-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, RwkH/TtVOqyZOIwsPlvqGyJLufouUm1byyaxIUNDMDHMt0tWihBlg7lqRn/1GuwZ jaKHlfz7iXjwMd5uLvfJlA== 0000892917-00-000022.txt : 20000323 0000892917-00-000022.hdr.sgml : 20000323 ACCESSION NUMBER: 0000892917-00-000022 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000322 FILER: COMPANY DATA: COMPANY CONFORMED NAME: WILLAMETTE INDUSTRIES INC CENTRAL INDEX KEY: 0000107189 STANDARD INDUSTRIAL CLASSIFICATION: PAPER MILLS [2621] IRS NUMBER: 930312940 STATE OF INCORPORATION: OR FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-12545 FILM NUMBER: 575018 BUSINESS ADDRESS: STREET 1: 1300 SE FIFTH AVE SUITE 3800 STREET 2: P O BOX 22187 CITY: PORTLAND STATE: OR ZIP: 97201 BUSINESS PHONE: 5032275581 MAIL ADDRESS: STREET 1: 3800 FIRST INTERSTATE TOWER STREET 2: 1300 SW FIFTH AVENUE CITY: PORTLAND STATE: OR ZIP: 97201 10-K 1 ANNUAL REPORT 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. 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 INDEX ----- Page ---- Part I - ------ Item 1. Business.....................................................................1 General......................................................................1 Business Segment Information.................................................1 White Paper..................................................................1 Brown Paper..................................................................2 Building Materials...........................................................2 Timberlands..................................................................3 Energy.......................................................................3 Employees....................................................................3 Environmental Matters........................................................3 Item 2. Properties...................................................................4 Item 3. Legal Proceedings............................................................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
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 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 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 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 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 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 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 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 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 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. 1999 1998 ---------------------------------- ------------------------------------- Closing Closing Diluted Dividends Price Diluted Dividends Price Earnings Paid(a) High-Low Earnings Paid High-Low ------- ------ ------------------ -------- -------- ------------------ 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
(a) The quarterly dividend was increased to $0.21 per share commencing in the first quarter of 2000. 10 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) 1999 1998 1997 1996 1995 - -------------------------------------------------------------------------------------------------- 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 ==================================================================================================
(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 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 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 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 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 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 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 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 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 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 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 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 /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 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 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 - --------------------------------------------------------------------------------------- CONSOLIDATED BALANCE SHEETS ======================================================================================= December 31, 1999 and 1998 (dollar amounts, except per share amounts, in thousands) 1999 1998 ----------- ------------ Assets Current assets: 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 =========== ============
See accompanying notes to consolidated financial statements. 26 - --------------------------------------------------------------------------------------- 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 ----------- ---------- ---------- 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 =========== ========== ==========
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 - ---------------------------------------------------------------------------------------- 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: 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 =========== =========== ===========
See accompanying notes to consolidated financial statements. 28 - ----------------------------------------------------------------------------------------- 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: 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 =========== =========== ===========
See accompanying notes to consolidated financial statements. 29 - ------------------------------------------------------------------------------------------------------------------------------------ SUPPLEMENTARY BUSINESS SEGMENT INFORMATION ==================================================================================================================================== (dollar amounts in thousands) 1999 % 1998 % 1997 % 1996 % 1995 % ------------------------------------- ------------------------------------------------------- Sales to outside customers: White Paper: 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 ============= ============ ============ ============= ============
(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 - -------------------------------------------------------------------------------------- SELECTED QUARTERLY FINANCIAL DATA ====================================================================================== (Unaudited) (dollar amounts, except per share amounts, in thousands) Net Earnings --------------------------- Net Gross Per Share 1999 Sales Profit Amount Diluted - -------------------------------------------------------------------------------------- 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 ======================================================================================
31 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 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 Note 3. Inventories The major components of inventories are as follows: December 31, ------------------------------ 1999 1998 ------------ ------------ 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
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: December 31, Range of ------------------------------ useful lives 1999 1998 ------------ -------------- --------------- 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 ============== ===============
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 Note 5. Long-term Debt Long-term debt consists of the following: December 31, ---------------------------- 1999 1998 ------------- ------------- Notes payable to public: 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 ============= =============
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 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: 1999 1998 1997 ------------ ------------ ------------ Payable (receivable) from 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% ============ ============ ============
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 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: Postretirement Defined Benefit Plans Benefit Plans ---------------------------------------------- 1999 1998 1999 1998 ----------------------------------- ---------- Change in Benefit Obligation Benefit obligation - Beginning 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 ============ =========== ========== ==========
37 Postretirement Defined Benefit Plans Benefit Plans ----------------------------- ----------------------------- 1999 1998 1999 1998 -------------- -------------- -------------- -------------- Change in Assets 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%
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 The components of net periodic benefit cost are as follows: Defined Postretirement Benefit Plans Benefit Plans ------------------------------- ------------------------------- 1999 1998 1999 1998 --------------- --------------- --------------- --------------- 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 =============== =============== =============== ===============
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: Option Price Shares Per Share ----------- ------------------- 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 =========== ===================
39 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 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 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 EX-4.D 2 LETTER AMENDMENT DATED AUGUST 13, 1999 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 EX-10.A 3 1999 DEFERRED COMPENSATION PLAN WILLAMETTE INDUSTRIES 1999 DEFERRED COMPENSATION PLAN FOR DIRECTORS Effective January 1, 2000 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 -i- 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 -ii- 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 -iii- 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 -1- 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. -2- 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. -3- 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- 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- 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). -6- 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. -7- 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- 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. -9- 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. -10- 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. -11- 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- EX-12 4 COMPUTATION OF RATION OF EARNINGS Exhibit 12 WILLAMETTE INDUSTRIES, INC. AND SUBSIDIARIES COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES (DOLLAR AMOUNTS IN THOUSANDS) Year Ended December 31, -------------------------------------------------------------------- 1995 1996 1997 1998 1999 -------------------------------------------------------------------- Fixed Charges: 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 ====== ===== ===== ===== ====
EX-23 5 CONSENT OF INDEPENDENT AUDITORS 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 EX-27 6 FINANCIAL DATA SCHEDULE
5 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. 1,000 12-MOS DEC-31-1999 JAN-01-1999 DEC-31-1999 25,557 0 385,985 3,222 445,110 889,590 6,294,263 2,485,524 4,797,861 432,119 1,628,843 0 0 55,794 2,147,918 4,797,861 4,077,969 4,077,969 3,261,302 3,261,302 278,108 0 125,284 413,275 152,800 260,475 0 0 0 260,475 2.34 2.33
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