SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
(x) QUARTERLY REPORT PURSUANT TO SECTION 13 or 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended
June 30, 1999
Commission File Number 1-12545
Willamette Industries, Inc.
(Exact name of registrant as specified in its charter)
State of Oregon 93-0312940
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1300 S.W. Fifth Avenue, Suite 3800, Portland, Oregon 97201
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (503) 227-5581
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes -x- No ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date. Common Stock, 50 cent par
value: 111,555,848 at July 31, 1999.
<PAGE>
WILLAMETTE INDUSTRIES, INC. AND SUBSIDIARIES FORM 10-Q
CONSOLIDATED BALANCE SHEETS PART I
(AMOUNTS, EXCEPT PER SHARE AMOUNTS, IN THOUSANDS) ITEM 1
<TABLE>
JUNE 30, DECEMBER 31,
ASSETS 1999 1998
------ --------- -----------
Current assets:
<S> <C> <C>
Cash $ 19,930 31,359
Accounts receivable, less allowance
for doubtful accounts of $4,805 and $4,300 392,301 306,332
Inventories (Note 2) 405,450 411,316
Prepaid expenses and timber deposits 39,755 45,316
--------- ---------
Total current assets 857,436 794,323
Timber, timberlands and related facilities, net 1,095,560 1,112,180
Property, plant and equipment, at cost less
accumulated depreciation of $2,389,308 and $2,253,551 2,749,159 2,707,146
Other assets 81,843 84,019
--------- ---------
$ 4,783,998 4,697,668
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current installments on long-term debt $ 3,879 2,267
Notes payable 73,584 47,252
Accounts payable, includes book overdrafts
of $45,814 and $55,030 190,403 196,134
Accrued expenses 179,671 165,743
Accrued income taxes 4,872 16,081
--------- --------
Total current liabilities 452,409 427,477
Deferred income taxes 441,814 404,518
Other liabilities 42,594 42,159
Long-term debt, net of current installments 1,772,279 1,821,083
Stockholders' equity:
Preferred stock, cumulative, of $.50 par value
Authorized 5,000 shares - -
Common stock, $.50 par value. Authorized 150,000
shares; issued 111,486 and 110,981 shares 55,743 55,490
Capital surplus 300,270 285,140
Retained earnings 1,718,889 1,661,801
--------- ---------
Total stockholders' equity 2,074,902 2,002,431
--------- ---------
$ 4,783,998 4,697,668
========= =========
</TABLE>
2
<PAGE>
WILLAMETTE INDUSTRIES, INC. AND SUBSIDIARIES FORM 10-Q
CONSOLIDATED BALANCE SHEETS PART I
(AMOUNTS, EXCEPT PER SHARE AMOUNTS, IN THOUSANDS) ITEM 1
<TABLE>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
--------------------- ---------------------
1999 1998 1999 1998
---------- --------- ---------- ---------
<S> <C> <C> <C> <C>
Net sales $1,007,369 946,390 $1,930,822 1,846,465
Cost of sales (Note 3) 808,408 817,443 1,586,703 1,593,266
--------- --------- --------- ---------
Gross profit 198,961 128,947 344,119 253,199
Selling and administrative expenses 65,909 63,414 131,061 126,155
--------- --------- --------- ---------
Operating earnings 133,052 65,533 213,058 127,044
Other income (expense) - net (304) (19) (395) 2,754
--------- --------- --------- ---------
132,748 65,514 212,663 129,798
Interest expense 31,609 30,427 64,369 60,999
--------- --------- --------- ---------
Earnings before provision for income taxes 101,139 35,087 148,294 68,799
Provision for income taxes 37,825 11,073 53,386 22,704
--------- --------- --------- ---------
Net earnings $ 63,314 24,014 $ 94,908 46,095
========= ========= ========= =========
Per share information (1):
Basic earnings per share $ 0.57 0.21 $ 0.85 0.41
========= ========= ========= =========
Diluted earnings per share $ 0.57 0.21 $ 0.85 0.41
========= ========= ========= =========
Dividends $ 0.18 0.16 $ 0.34 0.32
========= ========= ========= =========
Weighted average shares outstanding:
Basic 111,362 111,417 111,183 111,390
========= ========= ========= =========
Diluted (2) 112,055 112,050 111,787 112,027
========= ========= ========= =========
</TABLE>
(1) Per share earnings are based upon the weighted average number of shares
outstanding.
(2) Weighted average shares outstanding (diluted) are calculated using the
treasury stock method assuming all stock options are exercised.
3
<PAGE>
WILLAMETTE INDUSTRIES, INC. AND SUBSIDIARIES FORM 10-Q
CONSOLIDATED BALANCE SHEETS PART I
(AMOUNTS, EXCEPT PER SHARE AMOUNTS, IN THOUSANDS) ITEM 1
<TABLE>
SIX MONTHS ENDED
JUNE 30,
-------------------------
1999 1998
--------- ----------
Cash flows from operating activities:
<S> <C> <C>
Net earnings $ 94,908 46,095
Adjustments to reconcile net earnings to net cash
from operating activities:
Depreciation (Note 3) 118,696 139,106
Cost of fee timber harvested 21,525 24,902
Other amortization 8,352 9,738
Increase in deferred income taxes 37,377 6,564
Changes in working capital items:
Accounts receivable (79,298) (29,867)
Inventories 8,799 17,067
Prepaid expenses and timber deposits 5,570 (13,439)
Accounts payable and accrued expenses 1,017 (22,379)
Accrued income taxes (11,264) (1,879)
--------- ----------
Net cash from operating activities 205,682 175,908
--------- ----------
Cash flows from investing activities:
Proceeds from sale of equipment 615 1,851
Expenditures for property, plant and equipment (120,764) (204,024)
Expenditures for timber and timberlands (6,579) (5,769)
Expenditures for roads and reforestation (5,908) (6,027)
Other (34,239) (21,366)
--------- ----------
Net cash from investing activities (166,875) (235,335)
--------- ----------
Cash flows from financing activities:
Net change in operating lines of credit 26,332 88,550
Debt borrowing 27,770 206
Proceeds from sale of common stock 15,356 2,126
Cash dividends paid (37,820) (35,644)
Payment on debt (81,874) (1,556)
--------- ----------
Net cash from financing activities (50,236) 53,682
--------- ----------
Net change in cash (11,429) (5,745)
Cash at beginning of period 31,359 27,600
--------- ----------
Cash at end of period $ 19,930 21,855
========= ==========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest (net of amount capitalized) $ 65,179 58,744
========= ==========
Income taxes $ 22,800 16,123
========= ==========
</TABLE>
4
<PAGE>
FORM 10-Q
PART I
ITEM 1
WILLAMETTE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
Note 1 The information furnished in this report reflects all adjustments
which are, in the opinion of management, necessary to a fair
statement of the results for the interim periods presented.
Note 2 The components of inventories are as follows (thousands of
dollars):
June 30, December 31,
1999 1998
--------- ---------
Finished product $ 141,142 131,383
Work in progress 8,090 6,909
Raw material 161,856 184,734
Supplies 94,362 88,290
--------- ---------
$ 405,450 411,316
========= =========
Note 3 Effective January 1, 1999, the Company changed its accounting
estimates relating to depreciation. The estimated service lives
for much of the Company's machinery and equipment was extended
five years. The change was based upon a study performed by the
Company's engineering department, comparisons to typical industry
practices and the effect of the Company's extensive capital
investments which have resulted in a mix of assets with longer
productive lives due to technological advances.
As a result of the change, the Company's net income was increased
$26.4 million, or $0.24 per share for the six months ended June
30, 1999, and $12.3 million, or $0.11 per share, for the second
quarter of 1999. The Company estimates the change will increase
net income in 1999 by approximately $52.8 million, or $0.47 per
share.
Other notes have been omitted pursuant to Rule 10-01(a)(5) of
Regulation S-X.
5
<PAGE>
FORM 10-Q
PART I
ITEM 2
WILLAMETTE INDUSTRIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
JUNE 30, 1999
The Company's three basic businesses, building materials, brown paper and white
paper, are affected by changes in general economic conditions. Building
materials activity is closely related to new housing starts and to the
availability and terms of financing for construction. White and brown paper
sales and earnings tend to follow the general economy. All industry segments are
influenced by global economic factors of supply and demand. In addition, the
cost of wood and recycled fiber, basic raw materials for all segments, are
sensitive to various supply and demand factors, including environmental issues
affecting supply.
SEGMENT INFORMATION
-------------------
Three Months Ended Six Months Ended
June 30, June 30,
---------------------- ----------------------
1999 1998 1999 1998
---------- --------- ---------- ----------
Sales:
Building Materials $ 388,514 320,614 $ 721,321 614,502
Brown Paper 354,188 357,614 686,885 694,864
White Paper 264,667 268,162 522,616 537,099
---------- --------- ---------- ----------
$1,007,369 946,390 $1,930,822 1,846,465
========== ========= ========== ==========
Operating Earnings:(1)
Building Materials $ 76,863 17,237 $ 126,621 30,786
Brown Paper 55,479 43,228 89,153 84,334
White Paper 11,991 15,395 21,181 33,707
Corporate (11,281) (10,327) (23,897) (21,783)
---------- --------- ---------- ----------
$ 133,052 65,533 $ 213,058 127,044
========== ========= ========== ==========
(1) Operating earnings for 1999 include the positive impact of a change in
estimate for depreciable lives of property, plant and equipment. The
increase in operating earnings attributable to this change is approximately
as follows:
Three Months Ended Six Months Ended
June 30, 1999 June 30, 1999
------------------ -----------------
Building Materials $5,400 $11,100
Brown Paper 5,600 11,800
White Paper 9,200 18,300
6
<PAGE>
RESULTS OF OPERATIONS
---------------------
2nd Quarter 1999 vs. 2nd Quarter 1998
-------------------------------------
Consolidated net sales increased 6.4% and operating earnings increased 103.0% in
the second quarter of 1999 compared with the second quarter of 1998. The sales
and earnings increases were driven by increased prices from virtually all
domestic building material products resulting in record earnings for the
building materials segment. Additionally, earnings increased due to a change in
estimate for depreciable lives of property, plant and equipment. The change was
based upon a study performed by the Company's engineering department,
comparisons to typical industry practices and the effect of the Company's
extensive capital investments which have resulted in a mix of assets with longer
productive lives due to technological advances. The change in estimate increased
second quarter 1999 operating earnings $20.2 million and net income $12.3
million, or $0.11 per share.
The building materials segment experienced dramatic results in the second
quarter, as net sales increased 21.2% and operating earnings increased 345.9%
(314.6% before the effects of the depreciation change) compared to the same
period in the prior year. Increases in average sales prices for lumber and
structural panels and increased unit shipments for most products led to the
record operating earnings for the quarter. With the continued strength in
housing starts, prices for lumber increased 20.5%, oriented strand board (OSB)
increased 54.7%, and plywood increased 26.9% over the second quarter of 1998.
Composite panel average sales prices for the second quarter of 1999 and 1998
showed particleboard increasing 0.9% and MDF decreasing 7.8%. As a result of
7
<PAGE>
rising prices, the gross profit margin for building materials increased to 23.4%
from 9.6% in the second quarter of 1998.
Unit shipment volumes were strong in the second quarter of 1999, as all product
lines, except for OSB, experienced increases over the second quarter of 1998.
Lumber unit shipments increased 8.2% over the prior year as gains were realized
from capital project completions, including the start-up of our new small-log
sawmill in Taylor, Louisiana, in August 1998. Structural panel unit shipments
showed plywood increasing 24.0% from the prior year and OSB declining 3.0%. The
increase in plywood unit shipments was partially due to increased production at
our Zwolle, Louisiana plant, which was closed early in the second quarter of
1998 due to a fire. Excluding the effects of the fire, plywood unit shipments
increased 8.7% over the prior year. Composite panel products also realized unit
shipment gains as MDF increased 1.9% and particleboard was steady with volumes
achieved in 1998. In June 1999, the Company acquired a particleboard facility in
Linxe, France, continuing the Company's growth in the European marketplace.
Brown paper net sales declined 1.0% while operating earnings increased 28.3%
(15.4% before the depreciation adjustment) in the second quarter of 1999 over
1998, as reduced manufacturing costs more than offset the decline in average
sales prices. While corrugated container prices were up 1.0%, average sales
prices for grocery bags declined 3.6% as the market has remained relatively flat
since early 1998. Unit shipment volumes showed corrugated containers flat with
1998, while grocery bags increased 6.7%. Raw material costs were the key to the
better operating results in the second quarter as old corrugated container (OCC)
costs decreased 9.9% and chip costs decreased 12.5% from the
8
<PAGE>
comparable period in 1998. Reduced raw material costs also helped increase the
gross profit margin to 22.9% in the second quarter compared to 19.0% in the
prior year.
White paper net sales decreased 1.3% and operating earnings decreased 22.1%
(81.9% before the effect of the depreciation change) in the second quarter of
1999 compared to 1998, as sales prices declined in all product lines except
hardwood market pulp. Average sales prices declined 10.5% for fine paper, 13.2%
for cut sheets and 8.4% for continuous forms. The only price increase occurred
in hardwood market pulp which increased 6.0%. These price changes reflect the
supply and demand imbalances created by the increase in imports of white paper
and softness in worldwide markets.
Partially offsetting the decline in prices were unit shipment increases for
continuous forms and cut sheets. Continuous forms increased 10.7% and cut sheets
increased 26.6% over the prior year. The increase in continuous forms was the
result of the Company's increased focus on the resale market (sales to office
superstores). Increased cut sheet unit shipments resulted from increased
production at our new Brownsville, Tennessee, cut sheet plant which came on-line
in February 1998, and increased converting volumes at other facilities due to
the production from the new Kentucky paper machine ("K-2"), which successfully
came on-line at the end of the second quarter of 1998. Hardwood market pulp
realized the only decline, as unit shipments decreased 11.2% from the prior
year. Raw material costs also impacted white paper results, as chip costs
increased 2.3% over the second quarter of 1998. The effect of declining prices
and increased manufacturing costs reduced the gross profit margin for white
paper to 10.1% from 11.3% in the prior year.
9
<PAGE>
Selling and administrative expenses increased $2.5 million or 3.9% in the second
quarter mostly due to expansion of Company operations. The ratio of selling and
administrative expenses to net sales was 6.5% for the second quarter of 1999
compared to 6.7% for the same period in 1998.
Interest expense was $31.6 million in the second quarter of 1999 compared with
$30.4 million in the prior year. The increase in interest expense was driven by
capital project completions, which resulted in a decrease in capitalized
interest from $6.5 million in the second quarter of 1998 to $0.7 million for the
second quarter of 1999. The impact of the change in capitalized interest was
partially offset by reduced average debt outstanding.
Six Months Ended June 30, 1999 vs. Six Months Ended June 30, 1998
-----------------------------------------------------------------
Consolidated net sales increased 4.6% and operating earnings increased 67.7% for
the six months ended June 30, 1999, compared to the prior year. The increase in
sales and operating earnings was due to strong results from our building
materials segment for the first half of the year. In addition, the change in
estimate for depreciable lives of property, plant and equipment increased net
income $26.4 million or $0.24 per share for the six months ended June 30, 1999.
Building materials net sales increased 17.4% and operating earnings increased
311.3% (275.2% before the effects of the depreciation change) for the first six
months of 1999. As the housing market continued to be strong, structural panels
performed well with OSB average sales prices increasing 40.3% and
10
<PAGE>
plywood increasing 22.9%. In addition, lumber prices continued to strengthen
throughout the period as average prices were up 10.2% over the prior year.
Composite panels average sales prices showed particleboard decreasing 0.6% and
MDF decreasing 5.6% from the same period in 1998.
Unit shipment volumes followed the general price trend as volumes increased
10.7% for lumber, 16.1% for plywood, 9.5% for OSB, 0.4% for particleboard, and
6.4% for MDF. Volume increases were the result of a continually strong housing
market, our new MDF facility in France acquired in March 1998 and a new
small-log sawmill in Louisiana which came on-line in August 1998.
Brown paper net sales decreased 1.1% while operating earnings increased 5.7% (a
decrease of 8.3% before the effects of the depreciation change) compared to the
same period in 1998. The decline in net sales was the result of lower average
sales prices in all product lines when compared to the prior year. Average sales
prices for corrugated containers declined 2.9% while grocery bags decreased
5.5%. While prices were down year over year, corrugated container prices
increased steadily each month throughout the second quarter.
The increase in operating earnings was primarily the result of the change in
depreciation, although increased unit shipments and declines in manufacturing
costs also helped offset price declines. Unit shipments increased 3.7% for
corrugated containers and 4.7% for grocery bags. Manufacturing costs declined in
1999 compared to 1998, as raw material costs for OCC and brown chips declined
18.9% and 11.9%, respectively.
11
<PAGE>
White paper markets continued to struggle through the first half of 1999, as net
sales declined 2.7% and operating earnings declined 37.2% (91.5% before the
effects of the depreciation change). Average sales prices declined in all
product lines through the first six months, except for hardwood market pulp
which increased 2.6%. Average sales prices for business forms declined 9.8% and
cut sheets decreased 14.0% as markets remained soft due to supply and demand
imbalances. While prices have been soft, unit shipment volumes continued to rise
in 1999 as volumes increased 13.4% for business forms and 25.4% for cut sheets.
The exception was hardwood market pulp which decreased 15.7% over the prior
year. The increase in forms unit shipments was due to the continued focus on the
resale market (sales to office superstores), while the cut sheet increase was
the result of increased converting volumes due to the production from "K-2". Raw
material costs also negatively impacted operating results as chip costs
increased 4.0% over the same period in 1998.
Selling and administrative costs increased $4.9 million or 3.9% for the first
half of 1999 due to expansion of Company operations. The ratio of selling and
administrative expenses to net sales remained at 6.8% for 1998 and 1999.
Interest expense increased to $64.4 million from $61.0 million in the prior
year. The increase was primarily attributable to a decrease in capitalized
interest from $12.1 million in 1998 to $1.2 million for the first six months of
1999. A decrease in the average outstanding debt partially offset the impact of
the change in capitalized interest. The Company's effective interest rate
remained steady at 7.07% compared to 7.06% in 1998.
12
<PAGE>
Financial Condition as of June 30, 1999
---------------------------------------
For the first six months of 1999, cash flows from operating activities were
$205.7 million, representing an increase of 16.9% from the same period in 1998.
The increase was primarily attributable to increased earnings offset by various
fluctuations in working capital items, primarily accounts receivable, compared
to the prior year. Net working capital increased 10.4% to $405.0 million at June
30, 1999, compared to $366.8 million at December 31, 1998. The total debt to
capital ratio decreased to 47.1% at June 30, 1999, from 48.3% at December 31,
1998.
On April 20, 1999, the Board of Directors of the Company voted to raise the
quarterly cash dividend from $0.16 to $0.18 per share, which was a 12.5%
increase over the previous quarterly rate; however, there is no assurance as to
future dividends as they depend on earnings, capital requirements and financial
condition.
The Company believes it has the resources available to meet its short-term and
long-term liquidity requirements. Resources include internally generated funds,
short-term borrowing arrangements and the unused portion of the revolving loan
available under a Credit Agreement.
YEAR 2000 READINESS
-------------------
The year 2000 (Y2K) issue, which is common to most businesses, arises from the
inability of systems and certain software application programs to properly
recognize and process dates and date sensitive information on and beyond
13
<PAGE>
January 1, 2000. In 1996, the Company began working to address the possible
effects of the Y2K issue on its information, financial and manufacturing
systems. These efforts include inventory assessment, modification and testing of
these key systems. Willamette is fortunate in that many of the Company's systems
have been replaced during the past few years as we implemented new technology.
Many of these new systems are currently Y2K ready. To date, the Company has
spent $6.1 million on Y2K readiness and currently estimates that total spending
will approximate $8.5 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 June 30, 1999, 95% of the Company's critical financial and information
systems have been modified, tested and deemed Y2K ready. The remaining critical
and non-critical systems continue to progress and are expected to be addressed
by September 30, 1999. In the manufacturing area, the Company has completed 95%
of the work on the critical systems and expended 65% of the budgeted dollars. To
date, no significant issues have been identified with the Company's
manufacturing systems and the Company expects to be substantially complete with
all systems by the end of the third quarter of 1999.
The Company has also been surveying its major vendors, suppliers and customers
to assess the potential impact on its operations of these key third-party
relationships. This process includes obtaining a letter of certification from
vendors and suppliers on their Y2K readiness and monitoring the status of key
customers. To date, no significant compliance issues have been identified
14
<PAGE>
with these third parties. The Company plans to continually update and evaluate
compliance with these key third parties throughout 1999.
The most reasonably likely worst case scenario facing the Company is the
occurrence of unscheduled down-time at its facilities resulting from internal
system difficulties or third-party failures that could have a significant
adverse effect on the Company's earnings. While it is the Company's belief that
all of its systems will be assessed and modified before January 1, 2000, there
can be no guarantee that issues will not arise pertaining to these systems or
that vendors, suppliers and customers will adequately address their Y2K
readiness requirements. The Company 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 readiness effort is
continuously monitored by a special task force which makes regular reports to
senior management and the audit committee of the Board of Directors.
Forward-Looking Statements
--------------------------
Statements contained in this report that are not historical in nature, including
without limitation adequacy of the Company's liquidity resources, the impact of
environmental regulations and risks associated with the Year 2000 problem, are
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. Forward-looking statements are subject to risks
and uncertainties that may cause actual future results to differ materially from
those projected. Such risks and uncertainties with respect to the Company, in
addition to those included with the forward-looking
15
<PAGE>
statements, include but are not limited to, the effect of general economic
conditions; the level of new housing starts and remodeling activity; the
availability and terms of financing for construction; competitive factors,
including pricing pressures; the cost and availability of wood fiber; the effect
of natural disasters on the Company's timberlands; construction delays; risk of
non-performance by third parties; and the impact of environmental regulations
and the construction and other costs associated with complying with such
regulations. In view of these uncertainties, investors are cautioned not to
place undue reliance on such forward-looking statements.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
- ------------------------------------------------------------------
No disclosure is required under this item.
16
<PAGE>
FORM 10-Q
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
- -------------------------
As first reported in the Company's Form 8-K report filed January 26, 1998, the
Company received from the Environmental Protection Agency (EPA) a request for
information under Section 114 of the Clean Air Act (the Act) with respect to the
Company's building materials operations. The requests were focused on compliance
with regulations under the Prevention of Significant Deterioration (PSD) Program
under the Act. On May 7, 1998, the EPA issued a Notice of Violation (NOV)
alleging violations of the Act and related state regulations, and on December
11, 1998, issued a second NOV supplementing and clarifying the first NOV. The
Company has responded to the allegations contained in the NOVs and has had
several meetings with the EPA and the U.S. Department of Justice to attempt to
negotiate a resolution of the issues raised by the NOVs. Settlements by other
companies in the wood products industry that have received NOVs under the Act
have involved the payment of substantial fines and agreements to install
emission control equipment and undertake supplemental environmental projects.
In November 1998, the Company received from the EPA a request for information
under Section 114 of the Act with respect to the Company's paper operations.
This request also focused on compliance with the PSD regulations. Subsequently,
on April 19, 1999, the Company received an NOV relating to its Johnsonburg,
Pennsylvania, pulp and paper mill. The NOV asserts violations of the Act
relating to two alleged major modifications to the plant, allegedly without
proper PSD permits and without complying with applicable PSD requirements. The
Company is reviewing the allegations contained in this NOV and has been meeting
with federal and state officials to discuss the issues raised by the NOV. The
Company believes that additional NOVs may be issued with respect to one or more
of the Company's other paper mills.
The Company has undertaken a review of its Albany, Oregon, pulp and paper mill
for compliance with the PSD regulations and the New Source Performance Standards
and has voluntarily disclosed possible historic compliance issues to the Oregon
Department of Environmental Quality ("ODEQ"). The Company is working with the
ODEQ to further evaluate compliance issues and to negotiate a settlement of
potential noncompliance issues. Such settlements by the Company and others
typically have included the payment of penalties.
The Company believes that the outcome of the foregoing proceedings will not have
a material adverse effect on the Company's financial position.
17
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
- ----------------------------------------
(a) Exhibits
Exhibit No. Exhibit
----------- -------
10A Form of Willamette Industries, Inc. Severance
Agreement with Key Management Group as
revised effective April 20, 1999.
12 Computation of Ratio of Earnings to Fixed
Charges.
27 Financial Data Schedule for six-month period
ended June 30, 1999.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter for which the
report is filed.
18
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
WILLAMETTE INDUSTRIES, INC.
By /s/ J. A. Parsons
J. A. Parsons
Executive Vice President
(Principal Financial Officer)
Date: August 11, 1999
19
Exhibit 10A
April 29, 1999
- -----------------------------
- -----------------------------
- -----------------------------
- -----------------------------
- -----------------------------
Dear ----------------------:
This letter amends and replaces the letter agreement dated
- -----------------, between you and Willamette Industries, Inc. Upon execution of
this letter agreement (this "Agreement"), the ---------------------, letter
agreement will be entirely superseded.
Willamette Industries, Inc. (which, together with its
Subsidiaries, is referred to as the "Company"), considers the stability of its
key management group to be essential to the best interests of the Company and
its shareholders. The Company recognizes that, as is the case with many publicly
held corporations, the possibility of a Change in Control may arise and that the
attendant uncertainty may result in the departure or distraction of key
management personnel to the detriment of the Company and its shareholders.
Accordingly, the Board of Directors of Willamette Industries,
Inc. ("the "Board") has determined that appropriate steps should be taken to
encourage members of the Company's key management group to continue as employees
notwithstanding the future possibility of a Change in Control of the Company.
The Board also believes it important that, in the event of a
proposal for transfer of control of the Company, you be able to assess the
proposal and advise the Board without being influenced by the uncertainties of
your own situation.
In order to induce you to remain in the employ of the Company,
this Agreement, which has been approved and authorized by the Board, sets forth
the severance compensation which the Company agrees to pay to you in the event
your employment with the Company is terminated subsequent to the occurrence of a
Change in Control of the Company under the circumstances described below.
Capitalized terms not otherwise defined in this Agreement have
the meanings set forth in Section 13.
<PAGE>
- --------------------- -2- April 29, 1999
1. Agreement to Provide Services; Right to Terminate.
(a) Termination of Employment. Except as otherwise provided in
paragraph 1(b) of this Agreement or in any written employment agreement
between you and the Company, you are an "at will" employee and the
Company or you may terminate your employment at any time. If, and only
if, your employment terminates after a Change in Control of the
Company, the provisions of this Agreement regarding the payment of
severance compensation and benefits will apply. In all other events,
this Agreement does not provide any additional severance compensation
or benefits to you.
(b) Continuation of Services Subsequent to Certain Offers. In
the event a tender offer or exchange offer is made by a Person for more
than 20 percent of the Company's Voting Securities, you agree that you
will not leave the employ of the Company (other than as a result of
Disability) and will render services to the Company in the capacity in
which you then serve until such tender offer or exchange offer has been
abandoned or terminated or a Change in Control has occurred. If, during
the period you are obligated to continue in the employ of the Company
pursuant to this Section 1(b), the Company reduces your compensation,
your obligations under this Section 1(b) will automatically terminate.
(c) Obligations After Change in Control. While employed by the
Company (or its successor) after a Change in Control, you agree to
devote reasonable attention and time to the business and affairs of the
Company and to use your reasonable best efforts to perform your
responsibilities faithfully and efficiently, consistent with your past
practice as an employee of the Company.
2. Term of Agreement. This Agreement commences on the date of
this Agreement and will continue in effect until December 31, 2002; provided,
however, that commencing on January 1, 2003, and each January 1 thereafter, the
term of this Agreement will automatically be extended for one additional year
unless at least 90 days prior to such January 1, the Company or you will have
given notice that this Agreement will not be extended; and provided, further,
that if a Change in Control of the Company occurs while this Agreement is in
effect, this Agreement will automatically be extended for a period of three
calendar years beyond the calendar year in which the Change in Control occurs.
Notwithstanding the preceding sentence, this Agreement will not extend beyond
your normal retirement date under the Company's retirement plan. This Agreement
will terminate if you or the Company terminates your employment prior to a
Change in Control but such termination will be without prejudice to any remedy
the Company may have for breach of your obligations, if any, under Section 1(b).
3. Effect of Termination Following Change in Control. In the
event your employment with the Company is terminated, whether by you or the
Company, within 36 months following the date of occurrence of any event
constituting a Change in Control (recognizing that more than one such event may
occur in which case the 36-month period will run from the date of occurrence of
each such event), you will be entitled to the following respective benefits:
<PAGE>
- --------------------- -3- April 29, 1999
(a) Disability. During any period that you are unable to
perform your duties under this Agreement as a result of incapacity due
to physical or mental illness, you will continue to receive your full
base salary and benefits at the rate then in effect until the Date of
Termination. In the event you are terminated by reason of Disability,
after the Date of Termination, your benefits will be determined in
accordance with the Company's long-term disability income plan (the
"Disability Income Program"). If the Company's Disability Income
Program is modified or terminated following a Change in Control, the
Company will substitute another plan or program with benefits
applicable to you substantially similar to those provided by the
Disability Income Program prior to its modification or termination.
(b) Termination Upon Death. In the event of your death while
an employee of the Company, the Company will pay to your estate your
full base salary through the date of your death at the rate in effect
on the date the Change in Control occurs, together with all benefits,
including death benefits, to which you are then entitled under Plans in
which you are a participant, and the Company will have no further
obligations to you under this Agreement.
(c) Termination for Cause or Without Good Reason. If your
employment is terminated by the Company for Cause, or by you other than
for Good Reason, the Company will pay you your full base salary through
the Date of Termination at the rate in effect on the date the Change in
Control occurs, together with all benefits to which you are then
entitled under Plans in which you are a participant, and the Company
will have no further obligations to you under this Agreement.
(d) Termination Without Cause or With Good Reason. If your
employment with the Company is terminated (other than for Disability or
upon your death) by the Company without Cause or by you for Good
Reason, then the Company will pay to you, upon demand, the following
amounts (the "Severance Payments"):
(i) Your full base salary through the Date of
Termination at the rate in effect on the date the Change in
Control occurs, together with all benefits to which you are
then entitled under the terms of all Plans in which you are a
participant including, without limitation, all amounts due to
you or accrued to your benefit, including benefits designated
as Change in Control Benefits, under the Company's
Supplemental Benefits Plan and 1993 Deferred Compensation Plan
(the "Deferral Plans") which will be paid to you in the
amounts and at the times specified in such Deferral Plans.
(ii) In lieu of any further salary payments to you
for the periods subsequent to the Date of Termination, an
amount of severance pay equal to the Applicable Percentage (as
defined below in this paragraph (ii)) multiplied by the sum of
(A) your annual base salary, at the rate in effect on the date
the Change in Control occurs, plus (B) the average annual
incentive compensation (if any) paid to you or accrued to your
benefit (prior to any deferrals) in respect of the two
<PAGE>
- --------------------- -4- April 29, 1999
fiscal years of the Company last ended prior to the fiscal
year in which the Change in Control occurs, plus (C) the
average annual matching contributions made by the Company on
your behalf to the Company's Stock Purchase Plan and its 1993
Deferred Compensation Plan in respect of such two fiscal
years. "Applicable Percentage" means 300 percent reduced (if
you are age 62 or older as of the Date of Termination) by 8.33
percent for each full month that your age exceeds 62 as of the
Date of Termination.
(iii) A cash payment (the "Stock Award Cash-Out
Payment") equal to (A) the sum of the differences between the
Change in Control Price and the option price for each share
covered by an Outstanding Option plus (B) the product of the
Change in Control Price and the number of shares covered by
Outstanding Restricted Stock Awards; provided, however, that
payment of the Stock Award Cash-Out Payment is conditioned
upon your surrender to the Company of all rights in the
Outstanding Options and the Outstanding Restricted Stock
Awards.
(iv) Reimbursement in full of all reasonable amounts
paid or incurred by you for outplacement services in
connection with obtaining other employment.
The amount of Severance Payments otherwise payable pursuant to this
Agreement will be reduced by (A) amounts payable to you pursuant to any
Plan providing severance benefits to the Company's salaried employees
generally and (B) amounts payable to you (after any adjustment or
reduction to reflect payments described in clause (A)) as salary
continuation and incentive compensation pursuant to any employment
agreement between you and the Company that is in effect as of the Date
of Termination.
(e) Related Benefits. Unless you die or your employment is
terminated by the Company for Cause or Disability, or by you other than
for Good Reason, the Company will maintain in full force and effect,
for the continued benefit of you and your family, until the earlier of
(i) 36 calendar months after the Date of Termination or (ii) your 65th
birthday, all Benefit Plans in which you were entitled to participate
immediately prior to the Date of Termination, provided that your
continued participation is possible under the general terms and
provisions of such Benefit Plans; provided, however, that if you become
eligible to participate in a benefit plan, program, or arrangement of
another employer which confers upon you benefits substantially similar
to those provided by one or more Benefit Plans, you will cease to
receive benefits under this paragraph 3(e) in respect of such Benefit
Plan or Plans. In the event that your participation in any Benefit Plan
is barred by the provisions of such Benefit Plan, the Company will
arrange to provide you with benefits substantially similar to those
which you are entitled to receive under such Benefit Plan.
4. Additional Payment.
(a) Gross-Up. In the event any portion of the Total Payments
will be subject to the Excise Tax, the Company will pay you an
additional amount (the "Gross-Up
<PAGE>
- --------------------- -5- April 29, 1999
Payment") equal to (1) the Excise Tax imposed on you with respect to
the portion of the Total Payments that constitutes an "excess parachute
payment" (as that term is described in Section 280G(b)(1) of the
Code)," plus (2) all federal, state, and local income taxes and Excise
Tax imposed on you with respect to the Gross-Up Payment.
(b) Determining Amount of Excise Tax. For purposes of
determining whether any portion of the Total Payments will be subject
to the Excise Tax and the amount of any Excise Tax:
(i) The entire amount of the Total Payments will be
treated as an Excess Parachute Payment unless and to the
extent, in the written opinion of Outside Tax Counsel, the
Total Payments, in whole or in part, are not subject to the
Excise Tax;
(ii) The value of any non-cash benefits or any
deferred payments that are part of the Total Payments will be
determined by the Company's independent accountants in
accordance with the requirements of Sections 280G(d)(3) and
280G(d)(4) of the Code and any regulations promulgated under
those sections.
(c) Determining Amount of Gross-Up Payment. For purposes of
determining the amount of the Gross-Up Payment:
(i) You will be deemed to pay federal income taxes at
the highest marginal rate of federal income taxation
applicable to individuals (including any applicable surtaxes
and taking into account any applicable loss or reduction of
deductions or exemptions) for the calendar year in which the
Gross-Up Payment is to be made; and
(ii) You will be deemed to pay state and local income
taxes at the highest marginal rates of taxation applicable to
individuals (including any applicable surtaxes and taking into
account any applicable loss or reduction of deductions or
exemptions) in the state and locality of your residence at the
date the Gross-Up Payment will be made.
(d) Subsequent Adjustment - Repayment. In the event that the
amount of Excise Tax you are required to pay is subsequently determined
to be less than the amount taken into account under this Agreement, you
agree that promptly after the amount of such reduction in Excise Tax is
finally determined, you will repay to the Company, without interest,
the amount of such reduction, plus the net federal income tax benefit,
if any, you actually will receive (in the opinion of Outside Tax
Counsel) as a result of making the repayment described in this Section
4(d).
(e) Subsequent Adjustment - Additional Payment. In the event
that the amount of Excise Tax you are required to pay is subsequently
determined to exceed the amount taken into account under this
Agreement, the Company will make an additional
<PAGE>
- --------------------- -6- April 29, 1999
Gross-Up Payment in the manner set forth in this Section 4 in respect
of such additional Excise Tax, plus any interest, additions to tax, or
penalties payable by you with respect to the additional Excise Tax,
promptly after the time that the amount can be reasonably determined.
5. No Mitigation; No Setoff. You will not be required to
mitigate the amount of any payment provided for in this Agreement by seeking
other employment or otherwise, nor, except as expressly set forth in this
Agreement, will the amount of any payment provided for in this Agreement be
reduced by any compensation earned by you as the result of employment by another
employer after the Date of Termination, or otherwise. Except as otherwise
expressly provided in Section 13(f) of this Agreement relating to payments made
to you pending resolution of a dispute regarding termination of your employment,
the Company's obligation to make the payments to you provided for in this
Agreement will not be affected by any setoff, counterclaim, recoupment, or other
defense or claim which the Company may have against you.
6. Notice. For the purposes of this Agreement, notices and all
other communications provided for in the Agreement must be in writing and will
be deemed to have been duly given when delivered or mailed by United States
certified or registered mail, return receipt requested, postage prepaid, if to
the Company, addressed to it at 3800 Wells Fargo Tower, 1300 S.W. Fifth Avenue,
Portland, Oregon 97201, Attention: Chief Executive Officer, and if to you,
addressed to you at the address set forth on the first page of this Agreement,
or to such other address as either party may have furnished to the other in
writing in accordance with this Agreement, except that notices of change of
address will be effective only upon receipt.
7. Successors; Binding Agreement.
(a) Successors and Assigns. This Agreement will inure to the
benefit of, and be binding upon, any corporate or other successor or
assignee of the Company which acquires, directly or indirectly, by
merger, consolidation or purchase, or otherwise, all or substantially
all of the business or assets of the Company. The Company agrees to
require any such successor, by an agreement in form and substance
reasonably satisfactory to you, expressly to assume and agree to
perform this Agreement in the same manner and to the same extent as the
Company would be required to perform if no such succession had taken
place.
(b) Personal Representatives. This Agreement will inure to the
benefit of and be enforceable by your personal or legal
representatives, executors, administrators, successors, heirs,
distributees, devisees, and legatees and any amounts payable to you in
accordance with the terms of this Agreement after your death will be
paid to your estate.
8. Time of Payment; Estimated Payment. The Severance Payments
and any applicable Gross-Up Payment provided for in this Agreement will be made
to you not later than the 15th business day following the Date of Termination;
provided, however, that if the amounts of such payments cannot be finally
determined on or before such day, the Company will pay to you on such day an
estimate, as determined in good faith by the Company, of the minimum
<PAGE>
- --------------------- -7- April 29, 1999
amount of such payments, and will pay the remainder of such payments (together
with interest at the rate of 6 percent per annum) as soon as the amount of such
payments can be determined. In the event that the amount of the estimated
payments exceeds the amount subsequently determined to have been due, such
excess will constitute a loan by the Company to you, payable on the fifth day
after demand by the Company (together with interest at the rate of 6 percent per
annum).
9. Miscellaneous. No provision of this Agreement may be
modified, waived, or discharged unless such modification, waiver, or discharge
is specifically approved by the Board and agreed to in a writing signed by you
and the Chief Executive Officer or the Executive Vice President-Chief Financial
Officer of the Company. No waiver by either party to this Agreement at any time
of any breach by the other party of, or of compliance with, any condition or
provision of this Agreement to be performed by such other party will be deemed a
waiver of similar or dissimilar provisions or conditions at the same, or at any
prior or subsequent, time. No agreements or representations, oral or otherwise,
express or implied, with respect to the subject matter of this Agreement have
been made by either party which are not expressly set forth in this Agreement.
The validity, interpretation, construction, and performance of this Agreement
will be governed by the laws of the state of Oregon. All obligations of the
Company to make payments or to provide benefits will be subject to all
applicable payroll taxes, withholding, and reporting requirements. Any amounts
not paid when due pursuant to any provision of this Agreement will bear interest
at the rate of 6 percent per annum.
10. Legal Fees and Expenses. The Company will pay or reimburse
any reasonable legal fees and expenses you may incur in connection with any
legal advice or legal action to enforce your rights under, or to defend the
validity of, this Agreement (including all such fees and expenses, if any,
incurred in contesting or disputing your termination or in seeking to obtain or
enforce any right or benefit under this Agreement). The Company will pay or
reimburse such legal fees and expenses on a regular, periodic basis upon
presentation by you of a statement or statements prepared by your counsel in
accordance with its usual practices.
11. Validity. The invalidity or unenforceability of any
provision of this Agreement will not affect the validity or enforceability of
any other provision of this Agreement, which will remain in full force and
effect.
12. Payments During Controversy. Notwithstanding the pendency
of any dispute or controversy, the Company will continue to pay you your full
compensation in effect when the notice giving rise to the dispute was given
(including, but not limited to, base salary and installments of incentive
compensation) and continue you as a participant in all Plans in which you were
participating when the notice giving rise to the dispute was given, until the
dispute is finally resolved in accordance with the procedure described in
Section 13(f) in connection with the definition of Date of Termination. You will
be entitled to seek specific performance of your right to be paid until the Date
of Termination during the pendency of any dispute or controversy arising under
or in connection with this Agreement.
<PAGE>
- --------------------- -8- April 29, 1999
13. Definitions of Certain Terms. For the purposes of this
Agreement, the terms defined below and used in this Agreement will have the
following meanings:
(a) Benefit Plan. "Benefit Plan" means any plan, policy, or
program of the Company (whether or not on an insured basis) providing
medical, dental, health, disability income, life insurance or other
death benefits, or similar types of benefits to employees of the
Company. Benefit Plan does not include any plan or arrangement
providing for vacation or severance pay, retirement benefits, bonuses
or incentive compensation of any kind, or current or deferred salary or
similar compensation.
(b) Cause. Termination of your employment by the Company for
"Cause" means termination because, and only because, you committed an
act of fraud, embezzlement, or theft constituting a felony, or an act
intentionally against the interest of the Company which causes the
Company material injury, or you have repeatedly failed, after written
notice, to perform your responsibilities under this Agreement.
Notwithstanding the foregoing, you will not be deemed to have been
terminated for Cause unless and until there has been delivered to you a
copy of a resolution duly adopted by the affirmative vote of not less
than three-quarters of the entire membership of the Board at a meeting
of the Board called and held for the purpose (after reasonable notice
to you and an opportunity for you, together with your counsel, to be
heard before the Board), finding that in the good faith opinion of the
Board you were guilty of conduct constituting Cause as defined above
and specifying the particulars for such finding in detail.
(c) Change in Control. A "Change in Control" of the Company
means:
(i) The acquisition by any Person (or by any group of
Persons that would constitute a "group" for purposes of
Section 13(d) and Rule 13d-5, as in effect on the date of this
Agreement, under the Exchange Act) of beneficial ownership
(within the meaning of Rule 13d-3 promulgated under the
Exchange Act), other than a Person or group that acquires such
beneficial ownership solely because such Person or group has
voting power with respect to Voting Securities arising from a
revocable proxy or consent given in response to a public proxy
or consent solicitation made pursuant to the Exchange Act (as
in effect from time to time), of 20 percent or more of the
combined voting power of the then outstanding Voting
Securities; provided, however, that for purposes of this
paragraph (i), the following acquisitions will not constitute
a Change in Control: (A) any acquisition directly from the
Company; (B) any acquisition by the Company or a Subsidiary,
(C) any acquisition by any employee benefit plan (or related
trust) sponsored or maintained by the Company or any
corporation controlled by the Company, (D) any acquisition by
any corporation pursuant to a transaction which complies with
clauses (A), (B), and (C) of paragraph (iii) below, or (E) any
acquisition by any Person who is a party to an agreement (a
"New Stand-Together Agreement") similar to the former
Shareholder Stand-Together Agreement dated as of January 21,
1985 (the "Former Stand-Together Agreement"), which New
Stand-Together Agreement (1) provides for
<PAGE>
- --------------------- -9- April 29, 1999
unified action by Persons who have, or whose families have,
historically held substantial amounts of the Company Shares in
the event of a threatened change of control and (2) which has
as parties at least ten shareholders of the Company who were
parties to the Former Stand-Together Agreement, but only while
such Person remains a party to such New Stand-Together
Agreement; or
(ii) Individuals who, as of the date of this
Agreement, constitute the Board (the "Incumbent Board") cease
for any reason to constitute at least a majority of the Board;
provided, however, that any individual becoming a director
subsequent to the date of this Agreement whose election, or
nomination for election by the Company's shareholders, was
approved by a vote of at least two-thirds of the directors
then comprising the Incumbent Board will be considered as
though such individual were a member of the Incumbent Board,
but excluding, for this purpose, any such individual whose
initial assumption of office occurs as a result of an actual
or threatened election contest with respect to the election or
removal of directors or other actual or threatened
solicitation of proxies or consents by or on behalf of a
Person other than the Board; or
(iii) Consummation of a reorganization, merger, or
consolidation or sale or other disposition of all or
substantially all of the assets of the Company (a "Business
Combination") in each case, unless, following such Business
Combination, (A) all or substantially all of the individuals
and entities who were the beneficial owners of the Voting
Securities outstanding immediately prior to such Business
Combination beneficially own, directly or indirectly, more
than 50 percent (66 2/3 percent if the Company is not the
continuing or surviving corporation resulting from such
Business Combination) of, respectively, the then outstanding
shares of common stock and the combined voting power of the
then outstanding voting securities entitled to vote generally
in the election of directors, as the case may be, of the
corporation resulting from such Business Combination
(including, without limitation, a corporation that as a result
of such transaction owns the Company or all or substantially
all of the Company's assets either directly or through one or
more subsidiaries) in substantially the same proportions as
their ownership, immediately prior to such Business
Combination, of the Voting Securities, (B) no Person
(excluding any employee benefit plan (or related trust) of the
Company or such corporation resulting from such Business
Combination) beneficially owns, directly or indirectly, 20
percent or more of, respectively, the then outstanding shares
of common stock of the corporation resulting from such
Business Combination or the combined voting power of the then
outstanding voting securities of such corporation except to
the extent that such ownership existed prior to the Business
Combination and (C) at least a majority of the members of the
board of directors of the corporation resulting from such
Business Combination were members of the Incumbent Board at
the earlier of the time of the execution of the initial
agreement with respect to such Business Combination, or of the
action of the Board providing for such Business Combination;
or
<PAGE>
- --------------------- -10- April 29, 1999
(iv) Approval by the shareholders of the Company of
any plan or proposal for the liquidation or dissolution of the
Company.
A Change in Control "occurs" on the date the Change in Control first
occurs; provided, however, that if (A) your employment is terminated by
the Company after an offer described in the first sentence of Section
1(b) of this Agreement is made, (B) it is reasonably demonstrated that
your termination was at the request of a third party who is seeking to
effect a Change in Control or otherwise occurred as a result of an
anticipated Change in Control, and (C) a Change in Control in fact
occurs within 120 days after your termination, then for purposes of
determining your right to any severance compensation and benefits under
this Agreement, your termination shall be deemed to have occurred after
a Change in Control.
(d) Change in Control Price. "Change in Control Price" means
the greater of (i) the highest sale price for the Company Shares as
traded on the New York Stock Exchange for the date of the Change in
Control (of, if the Company Shares are not traded on such date, on the
next preceding date on which the Company Shares were traded) or (ii)
the total market value of the highest amount of consideration to be
received for each Company Share by any shareholder of the Company in
connection with the Change in Control.
(e) Company Shares. "Company Shares" means the shares of the
Company's common stock, $.50 par value.
(f) Date of Termination. "Date of Termination" means (i) if
your employment is terminated by the Company for Disability, 30 days
after Notice of Termination is given (provided that you have not
returned to the performance of your duties on a full-time basis during
such 30-day period), and (ii) if your employment is terminated for any
other reason, the date on which a Notice of Termination is given;
provided that if within 30 days after any Notice of Termination is
given the party receiving the Notice of Termination notifies the other
party that a dispute exists concerning the termination, the Date of
Termination will be the date on which the dispute is finally
determined, either by mutual written agreement of the parties or by a
final judgment, order, or decree of a court of competent jurisdiction
(the time for appeal from such judgment, order, or decree having
expired and no appeal having been perfected). In such event, your
employment will nonetheless be terminated but you will continue to
receive the payments described in Section 12 through the Date of
Termination and the term of this Agreement will extend through the Date
of Termination.
If the dispute is resolved substantially in favor of the
Company's position, you will repay the amount paid to you as base
salary (without interest) and the Company may set your obligation to
repay off against any amounts owing to you or to be paid on your
behalf. You will not be obligated to repay or reimburse the Company for
any non-cash benefits you received during such period. If the dispute
is resolved without either party prevailing or if you prevail, you will
have no obligation to repay any such amounts.
<PAGE>
- --------------------- -11- April 29, 1999
(g) Disability or Disabled. "Disability" or "Disabled" mean
inability to engage in any substantial gainful activity by reason of
any medically determinable physical or mental impairment. You will be
considered Disabled for purposes of this Agreement only:
(i) Upon the Board's acceptance of a notice of
Disability from you accompanied by evidence, satisfactory to
the Board, that you are Disabled; or
(ii) 30 days after written notice to you of the
Board's determination (after notice to you and an opportunity
to be heard before the Board) that you are Disabled.
(h) Exchange Act. "Exchange Act" means the Securities Exchange
Act of 1934, as amended, as in effect on the date of this Agreement.
(i) Excise Tax. "Excise Tax" means a tax imposed by Section
4999(a) of the Code, or any successor provision, with respect to
"excess parachute payments" as described in Section 280(G)(b) of the
Code.
(j) Good Reason. Termination by you of your employment for
"Good Reason" means termination based on any of the following:
(i) A change in your status or position(s) with the
Company, which, in your reasonable judgment, represents a
demotion from your status or position(s) as in effect
immediately prior to the Change in Control, or a change in
your duties or responsibilities which, in your reasonable
judgment, is inconsistent with such status or position(s), or
any removal of you from, or any failure to reappoint or
reelect you to, such position(s), except in connection with
the termination of your employment for Cause or Disability or
as a result of your death or termination by you other than for
Good Reason.
(ii) A reduction by the Company in your base salary
as in effect immediately prior to the Change in Control.
(iii) The failure by the Company to continue in
effect any Plan in which you are participating at the time of
the Change in Control (or Plans providing you with at least
substantially similar benefits) other than as a result of the
normal expiration of any such Plan in accordance with its
terms as in effect at the time of the Change in Control, or
the taking of any action, or the failure to act, by the
Company which would adversely affect your continued
participation in any of such Plans on at least as favorable a
basis to you as is the case on the date of the Change in
Control or which would materially reduce your benefits in the
future under any of such Plans or deprive you of any material
benefit enjoyed by you at the time of the Change in Control.
<PAGE>
- --------------------- -12- April 29, 1999
(iv) The failure by the Company to provide and credit
you with the number of paid vacation days to which you are
then entitled in accordance with the Company's normal vacation
policy or actual practice as in effect immediately prior to
the Change in Control.
(v) The Company's requiring you to be based anywhere
other than where your office is located immediately prior to
the Change in Control except for required travel on the
Company's business to an extent substantially consistent with
the business travel obligations which you undertook on behalf
of the Company prior to the Change in Control.
(vi) The failure by the Company to obtain from any
successor the assent to this Agreement contemplated by Section
7(a) of this Agreement.
(vii) Any purported termination by the Company of
your employment which is not effected pursuant to a Notice of
Termination satisfying the requirements of this Agreement; and
for purposes of this Agreement, no such purported termination
will be effective.
(viii) Any refusal by the Company to continue to
allow you to attend to matters or engage in activities not
directly related to the business of the Company which, prior
to the Change in Control, you were permitted by the Board to
attend to or engage in.
(k) Gross-Up Payment. "Gross-Up Payment" means a payment
described in Section 4 of this Agreement with respect to an Excise Tax.
(l) Notice of Termination. "Notice of Termination" means a
written notice communicated by the Company to you or by you to the
Company of termination of your employment with the Company. For
purposes of this Agreement, Notice of Termination of your employment
given by the Company must indicate the specific termination provision
in this Agreement relied upon, and must set forth in reasonable detail
the facts and circumstances claimed to provide a basis for termination
of your employment under the provision so indicated.
(m) Other Agreement. "Other Agreement" means a plan,
arrangement, or agreement pursuant to which an Other Payment is made.
(n) Other Payment. "Other Payment" means any payment or
benefit payable to you in connection with a Change in Control of the
Company pursuant to any plan, arrangement, or agreement (other than
this Agreement) with the Company, a person whose actions result in such
Change in Control, or any person affiliated with the Company or such
person.
<PAGE>
- --------------------- -13- April 29, 1999
(o) Outside Tax Counsel. "Outside Tax Counsel" means Miller,
Nash, Wiener, Hager & Carlsen LLP, or in the event such counsel are
unavailable by reason of conflict or for any other reason, another law
firm in Portland, Oregon, selected by you that is reasonably
satisfactory to the Company. The Company will not unreasonably withhold
its approval of counsel selected by you as Outside Tax Counsel.
(p) Outstanding Options. "Outstanding Options" means all
options to purchase Company Shares granted to you under any plan or
program of the Company that (i) are outstanding (and have not been
exercised) as of the date of a Change in Control and (ii) are not
exercised by you between the date on which the Change in Control occurs
and the date the Stock Award Cash-Out Payment is made to you. For
purposes of this Agreement, Outstanding Options include all options
granted to you whether or not such options have vested or become
exercisable as of the date of the Change in Control. Furthermore,
options outstanding as of the date of a Change in Control (that are not
subsequently exercised by you) will continue to be treated as
Outstanding Options for purposes of this Agreement even if such
options, by their terms, would otherwise terminate between the date of
the Change in Control and the final settlement date of your Severance
Benefits.
(q) Outstanding Restricted Stock Awards. "Outstanding
Restricted Stock Awards" means all awards or grants to you of
restricted stock made under the Company's Long Term Incentive
Compensation Plan or under any similar plan or agreement that are
outstanding and have not, by their terms, become fully vested and
transferable as of the date of a Change in Control and are not sold or
otherwise transferred by you after such date and before the Stock Award
Cash-Out Payment is made to you.
(r) Person. "Person" means and includes any individual,
corporation, limited liability company, partnership, trust, group,
association, or other "person," as such term is used in Section
13(d)(3) or 14(d) of the Exchange Act.
(s) Plan. "Plan" means any compensation plan such as a plan,
program, policy, or arrangement providing for incentive or deferred
compensation, stock options, other stock or stock-related grants or
awards, any employee benefit plan such as a thrift, investment,
savings, pension, profit sharing, 401(k), medical, disability,
long-term care, accident, life insurance, cafeteria, or relocation plan
or any other plan, program, policy, or arrangement of the Company
providing similar types of benefits to employees of the Company.
(t) Severance Payments. "Severance Payments" means the
payments to be paid to you as described in Section 3(d) of this
Agreement.
(u) Stock Award Cash-Out Payment. "Stock Award Cash-Out
Payment" means a payment as described in Section 3(d)(iii) of this
Agreement with respect to the Outstanding Options and the Outstanding
Restricted Stock Awards.
<PAGE>
- --------------------- -14- April 29, 1999
(v) Subsidiary. "Subsidiary" means a corporation of which more
than 50 percent of the outstanding voting stock is owned, directly or
indirectly, by the Company, by one or more other Subsidiaries, or by
the Company and one or more other Subsidiaries. For the purposes of
this definition, "voting stock" means stock which ordinarily has voting
power for the election of directors, whether at all times or only so
long as no senior class of stock has such voting power by reason of any
contingency.
(w) Total Payments. "Total Payments" means all payments or
benefits payable to you in connection with a Change in Control of the
Company, including Severance Payments under this Agreement and Other
Payments.
(x) Voting Securities. "Voting Securities" means all issued
and outstanding securities ordinarily having the right to vote at
elections of the Company's directors, including without limitation the
Company Shares.
If you accept and agree to the terms of this Agreement, kindly
sign and return to the Company the enclosed copy of this Agreement, which will
then constitute our agreement on this subject.
Sincerely,
WILLAMETTE INDUSTRIES, INC.
By ----------------------------------
Agreed to this ----- day
of -------------------, 1999.
- ---------------------------------
- ---------------------------------
EXHIBIT 12
WILLAMETTE INDUSTRIES, INC. AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------------------- ----------------
1994 1995 1996 1997 1998 1998 1999
------- ------- ------- ------- ------- ------- -------
Fixed Charges:
<S> <C> <C> <C> <C> <C> <C> <C>
Interest cost $ 80,807 77,237 103,338 136,929 145,579 73,087 65,585
One-third rent
expense 5,227 5,976 6,906 7,535 8,075 3,979 3,921
------- ------- ------- ------- ------- ------- -------
Total Fixed Charges $ 86,034 83,213 110,244 144,464 153,654 77,066 69,506
======= ======= ======= ======= ======= ======= =======
Add (Deduct):
Earnings before
income taxes $ 288,923 823,804 306,086 111,263 132,783 68,799 148,294
Interest capitalized (9,294) (6,187) (10,534) (19,939) (13,589) (12,088) (1,216)
------- ------- ------- ------- ------- ------- -------
Earnings for
Fixed Charges $ 365,663 900,830 405,796 235,788 272,848 133,777 216,584
======= ======= ======= ======= ======= ======= =======
Ratio of Earnings to
Fixed Charges 4.25 10.83 3.68 1.63 1.78 1.74 3.12
======= ======= ======= ======= ======= ======= =======
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S CONSOLIDATED BALANCE SHEETS AND RELATED CONSOLIDATED
STATEMENTS OF EARNINGS FOR THE PERIOD ENDED JUNE 30, 1999, AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
WILLAMETTE INDUSTRIES, INC.
FINANCIAL DATA SCHEDULE
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 19,930
<SECURITIES> 0
<RECEIVABLES> 397,106
<ALLOWANCES> 4,805
<INVENTORY> 405,450
<CURRENT-ASSETS> 857,436
<PP&E> 6,234,027
<DEPRECIATION> 2,389,308
<TOTAL-ASSETS> 4,783,998
<CURRENT-LIABILITIES> 452,409
<BONDS> 1,772,279
0
0
<COMMON> 55,743
<OTHER-SE> 2,019,159
<TOTAL-LIABILITY-AND-EQUITY> 4,783,998
<SALES> 1,930,822
<TOTAL-REVENUES> 1,930,822
<CGS> 1,586,703
<TOTAL-COSTS> 1,586,703
<OTHER-EXPENSES> 131,456
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 64,369
<INCOME-PRETAX> 148,294
<INCOME-TAX> 53,386
<INCOME-CONTINUING> 94,908
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 94,908
<EPS-BASIC> 0.85
<EPS-DILUTED> 0.85
</TABLE>
