consideration in the merger or other business
combination transaction as that paid in the Sanctioned Tender Offer.
Following the occurrence of any of the events described in the
preceding two paragraphs, any Rights that are or (under certain circumstances
specified in the Rights Agreement) were, beneficially owned by any Acquiring
Person shall immediately become null and void.
The Purchase Price payable, and the number of Preferred Shares or other
securities or property issuable, upon exercise of the Rights are subject to
adjustment from time to time to prevent dilution.
No fractional Preferred Shares other than fractions in multiples of one
one-hundredth of a share will be issued and, in lieu thereof, an adjustment in
cash will be made based on the market price of the Preferred Shares on the last
trading date prior to the date of exercise.
At any time prior to the tenth day following the first public
announcement of the existence of an Acquiring Person, the Company may redeem the
Rights in whole, but not in part, at a price of $.01 per Right (the "Redemption
Price"). Subject to certain conditions, the Company's right of redemption may be
reinstated after the expiration of the ten-day redemption period if each
Acquiring Person reduces its beneficial ownership to 10% or less of the
outstanding shares of Common Stock in a transaction or series of transactions
not involving the Company. Immediately upon the action of the Board of Directors
ordering the redemption of the Rights (or at such time and date thereafter as
the Board of Directors may specify), the right to exercise the Rights will
terminate and the only right of the holders of Rights will be to receive the
Redemption Price.
- 2 -
<PAGE>
At any time after a person becomes an Acquiring Person and prior to the
Acquisition by such Acquiring Person of 50% or more of the outstanding shares of
Common Stock, the Company may exchange the Rights (other than Rights
beneficially owned by such Acquiring Person which became null and void), in
whole or in part, for Common Stock at the rate of four shares per Right, subject
to adjustment.
Until a Right is exercised, the holder thereof, as such, will have no
rights as a shareholder of the Company, including, without limitation, the right
to vote or to receive dividends.
The provisions of the Rights Agreement may be amended in any manner
prior to the Distribution Date. After the Distribution Date, the provisions of
the Rights Agreement may be amended in order to cure any ambiguity, defect or
inconsistency, to make changes which do not adversely affect the interests of
holders of Rights (excluding the interest of any Acquiring Person), or to
shorten or lengthen any time period under the Rights Agreement; provided,
however, that no amendment to adjust the time period governing redemption shall
be made at such time as the Rights are not redeemable.
- 3 -
Exhibit 12
WILLAMETTE INDUSTRIES, INC. AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(DOLLAR AMOUNTS IN THOUSANDS)
Year Ended December 31,
--------------------------------------------------
1994 1995 1996 1997 1998
--------------------------------------------------
Fixed Charges:
Interest Cost $ 80,807 $ 77,237 $103,338 $136,929 $145,579
One-third rent 5,227 5,976 6,906 7,535 8,075
-------- ------- ------- ------- -------
Total Fixed Charges 86,034 83,213 110,244 144,464 153,654
======== ======= ======= ======= =======
Add (Deduct):
Earnings before
Income Taxes 288,923 823,804 306,086 111,263 132,783
Interest Capitalized (9,294) (6,187) (10,534) (19,939) (13,589)
--------- ------- ------- ------- -------
Earnings for
Fixed Charges $365,663 $900,830 $405,796 $235,788 $272,848
======== ======== ======== ======== ========
Ratio of Earnings to
Fixed Charges 4.25 10.83 3.68 1.63 1.78
===== ===== ===== ===== =====
EXHIBIT 23
KPMG Peat Marwick LLP
Suite 2000
1211 South West Fifth Avenue
Portland, OR 97204
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. 33-40504, 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 11, 1999, relating to the consolidated balance sheets of Willamette
Industries, Inc. and subsidiaries as of December 31, 1998 and 1997, 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, 1998, which
report appears in the December 31, 1998 annual report on Form 10-K of Willamette
Industries, Inc.
/S/ KPMG PEAT MARWICK LLP
Portland, Oregon
March 9, 1999
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
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, 1998 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 31,359
<SECURITIES> 0
<RECEIVABLES> 310,632
<ALLOWANCES> 4,300
<INVENTORY> 411,316
<CURRENT-ASSETS> 794,323
<PP&E> 6,072,877
<DEPRECIATION> 2,253,551
<TOTAL-ASSETS> 4,697,668
<CURRENT-LIABILITIES> 427,477
<BONDS> 1,821,083
0
0
<COMMON> 55,490
<OTHER-SE> 1,946,941
<TOTAL-LIABILITY-AND-EQUITY> 4,697,668
<SALES> 3,700,282
<TOTAL-REVENUES> 3,700,282
<CGS> 3,185,028
<TOTAL-COSTS> 3,185,028
<OTHER-EXPENSES> 250,481
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 131,990
<INCOME-PRETAX> 132,783
<INCOME-TAX> 43,800
<INCOME-CONTINUING> 88,983
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 88,983
<EPS-PRIMARY> 0.80
<EPS-DILUTED> 0.80
</TABLE>
EXHIBIT 99
----------
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of Willamette Industries, Inc. (the
"Company"), consists of 5,000,000 shares of cumulative preferred stock, $.50 par
value ("Preferred Stock"), issuable in series, and 150,000,000 shares of common
stock, $.50 par value ("Common Stock").
The board of directors of the Company is authorized to divide the
Preferred Stock into series and to determine the preferences, limitations and
relative rights of each series, including, without limitation, the designation
and seniority and number of shares, the rate and time of payment of dividends,
if any, thereon (or method of computing the same), the amount of any liquidation
preference, any rights of conversion or exchange, voting rights, if any, and any
optional or mandatory redemption provisions.
The board of directors has established a series of Preferred Stock
designated as Series A Junior Participating Preferred Stock ("Series A Preferred
Stock"), comprising 500,000 shares of Preferred Stock. Subject to superior
rights of any other outstanding Preferred Stock, each share of Series A
Preferred Stock is entitled to receive, in preference to the Common Stock,
quarterly cumulative dividends equal to 400 times the quarterly dividend paid
with respect to each share of Common Stock, but not less than $1.00. Each share
of Series A Preferred Stock is entitled to 400 votes on all matters submitted to
a vote of the shareholders. In the event of liquidation of the Company, each
share of Series A Preferred Stock is entitled to receive, in preference to the
Common Stock, a liquidation payment equal to the greater of (i) $1.00 plus all
accrued and unpaid dividends and distributions and (ii) an amount equal to 400
times the aggregate amount to be distributed per share of Common Stock. In the
event of any merger or other transaction in which Common Stock is to be
exchanged, each share of Series A Preferred Stock shall be entitled to receive
400 times the amount received per share of Common Stock. Series A Preferred
Stock is not redeemable. The rights of holders of the Series A Preferred Stock
are subject to adjustment under certain circumstances to prevent dilution
including, without limitation, upon a stock split.
Shares of Common Stock and Series A Preferred Stock vote together as a
single class on all corporate matters (except for certain matters affecting the
Series A Preferred Stock or as otherwise required by law). Shares of Common
Stock are entitled to one vote per share. Voting for directors is not
cumulative. The board of directors is divided into three classes serving
staggered three-year terms.
Holders of Common Stock are entitled to dividends when, as, and if
declared by the board of directors out of funds legally available therefor
(subject to the rights of holders of any Preferred Stock). Common Stock is not
convertible into any other class of security, is not entitled to the benefit of
any sinking fund provision, and does not have any preemptive rights. All
outstanding shares of Common Stock are fully paid and nonassessable. Upon
liquidation of the Company, after payment or provision for all liabilities and
payment of any preferential amount in respect of Preferred Stock, holders of
Common Stock are entitled to receive liquidating distributions of any remaining
assets on a pro rata basis.
- 1 -
<PAGE>
Article VI of the Company's articles of incorporation provides that
certain business combinations involving the Company and any shareholder which,
together with its affiliates, is the beneficial owner of 20 percent or more of
the Company's outstanding shares of capital stock, require the affirmative vote
of the holders of at least 80 percent of the outstanding shares of capital
stock. The 80 percent voting requirement does not apply (i) in the case of a
business combination which provides for conversion of Common Stock into cash,
securities or property having a fair market value not less than the highest
per-share price paid by such shareholder and its affiliates within one year
prior to the date of the vote, (ii) if the vote is required by the statutory
Business Combination Provisions discussed below or (iii) under certain
circumstances, if the transaction is approved by the board of directors. The
articles of incorporation also provide that directors of the Company may be
removed 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.
The Company has distributed to holders of Common Stock, rights to
purchase shares of Series A Preferred Stock ("Rights") which are held on the
basis of .25 Right for each share of Common Stock held. The Rights are not
exercisable and are attached to and trade with shares of Common Stock until the
earlier of (i) 10 days following a public announcement that a person or group
has acquired beneficial ownership (as defined) of 20 percent or more of the
outstanding Common Stock (other than the Company, any subsidiary of the Company,
any employee benefit plan of the Company or any subsidiary of the Company, any
entity holding shares of Common Stock for or pursuant to the terms of any such
plan, or a person who acquires shares in a tender offer sanctioned by the board
of directors) and (ii) 10 business days following the commencement or
announcement of certain offers to acquire beneficial ownership of 30 percent or
more of the outstanding Common Stock. Upon such an event, the Rights will trade
separately and will become exercisable. Until a Right is exercised, the holder
thereof will have no rights as a shareholder of the Company including, without
limitation, the right to vote or to receive dividends.
When the Rights first become exercisable, one Right will entitle the
holder to buy from the Company one one-hundredth of a share of Series A
Preferred Stock at a price of $280. Upon acquisition of beneficial ownership of
20 percent or more of the outstanding Common Stock by a person or group
described above, each Right will entitle the holder (other than such person or
group) to buy from the Company for $280 shares of Common Stock having a market
value of $560. If the Company is acquired in a business combination, or a
majority of its assets is acquired, after a person or group described above
acquires beneficial ownership of 20 percent or more of the outstanding Common
Stock, each Right will thereafter entitle the holder (other than such person or
group) to acquire for $280 shares of common stock of the acquiring or surviving
person with a market value of $560. Following the occurrence of any of the
events described in the preceding two sentences, any Rights that are or (under
certain circumstances) were beneficially owned by any such person or group shall
immediately become null and void. The purchase price for Series A Preferred
Stock and the number of shares of Series A Preferred Stock or other securities
issuable upon exercise of Rights are subject to adjustment to prevent dilution.
- 2 -
<PAGE>
Outstanding Rights will expire at the close of business on February 25,
2000. The Rights will also expire upon consummation of a business combination
with a person who acquires shares of Common Stock in a tender offer sanctioned
by the board of directors if shareholders receive the same consideration as was
paid in the tender offer. Until the close of business on the tenth day following
public announcement that a person or group described above has acquired
beneficial ownership of 20 percent or more of the outstanding shares of Common
Stock, the Rights may be redeemed, in whole but not in part, at the Company's
election at a price of $.01 per right. After a person or group described above
acquires beneficial ownership of 20 percent or more of the outstanding Common
Stock, but before the person or group acquires beneficial ownership of 50
percent or more of the outstanding Common Stock, the Company may exchange some
or all of the then outstanding Rights for four shares of Common Stock per Right,
subject to adjustment in certain circumstances.
Before the Rights become exercisable, the Company may amend the Rights
Agreement in any manner without the approval of the holders of Common Stock and
thereafter the Company may, subject to certain limitations, amend the Rights
Agreement without the approval of the holders of Rights.
The Company is subject to the Oregon Control Share Act (the "Control
Share Act"). The Control Share Act provides in essence that a person (an
"Acquiring Person") who acquires voting stock in a transaction which results in
its holding more than 20 percent, 33-1/3 percent or 50 percent of the total
voting power of the Company (a "Control Share Acquisition") cannot vote the
shares it acquires in the Control Share Acquisition ("control shares") unless
voting rights are accorded to such control shares by the holders of a majority
of the outstanding voting shares, excluding the Acquiring Person and the
Company's officers and inside directors. The term Acquiring Person is broadly
defined to include persons acting as a group.
An Acquiring Person may, but is not required to, submit to the Company
an "Acquiring Person Statement" which delineates certain information about the
Acquiring Person and its plans for acquiring the Company's stock and requests
the Company to call a special meeting of shareholders to act on the question of
its voting rights. If an Acquiring Person does not request a special meeting of
shareholders, the matter shall be considered at the next annual or special
meeting of shareholders otherwise held. If an Acquiring Person's control shares
are accorded voting rights and its shares represent a majority or more of all
voting power, shareholders who do not vote in favor of the restoration of voting
rights will have the right to receive the appraised "fair value" for their
shares, which may not be less than the highest price paid per share by the
Acquiring Person for its shares in the Control Share Acquisition.
The Company is also subject to provisions of the Oregon Business
Corporation Act (the "Business Combination Provisions), which restrict the
ability of an Oregon corporation to engage in any business combination with an
interested shareholder ("Interested Shareholder"), as defined, for three years
after the shareholder becomes an Interested Shareholder, with certain
exceptions. An Interested Shareholder is defined to include a shareholder owning
15 percent or more of a corporation's stock. "Business combination" is defined
to include any merger with, any transfer of assets to, and certain transactions
involving the issuance of shares to, the
- 3 -
<PAGE>
Interested Shareholder. A corporation may, however, engage in a business
combination with an Interested Shareholder if (i) the corporation's board of
directors approved the combination or the transaction by which the shareholder
became an Interested Shareholder before the shareholder became an Interested
Shareholder, (ii) the Interested Shareholder acquired at least 85 percent of the
voting stock (excluding shares held by directors, officers, or certain employee
share plans) when becoming an Interested Shareholder, or (iii) the board of
directors and shareholders holding 66-2/3 percent of the voting stock not owned
by the Interested Shareholder approve the business combination. A corporation's
articles of incorporation may not require a greater vote of shareholders than
that specified in the Business Combination Provisions for any vote required by
the Business Combination Provisions.
