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, 1999 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.
$3,219,380,103 at February 29, 2000
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 February 29, 2000
----- --------------------------------
Common Stock, $.50 par value 111,299,146 shares
DOCUMENTS INCORPORATED BY REFERENCE.
Portions of the registrant's definitive proxy statement for its 2000 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
-----
<TABLE>
Page
----
Part I
- ------
<S> <C> <C>
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............................................................8
Item 4. Submission of Matters to a Vote of Security Holders..........................8
Executive Officers of the Registrant.........................................9
Part II
- -------
Item 5. Market for Registrant's Common Equity
and Related Stockholder Matters............................................10
Item 6. Selected Financial Data.....................................................11
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations..............................12
Item 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
</TABLE>
<PAGE>
PART I
Item 1. Business
GENERAL
Willamette Industries, Inc. (the "company") 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. Our stock has
been publicly traded since 1968. Willamette is a diversified, integrated forest
products company with 103 manufacturing facilities in 24 states, France, Ireland
and Mexico.
We operate 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 range of products; our balance among building materials and
white and brown paper products; our 58% sawlog self-sufficiency; and an
organizational structure that encourages teamwork as well as individual
initiative.
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 30. The company is not dependent
on any one significant customer or group of customers. Approximately 91% of the
company's total output is sold domestically.
WHITE PAPER
Market Pulp and Fine Paper
Four fine paper mills manufacture 11% of the nation's uncoated free sheet
production. The company's pulp mills produce pulp primarily for consumption at
our fine paper mills, but we also produce 5% of the nation's bleached hardwood
market pulp which is sold to outside customers. Chips from nearby wood
converting facilities serve as the primary fiber source for our white paper
products.
Communication Papers and Cut Sheets
Six business forms plants manufacture 22% of the nation's production of
continuous forms. Additionally, six cut sheet facilities make private brand and
Willamette brand (Willcopy(R)) photocopy and cut sheet printer paper. Our cut
sheets represent 14% of the nation's production. Business forms and cut sheets
are marketed by our own sales force to a variety of consumers and distributors.
1
<PAGE>
BROWN PAPER
Brown Paper
Four paper mills 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, provides 58% of our total fiber needs.
Corrugated Containers and Sheets
Thirty-six corrugated container and sheet plants manufacture 6% of the
nation'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 make 13% of the nation's paper bags, marketed by our sales
force to grocery, department, drug and hardware stores in the West, Midwest and
South.
BUILDING MATERIALS
Lumber
Nine sawmills 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 manufactured at nine plants and oriented strand board (OSB)
manufactured at one plant account for 9% and 3%, respectively, of the nation's
production. Both products are marketed nationwide through independent
wholesalers and distributors.
Composite Panels
Four particleboard plants manufacture 13% of the nation's particleboard. In
addition, the company has a particleboard plant in France that produces 1% of
European production. Three medium density fiberboard (MDF) plants produce 22% of
the nation's MDF. MDF is also manufactured at facilities in Ireland and France,
which account for 6% of European production. The composite panel plants produce
value-added products including color-coated, laminated, fire-rated and
moisture-resistant boards. Composite panel products are sold nationwide through
independent wholesalers and distributors.
Engineered Wood Products
Two laminated beam plants account for 26% of the nation's production. Three
laminated veneer lumber (LVL) plants and two I-joist plants manufacture 9% of
the nation's total production for each product.
2
<PAGE>
Engineered wood products are sold in both the domestic and international
markets.
TIMBERLANDS
Willamette's 1,728,000 acres of timberland supply approximately 58% of our
long-term sawlog needs. The remainder is purchased through private timber sales
and open market purchases. Our timberlands are comprised of 734,000 acres in
Louisiana, Arkansas and Texas; 610,000 acres in Oregon; and 384,000 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 61% of our total energy needs.
EMPLOYEES
Willamette employs approximately 14,250 people, of whom about 48% are
represented by labor unions with collective bargaining agreements. Agreements
covering approximately 1,295 employees expired in 1999. Agreements involving
about 1,550 hourly employees are subject to renewal in 2000. Approximately 47%
of all salaried employees have been with the company for more than twelve years.
ENVIRONMENTAL MATTERS
See Item 7, "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 103
manufacturing facilities at December 31, 1999:
Facility 2000 Forecast 1999 Production
-------- ------------- ---------------
Building Materials
- ------------------
Plywood (9 Plants) M Square Ft. (3/8" Basis)
Chester, South Carolina 246,000
Dallas, Oregon 156,000
Dodson, Louisiana 227,000
Emerson, Arkansas 241,000
Foster, Oregon 148,000
Moncure, North Carolina 115,000
Ruston, Louisiana 148,000
Springfield, Oregon 122,000
Zwolle, Louisiana 238,000
-----------
Total Plywood 1,641,000
-----------
Oriented Strand Board (1 Plant)
Arcadia, Louisiana 307,000
-----------
Total Structural Panels 1,948,000 1,900,000
================================
Lumber (9 Mills) M Board Ft.
Chester, South Carolina(1) 24,000
Coburg, Oregon 180,000
Dallas, Oregon 154,000
Dodson, Louisiana 59,000
Lebanon, Oregon (2 Mills) 167,000
Taylor, Louisiana 51,000
Warrenton, Oregon 166,000
Zwolle, Louisiana 68,000
-----------
Total Lumber 869,000 820,000
================================
Particleboard (5 Plants) M Square Ft. (3/4" Basis)
Albany, Oregon 221,000
Bend, Oregon 180,000
Lillie, Louisiana 120,000
Linxe, France 169,000
Simsboro, Louisiana 110,000
-----------
Total Particleboard 800,000 689,000
================================
(1) Production to begin in the second quarter of 2000.
4
<PAGE>
Facility 2000 Forecast 1999 Production
-------- ------------- ---------------
Medium Density Fiberboard (5 Plants) M Square Ft. (3/4" Basis)
Bennettsville, South Carolina 130,000
Clonmel, Ireland 181,000
Eugene, Oregon 65,000
Malvern, Arkansas 145,000
Morcenx, France 82,000
-----------
Total MDF 603,000 573,000
================================
Engineered Wood Products (7 Plants) M Board Ft.
Laminated Beams
Simsboro, Louisiana 28,000
Vaughn, Oregon 59,000
-----------
Total Laminated Beams 87,000 83,000
================================
Laminated Veneer Lumber Hundred Cubic Ft.
Albany, Oregon 18,800
Simsboro, Louisiana 20,300
Winston, Oregon 16,200
-----------
Total LVL 55,300 46,400
================================
I-Joists M Lineal Ft.
Simsboro, Louisiana 33,000
Woodburn, Oregon 47,000
-----------
Total I-Joists 80,000 55,000
================================
Other Divisions (2 Facilities)
Coburg Veneer - Coburg, Oregon
Custom Products - Albany, Oregon
Brown Paper
- -----------
Brown Paper (4 mills) Tons
Albany, Oregon 567,000
Campti, Louisiana 936,000
Hawesville, Kentucky 176,000
Oxnard, California 202,000
-----------
Total Brown Paper 1,881,000 1,839,000
================================
5
<PAGE>
Facility 2000 Forecast 1999 Production
-------- ------------- ---------------
Corrugated Container and Sheets (36 Plants) M Square Ft.
Aurora, Illinois 1,201,000
Beaverton, Oregon 860,000
Bellevue, Washington 704,000
Bellmawr, New Jersey 718,000
Bowling Green, Kentucky 933,000
Cerritos, California 866,000
Compton, California 825,000
Dallas, Texas 1,042,000
Delaware, Ohio 666,000
Elk Grove, Illinois 542,000
Fort Smith, Arkansas 1,020,000
Fridley, Minnesota 1,032,000
Golden, Colorado 743,000
Griffin, Georgia 1,107,000
Huntsville, Alabama 987,000
Indianapolis, Indiana 781,000
Kansas City, Kansas 869,000
Lincoln, Illinois 506,000
Louisville, Kentucky 608,000
Lumberton, North Carolina 881,000
Maryland Heights, Missouri 740,000
Matthews, North Carolina 385,000
Memphis, Tennessee 40,000
Mexico City, Mexico 434,000
Moses Lake, Washington 769,000
Newton, North Carolina 593,000
Phoenix, Arizona(2) 265,000
Plant City, Florida 834,000
Portland, Oregon 256,000
Sacramento, California 826,000
San Leandro, California 1,186,000
Sanger, California 942,000
Sealy, Texas 840,000
St. Paul, Minnesota 634,000
Tulsa, Oklahoma 43,000
West Memphis, Arkansas 860,000
-----------
Total Corrugated Containers 26,538,000 25,709,000
================================
(2) Production to begin in the third quarter of 2000.
6
<PAGE>
Facility 2000 Forecast 1999 Production
-------- ------------- ---------------
Kraft Bags and Sacks (4 Plants) Tons
Beaverton, Oregon 36,000
Buena Park, California 38,000
Dallas, Texas 22,000
Kansas City, Missouri 20,000
-----------
Total Kraft Bags and Sacks 116,000 111,000
=================================
Preprinted Linerboard (2 Plants) M Square Ft.
Richwood, Kentucky 526,000
Tigard, Oregon 857,000
-----------
Total Preprinted Linerboard 1,383,000 1,328,000
=================================
Inks and Specialty Products (2 plants) Tons
Beaverton, Oregon 5,000
Delaware, Ohio 3,000
-----------
Total Inks 8,000 8,000
=================================
White Paper
- -----------
Market Pulp and Fine Paper (5 Mills) Tons
Hawesville, Kentucky
Market Pulp 136,000
Fine Paper 563,000
Johnsonburg, Pennsylvania 408,000
Kingsport, Tennessee 167,000
Marlboro, South Carolina 322,000
-----------
Total Market Pulp and Fine Paper 1,596,000 1,593,000
=================================
Communication Papers (6 Plants) Tons
Cerritos, California 59,000
Dallas, Texas 43,000
Indianapolis, Indiana 61,000
Langhorne, Pennsylvania 60,000
Rock Hill, South Carolina 53,000
West Chicago, Illinois 66,000
-----------
Total Communication Papers 342,000 334,000
=================================
Cut Sheets and Other Converting (6 Plants) Tons
Brownsville, Tennessee 122,000
DuBois, Pennsylvania 159,000
Kingsport, Tennessee 126,000
Owensboro, Kentucky 203,000
Tatum, South Carolina 108,000
Washington Court House, Ohio 69,000
-----------
Total Cut Sheets 787,000 697,000
=================================
7
<PAGE>
TIMBERLANDS
See Item 1, "Business--Timberlands" for information with respect to the
company's timberlands.
Item 3. Legal Proceedings
See Item 7, "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 and pending proceedings
brought thereunder.
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, 1999.
8
<PAGE>
Executive Officers of the Registrant
The executive officers of the company are elected annually by the board of
directors. At February 10, 2000, the executive officers of the company, their
ages at December 31, 1999, and their positions with the company were as follows:
Name Age Position
---- --- --------
Duane C. McDougall 47 President and Chief
Executive Officer
Marvin D. Cooper 56 Executive Vice President -
Pulp and paper mills
Greg W. Hawley 39 Executive Vice President
and Chief Financial
Officer, Secretary and
Treasurer
William P. Kinnune 60 Executive Vice President-
Corrugated containers and
bags
J. Eddie McMillan 54 Executive Vice President -
Building materials group
Michael R. Onustock 60 Executive Vice President-
Pulp and fine paper
marketing
Each executive officer, excluding Mr. Hawley, has been employed by the company
in his present or in another senior management capacity for more than five
years. Mr. Hawley was employed by the company as Vice President - Controller for
the past four years until his promotion to his present position effective
December 1, 1999. The previous five years he was a Vice President for Nosler,
Inc., a private manufacturing company in Oregon.
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, 1999, there were approximately 23,000 holders
(beneficial) of the company's common stock. The following table shows quarterly
earnings and dividends per share along with the range of closing prices for 1998
and 1999. 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.
<TABLE>
1999 1998
---------------------------------- -------------------------------------
Closing Closing
Diluted Dividends Price Diluted Dividends Price
Earnings Paid(a) High-Low Earnings Paid High-Low
------- ------ ------------------ -------- -------- ------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1st Quarter $ 0.28 0.16 39 1/16 - 31 3/4 0.20 0.16 39 3/4 30 13/16
2nd Quarter 0.57 0.18 49 1/16 - 37 13/16 0.21 0.16 40 7/16 29 7/8
3rd Quarter 0.73 0.18 51 3/16 - 39 5/8 0.32 0.16 32 23 1/4
4th Quarter 0.75 0.18 46 9/16 - 38 7/8 0.07 0.16 36 26 1/4
</TABLE>
(a) The quarterly dividend was increased to $0.21 per share commencing in the
first quarter of 2000.
10
<PAGE>
Item 6. Selected Financial Data
The following table shows selected financial data for the company for the
periods indicated:
Financial Results
(dollar amounts, except per share amounts, in thousands)
<TABLE>
1999 1998 1997 1996 1995
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Sales $ 4,077,969 3,700,282 3,501,376 3,425,173 3,873,575
==================================================================================================
Costs and Expenses:
Depreciation, amortization and cost
of fee timber harvested........... $ 303,719 371,141 338,949 302,937 249,165
Materials, labor and other
operating expenses................ 2,957,583 2,813,887 2,690,943 2,495,345 2,528,570
--------------------------------------------------------
Gross profit...................... 816,667 515,254 471,484 626,891 1,095,840
Selling and administrative expenses. 266,398 252,510 245,319 231,862 201,784
--------------------------------------------------------
Operating earnings................ 550,269 262,744 226,165 395,029 894,056
Interest expense.................... 125,284 131,990 116,990 92,804 71,050
Other income (expense).............. (11,710) 2,029 2,088 3,861 798
--------------------------------------------------------
Earnings before provision for
income taxes.................... 413,275 132,783 111,263 306,086 823,804
Provision for income taxes.......... 152,800 43,800 38,300 114,000 309,000
--------------------------------------------------------
Net earnings...................... 260,475 88,983 72,963 192,086 514,804
Cash dividends paid................. 77,984 71,227 71,005 68,520 62,874
Earnings retained in the business... 182,491 17,756 1,958 123,566 451,930
Capital expenditures................ 290,246 441,839 527,908 485,769 453,523
==================================================================================================
Financial Condition:
Working capital..................... $ 457,471 366,846 308,093 289,134 359,258
Long-term debt (noncurrent portion). 1,628,843 1,821,083 1,916,001 1,766,917 790,210
Stockholders' equity................ 2,203,712 2,002,431 1,994,480 1,976,281 1,846,890
Total assets........................ 4,797,861 4,697,668 4,811,055 4,720,681 3,413,555
==================================================================================================
Common Stock:
Number of stockholders.............. 23,000 22,000 20,000 20,000 19,000
Shares outstanding (in thousands) (1) 111,587 110,981 111,350 110,707 110,448
==================================================================================================
Per Share:(1)
Net earnings-diluted................ $ 2.33 0.80 0.65 1.73 4.65
Cash dividends paid................. 0.70 0.64 0.64 0.62 0.57
Stockholders' equity................ 19.75 18.04 17.91 17.85 16.72
Year-end stock price................ 46.438 33.50 32.188 34.813 28.125
==================================================================================================
Financial Returns:
Percent return on equity (2)........ 13.0% 4.5% 3.7% 10.4% 37.1%
Percent return on net sales......... 6.4% 2.4% 2.1% 5.6% 13.3%
==================================================================================================
Employment:
Number of employees................. 14,250 14,000 13,800 13,700 13,180
Wages, salaries and cost of
employee benefits................. $ 781,392 734,068 717,693 672,280 627,835
==================================================================================================
</TABLE>
(1) All share and per share amounts have been adjusted for stock splits.
(2) Calculated on stockholders' equity at the beginning of the year.
[OBJECT OMITTED]
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 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 costs of wood and recycled fiber, basic raw
materials for the company's three segments, are sensitive to various supply and
demand factors including environmental issues.
RESULTS OF OPERATIONS 1999 VS. 1998
- -----------------------------------
Consolidated net sales increased 10.2% and operating earnings increased 109.4%
in 1999 compared to 1998. Improved performances from all three segments
contributed to the increase over the prior year. Also contributing to the
improvement in earnings was a change in estimate for the depreciable lives of
property, plant and equipment. The change was based on 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 1999 operating earnings by $82.4 million and net
income by $51.9 million, or $0.46 per diluted share.
White paper struggled in the early part of 1999 as markets continued to be
depressed from the Asian turmoil of 1998. However, by the third quarter markets
were rebounding and the upswing continued into the fourth quarter. Net sales
increased 7.1% and operating earnings were up 102.8% (40.3% before the effect of
the depreciation change) when compared to the prior year. The improvement was
due to increased unit shipments which offset average sales price declines. Forms
shipments increased 11.2% as a result of increasing market share. Cut sheet
volumes improved 20.0% primarily due to a continued focus on sales to office
superstores. Additionally, 1999 included a full year of operation from the
Brownsville, Tennessee, cut sheet plant, which came on line in February 1998,
and a new cut sheet plant in Washington Court House, Ohio, which came on line in
November 1999. Hardwood market pulp unit shipments increased 15.9% as the
company was able to take advantage of pulp markets in 1999.
While unit shipments were strong in 1999, average sales prices remained below
1998 levels. Continuous forms average sales prices declined 2.3%, cut sheets
4.8% and fine paper, 1.1%. The only product line to exceed 1998 levels was
hardwood market pulp, which increased 18.1%. While prices were down
year-over-year, third and fourth quarter trends were positive. As a result, 1999
fourth quarter average sales prices were above 1998 yearly averages. Raw
material costs slightly reduced operating margins during the period as chip
costs increased 1.5% over 1998. The gross profit margin for white paper
increased to 15.5% in 1999 from 10.9% in 1998.
12
<PAGE>
Brown paper sales and earnings were solid throughout 1999, as we once again
out-performed the industry in percentage of volume growth for the year. Net
sales increased 6.5% and earnings increased 35.2% (21.0% before the effects of
the depreciation change) compared to 1998. Unit shipments for corrugated
containers improved 4.3% and grocery bags increased 5.1% over 1998 levels. The
increased volume in corrugated containers resulted from additional converting
capacity from capital improvements and strong demand from our expanding customer
base. Bag unit shipments increased for the first time since 1994 due to the
continued growth of the handle bag, which is recapturing market share from
plastics. Average sales prices increased for all product lines in 1999,
corrugated containers were up 2.9% and grocery bags were up 1.4% over the prior
year.
Raw material costs reduced brown paper earnings as old corrugated container
(OCC) prices increased 6.3% from 1998 levels. The gross profit margin for brown
paper was 22.3% in 1999 compared to 19.1% in 1998.
Building materials posted a strong year in 1999 as net sales improved 16.9%
and operating earnings increased 215.0% (187.5% before the effect of the
depreciation change) compared to 1998. Average sales prices were up in every
product line in 1999 except for our international products. Oriented strand
board (OSB) showed the greatest improvement as average sales prices increased
30.1% over 1998. Other product lines showed increases of 17.4% for plywood,
16.3% for lumber, 2.6% for particleboard and 4.1% for domestic medium density
fiberboard (MDF). The only decline in sales price realizations came from the
international MDF line, which experienced a decline of 17.2%.
Unit shipments increased in 1999 as demand remained strong. Plywood improved
11.4% and OSB increased 7.4%. The increased plywood volume partially resulted
from a full year of production at the Zwolle, Louisiana, plant which closed for
six months in 1998 due to fire damage. Lumber shipments were strong as well,
improving 8.6% over 1998 levels. Volume increases were the result of a strong
U.S. housing market through late fall and a full year of operation at a new
small-log sawmill in Taylor, Louisiana. The company's composite panel markets
also saw growth in 1999, as particleboard increased 12.0% and MDF increased
6.2%. These improvements were the result of the acquisition of an MDF plant in
Morcenx, France in March 1998 and a particleboard plant in Linxe, France in June
1999. As a result of the favorable price and volume changes, the gross profit
margin for building materials increased significantly to 21.3% in 1999 from
10.8% in 1998.
Selling and administrative expenses increased $13.9 million or 5.5% in 1999
due to the continued expansion of company operations. Selling and administrative
expenses as a percentage of sales decreased to 6.5% in 1999 from 6.8% in 1998.
Other income (expense) of $11.7 million was primarily related to the reserve
set up to approximate potential non-tax deductible penalties from a federal
Clean Air Act assessment.
13
<PAGE>
Interest expense decreased $6.7 million or 5.1% in 1999 to $125.3 million. The
reduction occurred despite a decrease in capitalized interest to $4.0 million
from $13.6 million in 1998. Interest expense declined as a result of reducing
total debt in 1999 by $231.8 million. The company's effective interest rate
increased to 7.16% from 7.06% in the prior year.
RESULTS OF OPERATIONS 1998 VS. 1997
- -----------------------------------
Consolidated net sales increased 5.7% and operating earnings improved 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 results.
White paper net sales improved 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 declined 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,
while hardwood market pulp and fine paper declined 9.0% and 9.6%, respectively,
from 1997. The price decline resulted from difficulties in Asian economies. Also
negatively affecting white paper results were increased chip costs of 6.6% and
start-up costs for the new paper machine at Kentucky Mills in 1998.
White paper unit shipments were mixed in 1998 as 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 decreased 6.9% while fine paper unit
shipments increased 12.7%. The fine paper improvement was the result of our new
Kentucky paper machine.
Brown paper was the top performing segment in 1998 as operating earnings
improved 141.5% when compared to 1997. Net sales increased 14.1% as average
sales prices improved 7.3% for corrugated containers and 4.8% for grocery bags
over the prior year. Unit shipment fluctuations also played a significant role
in increasing sales and earnings in 1998 as corrugated container unit shipments
improved 7.9% over the prior year, while grocery bag unit shipments declined
7.3%. Approximately 50.0% of the improvement in corrugated container shipments
was due to increased internal converting capacity from capital projects. The
remainder of the increase was a result of a full year of operation at a box
plant in Plant City, Florida, and a sheet plant in Portland, Oregon, both of
which came on line in the second quarter of 1997.
Raw material costs had a positive impact on operating earnings during 1998 as
OCC costs declined 16.5% from the prior year.
Building materials operating earnings decreased 35.4% in 1998 and net sales
dropped slightly from the prior year, as average sales prices declined for most
products. Lumber reflected the most dramatic erosion as average sales prices
dropped 18.7%. Other price declines included 4.9% in particleboard and 2.4% in
MDF. The difficulties in Asian economies created supply and demand imbalances,
keeping prices depressed
14
<PAGE>
for these products in 1998. The pricing exception in 1998 was OSB, which
realized a price increase of 38.3% over the prior year.
While prices declined 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 improved 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 improvements included particleboard
of 3.8% and MDF of 15.7% over the prior year. MDF shipments increased due to
capital projects and the acquisition of a facility in Morcenx, France in March
1998. Decreased plywood shipments of 7.7% were the result of the closure of the
Taylor, Louisiana, mill in July 1997, and downtime at our Zwolle, Louisiana,
mill due to a fire that halted production in April 1998.
Selling and administrative expenses increased 2.9% in 1998 due to assimilation
of acquisitions and expansions during the year. Selling and administrative
expense as a percentage of sales, however, declined 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 both years. 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, resulting from the
completion of the Kentucky expansion in June 1998.
LIQUIDITY AND CAPITAL RESOURCES
Willamette generates funds internally via net earnings adjusted for non-cash
charges against earnings such as depreciation, amortization, cost of fee timber
harvested and deferred income taxes. Funds generated externally have usually
been through debt financing.
In 1999, cash flows from operating activities were $602.9 million compared to
$435.4 million in 1998, an increase of 38.4%. The improvement was primarily
achieved through increased earnings. Internally generated cash flows funded all
of the company's capital expenditure program in 1999. Excess cash from
operations was used to pay dividends and reduce debt outstanding by $231.8
million during the year.
Net working capital increased to $457.5 million at December 31, 1999, from
$366.8 million at December 31, 1998. The increase was mainly due to increases in
receivables and inventories.
The company is continually making capital expenditures at its manufacturing
facilities to improve fiber utilization, achieve labor efficiency and to expand
production. In 1999, the company incurred $267.9 million in capital expenditures
for property, plant and equipment.
15
<PAGE>
During 1999 the following major capital projects were completed:
> Upgrade of the #1 paper machine at Johnsonburg, Pennsylvania.
> Construction of a new cut sheet plant in Washington Court House,
Ohio.
> Expansion of secondary fiber capacity at the paper mill
in Campti, Louisiana.
Major capital projects underway at December 31, 1999, include:
> Construction and installation of a new recovery boiler and steam
turbine generator at the Albany, Oregon, paper mill.
> Construction of a new corrugated box plant in Phoenix, Arizona.
> Relocation of the Elk Grove, Illinois, corrugated facility.
> Installation of a steam turbine generator at Kentucky Mills.
> Upgrade of the #5 paper machine at Johnsonburg, Pennsylvania.
> Construction of a new particleboard plant near Bennettsville, South
Carolina.
> Construction of a new small-log sawmill near Chester, South
Carolina.
> Capacity increase at our particleboard plant in Linxe, France.
The cost of all major projects in progress at December 31, 1999, is estimated
to be approximately $422.9 million, of which $179.4 million has already been
spent. These projects will be funded with internally generated cash flows and
external borrowings if needed.
In December 1998, the company sold 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 Industries. The forestlands were sold as they
were not critical to the long-term fiber supply needs of the company's
operations. Proceeds of the sale were used to pay down debt during 1998.
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. Proceeds
from both issuances were used to replace notes maturing in 1998 and reduce other
bank borrowing.
The total debt-to-capital ratio declined to 42.8% at December 31, 1999, from
48.3% at December 31, 1998, representing a debt reduction of $231.8 million. The
company believes it has the resources available to meet its long-term liquidity
requirements. Resources include internally generated funds and borrowing
agreements.
In 1998, the company's board of directors authorized the repurchase of $25.0
million of the company's common stock. The company repurchased 470,900 shares
for $13.0 million during the third and fourth quarters of 1998.
16
<PAGE>
On April 20, 1999, the company's board of directors voted to raise the
quarterly cash dividend from $0.16 to $0.18 per share, which was a 12.5%
increase; however, there is no assurance as to future dividends as they depend
on earnings, capital requirements and financial condition.
OTHER MATTERS
The company believes it is in substantial compliance with federal, state and
local laws regarding environmental quality.
In early 1998, the U.S. Environmental Protection Agency (EPA) released the
final rules regarding air and water quality known as the "cluster rules".
Compliance with the cluster rules is required by 2001, however, certain
exceptions to the rules extend the time period for specific compliance
requirements up to eight years from adoption. The company, through previously
completed and future projects, has made significant progress toward upgrading
the mills and plans to have all mills in compliance with the cluster rules by
the required deadlines.
The company's other operations are faced with increasingly stringent
environmental regulations. In the fourth quarter of 1997, the company received a
series of requests for information from the EPA under Section 114 of the Clean
Air Act (the Act) with respect to the company's building materials operations.
The requests have 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 and
has had many meetings and extensive correspondence with the EPA and the U.S.
Department of Justice 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 penalties
and agreements to install emission control equipment and undertake supplemental
environmental projects. The company has established a $10.0 million reserve as
an estimate of the potential non-tax deductible penalties resulting from these
proceedings.
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 Johnsonburg, Pennsylvania, pulp and paper mill. This request also
focused on compliance with PSD regulations. Subsequently, on April 19, 1999, the
company received an NOV relating to its Johnsonburg mill. The NOV asserts
violations of the Act relating to two alleged major modifications to the plant,
allegedly without proper PSD permits and without complying with applicable PSD
requirements. The company is reviewing the allegations contained in this NOV and
has been meeting with federal and state officials to discuss the issues raised
by the NOV. In August 1999, the company received another Section 114 information
request from the EPA relating to the company's paper mill in Campti, Louisiana.
Also, in March and November 1999, the company received Section 114 information
requests from the EPA relating to the company's paper mill in Hawesville,
Kentucky.
17
<PAGE>
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.
In 1996, the company began addressing the possible effects of the Y2K issue on
its information, financial and manufacturing systems. These efforts included
inventory assessment, modification and testing of these key systems.
Modification, testing and implementation of all critical systems was completed
early in the fourth quarter of 1999. With the passing of January 1, 2000, the
company has experienced no significant Y2K problems. As of December 31, 1999,
the company had spent $8.3 million on Y2K compliance. These costs were expensed
as incurred. No further significant expenditures are expected.
Over the years, inflation has resulted in replacement costs higher than those
originally needed to purchase existing plant and equipment. Advances in
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 Y2K 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 2000 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/ GREG W. HAWLEY
-------------------------
Dated: February 10, 2000 (Greg W. Hawley)
Executive Vice President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below on February 10, 2000, 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/ GREG W. HAWLEY Executive Vice President and
- ----------------------------- Chief Financial Officer, Secretary and
(Greg W. Hawley) Treasurer
Principal Accounting Officer
/S/ DONALD S. WADDELL Corporate Controller
- -----------------------------
(Donald S. Waddell)
/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/ MICHAEL G. THORNE Director
- -----------------------------
(Michael G. Thorne)
/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, 1999 and 1998 .... 26
Consolidated Statements of Earnings for years ended
December 31, 1999, 1998 and 1997............................... 27
Consolidated Statements of Stockholders' Equity
for years ended December 31, 1999, 1998 and 1997............... 28
Consolidated Statements of Cash Flows for years ended
December 31, 1999, 1998 and 1997............................... 29
Supplementary Business Segment Information....................... 30
Selected Quarterly Financial Data................................ 31
Notes to Consolidated Financial Statements....................... 32-40
24
<PAGE>
Independent Auditors' Report
- ----------------------------
The Board of Directors and Stockholders
Willamette Industries, Inc.:
We have audited the accompanying consolidated balance sheets of Willamette
Industries, Inc. and subsidiaries as of December 31, 1999 and 1998 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, 1999. 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, 1999 and 1998, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1999, in conformity with generally accepted
accounting principles.
KPMG LLP
Portland, Oregon
February 10, 2000
25
<PAGE>
<TABLE>
- ---------------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEETS
=======================================================================================
December 31, 1999 and 1998
(dollar amounts, except per share amounts, in thousands)
1999 1998
----------- ------------
Assets
Current assets:
<S> <C> <C>
Cash $ 25,557 31,359
Accounts receivable, less allowance for doubtful
accounts of $3,222 (1998 - $4,300) 382,763 306,332
Inventories (note 3) 445,110 411,316
Prepaid expenses and timber deposits 36,160 45,316
----------- ------------
Total current assets 889,590 794,323
----------- ------------
Timber, timberlands and related facilities, net (note 9) 1,057,529 1,112,180
Property, plant and equipment, net (note 4) 2,751,210 2,707,146
Other assets 99,532 84,019
----------- ------------
$ 4,797,861 4,697,668
=========== ============
Liabilities and Stockholders' Equity
Current liabilities:
Current installments on long-term debt (note 5) $ 3,256 2,267
Notes payable (note 5) 13,617 47,252
Accounts payable, includes book overdrafts of $53,653
(1998 - $55,030) 212,222 196,134
Accrued payroll and related expenses 77,043 70,670
Accrued interest 38,525 39,533
Other accrued expenses 65,256 55,540
Accrued income taxes (note 6) 22,200 16,081
----------- ------------
Total current liabilities 432,119 427,477
----------- ------------
Deferred income taxes (note 6) 491,374 404,518
Other liabilities 41,813 42,159
Long-term debt, net of current installments (note 5) 1,628,843 1,821,083
Stockholders' equity (note 8):
Preferred stock, cumulative, of $.50 par value
Authorized 5,000,000 shares - -
Common stock of $.50 par value
Authorized 150,000,000 shares; issued
111,587,433 shares (1998 - 110,980,768 shares) 55,794 55,490
Capital surplus 303,626 285,140
Retained earnings 1,844,292 1,661,801
----------- ------------
Total stockholders' equity 2,203,712 2,002,431
----------- ------------
$ 4,797,861 4,697,668
=========== ============
</TABLE>
See accompanying notes to consolidated financial statements.
26
<PAGE>
<TABLE>
- ---------------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF EARNINGS
=======================================================================================
Years ended December 31, 1999, 1998 and 1997
(dollar and share amounts, except per share amounts, in thousands)
1999 1998 1997
----------- ---------- ----------
<S> <C> <C> <C>
Net sales $ 4,077,969 3,700,282 3,501,376
Cost of sales 3,261,302 3,185,028 3,029,892
----------- ---------- ----------
Gross profit 816,667 515,254 471,484
Selling and administrative expense 266,398 252,510 245,319
----------- ---------- ----------
Operating earnings 550,269 262,744 226,165
Other income (expense) (11,710) 2,029 2,088
----------- ---------- ----------
538,559 264,773 228,253
Interest expense 125,284 131,990 116,990
----------- ---------- ----------
Earnings before provision for income taxes 413,275 132,783 111,263
Provision for income taxes (note 6) 152,800 43,800 38,300
----------- ---------- ----------
Net earnings $ 260,475 88,983 72,963
=========== ========== ==========
Earnings per share - basic $ 2.34 0.80 0.66
=========== ========== ==========
Earnings per share - diluted $ 2.33 0.80 0.65
=========== ========== ==========
Weighted average shares outstanding - basic 111,375 111,302 110,975
=========== ========== ==========
Weighted average shares outstanding - diluted 112,001 111,747 111,550
=========== ========== ==========
</TABLE>
Pershare earnings, both basic and diluted, are based on the weighted average
number of shares outstanding.
Diluted weighted average shares outstanding are calculated using the treasury
stock method and assume all stock options with a market value greater than
the grant price at December 31, 1999, are exercised. See note 8.
See accompanying notes to consolidated financial statements.
27
<PAGE>
<TABLE>
- ----------------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
========================================================================================
Years ended December 31, 1999, 1998 and 1997
(dollar amounts, except per share amounts, in thousands)
1999 1998 1997
----------- ----------- -----------
Common Stock:
<S> <C> <C> <C>
Balance at beginning of year $ 55,490 55,675 27,677
2-for-1 stock split - - 27,787
Shares issued for options exercised 304 50 211
Stock repurchased and canceled - (235) -
----------- ----------- -----------
Balance at end of year $ 55,794 55,490 55,675
=========== =========== ===========
Capital Surplus:
Balance at beginning of year $ 285,140 294,760 306,517
2-for-1 stock split - - (27,787)
Shares issued for options exercised 18,486 3,124 16,030
Stock repurchased and canceled - (12,744) -
----------- ----------- -----------
Balance at end of year $ 303,626 285,140 294,760
=========== =========== ===========
Retained Earnings:
Balance at beginning of year $ 1,661,801 1,644,045 1,642,087
Net earnings 260,475 88,983 72,963
Less cash dividends on common stock
($.70, $.64 and $.64 per share in
1999, 1998 and 1997, respectively) (77,984) (71,227) (71,005)
----------- ----------- -----------
Balance at end of year $ 1,844,292 1,661,801 1,644,045
=========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
28
<PAGE>
<TABLE>
- -----------------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
=========================================================================================
Years ended December 31, 1999, 1998 and 1997
(dollar amounts in thousands)
1999 1998 1997
----------- ----------- -----------
Cash Flows from Operating Activities:
<S> <C> <C> <C>
Net earnings $ 260,475 88,983 72,963
Adjustments to reconcile net earnings
to net cash from operating activities:
Depreciation 240,374 296,466 268,030
Cost of fee timber harvested 46,197 54,376 52,649
Other amortization 17,148 20,299 18,270
Increase in deferred income taxes 86,938 7,683 28,650
Changes in working capital items:
Accounts receivable (69,760) 4,167 (34,293)
Inventories (31,015) (14,623) (28,646)
Prepaid expenses and timber deposits 23,224 (7,778) 1,463
Accounts payable and accrued expenses 23,159 (26,381) 23,568
Accrued income taxes 6,126 12,250 (13,276)
----------- ----------- -----------
Net cash from operating activities 602,866 435,442 389,378
----------- ----------- -----------
Cash Flows from Investing Activities:
Proceeds from sale of assets 5,965 237,422 162,711
Expenditures for property, plant & equipment (267,856) (417,772) (506,348)
Expenditures for timber and timberlands (8,026) (8,767) (7,782)
Expenditures for roads and reforestation (14,364) (15,300) (13,778)
Other (33,329) (9,582) 9,624
----------- ----------- -----------
Net cash from investing activities (317,610) (213,999) (355,573)
----------- ----------- -----------
Cash Flows from Financing Activities:
Net change in operating lines of credit (33,635) (27,630) 23,985
Debt borrowing 27,770 591 175,415
Proceeds from sale of common stock 18,725 3,117 16,109
Repurchased common stock - (12,979) -
Cash dividends paid (77,984) (71,227) (71,005)
Payment on debt (225,934) (109,556) (172,931)
----------- ----------- -----------
Net cash from financing activities (291,058) (217,684) (28,427)
----------- ----------- -----------
Net change in cash (5,802) 3,759 5,378
Cash at beginning of year 31,359 27,600 22,222
----------- ----------- -----------
----------- ----------- -----------
Cash at end of year $ 25,557 31,359 27,600
=========== =========== ===========
Supplemental disclosures of cash flow information
Cash paid during the year for:
Interest (net of amount capitalized) $ 126,292 130,796 116,987
=========== =========== ===========
Income taxes $ 52,916 24,369 22,926
=========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
29
<PAGE>
<TABLE>
- ------------------------------------------------------------------------------------------------------------------------------------
SUPPLEMENTARY BUSINESS SEGMENT INFORMATION
====================================================================================================================================
(dollar amounts in thousands)
1999 % 1998 % 1997 % 1996 % 1995 %
------------------------------------- -------------------------------------------------------
Sales to outside customers:
White Paper:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Communication papers and cut sheets $ 814,464 20 725,866 20 683,435 19 722,881 21 829,472 22
Market pulp and fine paper 327,847 8 340,657 9 346,214 10 316,383 9 403,741 10
------------------ ----------------- ------------------ ------------------ ------------------
Total White Paper 1,142,311 28 1,066,523 29 1,029,649 29 1,039,264 30 1,233,213 32
------------------ ----------------- ------------------ ------------------ ------------------
Brown Paper:
Packaging 1,229,548 30 1,151,366 31 1,007,765 29 1,077,892 31 1,276,901 33
Other 238,892 6 227,644 6 201,270 6 226,756 7 299,408 8
------------------ ----------------- ------------------ ------------------ ------------------
Total Brown Paper 1,468,440 36 1,379,010 37 1,209,035 35 1,304,648 38 1,576,309 41
------------------ ----------------- ------------------ ------------------ ------------------
Building Materials:
Lumber 290,233 7 233,997 6 220,822 6 179,323 5 140,842 4
Structural panels 465,967 11 361,958 10 366,246 10 380,977 11 431,264 11
Composite panels 383,296 10 367,072 10 344,624 10 260,641 8 268,350 7
Other wood products 327,722 8 291,722 8 331,000 10 260,320 8 223,597 5
------------------ ----------------- ------------------ ------------------ ------------------
Total Building Materials 1,467,218 36 1,254,749 34 1,262,692 36 1,081,261 32 1,064,053 27
------------------ ----------------- ------------------ ------------------ ------------------
Total net sales (1) $ 4,077,969 100 3,700,282 100 3,501,376 100 3,425,173 100 3,873,575 100
================== ================= ================== ================== ==================
Intersegment sales at market value:
Building Materials $ 48,279 60,813 47,100 42,692 61,082
============= ============ ============ ============= ============
Gross Profit (GP): GP% GP% GP% GP% GP%
------ ------ ------ ------ ------
White Paper 177,486 16 116,214 11 130,987 13 203,569 20 438,713 36
Brown Paper 326,990 22 263,927 19 162,121 13 272,376 21 416,341 26
Building Materials 312,191 21 135,113 11 178,376 14 150,946 14 240,786 23
------------------------------------ --------------------------------------------------------
Total gross profit $ 816,667 20 515,254 14 471,484 13 626,891 18 1,095,840 28
================== ================= ================== ================== ==================
Operating earnings:
White Paper $ 118,955 58,654 73,349 149,558 390,208
Brown Paper 225,283 166,680 69,017 187,947 338,079
Building Materials 253,910 80,601 124,697 102,513 198,158
Corporate (47,879) (43,191) (40,898) (44,989) (32,389)
------------- ------------ ------------ ------------- ------------
Total operating earnings $ 550,269 262,744 226,165 395,029 894,056
============= ============ ============ ============= ============
Other income (expense) (11,710) 2,029 2,088 3,861 798
Interest expense 125,284 131,990 116,990 92,804 71,050
------------- ------------ ------------ ------------- ------------
Earnings before provision
for income taxes $ 413,275 132,783 111,263 306,086 823,804
============= ============ ============ ============= ============
Depreciation, cost of fee timber
harvested and amortization:(2)
White Paper $ 124,175 139,240 114,449 106,250 96,801
Brown Paper 68,333 90,484 90,403 88,566 81,242
Building Materials 106,496 135,108 128,754 103,354 67,385
Corporate 4,715 6,309 5,343 4,767 3,737
------------- ------------ ------------ ------------- ------------
$ 303,719 371,141 338,949 302,937 249,165
============= ============ ============ ============= ============
Capital expenditures:
White Paper $ 62,269 215,503 371,894 275,726 151,662
Brown Paper 161,144 120,827 82,935 82,867 140,861
Building Materials 64,426 101,884 72,075 126,932 157,382
Corporate 2,407 3,625 1,004 244 3,618
------------- ------------ ------------ ------------- ------------
$ 290,246 441,839 527,908 485,769 453,523
============= ============ ============ ============= ============
Identifiable assets:
White Paper $ 1,830,043 1,860,673 1,785,493 1,486,842 1,369,101
Brown Paper 1,149,123 1,021,180 987,097 968,624 1,027,664
Building Materials 1,734,945 1,735,257 1,966,136 2,008,542 946,216
Corporate 83,750 80,558 72,329 256,673 70,574
------------- ------------ ------------ ------------- ------------
$ 4,797,861 4,697,668 4,811,055 4,720,681 3,413,555
============= ============ ============ ============= ============
</TABLE>
(1) The company is not dependent on any one significant customer or group of
customers. Approximately 91% of the company's total output is sold
domestically.
(2) See note 4 of Notes to Consolidated Financial Statements for discussion of
change in accounting estimates for depreciation.
30
<PAGE>
<TABLE>
- --------------------------------------------------------------------------------------
SELECTED QUARTERLY FINANCIAL DATA
======================================================================================
(Unaudited) (dollar amounts, except per share amounts, in thousands)
Net Earnings
---------------------------
Net Gross Per Share
1999 Sales Profit Amount Diluted
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1st Quarter................. $ 923,453 145,158 31,594 .28
2nd Quarter................. 1,007,369 198,961 63,314 .57
3rd Quarter................. 1,087,899 242,919 81,958 .73
4th Quarter................. 1,059,248 229,629 83,609 .75
- --------------------------------------------------------------------------------------
Total.................... $ 4,077,969 816,667 260,475 2.33
======================================================================================
Net Earnings
---------------------------
Net Gross Per Share
1998 Sales Profit Amount Diluted
- --------------------------------------------------------------------------------------
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 Earnings
---------------------------
Net Gross Per Share
1997 Sales Profit Amount Diluted
- --------------------------------------------------------------------------------------
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 .18
4th Quarter................. 878,041 120,705 21,199 .19
- --------------------------------------------------------------------------------------
Total............... $ 3,501,376 471,484 72,963 .65
======================================================================================
</TABLE>
31
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999, 1998 and 1997 (dollar amounts, except per share amounts, in
thousands)
Note 1. Nature of Operations
Willamette Industries, Inc. is a diversified, integrated forest products
company with 103 manufacturing facilities in 24 states, France, Ireland and
Mexico. The company's principal lines of business are white paper, brown paper
and building materials. The company produces hardwood market pulp, fine paper,
specialty printing papers, business forms, cut sheets, kraft linerboard,
corrugating medium, bag paper, corrugated containers, paper bags, inks, lumber,
plywood, particleboard, MDF, OSB, laminated beams, LVL, I-joists and other
value-added wood products. Based on 1999 sales, the company's business is
comprised of 28% white paper, 36% brown paper and 36% building materials. The
company sells approximately 91% of its products in the United States; 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 that substantially increase the useful lives of
existing plant and equipment. Maintenance, repairs and minor renewals are
expensed as incurred. When properties are 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 cost less the cost of fee timber harvested and
the amortization of logging roads. Both 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
private sources under timber harvesting contracts. The company does not incur a
direct liability for, or ownership of, this timber until it has been harvested.
(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 1999, 1998 and 1997 was $3,998,
$13,589 and $19,939, respectively, and is netted against interest expense in
the consolidated statements of earnings. Such capitalized interest will be
amortized over the depreciable lives of the related assets.
(g) Business Segments
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
the management and reporting of those products within the company. Information
with respect to the segments is included in the Supplementary Business Segment
Information on page 30.
(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) Reclassifications
Certain reclassifications have been made to prior years' data to conform
with the 1999 presentation.
33
<PAGE>
Note 3. Inventories
The major components of inventories are as follows:
<TABLE>
December 31,
------------------------------
1999 1998
------------ ------------
<S> <C> <C>
Finished Product................................ $ 139,385 131,383
Work in progress................................ 7,722 6,909
Raw material.................................... 198,866 184,734
Supplies........................................ 99,137 88,290
------------ ------------
$ 445,110 411,316
============ ============
Valued at:
LIFO cost................................... $ 288,161 276,549
Average cost................................ 156,949 134,767
</TABLE>
If current cost rather than LIFO cost had been used by the company,
inventories would have been approximately $57,049 and $49,548 higher in 1999 and
1998, respectively.
Note 4. Property, Plant and Equipment
Property, plant and equipment accounts are summarized as follows:
<TABLE>
December 31,
Range of ------------------------------
useful lives 1999 1998
------------ -------------- ---------------
<S> <C> <C> <C>
Land................................ -- $ 41,985 40,446
Buildings........................... 15 - 35 380,967 366,125
Machinery and equipment............. 5 - 25 4,569,273 4,354,789
Furniture and fixtures.............. 3 - 15 92,411 90,606
Leasehold improvements.............. life of lease 6,619 7,209
Construction in progress............ -- 145,479 101,522
-------------- ---------------
5,236,734 4,960,697
Accumulated depreciation............ 2,485,524 2,253,551
-------------- ---------------
$ 2,751,210 2,707,146
============== ===============
</TABLE>
Effective January 1, 1999, the company changed its accounting estimates
relating to depreciation. The estimated service lives for most machinery and
equipment were 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, 1999 net income was increased
$51,900, or $0.46 per diluted share.
34
<PAGE>
Note 5. Long-term Debt
Long-term debt consists of the following:
<TABLE>
December 31,
----------------------------
1999 1998
------------- -------------
Notes payable to public:
<S> <C> <C>
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 in 2005................................ 100,000 100,000
7.00%, due in 2018................................ 100,000 100,000
9.00%, due in 2021................................ 150,000 150,000
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 7.20%, due in
varying amounts through 2013 ................... 205,700 205,700
Bank loans, with interest rates averaging
6.20% and 5.52%, due in varying amounts
through 2006...................................... 250,625 445,000
Revenue bonds, with interest rates
averaging 5.04% and 4.59%, due in
varying amounts through 2026...................... 113,440 113,800
Other long-term debt, with interest
rates averaging 8.62% and 7.43%,
due in varying amounts through 2006............... 12,334 8,850
------------- -------------
1,632,099 1,823,350
Less: Current installments........................... 3,256 2,267
------------- -------------
$ 1,628,843 1,821,083
============= =============
</TABLE>
Principal payment requirements on the above debt for the four years subsequent
to 2000 are: 2001, $230,088; 2002, $117,503; 2003, $69,852; 2004, $10,458.
The company has a revolving loan with a group of banks that provides for
borrowings up to $450,000 in principal amount and provides backup for a master
note program. At December 31, 1999, the outstanding balance covered under the
revolving loan was $225,000. At December 31, 1999, $150,000 of notes payable due
in 2000 were classified as long-term debt as the company plans to refinance the
notes in 2000.
The company utilized short-term borrowings with a number of banks at various
times during 1999 and 1998 of which $13,617 was outstanding at December 31,
1999. The weighted average interest rate on short-term borrowings at December
31, 1999 and 1998, was 5.65% and 5.46%,
35
<PAGE>
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 $1,606,000, based on the quoted market prices for the same or
similar issues or on the current rates offered to the company for debt with the
same remaining maturities.
Note 6. Income Taxes
The provision for income taxes includes the following:
<TABLE>
1999 1998 1997
------------ ------------ ------------
Payable (receivable) from
<S> <C> <C> <C>
taxable earnings......................... $ 85,563 26,018 (4,350)
Payable (receivable) due to AMT.............. (19,700) 10,100 14,000
------------ ------------ ------------
Currently payable............................ 65,863 36,118 9,650
Deferred taxes due to temporary
differences for:
Accelerated depreciation................. 81,667 26,974 23,395
Other.................................... 5,270 (19,292) 5,255
------------ ------------ ------------
Total deferred........................... 86,937 7,682 28,650
------------ ------------ ------------
Total provision.......................... $ 152,800 43,800 38,300
============ ============ ============
Federal income taxes......................... $ 135,343 36,664 31,600
Other income taxes........................... 17,457 7,136 6,700
------------ ------------ ------------
$ 152,800 43,800 38,300
============ ============ ============
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:
1999 1998 1997
------------ ------------ ------------
Federal statutory rate....................... 35.0% 35.0% 35.0%
State income taxes, net of
federal tax effect....................... 2.5% 2.3% 2.3%
Benefit from foreign taxes................... (0.5%) (3.6%) (1.3%)
Estimated non-deductible
EPA penalty.............................. 1.0% - -
Other........................................ (1.0%) (0.7%) (1.6%)
------------ ------------ ------------
37.0% 33.0% 34.4%
============ ============ ============
</TABLE>
The company's consolidated federal income tax returns through 1995 have been
examined by the Internal Revenue Service and while final settlement has not been
made, management believes that the company has provided for any 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
36
<PAGE>
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, 1999, the company had $4,400 in AMT
credits.
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 $11,515, $11,221 and $10,903 in 1999, 1998 and 1997,
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 non-contributory defined benefit plans. Retirement
benefits are based on years of service and compensation prior to retirement.
Total pension expense in 1999, 1998 and 1997 for all such plans was $8,669,
$8,863 and $10,770, respectively.
As advised by its actuaries, the company makes contributions to provide for
benefits attributed to past service, and 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>
Postretirement
Defined Benefit Plans Benefit Plans
----------------------------------------------
1999 1998 1999 1998
----------------------------------- ----------
Change in Benefit Obligation
Benefit obligation - Beginning
<S> <C> <C> <C> <C>
of year $ 386,108 342,065 37,348 34,277
Service cost 17,431 15,401 1,203 1,182
Interest cost 27,748 24,585 2,426 2,428
Amendments 17,186 1,671 - -
Other (821) 274 783 680
Actuarial (gain) loss (24,965) 15,448 (2,078) 3,072
Benefits paid (16,057) (13,336) (4,275) (4,291)
------------ ----------- ---------- ----------
Benefit obligation - End of year $ 406,630 386,108 35,407 37,348
============ =========== ========== ==========
</TABLE>
37
<PAGE>
<TABLE>
Postretirement
Defined Benefit Plans Benefit Plans
----------------------------- -----------------------------
1999 1998 1999 1998
-------------- -------------- -------------- --------------
Change in Assets
<S> <C> <C>
Fair value of assets - Beginning of year $ 528,456 460,911 - -
Actual return on plan assets 77,218 77,610 - -
Employer contribution 4,819 2,740 3,381 3,611
Other (1,194) 531 894 680
Benefits paid (16,057) (13,336) (4,275) (4,291)
-------------- -------------- -------------- --------------
Fair value of assets - End of year $ 593,242 528,456 - -
============== ============== ============== ==============
Reconciliation of Funded Status
Funded status $ 186,612 142,348 (35,407) (37,348)
Unrecognized actuarial (gain) loss (211,453) (154,298) 6,127 8,515
Unrecognized prior service cost 26,201 12,209 251 282
Unrecognized asset (398) (964) - -
-------------- -------------- -------------- --------------
Prepaid (accrued) benefit cost $ 962 (705) (29,029) (28,551)
============== ============== ============== ==============
Assumptions as of December 31
Discount rate 7.50% 7.00% 7.50% 7.00%
Expected return on plan assets 9.00% 9.00% - -
Rate of increase in compensation
levels 5.00% 5.00% - -
Medical cost trend rate - - 8.00% 8.50%
</TABLE>
For the year 1999, an 8.0% 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 $3,958 and increase the service and
interest costs by $385. A 1.0% decrease in the medical trend rate would decrease
the PBO by $3,141 and decrease the service and interest cost by $306. 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
---------------------
1999 1998
--------- ---------
Benefit obligation $ 22,381 9,491
========= =========
Plan assets (fair value) $ 21,718 8,676
========= =========
38
<PAGE>
The components of net periodic benefit cost are as follows:
<TABLE>
Defined Postretirement
Benefit Plans Benefit Plans
------------------------------- -------------------------------
1999 1998 1999 1998
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Service cost $ 17,431 15,401 1,203 1,182
Interest cost 27,748 24,585 2,426 2,428
Expected return on plan assets (40,754) (35,138) - -
Amortization of prior service cost 3,194 1,841 31 31
Amortization of net transition
obligation (566) (604) - -
Recognized actuarial (gain) loss (3,901) (2,625) 199 185
--------------- --------------- --------------- ---------------
Net periodic benefit cost $ 3,152 3,460 3,859 3,826
=============== =============== =============== ===============
</TABLE>
Note 8. Stockholders' Equity
The company's 1995 Long-Term Incentive Compensation Plan (the Plan) provides
for grants of stock options, awards of stock appreciation rights and restricted
shares of common stock to directors and key employees. Options are granted at
exercise prices not less than the market value of the common stock on the date
of grant. Options generally become exercisable after one year in 33 1/3%
increments per year and expire ten years from the date of grant. The company has
reserved 5,500,000 shares for distribution under the Plan. 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:
<TABLE>
Option Price
Shares Per Share
----------- -------------------
<S> <C> <C>
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
Granted.................................. 555,680 47 . 25
Exercised................................ 608,484 11.625 - 38.6875
Canceled or surrendered.................. 10,597 29.719 - 47.25
----------- -------------------
Outstanding December 31, 1999................ 3,280,686 11.8125 - 47.25
=========== ===================
Shares exercisable........................... 2,217,585 $ 11.8125 - 38.6875
=========== ===================
</TABLE>
39
<PAGE>
Restricted shares have been awarded to certain officers at no cost based upon
continued employment, 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, 1999, 3,074 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 February 2000.
The board of directors has approved a new shareholder rights plan that will
extend the benefits of the existing plan. The new plan lowers the percentage of
the company's common stock that a person can own and the threshold for a tender
or exchange offer that would trigger the plan to 15%. The new stock purchase
rights will have an exercise price of $200.
In September 1998, the board of directors authorized the repurchase of up to
$25,000 of the company's common stock. The company repurchased 470,900 shares of
common stock for $13,000 in the third and fourth quarters of 1998.
Note 9. Dispositions
In December 1998, the company sold 117,000 acres of timberland in southwestern
Washington for $234,000. The timberland was acquired in 1996 as part of the
Cavenham acquisition. 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.
Note 10. Contingencies
The company has established a $10,000 reserve as an estimate of non-tax
deductible penalties resulting from a federal Clean Air Act assessment of the
building materials operations.
There are various other 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 to Exhibit 3 of the registrant's
Registration Statement on Form 8-A filed February 24, 2000 (the "Form
8-A"). [14]
3B. Bylaws of the registrant as amended through December 1, 1998.
Incorporated by reference to Exhibit 3B to the registrant's annual
report on Form 10-K for the year ended December 31, 1998. (the "1998
Form 10-K"). [23]
4A. Indenture dated as of March 15, 1983, between the registrant and The
Chase Manhattan Bank. Incorporated by reference to 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 to 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. Incorporated by reference to Exhibit 4 of the registrant's
current report on Form 8-K/A, amendment No. 1, dated May 15, 1996.
[105]
4D. Letter Amendment dated August 13, 1999, to Credit Agreement filed as
Exhibit 4C. [1]
4E. Rights Agreement dated as of February 25, 2000, between the registrant
and ChaseMellon Shareholder Services, LLC. Incorporated by reference
to Exhibit 4.1 of the Form 8-A. [51]
10A. Willamette Industries, Inc. 1999 Deferred Compensation Plan for
Directors.* [16]
10B. Willamette Industries, Inc. 1986 Stock Option and Stock Appreciation
Rights Plan, as amended. Incorporated by reference to Exhibit 10B of
the registrant's annual report on Form 10-K for the year ended
December 31, 1996 ("1996 Form 10-K").* [8]
10C. Form of Willamette Industries, Inc. Severance Agreement with Key
Management Group as revised effective April 20, 1999.
41
<PAGE>
Incorporated by reference to Exhibit 10A of the registrant's quarterly
report on Form 10-Q for the quarter ended June 30, 1999.* [15]
10D. Willamette Industries, Inc. 1993 Deferred Compensation Plan.
Incorporated by reference from Exhibit 10E to the registrant's annual
report on Form 10-K for the year ended December 31, 1993 (No.
1-12545).* [16]
10E. Willamette Industries, Inc. 1995 Long-Term Incentive Compensation
Plan. Incorporated by reference to Exhibit 10F of the registrant's
annual report on Form 10-K for the year ended December 31, 1994.* [12]
10F. Consulting agreement dated December 1, 1998, between the registrant
and William Swindells. Incorporated by reference to Exhibit 10G to the
1998 Form 10-K.* [4]
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 10, 2000, 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. Incorporated by reference to Exhibit
99.1 to the registrant's current report on Form 8-K filed on February
25, 2000. [3]
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 ten 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
WILLAMETTE INDUSTRIES, INC.
First Interstate Tower
Portland, Oregon 97201
J. A. Parsons
Executive Vice President
August 13, 1999
AIRBORNE #4511518244
Bank of American National Trust
and Savings Association
Agency Management Services #5596
1455 Market Street, 12th Floor
San Francisco, CA 94103
Attn: Mr. Carl F. Fye
Dear Mr. Fye:
In accordance with Article 10.02 of our loan agreement, dated May 10, 1996,
Willamette Industries, Inc. hereby gives notice of its intent to permanently
reduce the revolving commitment by $200,000,000 in accordance with Article
2.07(b), effective August 23, 1999.
Accordingly, on that date, the total committed line will be as follows:
Revolving commitment before reduction $650,000,000
Reduction 200,000,000
------------
New revolving commitment amount $450,000,000
============
Sincerely,
J. A. Parsons
JAP/dlw
bcc Duane McDougall
Greg Hawley
Greig Goddard
WILLAMETTE INDUSTRIES
1999 DEFERRED COMPENSATION PLAN
FOR DIRECTORS
Effective January 1, 2000
<PAGE>
TABLE OF CONTENTS
PAGE
ARTICLE I PURPOSE; EFFECTIVE DATE....................................1
ARTICLE II DEFINITIONS................................................1
2.1 Account.......................................................1
2.2 Beneficiary...................................................1
2.3 Board.........................................................1
2.4 Committee.....................................................1
2.5 Company.......................................................1
2.6 Compensation..................................................1
2.7 Determination Date............................................1
2.8 Earnings......................................................1
2.9 Mirror Investment Fund........................................2
2.10 Participant...................................................2
2.11 Participation Agreement.......................................2
2.12 Plan..........................................................2
2.13 Retirement....................................................2
2.14 Subaccount....................................................2
ARTICLE III PARTICIPATION AND DEFERRALS................................3
3.1 Eligibility and Participation.................................3
3.2 Form of Deferral..............................................3
3.3 Selection of Mirror Investment Fund...........................3
3.4 Continuation of Deferral Amount...............................3
3.5 Suspension....................................................4
ARTICLE IV DEFERRED COMPENSATION ACCOUNT..............................4
4.1 Account.......................................................4
4.2 Timing of Credits; Withholding................................4
4.3 Determination of Accounts and Subaccounts.....................4
4.4 Vesting of Accounts...........................................4
4.5 Statement of Accounts.........................................4
ARTICLE V MERGER OF PRIOR DEFERRED COMPENSATION PLAN.................5
5.1 Merger........................................................5
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TABLE OF CONTENTS
(CONTINUED)
PAGE
5.2 Current Directors.............................................5
5.3 Former Directors..............................................5
ARTICLE VI TERMINATION OF RETIREMENT PLAN.............................5
6.1 Termination...................................................5
6.2 Current Directors.............................................5
6.3 Former Directors..............................................6
ARTICLE VII PLAN BENEFITS..............................................6
7.1 Retirement; Death.............................................6
7.2 Form of Benefits..............................................6
7.3 Death.........................................................6
7.4 Accelerated Distribution......................................7
7.5 Valuation Date................................................7
7.6 Payment to Guardian...........................................7
7.7 Election......................................................7
ARTICLE VIII BENEFICIARY DESIGNATION....................................8
8.1 Beneficiary Designation.......................................8
8.2 Amendments....................................................8
8.3 No Beneficiary Designation....................................8
ARTICLE IX ADMINISTRATION.............................................8
9.1 Committee; Duties.............................................8
9.2 Agents........................................................8
9.3 Binding Effect of Decisions...................................9
9.4 Indemnity of Committee........................................9
ARTICLE X CLAIMS PROCEDURE...........................................9
10.1 Claim.........................................................9
10.2 Denial of Claim...............................................9
10.3 Review of Claim...............................................9
10.4 Final Decision................................................9
ARTICLE XI AMENDMENT AND TERMINATION OF PLAN.........................10
11.1 Amendment....................................................10
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<PAGE>
TABLE OF CONTENTS
(CONTINUED)
PAGE
11.2 Company's Right to Terminate.................................10
ARTICLE XII MISCELLANEOUS.............................................10
12.1 Unfunded Plan................................................10
12.2 Unsecured General Creditor...................................11
12.3 Trust Fund...................................................11
12.4 Nonassignability.............................................11
12.5 Governing Law................................................11
12.6 Validity.....................................................11
12.7 Notice.......................................................11
12.8 Successors...................................................12
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<PAGE>
WILLAMETTE INDUSTRIES
1999 DEFERRED COMPENSATION PLAN
FOR DIRECTORS
ARTICLE I
PURPOSE; EFFECTIVE DATE
-----------------------
The purpose of this Deferred Compensation Plan is to provide
current tax planning opportunities for Directors of Willamette Industries, Inc.
It is intended that the Plan will aid in attracting and retaining persons of
exceptional ability to serve as Directors. The Plan shall be effective as of
January 1, 2000.
ARTICLE II
DEFINITIONS
-----------
Whenever used in this document, the following terms shall have
the meanings set forth in this Article unless a contrary or different meaning is
expressly provided:
2.1 Account. "Account" means the device used by the Company to
measure and determine the amounts to be paid to a Participant under the Plan.
Each Account shall consist of one (1) or more Subaccounts.
2.2 Beneficiary. "Beneficiary" means the person, persons, or
entity entitled under Article VIII to receive any Plan benefits payable after a
Participant's death.
2.3 Board. "Board" means the Board of Directors of the Company.
2.4 Committee. "Committee" means the committee appointed by the
Board to administer the
Plan pursuant to Article IX.
2.5 Company. "Company means Willamette Industries, Inc., an
Oregon corporation.
2.6 Compensation. "Compensation" means director fees (annual
retainer, and board and committee meeting attendance fees).
2.7 Determination Date. "Determination Date" means the last day
of each calendar month.
2.8 Earnings. "Earnings" for each Subaccount means the rate of
growth credited or debited to the Subaccount on each Determination Date in a
calendar year, which shall
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<PAGE>
be credited or debited at the rates described in the definition of Mirror
Investment Fund (Section 2.9). "Earnings" for an Account shall mean the
aggregate Earnings for each Subaccount making up the Account.
2.9 Mirror Investment Fund. "Mirror Investment Fund" means each
fund selected by a Participant pursuant to Article III. Each Mirror Investment
Fund shall be a phantom investment fund, which shall be credited with earnings
(whether a gain or a loss) at the same rate as one (1) of the investment funds
offered by the Willamette Industries Stock Purchase Plan (or any successor
defined contribution plan maintained by the Company that qualifies under
Sections 401(a) and 401(k) of the Internal Revenue Code). As of January 1, 2000,
there are five (5) Mirror Investment Funds whose deemed earnings will track the
earnings of the following Stock Purchase Plan investment funds:
(a) The Investment Contract Fund
(b) The Balanced Index Fund
(c) The Value Index Fund
(d) The Growth Index Fund
(e) The Institutional Index Fund
2.10 Participant. "Participant" means any Director of the Company
who has elected to defer Compensation under this Plan or who is credited with an
opening Account balance under Article V or VI.
2.11 Participation Agreement. "Participation Agreement" means the
agreement submitted by a Participant to the Committee specifying the amount to
be deferred beginning with the agreement's effective date.
2.12 Plan. "Plan" means this 1999 Deferred Compensation Plan for
Directors as amended from time to time.
2.13 Retirement. The date on which the Participant ceases to be a
Director of the Company or, if the Participant has so elected, the later of (a)
the date on which the Participant ceases to be a Director of the Company, or (b)
the date on which the Participant retires from the Participant's principal
occupation.
2.14 Subaccount. "Subaccount" means the device used by the
Company to measure and determine the amount of deferrals allocated to each
Mirror Investment Fund selected by the Participant, and the Earnings allocated
therein.
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<PAGE>
ARTICLE III
PARTICIPATION AND DEFERRALS
---------------------------
3.1 Eligibility and Participation.
(a) Eligibility. Eligibility to participate in the Plan shall be
limited to Directors of the Company.
(b) Participation. A Director may elect to participate in the
Plan by submitting a Participation Agreement to the Committee. An initial
or amended Participation Agreement may be submitted at any time, but an
amended Participation Agreement shall not be effective until the date
(the "effective date") which is 120 days after the date the amended
Participation Agreement is submitted. The effective date of an initial
Participation Agreement is the date it is submitted to the Committee.
3.2 Form of Deferral. A Participant may elect in the
Participation Agreement to defer all or any portion of the Compensation that is
payable to the Participant on or after the effective date referred to in Section
3.1(b). The amount to be deferred shall be stated as a flat percentage; the
percentage may be different for the annual retainer fee than for the meeting
attendance fees.
3.3 Selection of Mirror Investment Fund.
(a) As of each selection date, a Participant shall select the
Mirror Investment Fund(s) in which the Participant wishes to have future
deferrals deemed invested, and may also change the selection of Mirror
Investment Fund(s) in which existing Account balances attributable to
past deferrals are to be thereafter deemed invested. Unless and until the
Committee determines otherwise, the selection dates shall be each
December 31 and June 30.
(b) The selection with respect to future deferrals may be of any
combination of one (1) or more of the Mirror Investment Funds as long as
at least the required minimum percentage is allocated to each of the
Mirror Investment Funds selected. Similarly, the selection with respect
to existing Account balances may be of any combination of one (1) or more
of the Mirror Investment Funds as long as at least the required minimum
percentage is allocated to each of the Mirror Investment Funds selected.
The allocation among Mirror Investment Funds with respect to existing
Account balances need not be the same as for future deferrals. Unless and
until the Committee determines otherwise, the required minimum percentage
to be allocated to a Mirror Investment Fund shall be 5%.
3.4 Continuation of Deferral Amount. The amount to be deferred
under a Participation Agreement shall remain in effect until the effective date
of an amended Participation Agreement as described in Section 3.1(b) or the
effective date of a notice of suspension as described in Section 3.5.
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<PAGE>
3.5 Suspension. A Participant may elect to suspend deferrals by
submitting a notice of suspension to the Committee. A notice of suspension may
be submitted at any time, but it shall not be effective until the date (the
"effective date") which is 120 days after the date the notice is submitted. The
notice must specify the period (the "suspension period") which begins with the
effective date and during which no Compensation shall be deferred. The
suspension period may be for any period, but it must be a minimum of 120 days,
and may be for an indefinite period. Deferrals will be resumed after the end of
the suspension period in accordance with the Participant's existing
Participation Agreement. If the Participant specified an indefinite suspension
period, deferrals may not be resumed until the effective date of an amended
Participation Agreement submitted by the Participant as described in Section
3.1(b).
ARTICLE IV
DEFERRED COMPENSATION ACCOUNT
-----------------------------
4.1 Account. The amounts deferred by a Participant under the Plan
and Earnings shall be credited to the Participant's Account. Separate
Subaccounts will be maintained to reflect Mirror Investment Fund selections. The
Account and Subaccounts shall be bookkeeping devices utilized for the sole
purpose of determining the benefits payable under the Plan and shall not
constitute a separate fund of assets.
4.2 Timing of Credits; Withholding. A Participant's deferred
Compensation shall be credited to the Account and Subaccounts at the time it
would have been payable to the Participant.
4.3 Determination of Accounts and Subaccounts. Each Participant's
Account and Subaccount(s) as of each Determination Date shall consist of the
balance of the Account and Subaccount(s) as of the immediately preceding
Determination Date, adjusted as follows:
(a) New Deferrals. The Account and Subaccount(s) shall be
increased by any deferred Compensation credited since such Determination
Date.
(b) Distributions. The Account and Subaccount(s) shall be reduced
by any benefits distributed to the Participant since such Determination
Date.
(c) Earnings. The Account and Subaccount(s) shall be increased by
the Earnings credited on the average daily balance in the Account and
each Subaccount since such Determination Date.
4.4 Vesting of Accounts. Except as otherwise provided in Section
7.4, each Participant shall be one hundred percent (100%) vested at all times in
the amounts credited to such Participant's Account, Subaccount, and Earnings
thereon.
4.5 Statement of Accounts. The Committee shall give to each
Participant a statement showing the balances in the Participant's Account and
Subaccount(s) on a quarterly basis and at such other times as may be determined
by the Committee.
-4-
<PAGE>
ARTICLE V
MERGER OF PRIOR DEFERRED COMPENSATION PLAN
------------------------------------------
5.1 Merger. The Deferred Compensation Plan for Directors that was
adopted in 1983 ("the prior plan") is merged with and into this Plan effective
January 1, 2000.
5.2 Current Directors. The prior plan's "Deferred Fee Account"
balances as of December 31, 1999, for those Directors who are deferring under
the prior plan shall be deemed to be their opening Account balance as of January
1, 2000, under this Plan, and will be subject to all the terms and conditions of
this Plan. However, elections made under the prior plan as to the form and
timing of payments (annual or quarterly payments, time when payments are to
commence, period over which installments are to be made) shall, even though the
form and timing may not be among the choices under this Plan, remain effective
until superseded by a valid election made under this Plan as provided in Section
7.7 (the election will not be considered as the Participant's first election, so
in order to be valid, the election must be made no later than December 31 of the
second calendar year preceding the calendar year in which the earlier of
Retirement or death occurs). The percentage elected to be deferred under the
prior plan shall remain effective under this Plan until the effective date of an
amended Participation Agreement as described in Section 3.1(b) or the effective
date of a notice of suspension as described in Section 3.5.
5.3 Former Directors. With respect to a former Director who is
entitled to receive payments under the prior plan, this Plan will make such
payments under the same terms and conditions as they would have been made under
the prior plan, including the monthly crediting of the Account with the interest
rate specified in the prior plan.
ARTICLE VI
TERMINATION OF RETIREMENT PLAN
------------------------------
6.1 Termination. The Retirement Plan for Nonemployee Directors
that was adopted in 1989 ("the retirement plan") is terminated effective
December 31, 1999.
6.2 Current Directors. The actuarially-determined present value
of projected future benefits as of December 31, 1999, for those Directors who
were eligible for the retirement plan shall be deemed to be their opening
Account balance (or deemed to be included in their opening Account balance, for
a Director who otherwise has an opening Account balance under Section 5.1), as
of January 1, 2000, under this Plan, and will be subject to all the terms and
conditions of this Plan. However, the form and timing of payments of the Account
(to the extent attributable to the 1989 retirement plan) shall, until superseded
by a valid election made under this Plan as provided in Section 7.7, be monthly
installments over a period of 120 months commencing with the first day of the
first calendar month following the month in which the Participant ceased to be a
Director of the Company; in the event of the Participant's death prior to
complete distribution of the Participant's Account, installment payments are to
be made to the
-5-
<PAGE>
Beneficiary over the 120-month installment period (or over the remainder of the
period). The foregoing form and timing of payments of the Account (to the extent
attributable to the 1989 retirement plan) may be superseded by an election under
Section 7.7, but the election will not be considered as the Participant's first
election, so in order to be valid, the election must be made no later than
December 31 of the second calendar year preceding the calendar year in which the
earlier of Retirement or death occurs).
6.3 Former Directors. With respect to a former Director who is
currently receiving payments under the retirement plan, this Plan will continue
such payments under the same terms and conditions as they would have been made
under the retirement plan (including the cessation of payments on the earlier of
the death of the former Director or his receipt of the maximum number of
payments under the terms of the retirement plan).
ARTICLE VII
PLAN BENEFITS
-------------
7.1 Retirement; Death. A Participant shall become entitled to
payment of the Participant's Account upon the occurrence of the Participant's
Retirement as defined in Section 2.13. If the Participant dies (whether before
or after Retirement has occurred), the Participant's Beneficiary shall be
entitled to payment of the Account.
7.2 Form of Benefits. Except as provided below, benefits as a
result of Retirement or death shall be paid in the form elected by the
Participant in accordance with Section 7.7. Forms of benefit payment shall be:
(a) A lump sum amount which is equal to the applicable Account
balance.
(b) Monthly installments of the Account over a period of sixty
(60), one hundred twenty (120), or one hundred eighty (180) months.
Earnings on the unpaid balance shall continue to be credited to
Subaccounts at the appropriate Mirror Investment Fund rate.
Notwithstanding an installment election, if the Participant's
Account is fifty thousand dollars ($50,000) or less on the valuation date
referred to in Section 7.5, the benefit shall be paid in a lump sum.
7.3 Death. A Participant who elects payment of benefits in the
form of installments may also elect in accordance with Section 7.7 whether, in
the event of the Participant's death prior to complete distribution of the
Participant's Account:
(a) The remaining amount of the Participant's Account is to be
paid in a lump sum to the Beneficiary (in which case payment shall be
made within sixty (60) days after the date of death), or
(b) Installment payments are to be made to the Beneficiary over
the elected installment period (or over the remainder of the period).
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<PAGE>
7.4 Accelerated Distribution. Notwithstanding any other provision
of the Plan, a Participant at any time shall be entitled to receive, upon
written request to the Committee, a lump sum distribution equal to ninety
percent (90%) of the Account balance as of the Determination Date immediately
preceding the date on which the Committee receives the written request. The
remaining balance shall be forfeited by the Participant and the Participant
shall no longer be eligible to participate in the Plan from that date forward.
The amount payable under this section shall be paid in a lump sum within sixty
(60) days following the receipt of the notice by the Committee from the
Participant.
7.5 Valuation Date. The last day of the month in which the
earlier of Retirement or death occurs shall be the valuation date.
The amount of a lump sum payment shall be based on the value of
the Participant's Account on the valuation date. Payments shall be made or
commence within thirty (30) days after the valuation date.
7.6 Payment to Guardian. If a distribution is payable to a minor
or a person declared incompetent or to a person incapable of handling the
disposition of property, the Committee may direct payment to the guardian, legal
representative, or person having the care and custody of such minor,
incompetent, or person. The Committee may require proof of incompetence,
minority, incapacity, or guardianship as it may deem appropriate prior to
distribution. Such distribution shall completely discharge the Committee from
all liability with respect to such benefit.
7.7 Election. Under procedures fixed by the Committee, each
Participant shall have the right to elect:
(a) Between the Retirement date alternatives described in 2.13;
(b) Among the forms of distribution described in Section 7.2; and
(c) Whether (if installment payments are to be made) the
installment payments will be accelerated or continued in the event of the
Participant's death as described in Section 7.3.
A Participant may revoke an election and make a new election. An
election shall apply to the entire amount of the Participant's Account. In order
to be valid, however, the election (unless it is the Participant's first
election) must be made no later than December 31 of the second calendar year
preceding the calendar year in which the earlier of Retirement or death occurs;
a new election made either during the calendar year in which the earlier of
Retirement or death occurs or during the immediately prior calendar year shall
not be valid.
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<PAGE>
ARTICLE VIII
BENEFICIARY DESIGNATION
-----------------------
8.1 Beneficiary Designation. Each Participant shall have the
right, at any time, to designate one (1) or more persons or an entity as
Beneficiary (both primary as well as secondary) to whom benefits under this Plan
shall be paid in the event of a Participant's death prior to complete
distribution of the Participant's Account. Each Beneficiary designation shall be
in a written form prescribed by the Committee and will be effective only when
filed with the Committee during the Participant's lifetime.
8.2 Amendments. Any designation of Beneficiary may be changed by
a Participant without the consent of such Beneficiary by the filing of a new
designation with the Committee. The filing of a new designation shall cancel all
designations previously filed.
8.3 No Beneficiary Designation. If any Participant fails to
designate a Beneficiary in the manner provided above, or if the Beneficiary
designated by a deceased Participant dies before the Participant or before
complete distribution of the Participant's benefits, the Participant's
Beneficiary shall be the person in the first of the following classes in which
there is a survivor:
(a) The Participant's surviving spouse;
(b) The Participant's children in equal shares, except that if
any of the children predeceases the Participant but leaves issue
surviving, then such issue shall take by right of representation the
share the parent would have taken if living;
(c) The Participant's estate.
ARTICLE IX
ADMINISTRATION
--------------
9.1 Committee; Duties. This Plan shall be administered by the
Committee, which shall be the Compensation and Nomination Committee of the Board
or such other Committee as the Board may designate. The Committee shall have the
authority to make, amend, interpret, and enforce all appropriate rules and
regulations for the administration of the Plan and decide or resolve any and all
questions, including interpretations of the Plan, as may arise in such
administration. A majority vote of the Committee members shall control any
decision. Members of the Committee may be Participants under this Plan.
9.2 Agents. The Committee may, from time to time, employ agents
and delegate to them such administrative duties as it sees fit, and may from
time to time consult with counsel who may be counsel to the Company.
-8-
<PAGE>
9.3 Binding Effect of Decisions. The decision or action of the
Committee with respect to any question arising out of or in connection with the
administration, interpretation, and application of the Plan and the rules and
regulations promulgated hereunder shall be final, conclusive, and binding upon
all persons having any interest in the Plan.
9.4 Indemnity of Committee. The Company shall indemnify and hold
harmless the members of the Committee against any and all claims, loss, damage,
expense, or liability arising from any action or failure to act with respect to
this Plan on account of such person's service on the Committee, except in the
case of gross negligence or willful misconduct.
ARTICLE X
CLAIMS PROCEDURE
----------------
10.1 Claim. Any person claiming a benefit, requesting an
interpretation or ruling under the Plan, or requesting information under the
Plan shall present the request in writing to the Committee, which shall respond
in writing as soon as practicable.
10.2 Denial of Claim. If the claim or request is denied, the
written notice of denial shall state:
(a) The reasons for denial, with specific reference to the Plan
provisions on which the denial is based.
(b) A description of any additional material or information
required and an explanation of why it is necessary.
(c) An explanation of the Plan's claim review procedure.
10.3 Review of Claim. Any person whose claim or request is denied
or who has not received a response within thirty (30) days may request review by
notice given in writing to the Committee. The claim or request shall be reviewed
by the Committee which may, but shall not be required to, grant the claimant a
hearing. On review, the claimant may have representation, examine pertinent
documents, and submit issues and comments in writing.
10.4 Final Decision. The decision on review shall normally be
made within sixty (60) days. If an extension of time is required for a hearing
or other special circumstances, the claimant shall be notified and the time
limit shall be one hundred twenty (120) days. The decision shall be in writing
and shall state the reasons and the relevant Plan provisions. All decisions on
review shall be final and bind all parties concerned.
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<PAGE>
ARTICLE XI
AMENDMENT AND TERMINATION OF PLAN
---------------------------------
11.1 Amendment. The Board may at any time amend the Plan by
written instrument, notice of which shall be given to all Participants and to
Beneficiaries receiving installment payments. However, no amendment shall reduce
the amount accrued in any Account to the date such notice of the amendment is
given.
11.2 Company's Right to Terminate. The Board may at any time
partially or completely terminate the Plan if, in its judgment, the tax,
accounting, or other effects of the continuance of the Plan or potential
payments thereunder would not be in the best interests of the Company.
(a) Partial Termination. The Board may partially terminate the
Plan by instructing the Committee not to accept any additional
Participation Agreements. If such a partial termination occurs, the Plan
shall continue to operate and be effective with regard to Participation
Agreements entered into prior to the effective date of such partial
termination.
(b) Complete Termination. The Board may completely terminate the
Plan by instructing the Committee not to accept any additional
Participation Agreements, and by terminating all ongoing deferrals. If
such a complete termination occurs, the Plan shall cease to operate and
the Company shall pay out each Account. Payment shall be made as a lump
sum or in equal monthly installments over the following period, based on
the Account balance:
Account Balance Payout Period
--------------- -------------
Less than $100,000 Lump Sum
$100,000 but less than $500,000 3 Years
$500,000 or more 5 Years
Earnings at the appropriate rate shall continue to be credited on
the unpaid balance in each Account.
ARTICLE XII
MISCELLANEOUS
-------------
12.1 Unfunded Plan. This Plan is an unfunded plan maintained to
provide deferred compensation benefits for non-employee Directors of the Company
and therefore is exempt from the provisions of the Employee Retirement Income
Security Act of 1974.
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<PAGE>
12.2 Unsecured General Creditor. Participants and their
Beneficiaries, heirs, successors, and assigns shall have no secured legal or
equitable rights, interest, or claims in any property or assets of the Company,
nor shall they be beneficiaries of, or have any rights, claims, or interests in
any life insurance policies, annuity contracts, or the proceeds therefrom owned
or which may be acquired by the Company. Except as provided in Section 12.3,
such policies, annuity contracts, or other assets of the Company shall not be
held under any trust for the benefit of Participants, their Beneficiaries,
heirs, successors, or assigns, or held in any way as collateral security for the
fulfilling of the obligations of the Company under this Plan. Any and all of the
Company's assets and policies shall be, and remain, the general, unpledged,
unrestricted assets of the Company. The Company's obligations under the Plan
shall be that of an unfunded and unsecured promise to pay money in the future.
12.3 Trust Fund. At its discretion, the Company may establish one
(1) or more trusts, with such trustees as the Board may approve, for the purpose
of providing for the payment of benefits owed under the Plan. Although such a
trust shall be irrevocable, its assets shall be held for payment of all the
Company's general creditors in the event of insolvency. To the extent any
benefits provided under the Plan are paid from any such trust, the Company shall
have no further obligation to pay them. If not paid from the trust, such
benefits shall remain the obligation of the Company. Notwithstanding the
existence of such a trust, it is intended that the Plan be unfunded for tax
purposes.
12.4 Nonassignability. Neither a Participant nor any other person
shall have any right to commute, sell, assign, transfer, pledge, anticipate,
mortgage, or otherwise encumber, transfer, hypothecate, or convey in advance of
actual receipt the amounts, if any, payable hereunder, or any part thereof,
which are, and all rights to which are, expressly declared to be unassignable
and nontransferable. No part of the amounts payable shall, prior to actual
payment, be subject to seizure or sequestration for the payment of any debts,
judgments, alimony, or separate maintenance owed by a Participant or any other
person, nor be transferable by operation of law in the event of a Participant's
or any other person's bankruptcy or insolvency.
12.5 Governing Law. The provisions of this Plan shall be
construed and interpreted according to the laws of the state of Oregon.
12.6 Validity. In case any provision of this Plan shall be held
illegal or invalid for any reason, said illegality or invalidity shall not
affect the remaining parts hereof, but this Plan shall be construed and enforced
as if such illegal and invalid provision had never been inserted herein.
12.7 Notice. Any notice required or permitted under the Plan
shall be sufficient if in writing and hand delivered or sent by registered or
certified mail. Such notice shall be deemed as given as of the date of delivery
or, if delivery is made by mail, as of the date shown on the postmark on the
receipt for registration or certification. Mailed notice to the Committee shall
be directed to the Company's address. Mailed notice to a Participant or
Beneficiary shall be directed to the individual's last known address in the
Company's records.
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<PAGE>
12.8 Successors. The provisions of this Plan shall bind and inure
to the benefit of the Company and its successors and assigns. The term
successors as used herein shall include any corporate or other business entity
which shall, whether by merger, consolidation, purchase, or otherwise, acquire
all or substantially all of the business and assets of the Company, and
successors of any such corporation or other business entity.
Date signed: WILLAMETTE INDUSTRIES, INC.
- ------------------------------, 1999 By---------------------------------
Executive Vice President
-12-
Exhibit 12
WILLAMETTE INDUSTRIES, INC. AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(DOLLAR AMOUNTS IN THOUSANDS)
Year Ended December 31,
<TABLE>
--------------------------------------------------------------------
1995 1996 1997 1998 1999
--------------------------------------------------------------------
Fixed Charges:
<S> <C> <C> <C> <C> <C>
Interest Cost $ 77,237 103,338 136,929 145,579 129,282
One-third rent 5,976 6,906 7,535 8,075 8,076
--------------- ------------ ------------ ------------ -------------
Total Fixed Charges $ 83,213 110,244 144,464 153,654 137,358
=============== ============ ============ ============ =============
Add (Deduct):
Earnings before
Income Taxes $ 823,804 306,086 111,263 132,783 413,275
Interest Capitalized (6,187) (10,534) (19,939) (13,589) (3,998)
--------------- ------------ ------------ ------------ -------------
Earnings for
Fixed Charges $ 900,830 405,796 235,788 272,848 546,635
=============== ============ ============ ============ =============
Ratio of Earnings to
Fixed Charges 10.83 3.68 1.63 1.78 3.98
====== ===== ===== ===== ====
</TABLE>
EXHIBIT 23
Consent of Independent Auditors
The Board of Directors
Willamette Industries, Inc.:
We consent to incorporation by reference in the Registration Statements No.
33-5847, No. 33-40504, 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 10, 2000, relating to the consolidated balance sheets of Willamette
Industries, Inc. and subsidiaries as of December 31, 1999, and 1998, 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, 1999, which
report appears in the December 31, 1999 annual report on Form 10-K of Willamette
Industries, Inc.
KPMG LLP
Portland, Oregon
March 17, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
EXHIBIT 27
WILLAMETTE INDUSTRIES, INC.
FINANCIAL DATA SCHEDULE
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S CONSOLIDATED BALANCE SHEETS AND RELATED CONSOLIDATED STATEMENTS OF
EARNINGS FOR THE PERIOD ENDED DECEMBER 31, 1999, AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 25,557
<SECURITIES> 0
<RECEIVABLES> 385,985
<ALLOWANCES> 3,222
<INVENTORY> 445,110
<CURRENT-ASSETS> 889,590
<PP&E> 6,294,263
<DEPRECIATION> 2,485,524
<TOTAL-ASSETS> 4,797,861
<CURRENT-LIABILITIES> 432,119
<BONDS> 1,628,843
0
0
<COMMON> 55,794
<OTHER-SE> 2,147,918
<TOTAL-LIABILITY-AND-EQUITY> 4,797,861
<SALES> 4,077,969
<TOTAL-REVENUES> 4,077,969
<CGS> 3,261,302
<TOTAL-COSTS> 3,261,302
<OTHER-EXPENSES> 278,108
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 125,284
<INCOME-PRETAX> 413,275
<INCOME-TAX> 152,800
<INCOME-CONTINUING> 260,475
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 260,475
<EPS-BASIC> 2.34
<EPS-DILUTED> 2.33
</TABLE>
