SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
(x) QUARTERLY REPORT PURSUANT TO SECTION 13 or 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended
March 31, 2000
Commission File Number 1-12545
Willamette Industries, Inc.
----------------------------------------------
(Exact name of registrant as specified in its charter)
State of Oregon 93-0312940
---------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1300 S.W. Fifth Avenue, Suite 3800, Portland, Oregon 97201
--------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (503) 227-5581
--------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
-----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date. Common Stock, 50 cent par
value: 110,756,932 at May 1, 2000.
<PAGE>
WILLAMETTE INDUSTRIES, INC. AND SUBSIDIARIES FORM 10-Q
CONSOLIDATED BALANCE SHEETS PART I
(AMOUNTS, EXCEPT PER SHARE AMOUNTS, IN THOUSANDS) ITEM 1
<TABLE>
MARCH 31, DECEMBER 31,
ASSETS 2000 1999
------ --------- -------
<S> <C> <C>
Current assets:
Cash $ 22,999 25,557
Accounts receivable, less allowance
for doubtful accounts of $3,785 and $3,222 438,723 382,763
Inventories (Note 2) 436,953 445,110
Prepaid expenses and timber deposits 34,419 36,160
--------- ---------
Total current assets 933,094 889,590
Timber, timberlands and related facilities, net 1,049,943 1,057,529
Property, plant and equipment, at cost less
accumulated depreciation of $2,541,384 and $2,485,524 2,762,178 2,751,210
Other assets 78,308 99,532
--------- ---------
$ 4,823,523 4,797,861
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current installments on long-term debt $ 3,008 3,256
Notes payable 19,475 13,617
Accounts payable, includes book overdrafts
of $58,636 and $53,653 205,002 212,222
Accrued expenses 182,621 180,824
Accrued income taxes 37,005 22,200
--------- --------
Total current liabilities 447,111 432,119
Deferred income taxes 511,629 491,374
Other liabilities 41,350 41,813
Long-term debt, net of current installments 1,588,245 1,628,843
Stockholders' equity:
Preferred stock, cumulative, $.50 par value.
Authorized 5,000 shares - -
Common stock, $.50 par value. Authorized 150,000
shares; issued 110,743 and 111,587 shares 55,371 55,794
Capital surplus 273,593 303,626
Retained earnings 1,906,224 1,844,292
--------- ---------
Total stockholders' equity 2,235,188 2,203,712
--------- ---------
$ 4,823,523 4,797,861
========= =========
</TABLE>
2
<PAGE>
WILLAMETTE INDUSTRIES, INC. AND SUBSIDIARIES FORM 10-Q
CONSOLIDATED STATEMENTS OF EARNINGS PART I
(AMOUNTS, EXCEPT PER SHARE AMOUNTS, IN THOUSANDS) ITEM 1
THREE MONTHS ENDED
MARCH 31,
--------------------
2000 1999
--------- ---------
Net sales $1,114,314 923,453
Cost of sales 886,880 778,295
--------- ---------
Gross profit 227,434 145,158
Selling and administrative expenses 67,980 65,152
--------- ---------
Operating earnings 159,454 80,006
Other expense - net (486) (91)
--------- ---------
158,968 79,915
Interest expense 28,733 32,760
--------- ---------
Earnings before provision for income taxes 130,235 47,155
Provision for income taxes 44,931 15,561
--------- ---------
Net earnings $ 85,304 31,594
========= =========
Per share information:
Basic earnings per share $ 0.77 0.28
========= =========
Diluted earnings per share $ 0.76 0.28
========= =========
Dividends $ 0.21 0.16
========= =========
Weighted average shares outstanding:
Basic 111,279 111,002
========= =========
Diluted 111,784 111,478
========= =========
Per share earnings, both basic and diluted, are based upon the weighted average
number of shares outstanding.
Diluted weighted average shares outstanding are calculated using the treasury
stock method and assume that all stock options with a market value greater than
the grant price at the balance sheet date are exercised.
3
<PAGE>
WILLAMETTE INDUSTRIES, INC. AND SUBSIDIARIES FORM 10-Q
CONSOLIDATED STATEMENTS OF CASH FLOWS PART I
(DOLLAR AMOUNTS IN THOUSANDS) ITEM 1
<TABLE>
THREE MONTHS ENDED
MARCH 31,
------------------------
2000 1999
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 85,304 31,594
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation 60,256 59,500
Cost of fee timber harvested 9,819 10,954
Other amortization 4,558 4,105
Deferred income taxes 20,255 10,900
Changes in working capital items:
Accounts receivable (55,960) (32,813)
Inventories 8,157 13,478
Prepaid expenses and timber deposits 1,741 4,584
Accounts payable and accrued expenses (5,423) (13,170)
Accrued income taxes 14,805 2,996
--------- ---------
Net cash provided by operating activities 143,512 92,128
--------- ---------
Cash flows from investing activities:
Proceeds from sale of assets - 510
Expenditures for property, plant and equipment (71,224) (65,741)
Expenditures for timber and timberlands (2,226) (2,274)
Expenditures for roads and reforestation (3,787) (2,912)
Other 19,991 1,491
---------- ---------
Net cash used in investing activities (57,246) (68,926)
---------- ----------
Cash flows from financing activities:
Net change in operating lines of credit 5,858 (12,041)
Debt borrowing - 152
Proceeds from sale of common stock 1,129 2,164
Repurchased common stock (31,593) -
Cash dividends paid (23,372) (17,757)
Payment on debt (40,846) (4,776)
---------- ----------
Net cash used in financing activities (88,824) (32,258)
---------- ----------
Net change in cash (2,558) (9,056)
Cash at beginning of period 25,557 31,359
--------- ---------
Cash at end of period $ 22,999 22,303
========= =========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest (net of amount capitalized) $ 39,258 42,203
========= ==========
Income taxes $ 9,871 729
========= ==========
</TABLE>
4
<PAGE>
FORM 10-Q
PART I
ITEM 1
WILLAMETTE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
Note 1 The information furnished in this report reflects all adjustments which
are, in the opinion of management, necessary to a fair statement of the
results for the interim periods presented.
Note 2 The components of inventories are as follows (thousands of dollars):
March 31, December 31,
2000 1999
------------ ------------
Finished product $ 147,797 139,385
Work in progress 7,584 7,722
Raw material 183,327 198,866
Supplies 98,245 99,137
------------ ------------
$ 436,953 445,110
============ ============
Other notes have been omitted pursuant to Rule 10-01 (a)(5) of
Regulation S-X.
5
<PAGE>
FORM 10-Q
PART I
ITEM 2
WILLAMETTE INDUSTRIES, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
MARCH 31, 2000
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. Building
materials activity is closely related to new housing starts and to the
availability and terms of financing for construction. All industry segments are
influenced by global economic factors of supply and demand. In addition, the
cost of wood and recycled fiber, basic raw materials for all segments, are
sensitive to various supply and demand factors including environmental issues
affecting supply.
SEGMENT INFORMATION
Three Months Ended
March 31,
----------------------
2000 1999
---------- ----------
Sales:
White Paper $ 341,510 257,949
Brown Paper 404,566 332,697
Building Materials 368,238 332,807
---------- ----------
$1,114,314 923,453
========== ==========
Operating Earnings:
White Paper $ 58,280 9,190
Brown Paper 67,256 33,674
Building Materials 45,278 49,758
Corporate (11,360) (12,616)
---------- ----------
$ 159,454 80,006
========== ==========
6
<PAGE>
RESULTS OF OPERATIONS
---------------------
First Quarter 2000 vs. First Quarter 1999
-----------------------------------------
Consolidated net sales increased 20.7% in the first quarter of 2000 compared
with the first quarter of 1999, as all operating segments posted increases in
net sales. Operating earnings increased 99.3% in the first quarter of 2000
compared with the first quarter of 1999, as increases in the white and brown
paper segments outpaced the slight decline in the building materials segment.
White paper operating earnings increased more than six times primarily due to an
increase in net sales of 32.4% in the first quarter of 2000 compared to the same
period of 1999. Markets continued to improve into the first quarter of 2000 with
average selling prices increasing in all product lines as follows: continuous
forms -- 15.0%, cut sheets -- 19.3%, fine paper -- 18.6%, and hardwood market
pulp -- 53.1%. With another price increase announced late in the first quarter
of 2000, a positive trend is anticipated in the second quarter of 2000.
In addition to increased selling prices, unit shipments increased in all product
lines except for forms which decreased slightly when compared with the first
quarter of 1999. Cut sheet volume increased 17.8%, fine paper 12.4%, and
hardwood market pulp 44.6%. Increases in cut sheet volume was due, in part, to
the successful start-up of the Washington Courthouse, Ohio, facility.
Favorable increases in selling prices and unit shipments outpaced the
unfavorable increases in raw material costs. Chip costs increased 3.8% and
softwood pulp costs increased 32.5% in the first quarter of 2000 compared to the
first quarter of 1999. The gross profit margin for white paper increased to
21.6% in the first quarter of 2000 compared to 9.1% in the same period in 1999.
7
<PAGE>
Brown paper operating earnings increased 99.7% mainly due to increases in net
sales of 21.6% in the first quarter of 2000 compared to the first quarter of
1999. These increases were driven by increases in both price and volume for all
product lines. Average selling prices were up 16.7% for corrugated containers
and 13.7% for grocery bags, while unit shipments increased 5.7% for corrugated
containers and 7.4% for grocery bags.
In the first quarter of 2000, old corrugated container (OCC) costs increased
54.6% from the comparable period in 1999. However, increases in price and unit
shipments out-paced increased raw materials costs improving the gross profit
margin for brown paper to 23.1% in the first quarter of 2000 compared to 17.4%
in the first quarter of 1999. The positive trend is expected to continue into
the second quarter of 2000 as price increases were announced late in the first
quarter of 2000.
Building materials segment sales were up 10.6% in the first quarter of 2000
compared to the first quarter of 1999. However, with increases in raw materials
costs, operating earnings declined 9.0% over the same period. Average selling
prices increased in most product lines. Average selling prices for lumber
increased 6.2%, oriented strand board (OSB) 31.4%, domestic particleboard 9.1%
and domestic MDF 10.8%. Conversely, average selling prices declined 8.5% for
plywood and 17.2% for international MDF for the first quarter of 2000 when
compared with the first quarter of 1999.
Unit shipments were also mixed in the first quarter of 2000, with increases in
lumber of 8.5%, domestic particleboard of 7.5%, domestic MDF of 1.3%, and
international MDF of 6.2%. Plywood unit shipments were flat and OSB shipments
declined 8.6% in the first quarter of 2000 when compared to the same period in
1999. Log costs increased 8.3% in the first quarter of 2000 compared to the
comparable period in 1999. Higher log costs had a dampening effect on overall
building materials segment profitability. As a result, the building materials
8
<PAGE>
segment's gross profit margin decreased to 16.4% in the first quarter of 2000
from 19.1% in the first quarter of 1999.
Selling and administrative expenses increased $2.8 million, or 4.3%, in the
first quarter of 2000 compared to the first quarter of 1999. However, the ratio
of selling and administrative expenses to net sales was 6.1% for the first
quarter of 2000 compared to 7.1% for the same period in 1999 reflecting
economies of scale achieved from overall increases in net sales and unit
shipments.
Interest expense was $28.7 million in the first quarter of 2000 compared with
$32.8 million in the prior period. The decrease in interest expense is
attributable to a decrease in average debt outstanding of over $250 million in
the first quarter of 2000 compared to the first quarter of 1999. Also
contributing to the decrease in interest expense was an increase in capitalized
interest to $1.7 million for the first quarter of 2000 from $.5 million for the
first quarter of 1999. The company's effective interest rate increased to 7.4%
in the first quarter of 2000 from 7.1% for the same period in 1999.
Financial Condition as of March 31, 2000
----------------------------------------
For the first three months of 2000, cash flows from operating activities were
$143.5 million, representing an increase of 55.8% from the same period in 1999.
The increase was primarily attributable to increased earnings.
Net working capital increased to $486.0 million at March 31, 2000, compared to
$457.5 million at December 31, 1999. The total debt to capital ratio decreased
to 41.9% at March 31, 2000, from 42.8% at December 31, 1999.
During the first quarter of 2000, the company repurchased 880,000 common shares
for $31.6 million under its $100 million stock repurchase program. To date,
$47.3 million has been repurchased under this program.
9
<PAGE>
The company is continually making capital expenditures at its manufacturing
facilities to improve fiber utilization, achieve labor efficiency and expand
production. In the first quarter of 2000, the company incurred $71.2 million in
capital expenditures for property, plant and equipment.
In March 2000, the company signed an agreement to acquire Cotesa, a subsidiary
of the Mexican beverage company, Femsa. The acquisition will strengthen the
company's position in Mexico by adding a recycled linerboard and corrugating
medium mill, a state-of-the-art corrugated container plant and a solid fiber box
plant.
In April 2000, the Board of Directors approved a capital projects plan to
modernize and improve vertical integration in the company's white paper
division. Under the plan, the company will acquire a market pulp mill in Port
Wentworth, Georgia, and modernize the Kingsport, Tennessee, uncoated free sheet
mill.
At its February 10, 2000, meeting, the Board of Directors voted to raise the
quarterly cash dividend from $0.18 to $0.21 per share, which was a 16.7%
increase over the previous quarterly rate. However, there is no assurance as to
future dividends as they depend on earnings, capital requirements and financial
condition.
The company believes it has the resources available to meet its short-term and
long-term liquidity requirements. Resources include internally generated funds,
short-term borrowing arrangements and the unused portion of the revolving loan
available under a Credit Agreement.
Forward-Looking Statements
--------------------------
Statements contained in this report that are not historical in nature, including
without limitation trends in pricing levels, adequacy of the
10
<PAGE>
company's liquidity resources and the impact of environmental regulations, are
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. Forward-looking statements are subject to risks
and uncertainties that may cause actual future results to differ materially from
those projected. Such risks and uncertainties with respect to the company, in
addition to those included with the forward-looking statements, include, but are
not limited to, the effect of general economic conditions; the level of new
housing starts and remodeling activity; the availability and terms of financing
for construction; competitive factors including pricing pressures; the cost and
availability of wood fiber; the effect of natural disasters on the company's
timberlands; construction delays; risk of non-performance by third parties; and
the impact of environmental regulations including the costs associated with
complying with such regulations. In view of these uncertainties, investors are
cautioned not to place undue reliance on such forward-looking statements.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
- ------------------------------------------------------------------
No disclosure is required under this item.
11
<PAGE>
FORM 10-Q
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
- -------------------------
In the fourth quarter of 1997, the company received a series of requests from
the Environmental Protection Agency (EPA) for information 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 contained in the NOVs and has had several 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
established a $10 million reserve as an estimate of 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 with respect to the company's Johnsonburg,
Pennsylvania, pulp and paper mill. This request also focused on compliance with
the PSD regulations. Subsequently, on April 19, 1999, the company received an
NOV relating to its Johnsonburg mill. The NOV asserts violations of the Act
relating to two alleged major modifications to the plant, allegedly without
proper PSD permits and without complying with applicable PSD requirements. The
company has received a demand letter from the EPA to correct the alleged
violations contained in this NOV. In February 2000, the company responded to the
demand letter in an effort to resolve the matter.
12
<PAGE>
Also at the Johnsonburg mill, the company is negotiating with the Pennsylvania
Department of Environmental Protection to resolve other alleged environmental
violations.
In August 1999, the company received another Section 114 information request
from the EPA relating to the company's paper mill in Campti, Louisiana. The
company has conducted several meetings with state and federal officials
regarding the information provided to the EPA. Also, in March and November 1999,
the company received Section 114 requests from the EPA relating to the company's
paper mill in Hawesville, Kentucky. In April 1999 and January 2000, the company
provided the requested information to the EPA. In March 2000, the company
received requests for information from the EPA under Section 114 of the Act
related to the Marlboro, South Carolina and Kingsport, Tennessee, fine paper
mills. The company's responses are due in June 2000. To date, NOVs have not been
issued by the EPA relating to the Campti, Hawesville, Marlboro or Kingsport
mills.
The company believes that the outcome of the foregoing proceedings and other
proceedings to which the company is a party will not have a material adverse
effect on the company's financial position.
Item 4. Submission of Matters to a Vote of Security Holders
- -----------------------------------------------------------
The annual meeting of the company's shareholders was held April 18, 2000. The
following directors were elected at the annual meeting for terms of office
expiring in the indicated year by the vote indicated below:
Abstentions
Expiration and broker
of term For Withheld non-votes
---------- ---------- --------- ---------
Gerard K. Drummond 2003 97,964,162 781,763 0
Paul N. McCracken 2003 97,648,632 1,097,293 0
Stuart J. Shelk, Jr. 2003 97,652,850 1,093,075 0
Michael G. Thorne 2003 97,299,042 1,446,883 0
The following individuals continue to serve as directors:
Winslow H. Buxton 2002
Kenneth W. Hergenhan 2001
G. Joseph Prendergast 2002
Robert M. Smelick 2001
William Swindells 2002
Benjamin R. Whiteley 2001
13
<PAGE>
Item 6. Exhibits and Report on Form 8-K
- ---------------------------------------
(a) Exhibits
--------
Exhibit No. Exhibit
----------- -------
12 Ratio of Earnings
to Fixed Charges.
27 Financial Data Schedule for three-
month period ended March 31, 2000.
(b) Report on Form 8-K
------------------
A report on Form 8-K was filed on February 25, 2000, to report the
adoption of a new shareholder rights plan effective February 25, 2000, to
replace a similar plan that was expiring. The Rights Agreement dated as
of February 25, 2000, between the company and ChaseMellon Shareholder
Services, L.L.C., was filed as an exhibit to the Form 8-K.
14
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
WILLAMETTE INDUSTRIES, INC.
By /s/G. W. Hawley
G. W. HAWLEY
Executive Vice President,
Chief Financial Officer,
Secretary and Treasurer
(Principal Financial Officer)
Date: May 10, 2000
EXHIBIT 12
WILLAMETTE INDUSTRIES, INC. AND SUBSIDIARIES
RATIO OF EARNINGS TO FIXED CHARGES
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
1995 1996 1997 1998 1999 1999 2000
------- ------- ------- ------- ------- ------- ------
Fixed Charges:
<S> <C> <C> <C> <C> <C> <C> <C>
Interest cost $ 77,237 103,338 136,929 145,579 129,282 33,265 30,402
One-third rent
expense 5,976 6,906 7,535 8,075 8,076 1,841 2,141
------- ------- ------- ------- ------- ------- -------
Total Fixed Charges 83,213 110,244 144,464 153,654 137,358 35,106 32,543
------- ------- ------- ------- ------- ------- -------
Add (Deduct):
Earnings before
income taxes 823,804 306,086 111,263 132,783 413,275 47,155 130,235
Interest capitalized (6,187) (10,534) (19,939) (13,589) (3,998) (505) (1,669)
------- ------- ------- ------- ------- ------- -------
Earnings for
Fixed Charges $ 900,830 405,796 235,788 272,848 546,635 81,756 161,109
======= ======= ======= ======= ======= ======= =======
Ratio of Earnings to
Fixed Charges 10.83 3.68 1.63 1.78 3.98 2.33 4.95
======= ======= ======= ======= ======= ======= =======
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
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 MARCH 31,2000, AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-END> MAR-31-2000
<CASH> 22,999
<SECURITIES> 0
<RECEIVABLES> 442,508
<ALLOWANCES> (3,785)
<INVENTORY> 436,953
<CURRENT-ASSETS> 933,094
<PP&E> 6,353,505
<DEPRECIATION> 2,541,384
<TOTAL-ASSETS> 4,823,523
<CURRENT-LIABILITIES> 447,111
<BONDS> 1,588,245
0
0
<COMMON> 55,371
<OTHER-SE> 2,179,817
<TOTAL-LIABILITY-AND-EQUITY> 4,823,523
<SALES> 1,114,314
<TOTAL-REVENUES> 1,114,314
<CGS> 886,880
<TOTAL-COSTS> 886,880
<OTHER-EXPENSES> 68,466
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 28,733
<INCOME-PRETAX> 130,235
<INCOME-TAX> 44,931
<INCOME-CONTINUING> 85,304
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 85,304
<EPS-BASIC> .77
<EPS-DILUTED> .76
</TABLE>
