-----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, UckpbKKg2lLq6gd0p5/6HBbHqg6OanxC7s6ouL4GpIcPZViLgWigzyyYV5MuL3Lo 4TMdIM5P15/nL+mDw2tu8Q== 0000892917-01-000011.txt : 20010402 0000892917-01-000011.hdr.sgml : 20010402 ACCESSION NUMBER: 0000892917-01-000011 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 20001231 FILED AS OF DATE: 20010329 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: 1584748 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 0001.txt 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 Commission file number 1-12545 December 31, 2000 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. $5,091,193,586 at February 28, 2001 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 28, 2001 ----- -------------------------------- Common Stock, $.50 par value 109,535,146 shares DOCUMENTS INCORPORATED BY REFERENCE. Portions of the registrant's definitive proxy statement for its 2001 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 Termination of Employment and Change in Control Arrangements and Related Matters Item 12 Security Ownership of Holders of Willamette Common Certain Beneficial Stock Owners and Management Introduction 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...........................................................2 Brown Paper...........................................................2 Building Materials....................................................3 Timberlands...........................................................3 Energy................................................................4 Employees.............................................................4 Environmental Matters.................................................4 Item 2. Properties............................................................5 Item 3. Legal Proceedings.....................................................9 Item 4. Submission of Matters to a Vote of Security Holders...................9 Executive Officers of the Registrant.................................10 Part II - ------- Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.....................................11 Item 6. Selected Financial Data..............................................12 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.......................13 Item 7A. Quantitative and Qualitative Disclosures About Market Risk...........24 Item 8. Financial Statements and Supplementary Data..........................24 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure..................24 Part III - -------- Item 10. Directors and Executive Officers of the Registrant...................25 (See Part I for Executive Officers of the Registrant) Item 11. Executive Compensation...............................................25 Item 12. Security Ownership of Certain Beneficial Owners and Management...............................................25 Item 13. Certain Relationships and Related Transactions........................................................25 Part IV - ------- Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.............................................26 Signatures...........................................................27 Index to Consolidated Financial Statements...........................28 Index to Exhibits....................................................47 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. Willamette is a diversified, integrated forest products company with 105 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. 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 believe the company is the low-cost producer in its brown and white paper segments, giving us a key competitive advantage. We believe Willamette's most notable strengths include: * 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 white paper, brown paper and building materials * our 69% sawlog self-sufficiency and stewardship of our resources * a decentralized organizational structure that encourages teamwork as well as individual initiative. We believe these strengths have contributed to the overall strength of our current year and historical results. In 2000, Weyerhaeuser Company (Weyerhaeuser) launched an attempt to take over the company by means of a hostile tender offer to purchase (i) all of the outstanding common stock of the company and (ii) unless validly redeemed by the company's board of directors, the associated rights to purchase shares of Series B Junior Participating Preferred Stock, at a price of $48 per share of common stock, net to the seller in cash, without interest thereon. The company's board of directors has unanimously concluded that the Weyerhaeuser offer is inadequate and not in the best interests of the company, its shareholders and other constituencies. 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 1 comparison located on page 32. The company is not dependent on any one significant customer or group of customers. Approximately 90% of the company's total output is sold domestically. WHITE PAPER Market Pulp and Fine Paper Our four white paper mills manufacture 11% of the nation's uncoated free sheet production. The company's two pulp mills produce pulp for consumption at our fine paper mills, and also produce 8% 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 Our six business forms plants manufacture 23% of the nation's production of continuous forms. Additionally, six cut sheet facilities make private brand and Willamette brand (Willcopy(R) and PennCopy(R)) photocopy and cut sheet printer paper. Production at these plants represents 16% of the nation's cut sheet production. Business forms and cut sheets are marketed by our own sales force to a variety of consumers and distributors. BROWN PAPER Brown Paper Mills Our four paper mills manufacture 6% of the nation's production of linerboard, corrugating medium and bag paper. Our brown paper mills supply 96% of the needs of our 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 59% of our total fiber needs. In May 2000, the company acquired a small recycled linerboard and corrugating medium mill in Mexico as part of the acquisition of Corrugados Tehuacan, S.A. de C.V. Corrugated Containers and Sheets Our thirty-five 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. As part of the acquisition of Corrugados Tehuacan, S.A. de C.V. in May 2000, the company acquired a state-of-the-art corrugated container plant and a solid fiber box plant. Collectively, our three Mexican facilities manufacture 5% of Mexico's box production. 2 Bags Our four bag plants make 14% of the nation's paper bags, marketed by our sales force to grocery, department, drug and hardware stores as well as fast food chains in the West, Midwest and South. BUILDING MATERIALS Lumber Our nine sawmills manufacture 2% of the nation's lumber production. Lumber is marketed through independent wholesalers and distributors throughout the United States. Structural Panels Plywood panels manufactured at seven plants and oriented strand board (OSB) manufactured at one plant account for 8% and 3%, respectively, of the nation's production. Both products are marketed nationwide through independent wholesalers and distributors. Composite Panels Our four particleboard plants manufacture 14% 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. We also manufacture MDF 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 Our two laminated beam plants account for 24% of the nation's production. Three laminated veneer lumber (LVL) plants and two I-joist plants manufacture 11% and 9%, respectively, of the nation's total production for each product. Engineered wood products are sold in both the domestic and international markets. TIMBERLANDS Willamette's 1,729,000 acres of timberland supply approximately 69% of our long-term sawlog needs. The remainder is purchased through private timber sales and open market purchases. Our timberlands are comprised of 746,000 acres in Louisiana, Arkansas and Texas; 611,000 acres in Oregon; 203,000 acres in Tennessee and Missouri; and 169,000 acres in the Carolinas. We continually look for opportunities to expand our fee timber base and make purchases when it is profitable to do so. 3 ENERGY Willamette's manufacturing facilities are able to generate 61% of our total energy needs by recovering energy from the burning of waste materials and the recycling of spent pulping liquors. EMPLOYEES Willamette employs approximately 14,975 people, of whom about 45% are represented by labor unions with collective bargaining agreements. Agreements covering approximately 1,640 employees expired in 2000 and were renegotiated and ratified. Another agreement, which expires in 2003 and covers 284 employees, allowed for the contract to be opened in 2000 for 401(k) negotiation. In February 2001, these negotiations were successfully concluded. Agreements involving about 870 hourly employees are subject to renewal in 2001. Approximately 46% 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. 4 Item 2. Properties MANUFACTURING FACILITIES The following table sets forth information regarding the company's 105 manufacturing facilities at December 31, 2000: Facility 2001 Forecast 2000 Production -------- ------------- --------------- Building Materials - ------------------ Plywood (7 Plants) M Square Ft. (3/8" Basis) Chester, South Carolina 240,000 Dodson, Louisiana 130,000 Emerson, Arkansas 237,000 Foster, Oregon 135,000 Moncure, North Carolina 115,000 Springfield, Oregon 119,000 Zwolle, Louisiana 238,000 ----------- Total Plywood 1,214,000 Oriented Strand Board (1 Plant) Arcadia, Louisiana 330,000 ----------- Total Structural Panels 1,544,000 1,728,000 ============================ Lumber (9 Mills) M Board Ft. Chester, South Carolina 39,000 Coburg, Oregon 188,000 Dallas, Oregon 170,000 Dodson, Louisiana 67,000 Lebanon, Oregon (2 Mills) 160,000 Taylor, Louisiana 51,000 Warrenton, Oregon 176,000 Zwolle, Louisiana 68,000 --------- Total Lumber 919,000 863,000 ============================ Particleboard (6 Plants) M Square Ft. (3/4" Basis) Albany, Oregon 228,000 Bend, Oregon 184,000 Bennettsville, South Carolina (1) 37,000 Lillie, Louisiana 122,000 Linxe, France 233,000 Simsboro, Louisiana 113,000 ----------- Total Particleboard 917,000 771,000 ============================ (1) Production to begin in the third quarter of 2001. 5 Facility 2001 Forecast 2000 Production -------- ------------- --------------- Medium Density Fiberboard (5 Plants) M Square Ft. (3/4" Basis) Bennettsville, South Carolina 124,000 Clonmel, Ireland 187,000 Eugene, Oregon 71,000 Malvern, Arkansas 144,000 Morcenx, France 85,000 ------------ Total MDF 611,000 577,000 ============================= Engineered Wood Products (7 Plants) Laminated Beams M Board Ft. Simsboro, Louisiana 35,000 Vaughn, Oregon 60,000 ----------- Total Laminated Beams 95,000 84,000 ============================= Laminated Veneer Lumber Hundred Cubic Ft. Albany, Oregon 20,000 Simsboro, Louisiana 24,200 Winston, Oregon 12,800 -------- Total LVL 57,000 52,000 ============================= I-Joists M Lineal Ft. Simsboro, Louisiana 35,000 Woodburn, Oregon 44,000 ----------- Total I-Joists 79,000 68,000 ============================= Veneer Plant Coburg, Oregon Brown Paper - ----------- Linerboard & Corrugating Medium (5 Mills) Tons Albany, Oregon 565,000 Campti, Louisiana 941,000 Hawesville, Kentucky 178,000 Oxnard, California 204,000 Xalapa, Mexico 27,000 ----------- Total Brown Paper 1,915,000 1,888,000 ============================= 6 Facility 2001 Forecast 2000 Production -------- ------------- --------------- Corrugated Container and Sheets (38 Plants) M Square Ft. Aurora, Illinois 1,270,000 Beaverton, Oregon 922,000 Bedford Park, Illinois 650,000 Bellevue, Washington 736,000 Bellmawr, New Jersey 733,000 Bowling Green, Kentucky 957,000 Cerritos, California 909,000 Compton, California 896,000 Dallas, Texas 1,084,000 Delaware, Ohio 741,000 Fort Smith, Arkansas 1,041,000 Fridley, Minnesota 1,005,000 Golden, Colorado 773,000 Griffin, Georgia 1,107,000 Huntsville, Alabama 954,000 Indianapolis, Indiana 781,000 Ixtac, Mexico 1,110,000 Kansas City, Kansas 857,000 Lincoln, Illinois 514,000 Louisville, Kentucky 679,000 Lumberton, North Carolina 900,000 Maryland Heights, Missouri 719,000 Matthews, North Carolina 442,000 Memphis, Tennessee 73,000 Mexico City, Mexico 438,000 Moses Lake, Washington 799,000 Newton, North Carolina 621,000 Phoenix, Arizona 595,000 Plant City, Florida 1,112,000 Portland, Oregon 303,000 Sacramento, California 866,000 San Leandro, California 1,278,000 Sanger, California 939,000 Sealy, Texas 875,000 St. Paul, Minnesota 672,000 Tehuacan, Mexico 177,000 Tulsa, Oklahoma 44,000 West Memphis, Arkansas 908,000 ----------- Total Corrugated Containers 29,480,000 25,925,000 ============================= 7 Facility 2001 Forecast 2000 Production -------- ------------- --------------- Kraft Bags and Sacks (4 Plants) Tons Beaverton, Oregon 36,000 Buena Park, California 37,000 Dallas, Texas 20,000 Kansas City, Missouri 16,000 ----------- Total Kraft Bags and Sacks 109,000 104,000 ============================= Preprinted Linerboard (2 Plants) M Square Ft. Hillsboro, Oregon 836,000 Richwood, Kentucky 521,000 ----------- Total Preprinted Linerboard 1,357,000 1,159,000 ============================= Inks and Specialty Products (2 plants) Tons Beaverton, Oregon 5,000 Delaware, Ohio 3,000 ----------- Total Inks 8,000 7,400 ============================= White Paper - ----------- Fine Paper (4 Mills) Tons Bennettsville, South Carolina 330,000 Hawesville, Kentucky 559,000 Johnsonburg, Pennsylvania 413,000 Kingsport, Tennessee 169,000 ----------- Total Fine Paper 1,471,000 1,483,000 ============================= Market Pulp (2 Mills) Tons Hawesville, Kentucky 122,000 Port Wentworth, Georgia 284,000 ------------ Total Market Pulp 406,000 221,000 ============================== Forms (6 Plants) Tons Cerritos, California 50,000 Dallas, Texas 42,000 Indianapolis, Indiana 49,000 Langhorne, Pennsylvania 59,000 Rock Hill, South Carolina 47,000 West Chicago, Illinois 51,000 ----------- Total Forms 298,000 307,000 ============================= Cut Sheets and Other Converting (6 Plants) Tons Brownsville, Tennessee 127,000 DuBois, Pennsylvania 180,000 Kingsport, Tennessee 143,000 Owensboro, Kentucky 221,000 Tatum, South Carolina 108,000 Washington Court House, Ohio 167,000 --------------- Total Cut Sheets 946,000 799,000 =============================
8 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, 2000. 9 Executive Officers of the Registrant The executive officers of the company are elected annually by the board of directors. At February 8, 2001, the executive officers of the company, their ages at December 31, 2000, and their positions with the company were as follows: Name Age Position - ---- --- -------- Duane C. McDougall 48 President and Chief Executive Officer Marvin D. Cooper 57 Executive Vice President - Pulp and paper mills Greg W. Hawley 40 Executive Vice President and Chief Financial Officer, Secretary and Treasurer William P. Kinnune 61 Executive Vice President- Corrugated containers and bags J. Eddie McMillan 55 Executive Vice President - Building materials group Michael R. Onustock 61 Executive Vice President- Pulp and fine paper marketing Each executive officer, excluding Mr. Hawley, has been employed by the company in his present or other senior management capacity for more than five years. Mr. Hawley was employed by the company as Vice President - Controller for nearly 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. 10 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, 2000, there were approximately 34,700 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 1999 and 2000. 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. 2000 1999 --------------------------------------- ------------------------------------------ Closing Closing Diluted Dividends Price Diluted Dividends Price Earnings Paid(1) High-Low Earnings Paid High-Low ----------- ------------ ------------ ----------- -------- --------------- 1st Quarter $ 0.76 0.21 48.25 - 33.19 0.28 0.16 39.06 - 31.75 2nd Quarter 0.82 0.21 41.69 - 27.25 0.57 0.18 49.06 - 37.81 3rd Quarter 0.76 0.21 33.69 - 26.13 0.73 0.18 51.19 - 39.63 4th Quarter 0.78 0.21 50.06 - 26.13 0.75 0.18 46.56 - 38.88
(1) The quarterly dividend was increased to $0.23 per share commencing in the first quarter of 2001. 11 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) 2000 1999 1998 1997 1996 - --------------------------------------------------------------------------------------------------------- Net Sales(1) $ 4,651,761 4,272,957 3,880,249 3,669,088 3,577,622 ========================================================================================================= Costs and Expenses Depreciation, amortization and cost of fee timber harvested............... $ 314,999 303,719 371,141 338,949 302,937 Materials, labor and other operating expenses(1)................. 3,414,686 3,165,275 3,006,572 2,870,549 2,657,519 --------------------------------------------------------- Gross profit.......................... 922,076 803,963 502,536 459,590 617,166 Selling and administrative expenses(1).. 268,819 253,694 239,792 233,425 222,137 Non-recurring and other income (expense) - net................ (19,737) (11,710) 2,029 2,088 3,861 --------------------------------------------------------- Operating earnings.................... 633,520 538,559 264,773 228,253 398,890 Interest expense........................ 119,133 125,284 131,990 116,990 92,804 --------------------------------------------------------- Earnings before provision for income taxes........................ 514,387 413,275 132,783 111,263 306,086 Provision for income taxes.............. 169,500 152,800 43,800 38,300 114,000 --------------------------------------------------------- Net earnings.......................... 344,887 260,475 88,983 72,963 192,086 Cash dividends paid..................... 92,443 77,984 71,227 71,005 68,520 Earnings retained in the business....... 252,444 182,491 17,756 1,958 123,566 Earnings before interest, taxes, depreciation & amortization (EBITDA).. 948,519 842,278 635,914 567,202 701,827 Capital expenditures.................... 398,888 290,246 441,839 527,908 485,769 ========================================================================================================= Financial Condition Working capital......................... $ 396,094 457,471 366,846 308,093 289,134 Long-term debt (non-current portion).... 1,542,926 1,628,843 1,821,083 1,916,001 1,766,917 Total debt.............................. 1,670,425 1,645,716 1,870,602 1,997,898 1,971,429 Stockholders' equity.................... 2,381,043 2,203,712 2,002,431 1,994,480 1,976,281 Total assets............................ 5,117,670 4,797,861 4,697,668 4,811,055 4,720,681 Debt-to-capital ratio................... 41.2% 42.8% 48.3% 50.0% 49.9% ========================================================================================================= Common Stock Number of stockholders.................. 34,700 23,000 22,000 20,000 20,000 Shares outstanding (in thousands) (2)... 109,417 111,587 110,981 111,350 110,707 ========================================================================================================= Per Share:(2) Net earnings-diluted.................... $ 3.12 2.33 0.80 0.65 1.73 Cash dividends paid..................... 0.84 0.70 0.64 0.64 0.62 Stockholders' equity.................... 21.76 19.75 18.04 17.91 17.85 Year-end stock price.................... 46.94 46.44 33.50 32.19 34.81 ========================================================================================================= Financial Returns: Return on equity (3)..................... 15.7% 13.0% 4.5% 3.7% 10.4% EBITDA return on average total assets.... 19.1% 17.7% 13.4% 11.9% 17.3% Return on average total assets........... 7.0% 5.5% 1.9% 1.5% 4.7% Return on net sales...................... 7.4% 6.1% 2.3% 2.0% 5.4% ========================================================================================================= Employment Number of employees...................... 14,975 14,250 14,000 13,800 13,700 Wages, salaries and cost of employee benefits..................... $ 807,183 781,392 734,068 717,693 672,280 =========================================================================================================
(1) Sales and cost of sales for all periods presented have been reclassified to conform with Emerging Issues Task Force (EITF) Issue #00-10 "Accounting for Shipping and Handling Fees and Costs." (2) All share amounts and per share amounts have been adjusted for stock splits. (3) Calculated on stockholders' equity at the beginning of the year. 12 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. We have reclassified sales and cost of sales for all periods presented to comply with the provisions of Emerging Issues Task Force (EITF)Issue #00-10, "Accounting for Shipping and Handling Fees and Costs." This new standard requires all shipping and handling fees charged to customers to be included in net sales and all shipping and handling costs to be reported as cost of sales, unless otherwise disclosed. Historically, we classified certain freight costs as a reduction of gross sales, consistent with standard industry practice. These reclassifications have a slight impact on our business segments' gross profit margins, but have no impact on our operating earnings, financial position or cash flows. RESULTS OF OPERATIONS 2000 VS. 1999 ----------------------------------- Consolidated net sales increased 8.9% and operating earnings increased 17.6% in 2000 compared to 1999. Despite considerable challenges in our business environment in 2000, our return on sales for 2000 was 7.4%, compared to 6.1% for 1999. In addition, our return on equity for 2000 was 15.7%, up from 13.0% in 1999. These positive results are attributable to improved net sales and operating results in our white and brown paper segments, which outpaced weak pricing in our building materials segment. We also successfully managed our business through the significant distraction of the unsolicited hostile tender offer initiated by Weyerhaeuser during the fourth quarter of 2000. WHITE PAPER operating earnings increased 74.6% in 2000 compared to 1999 reflecting the 21.1% improvement in sales as follows: Average Net Unit Selling Price Shipments ------------- --------- Forms 10.9% (1.4%) Cut sheets 11.7% 12.5% Fine paper 13.3% 1.5% Hardwood market pulp 29.6% 46.8% 13 Year 2000 highlights for the white paper segment include: * Commencement of a fine paper and pulp mill modernization project at Kingsport, Tennessee * Acquisition and successful start-up of a bleached pulp mill in Port Wentworth, Georgia * Operation of our Washington Court House, Ohio, cut sheet facility for its first full year * Permanent shutdown of the #2 specialty fine paper machine at Johnsonburg, Pennsylvania * Increased gross profit margin to 18.1% for the year, up from 14.0% in 1999 despite increases in chip and energy costs * Strength in pulp pricing through most of the year, despite softening beginning late in the third quarter of 2000 and continuing into the first quarter of 2001 * Improved selling price trend from the third to the fourth quarter of 2000 resulting in selling price improvements in all converted paper product lines; our order files were solid and inventories were at normal levels at the end of 2000. Although originally intended to operate solely as a hardwood pulp mill, the Port Wentworth mill operated as a "swing mill," producing some softwood pulp for our fine paper mills. BROWN PAPER operating earnings for 2000 increased 57.6% over 1999 on increased sales of 15.9%. The sales results of our brown paper operations were as follows: Average Net Unit Selling Price Shipments ------------- --------- Corrugated containers 13.1% 4.3% Grocery bags 6.8% (4.7%) Notable trends and events affecting our brown paper segment in 2000 include: * Acquisition of two converting operations and a small paper mill in Mexico, which have contributed to the overall profitability of the brown paper segment * Start-up of the Phoenix corrugated facility * Increased old corrugated container (OCC) costs of 12.6% for the year as a result of high costs for the first five months of the year. However, a downward trend in OCC costs began in June 2000, favorably impacting the brown paper operating results in the second half of 2000 * Solid order files and normal inventory levels as we ended 2000. 14 Our cogeneration capabilities minimized the impact of rising energy costs. BUILDING MATERIALS operating earnings decreased 45.9% in 2000 compared to 1999, reflecting the erosion in prices for lumber, structural panels and international composite panel products, which began early in the second quarter of 2000. Net sales in 2000 declined 7.5% from the prior year as average sales prices and unit shipments changed as follows: Average Net Unit Selling Price Shipments ------------- --------- Oriented strand board (14.4%) (7.8%) Plywood (16.0%) (9.3%) Lumber (14.4%) 5.2% Domestic particleboard 2.7% 1.6% Domestic MDF 4.2% 0.0% International MDF (12.8%) 1.7% Items of significance impacting our building materials segment include: * Independent certification of our timberlands in Tennessee, North and South Carolina, Louisiana, Arkansas and Texas in compliance with the American Forest and Paper Association's Sustainable Forestry Initiative(sm)Program. This makes Willamette one of the few major forest products companies in the United States to have all of its forest ownership certified by third-party auditors * The substantial decline in selling prices beginning in the second quarter of 2000 and continuing into 2001 due to rising interest rates, slowing housing starts, excess industry capacity, and import/export trade imbalance as a result of the strong dollar * The first full year of operation of our particleboard plant in France, which was acquired in June 1999, and the expansion of the particleboard line at that facility, completed in December 2000 * The start-up of a new small log sawmill in Chester, South Carolina, to utilize residual fiber from our adjacent plywood mill * The closure of our Dallas, Oregon, plywood plant in June 2000 and the closure of our Ruston, Louisiana, plywood plant in December 2000 * An overall rise in energy costs affecting many building materials facilities * A decrease in log costs of 2.6% year-over-year and 15.2% from the fourth quarter of 1999 to the fourth quarter of 2000 as a result of lower purchased log costs and increased fee timber cut. We believe building materials market pricing is at or near the bottom of the cycle. Our diversified product line and access to our own timberlands helps mitigate the impact of lower average selling prices and unit volumes on the building materials segment's earnings. 15 SELLING AND ADMINISTRATIVE EXPENSES increased $15.1 million or 6.0% in 2000 due to the continued expansion of company operations. However, selling and administrative expenses as a percentage of sales decreased to 5.8% in 2000 from 5.9% in 1999. NON-RECURRING AND OTHER INCOME (EXPENSE) - NET for the year 2000 reflects the following: * A second quarter charge totaling $5.1 million for the closure of the Dallas, Oregon, plywood plant and the final settlement costs for Clean Air Act allegations involving the company's building materials operations * A fourth quarter charge of $4.0 million for the closure of the Ruston, Louisiana, plywood plant * A fourth quarter charge of $8.0 million for hostile tender offer defense costs. We expect that defense costs could ultimately reach $50 million. INTEREST EXPENSE decreased $6.2 million, or 4.9%, in 2000 to $119.1 million. The reduction is a result of the offsetting impact of a $127.9 million decrease in weighted average debt outstanding and an increase in the weighted average interest rate from 7.16% in 1999 to 7.46% in 2000. In addition, capitalized interest for 2000 increased to $5.2 million from $4.0 million in 1999. PROVISION FOR INCOME TAXES reflects an annual tax rate decline from 37.0% in 1999 to 33.0% in 2000 as a result of tax credits earned by the company. In the fourth quarter of 2000, we reduced our estimated annual tax rate from 34.5% to 33.0%. The change in the tax rate resulted in a $.05 per share improvement in earnings for the fourth of 2000. RESULTS OF OPERATIONS 1999 VS. 1998 ----------------------------------- Consolidated net sales increased 10.1% and operating earnings more than doubled in 1999 compared to 1998. Improved performances from all three segments contributed to the increase. 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 increased 1999 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 16 102.8% (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 selling price declines as follows: Average Net Unit Selling Price Shipments ------------- --------- Forms (2.3%) 11.2% Cut sheets (4.8%) 20.0% Fine paper (1.1%) (6.3%) Hardwood market pulp 18.1% 15.9% 1999's highlights for the white paper segment include: * Improved cut sheet volumes primarily due to a continued focus on sales to office superstores * Increased forms shipments as a result of market share penetration * Full year of operation of the Brownsville, Tennessee, cut sheet plant, which came on line in February 1998 * Start-up of a new cut sheet plant in Washington Court House, Ohio, in November 1999 * Increase in hardwood market pulp unit shipments as the company was able to take advantage of pulp markets in 1999 * Increased gross profit margin to 14.0% in 1999 from 9.6% in 1998, despite a 1.5% increase in chip costs. 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. 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 6.3% and earnings increased 35.2% (21.0% before the effect of the depreciation change) compared to 1998. Average selling prices and unit shipments improved in all product lines as follows: Average Net Unit Selling Price Shipments ------------- --------- Corrugated containers 2.9% 4.3% Grocery bags 1.4% 5.1% Positive results in our brown paper operations reflect: * Increased volume in corrugated containers as a result of additional converting capacity from capital improvements 17 * Strong demand for corrugated containers from our expanding customer base * Increased bag shipments for the first time since 1994 due to the continued growth of the handle bag, which is recapturing market share from plastics. Raw material costs reduced brown paper earnings as OCC prices increased 6.3% from 1998 levels. The gross profit margin for brown paper was 21.3% in 1999 compared to 18.2% in 1998. BUILDING MATERIALS posted a strong year in 1999 as net sales improved 16.8% and operating earnings increased 215.0% (187.5% before the effect of the depreciation change) compared to 1998. Overall improvements in average sales prices and unit shipments reflect the healthy domestic market conditions with changes as follows: Average Net Unit Selling Price Shipments ------------- --------- Oriented strand board 30.1% 7.4% Plywood 17.4% 11.4% Lumber 16.3% 8.6% Domestic particleboard 2.6% 12.0% Domestic MDF 4.1% 2.7% International MDF (17.2%) 11.1% Positive building materials segment results are attributable to: * Improved composite panel volumes as a result of the acquisition of an MDF plant in Morcenx, France in March 1998 and a particleboard plant in Linxe, France in June 1999 * Improved lumber shipments resulting from a strong U.S. housing market through late fall * Increased lumber shipments due to the first full year of operation of a new small log sawmill in Taylor, Louisiana * Increased plywood volume, due in part to a full year of production at the Zwolle, Louisiana, plant, which closed for six months in 1998 due to fire damage. As a result of the favorable price and volume changes, the gross profit margin for building materials increased significantly to 20.1% in 1999 from 10.2% in 1998. SELLING AND ADMINISTRATIVE expenses increased $13.9 million or 5.8% in 1999 due to the continued expansion of company operations. Selling and administrative expenses as a percentage of sales decreased to 5.9% in 1999 from 6.2% in 1998. 18 NON-RECURRING AND OTHER INCOME (EXPENSE) - NET of $11.7 million was primarily related to the reserve set up to approximate potential non-tax deductible penalties from a Clean Air Act assessment. 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. 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. Key financial measures for the company improved during 2000 as compared to 1999 as follows: 2000 1999 ---- ---- Cash flows from operating activities $690.5 million $602.9 million Return on equity 15.7% 13.0% Return on average total assets 7.0% 5.5% Total debt-to-capital ratio 41.2% 42.8% Cost-of-capital return 12.0% 11.0% The 14.5% increase in cash flows from operations is primarily the result of improved net earnings for the year. Internally generated cash funded substantially all of the company's capital expenditures in 2000, in addition to dividends of $92.4 million, stock repurchases of $84.1 million, and acquisitions of $169.3 million. Net working capital declined to $396.1 million from $457.5 million, primarily as a result of the maturity of a long-term note that was replaced with shorter-term borrowings. We reduced our debt-to-capital ratio as a result of increases in capital from positive earnings. Our cost-of-capital return improved to 12% in 2000 as compared to 11% in 1999. Our cost-of-capital return for the past decade is 10%. We believe we are one of the only companies in our industry to return its cost of capital over this period. The company believes it has the resources available to meet its short-term and long-term liquidity requirements. Resources include internally 19 generated funds, short-term borrowing arrangements, and the unused portion of the revolving loan available under a bank credit agreement. CAPITAL EXPENDITURES AND ACQUISITIONS ------------------------------------- The company is continually making capital expenditures at its manufacturing facilities to improve fiber utilization, labor efficiency, and energy self-sufficiency and expand production capability when market conditions warrant. During the year 2000, the company incurred $379.7 million in capital expenditures for property, plant and equipment. Major capital projects completed in 2000 include: * Installation of a new recovery boiler and steam turbine at the Albany, Oregon, paper mill * Expansion of the Linxe, France particleboard line * Construction of a small log sawmill in Chester, South Carolina * Construction of a new corrugated box plant in Phoenix, Arizona * Upgrade of the #5 fine paper machine at the Johnsonburg fine paper mill. Major capital projects underway in 2000 include: * Modernization of the Kingsport, Tennessee, fine paper and pulp facility * Construction of a particleboard plant in Bennettsville, South Carolina * Construction and installation of a steam turbine generator at Hawesville, Kentucky * Expansion and relocation of both the Elk Grove, Illinois, corrugated container facility and the Tigard, Oregon, preprint facility * Modification of the Dodson, Louisiana, sawmill to allow utilization of small logs from our fee timberlands * Expansion of our cogeneration capabilities and modernization of the pulping line at the Albany, Oregon, paper mill * Construction of a new corrugated box plant in Oklahoma City, Oklahoma. The cost of all major projects in progress at December 31, 2000, is estimated to be approximately $968.9 million, of which $208.2 million has already been spent. These projects will be funded with internally generated cash flows and external borrowings, if needed. In May 2000, the company acquired the Mexican operations of Corrugados Tehuacan, S.A. de C.V. for $70.3 million. This company operates a state-of-the-art corrugated container plant in Ixtac, a recycled 20 linerboard and corrugating medium mill in Xalapa, and a solid fiber box plant in Tehuacan. Also in May 2000, the company acquired a bleached pulp mill in Port Wentworth, Georgia. After process improvements, the company's total investment in Port Wentworth was $94.3 million. The mill commenced operations in September 2000 and is producing excellent quality pulp. STOCK REPURCHASE AND DIVIDENDS ------------------------------ In June 2000, the company completed a stock repurchase program. The company repurchased 2,447,100 common shares for $84.1 million. In the first quarter of 2000, the Board increased the quarterly dividend 16.7% from $.18 to $.21 per share. In February 2001, the Board declared a quarterly cash dividend of $.23 per share, a 9.5% increase. However, there is no assurance as to future dividends as they depend on earnings, capital requirements and financial condition. OTHER MATTERS ------------- The company is committed to complying with federal, state, and local laws regarding environmental quality. The company believes it is in substantial compliance with these regulations. In April 1998, the U.S. Environmental Protection Agency (EPA) released the final rules regarding air and water quality known as the "cluster rules." Although compliance with the cluster rules is required by April 2001, 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 them all in compliance with the cluster rules by the required deadlines. The company's operations are faced with increasingly stringent environmental regulations. In 1997, the company received a series of requests for information from the EPA under Section 114 of the Clean Air Act (CAA) with respect to the company's building materials operations. The requests focused on compliance with regulations under the Prevention of Significant Deterioration (PSD) Program under the CAA. On May 7, 1998, the EPA issued a Notice of Violation (NOV) alleging violations of the CAA and related state regulations, and on December 11, 1998, issued a second NOV supplementing and clarifying the first NOV. The company signed a consent decree in June 2000 providing for implementation of a compliance program, installation of pollution control technology at several facilities at an estimated cost of $28.0 million, implementation of supplemental environmental projects at a cost of $8.0 million, and payment of a civil penalty of $11.0 million, plus interest. As of 21 December 31, 2000, approximately $20.5 million has been paid for installation of the required pollution control technology, penalties and interest. In January 2001, the company paid $4.0 million to certain states for supplemental environmental projects. In November 1998, the company received from the EPA a request for information under Section 114 of the CAA 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 the mill. The NOV asserts violations of the CAA relating to two alleged major modifications to the plant, allegedly without proper PSD permits and without complying with applicable PSD requirements. In December 1999, the company received a demand letter from the EPA to correct the alleged violations contained in this NOV. Since that time, management has been meeting with federal and state officials to resolve the matters alleged in the NOV. In a separate matter at the Johnsonburg mill, the company entered into a consent order and agreement in May 2000 with the Pennsylvania Department of Environmental Protection, providing for a fine of approximately $164 thousand for air quality violations. In August 1999, the company received a Section 114 information request from the EPA relating to the company's paper mill in Campti, Louisiana. The company responded to the request in November 1999 and has met with state and federal officials regarding the Campti mill. Also, in March and November 1999, the company received Section 114 information requests from the EPA relating to the company's paper mills in Hawesville, Kentucky. In April 1999 and January 2000, the company provided the requested information to the EPA. In March 2000, the company received requests for information from the EPA under Section 114 of the CAA related to the Bennettsville, South Carolina, and Kingsport, Tennessee, fine paper mills. The company responded to the requests in June 2000 and has requested a meeting with the EPA to discuss the responses. The EPA issued supplemental requests for the Bennettsville mill in November 2000, the Kingsport mill in December 2000, and the Hawesville mill in January 2001. The company is in the process of responding to these supplemental requests. 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 $115.0 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. 22 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. 23 FORWARD-LOOKING STATEMENTS -------------------------- Forward-looking statements contained in this report are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are subject to risks and uncertainties and actual results could differ materially from those projected. Such risks and uncertainties include, but are not limited to, the effect of general economic conditions; the level of new housing starts and remodeling activity; the availability and terms of financing for construction; competitive factors, including pricing pressures; the cost and availability of wood fiber; the effect of natural disasters on the company's timberlands; construction delays; risk of non-performance by third parties; and the impact of environmental regulations, including the costs associated with complying with such regulations. In view of these uncertainties, investors are cautioned not to place undue reliance on such forward-looking statements. 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. 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. 24 PART III Item 10. Directors and Executive Officers of the Registrant Information regarding (i) directors of the company will be set forth in the company's definitive proxy statement (the "Proxy Statement") for its 2001 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 will be set forth in the Proxy Statement under the headings "Executive Compensation," "Compensation Committee Interlocks and Insider Participation," "Compensation of Directors" and "Termination of Employment and Change in Control Arrangements and Related Matters." 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 will be in the Proxy Statement under the heading "Holders of Willamette Common Stock" which is incorporated herein by reference. Information regarding an attempt to achieve a change in control of the company will be in the Proxy Statement under the heading "Introduction," and is incorporated herein by reference. Item 13. Certain Relationships and Related Transactions Information regarding certain relationships and related transactions will be set forth in the Proxy Statement under the heading "Compensation Committee Interlocks and Insider Participation" which is incorporated herein by reference. 25 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. A report on Form 8-K was filed on December 1, 2000, to report under Item 5 the issuance of a press release by the registrant relating to the Tender Offer Statement on Schedule TO filed by a subsidiary of Weyerhaeuser Company on November 29, 2000. 26 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: March 29, 2001 (Greg W. Hawley) Executive Vice President Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below on March 29, 2001, by the following persons on behalf of the registrant in the capacities indicated. Signature Title --------- ----- Principal Executive Officer: DUANE C. MCDOUGALL* President and Chief Executive Officer Principal Financial Officer: /S/ GREG W. HAWLEY Executive Vice President and Chief - ----------------------------- Financial Officer, Secretary and (Greg W. Hawley) Treasurer Principal Accounting Officer: DONALD S. WADDELL* Corporate Controller A majority of the Board of Directors: WILLIAM SWINDELLS* Chairman of the Board WINSLOW H. BUXTON* Director GERARD K. DRUMMOND* Director KENNETH W. HERGENHAN* Director G. JOSEPH PRENDERGAST* Director STUART J. SHELK, JR.* Director ROBERT M. SMELICK* Director MICHAEL G. THORNE* Director BENJAMIN R. WHITELEY* Director *By: /s/ G.W. Hawley -------------------- G.W. Hawley Attorney-in-fact 27 Index to Consolidated Financial Statements Page No. -------- Independent Auditors' Report..................................... 29 Consolidated Balance Sheets as of December 31, 2000 and 1999 .... 30 Consolidated Statements of Earnings for years ended December 31, 2000, 1999 and 1998............................... 31 Consolidated Statements of Stockholders' Equity for years ended December 31, 2000, 1999 and 1998............... 32 Consolidated Statements of Cash Flows for years ended December 31, 2000, 1999 and 1998............................... 33 Supplementary Business Segment Information....................... 34 Selected Quarterly Financial Data................................ 35 Notes to Consolidated Financial Statements....................... 36-46 28 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, 2000 and 1999 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, 2000. 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 auditing standards generally accepted in the United States of America. 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, 2000 and 1999, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2000, in conformity with accounting principles generally accepted in the United States of America. KPMG LLP Portland, Oregon February 8, 2001 29 - ----------------------------------------------------------------------------------------------------- CONSOLIDATED BALANCE SHEETS ===================================================================================================== December 31, 2000 and 1999 (dollar amounts, except per share amounts, in thousands) 2000 1999 -------------- -------------- Assets Current assets: Cash $ 24,284 25,557 Accounts receivable, less allowance for doubtful accounts of $4,490 (1999 - $3,222) 459,591 382,763 Inventories (note 3) 473,788 445,110 Prepaid expenses and timber deposits 35,154 36,160 -------------- -------------- Total current assets 992,817 889,590 -------------- -------------- Timber, timberlands and related facilities, net 1,014,285 1,057,529 Property, plant and equipment, net (note 4) 3,017,593 2,751,210 Other assets 92,975 99,532 -------------- -------------- $ 5,117,670 4,797,861 ============== ============== Liabilities and Stockholders' Equity Current liabilities: Current installments on long-term debt (note 5) $ 5,499 3,256 Notes payable (note 5) 122,000 13,617 Accounts payable, includes book overdrafts of $79,708 (1999 - $53,653) 253,292 212,222 Accrued payroll and related expenses 85,084 77,043 Accrued interest 33,910 38,525 Other accrued expenses 77,754 65,256 Accrued income taxes (note 6) 19,184 22,200 -------------- -------------- Total current liabilities 596,723 432,119 -------------- -------------- Deferred income taxes (note 6) 568,273 491,374 Other liabilities 28,705 41,813 Long-term debt, net of current installments (note 5) 1,542,926 1,628,843 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 and outstanding 109,417,087 shares (1999 - 111,587,433 shares) 54,709 55,794 Capital surplus 229,598 303,626 Retained earnings 2,096,736 1,844,292 -------------- -------------- Total stockholders' equity 2,381,043 2,203,712 -------------- -------------- $ 5,117,670 4,797,861 ============== ==============
See accompanying notes to consolidated financial statements. 30 - ------------------------------------------------------------------------------------------------------ CONSOLIDATED STATEMENTS OF EARNINGS ====================================================================================================== Years ended December 31, 2000, 1999 and 1998 (dollar and share amounts, except per share amounts, in thousands) 2000 1999 1998 -------------- -------------- -------------- Net sales $ 4,651,761 4,272,957 3,880,249 Cost of sales 3,729,685 3,468,994 3,377,713 -------------- -------------- -------------- Gross profit 922,076 803,963 502,536 Selling and administrative expense 268,819 253,694 239,792 Non-recurring and other income (expense) - net (19,737) (11,710) 2,029 -------------- -------------- -------------- Operating earnings 633,520 538,559 264,773 Interest expense 119,133 125,284 131,990 -------------- -------------- -------------- Earnings before provision for income taxes 514,387 413,275 132,783 Provision for income taxes (note 6) 169,500 152,800 43,800 -------------- -------------- -------------- Net earnings $ 344,887 260,475 88,983 ============== ============== ============== Earnings per share - basic $ 3.14 2.34 0.80 ============== ============== ============== Earnings per share - diluted $ 3.12 2.33 0.80 ============== ============== ============== Weighted average shares outstanding - basic 109,982 111,375 111,302 ============== ============== ============== Weighted average shares outstanding - diluted 110,717 112,001 111,747 ============== ============== ==============
Per share 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 which assumes that all stock options with a market value greater than the grant price at the balance sheet date are exercised. See accompanying notes to consolidated financial statements. 31 - -------------------------------------------------------------------------------------------------- CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY ================================================================================================== Years ended December 31, 2000, 1999 and 1998 (dollar amounts, except per share amounts, in thousands) Total Common Stock Issued Capital Retained Stockholders' -------------------------- Shares Amount Surplus Earnings Equity -------------- ----------- ---------- ----------- ------------- Balance, January 1, 1998 111,349,956 $ 55,675 294,760 1,644,045 1,994,480 Net earnings - - - 88,983 88,983 Cash dividends on common stock ($.64 per share) - - - (71,227) (71,227) Options exercised 101,712 50 3,124 - 3,174 Stock repurchased and canceled (470,900) (235) (12,744) - (12,979) -------------- ----------- ---------- ----------- ------------- Balance, December 31, 1998 110,980,768 55,490 285,140 1,661,801 2,002,431 Net earnings - - - 260,475 260,475 Cash dividends on common stock ($.70 per share) - - - (77,984) (77,984) Options exercised 606,665 304 18,486 - 18,790 -------------- ----------- ---------- ----------- ------------- Balance, December 31, 1999 111,587,433 55,794 303,626 1,844,292 2,203,712 Net earnings - - - 344,887 344,887 Cash dividends on common stock ($.84 per share) - - - (92,443) (92,443) Options exercised 276,754 139 8,819 - 8,958 Stock repurchased and canceled (2,447,100) (1,224) (82,847) - (84,071) -------------- ----------- ---------- ----------- ------------- Balance, December 31, 2000 109,417,087 $ 54,709 229,598 2,096,736 2,381,043 ============== =========== ========== =========== =============
See accompanying notes to consolidated financial statements. 32 - -------------------------------------------------------------------------------------------------------- CONSOLIDATED STATEMENTS OF CASH FLOWS ======================================================================================================== Years ended December 31, 2000, 1999 and 1998 (dollar amounts in thousands) 2000 1999 1998 ------------- ------------- ---------- Cash Flows from Operating Activities: Net earnings $ 344,887 260,475 88,983 Adjustments to reconcile net earnings to net cash from operating activities: Depreciation 250,988 240,374 296,466 Cost of fee timber harvested 44,774 46,197 54,376 Other amortization 19,237 17,148 20,299 Increase in deferred income taxes 70,011 86,938 7,683 Changes in working capital items: Accounts receivable (69,524) (69,760) 4,167 Inventories (17,468) (31,015) (14,623) Prepaid expenses and timber deposits 1,511 23,224 (7,778) Accounts payable and accrued expenses 49,073 23,159 (26,381) Accrued income taxes (3,016) 6,126 12,250 ------------- ------------- ----------- Net cash from operating activities 690,473 602,866 435,442 ------------- ------------- ----------- Cash Flows from Investing Activities: Proceeds from sale of assets 5,704 5,965 237,422 Expenditures for property, plant & equipment (379,667) (267,856) (417,772) Expenditures for timber and timberlands (2,516) (8,026) (8,767) Expenditures for roads and reforestation (16,705) (14,364) (15,300) Acquisitions (169,334) - - Other 13,646 (33,329) (9,582) ----------- ------------- ------------ Net cash from investing activities (548,872) (317,610) (213,999) ----------- ------------- ------------ Cash Flows from Financing Activities: Net change in operating lines of credit 108,383 (33,635) (27,630) Debt borrowing 115,038 27,770 591 Proceeds from sale of common stock 8,931 18,725 3,117 Repurchased common stock (84,071) - (12,979) Cash dividends paid (92,443) (77,984) (71,227) Payment on debt (198,712) (225,934) (109,556) ----------- ------------- ------------ Net cash from financing activities (142,874) (291,058) (217,684) ----------- ------------- ------------ Net change in cash (1,273) (5,802) 3,759 Cash at beginning of year 25,557 31,359 27,600 ----------- ------------- ------------ Cash at end of year $ 24,284 25,557 31,359 =========== ============= ============ Supplemental disclosures of cash flow information Cash paid during the year for: Interest (net of amount capitalized) $ 123,748 126,292 130,796 =========== ============= ============ Income taxes $ 102,505 52,916 24,369 =========== ============= ============
See accompanying notes to consolidated financial statements. 33 - ----------------------------------------------------------------------------------------------------------------------- SUPPLEMENTARY BUSINESS SEGMENT INFORMATION ======================================================================================================================= (dollar amounts in thousands) 2000 % 1999 % 1998 % 1997 % 1996 % ---------------- ---------------- ---------------- ---------------- --------------- Sales to outside customers:(1) White Paper: Communication papers $ 1,017,899 22 851,818 20 757,938 20 714,461 19 752,877 21 Market pulp and fine paper 433,390 9 346,205 8 360,391 9 361,791 10 330,640 9 ---------------- ---------------- ---------------- ---------------- ---------------- Total White Paper 1,451,289 31 1,198,023 28 1,118,329 29 1,076,252 29 1,083,517 30 ---------------- ---------------- ---------------- ---------------- ---------------- Brown Paper: Packaging 1,474,145 32 1,270,163 30 1,190,482 31 1,043,530 28 1,113,293 31 Other 289,747 6 252,032 6 241,543 6 215,471 6 240,611 7 ---------------- ---------------- ---------------- ---------------- ---------------- Total Brown Paper 1,763,892 38 1,522,195 36 1,432,025 37 1,259,001 34 1,353,904 38 ---------------- ---------------- ---------------- ---------------- ---------------- Building Materials: Lumber 301,952 6 305,672 7 246,732 6 229,579 6 186,125 5 Structural panels 424,313 9 488,527 11 380,799 10 387,645 11 403,051 11 Composite panels 444,162 10 423,828 10 405,428 10 380,467 10 285,189 8 Other wood products 266,153 6 334,712 8 296,936 8 336,144 9 265,836 7 ---------------- ---------------- ---------------- ---------------- ---------------- Total Building Materials 1,436,580 31 1,552,739 36 1,329,895 34 1,333,835 37 1,140,201 32 ---------------- ---------------- ---------------- ---------------- ---------------- Total net sales (2) $ 4,651,761 100 4,272,957 100 3,880,249 100 3,669,088 100 3,577,622 100 ================ ================ ================ ================ ================ Intersegment sales at market value: Building Materials $ 43,423 48,279 60,813 47,100 42,692 ============ ============ ============ ============ ============ Gross Profit (GP):(1) GP% GP% GP% GP% GP% --- --- --- --- --- White Paper 263,338 18 167,952 14 107,037 10 122,323 11 195,344 18 Brown Paper 460,709 26 323,820 21 260,386 18 158,891 13 270,876 20 Building Materials 198,029 14 312,191 20 135,113 10 178,376 13 150,946 13 ---------------- ---------------- ---------------- ---------------- ---------------- Total gross profit $ 922,076 20 803,963 19 502,536 13 459,590 13 617,166 17 ================ ================ ================ ================ ================ Operating earnings: White Paper $ 207,702 118,955 58,654 73,349 149,558 Brown Paper 355,011 225,283 166,680 69,017 187,947 Building Materials 137,259 253,910 80,601 124,697 102,513 Corporate (46,715) (47,879) (43,191) (40,898) (44,989) Non-recurring and other income (expense) - net (19,737) (11,710) 2,029 2,088 3,861 ---------------- ---------------- ---------------- ---------------- ---------------- Total operating earnings 633,520 538,559 264,773 228,253 398,890 Interest expense 119,133 125,284 131,990 116,990 92,804 ---------------- ---------------- ---------------- ---------------- ---------------- Earnings before provision for income taxes $ 514,387 413,275 132,783 111,263 306,086 ================ ================ ================ ================ ================ Depreciation, cost of fee timber harvested and amortization: (3) White Paper $ 126,516 124,175 139,240 114,449 106,250 Brown Paper 74,807 68,333 90,484 90,403 88,566 Building Materials 109,493 106,496 135,108 128,754 103,354 Corporate 4,183 4,715 6,309 5,343 4,767 ---------------- ---------------- ---------------- ---------------- ---------------- $ 314,999 303,719 371,141 338,949 302,937 ================ ================ ================ ================ ================ Capital expenditures: White Paper $ 88,866 62,269 215,503 371,894 275,726 Brown Paper 156,494 161,144 120,827 82,935 82,867 Building Materials 148,905 64,426 101,884 72,075 126,932 Corporate 4,623 2,407 3,625 1,004 244 ---------------- ---------------- ---------------- ---------------- ---------------- $ 398,888 290,246 441,839 527,908 485,769 ================ ================ ================ ================ ================ Identifiable assets: White Paper $ 1,909,374 1,830,043 1,860,673 1,785,493 1,486,842 Brown Paper 1,353,453 1,149,123 1,021,180 987,097 968,624 Building Materials 1,792,327 1,734,945 1,735,257 1,966,136 2,008,542 Corporate 62,516 83,750 80,558 72,329 256,673 ---------------- ---------------- ---------------- ---------------- ---------------- $ 5,117,670 4,797,861 4,697,668 4,811,055 4,720,681 ================ ================ ================ ================ ================
(1)Sales and cost of sales for all periods presented have been reclassified to conform with EITF 00-10, "Accounting for Shipping and Handling Fees and Costs." (2)The company is not dependent on any one significant customer or group of customers. Approximately 90% of the company's total output is sold domestically. (3)See note 4 of Notes to Consolidated Financial Statements for discussion of change in accounting estimates for depreciation. 34 - --------------------------------------------------------------------------------------------------- SELECTED QUARTERLY FINANCIAL DATA (unaudited) =================================================================================================== (dollar amounts, except per share amounts, in thousands) Net Earnings ---------------------------- Net Gross Per Share 2000 Sales Profit Amount Diluted - --------------------------------------------------------------------------------------------------- 1st Quarter...........................$ 1,167,126 224,163 85,304 .76 2nd Quarter........................... 1,188,060 240,358 90,192 .82 3rd Quarter........................... 1,169,585 226,052 83,436 .76 4th Quarter........................... 1,126,990 231,503 85,955 .78 - --------------------------------------------------------------------------------------------------- $ 4,651,761 922,076 344,887 3.12 =================================================================================================== Net Earnings ---------------------------- Net Gross Per Share 1999 Sales Profit Amount Diluted - --------------------------------------------------------------------------------------------------- 1st Quarter...........................$ 970,483 141,942 31,594 .28 2nd Quarter........................... 1,056,319 195,757 63,314 .57 3rd Quarter........................... 1,137,615 239,780 81,958 .73 4th Quarter........................... 1,108,540 226,484 83,609 .75 - --------------------------------------------------------------------------------------------------- $ 4,272,957 803,963 260,475 2.33 =================================================================================================== Net Earnings ---------------------------- Net Gross Per Share 1998 Sales Profit Amount Diluted - --------------------------------------------------------------------------------------------------- 1st Quarter...........................$ 942,384 120,761 22,081 .20 2nd Quarter........................... 991,509 125,578 24,014 .21 3rd Quarter........................... 1,003,242 148,476 35,735 .32 4th Quarter........................... 943,114 107,721 7,153 .07 - --------------------------------------------------------------------------------------------------- $ 3,880,249 502,536 88,983 .80 ===================================================================================================
35 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2000, 1999 and 1998 (dollar amounts, except per share amounts, in thousands) Note 1. NATURE OF OPERATIONS -------------------- Willamette Industries, Inc. is a diversified, integrated forest products company with 105 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 2000 sales, the company's business is comprised of 31% white paper, 38% brown paper and 31% building materials. The company sells approximately 90% of its products in the United States; its primary foreign markets are Asia, Europe and Central America. Note 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ------------------------------------------ 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. REVENUE RECOGNITION The company recognizes revenue when ownership risk passes, which in virtually all cases, is at the time of shipment. 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. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment accounts are carried at cost and include 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. 36 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. 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. 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. 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. CAPITALIZED INTEREST Interest is capitalized on funds borrowed during the construction period on certain assets. Capitalized interest was $5,163 in 2000; $3,998 in 1999 and $13,589 in 1998 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. 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 34. 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. 37 RECLASSIFICATIONS Sales and cost of sales for all periods presented include reclassifications to conform with Emerging Issues Task Force Issue #00-10, "Accounting for Shipping and Handling Fees and Costs." Historically, net sales had been reduced for the cost of freight billed to outside customers. Under the current presentation, sales include all freight costs charged to customers and cost of sales includes all freight costs. Certain other reclassifications have been made to prior years' data to conform with the 2000 presentation. Note 3. INVENTORIES ----------- The major components of inventories are as follows: December 31, --------------------------------- 2000 1999 ------------ ------------- Finished product................... $ 154,261 139,385 Work in progress................... 8,792 7,722 Raw material....................... 205,014 198,866 Supplies........................... 105,721 99,137 ------------ ------------- $ 473,788 445,110 ============ ============= Valued at: LIFO cost...................... $ 304,519 288,161 Average cost................... 169,269 156,949 If current cost rather than LIFO cost had been used by the company, inventories would have been approximately $62,282 higher in 2000 and $57,049 higher in 1999. Note 4. PROPERTY, PLANT AND EQUIPMENT ----------------------------- Property, plant and equipment accounts are summarized as follows: Range of December 31, useful lives ------------------------------ ------------ 2000 1999 ------------ ------------ Land............................... - $ 48,436 41,985 Buildings.......................... 15 - 35 417,700 380,967 Machinery and equipment............ 5 - 25 4,924,423 4,569,273 Furniture and fixtures............. 3 - 15 96,597 92,411 Leasehold improvements.............life of lease 8,023 6,619 Construction in progress........... - 236,950 145,479 ------------- ------------- 5,732,129 5,236,734 Accumulated depreciation........... 2,714,536 2,485,524 ------------- ------------- $3,017,593 2,751,210 ============= ============= Effective January 1, 1999, the company changed its accounting estimates relating to depreciation. The estimated service lives for most machinery 38 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, 1999 net income was increased $51,900, or $0.46 per diluted share. Note 5. LONG-TERM DEBT -------------- Long-term debt consists of the following: December 31, ----------------------------------- 2000 1999 ----------------- ---------------- Notes payable to public: 9.625%, due in 2000.............$ - 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 6.72% and 6.20%, due in varying amounts through 2006..................... 313,820 250,625 Revenue bonds, with interest rates averaging 5.32% and 5.04%, due in varying amounts through 2026..... 113,440 113,440 Other long-term debt, with interest rates averaging 6.81% and 8.62%, due in varying amounts through 2006. 15,465 12,334 ------------ ------------- 1,548,425 1,632,099 Less: Current installments.......... 5,499 3,256 ------------ ------------- $ 1,542,926 1,628,843 ============ ============= Principal payment requirements on the above debt for the four years subsequent to 2001 are: 2002, $118,100; 2003, $70,507; 2004, $16,158; 2005, $129,799. The company has two revolving loans with a group of banks that provide for borrowings up to a total of $450,000 in principal amount and provide backup for a master note program. At December 31, 2000, the total outstanding balance covered under the revolving loans was $285,000. In 39 2000, the company refinanced $150,000 of notes payable that were due in 2000. The company utilized short-term borrowings with a number of banks at various times during 2000 and 1999 of which $122,000 was outstanding at December 31, 2000. The weighted average interest rate on short-term borrowings at December 31, 2000 and 1999, was 6.75% and 5.65%, 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 $1,508,735, 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: 2000 1999 1998 -------------- -------------- -------------- Currently payable $ 99,481 65,863 36,118 Deferred provision for income taxes 70,019 86,937 7,682 -------------- -------------- -------------- Provision for income taxes $ 169,500 152,800 43,800 ============== ============== ============== Federal income taxes $ 151,476 135,343 36,664 Other income taxes 18,024 17,457 7,136 -------------- -------------- -------------- Provision for income taxes $ 169,500 152,800 43,800 ============== ============== ============== Differences between the effective tax rate and the federal statutory rate are shown in the following table as a percentage of pretax income: 2000 1999 1998 -------------- -------------- -------------- Federal statutory rate 35.0% 35.0% 35.0% State income taxes, net of federal tax effect 2.1% 2.5% 2.3% Benefit from foreign taxes (0.6%) (0.5%) (3.6%) Estimated non-deductible EPA penalty 0.3% 1.0% - Tax credits (5.6%) (0.5%) (1.7%) Other 1.8% (0.5%) 1.0% -------------- -------------- -------------- 33.0% 37.0% 33.0% ============== ============== ==============
The net deferred tax liability as of December 31, 2000 and 1999, includes the following components: 40 December 31, ------------------------------ 2000 1999 -------------- -------------- Deferred tax assets: - ------------------- Alternative minimum tax credits $ - 4,400 State tax credits 79,495 81,640 Other 4,607 19,749 Valuation allowance for state tax credits (63,895) (65,000) -------------- -------------- 20,207 40,789 -------------- -------------- Deferred tax liabilities: - ------------------------ Depreciation and depletion (588,480) (532,163) -------------- -------------- Net deferred tax liability $ (568,273) (491,374) ============== ============== At December 31, 2000, the company had various state tax credits and credit carryforwards of approximately $122,300 of which $109,000 have no expiration and the remainder expire in various years through 2015. The company's consolidated federal income tax returns through 1997 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. 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 $12,484 in 2000; $11,515 in 1999 and $11,221 in 1998. 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 for all such plans was $976 in 2000; $8,669 in 1999 and $8,863 in 1998. 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. POST-RETIREMENT BENEFIT PLANS The company has a contributory post-retirement health plan primarily covering its salaried employees. Employees become eligible for these benefits if they meet minimum age and service requirements. 41 The following table sets forth reconciliations of the benefit obligation, plan assets, funded status and disclosure of assumptions utilized in the December 31 calculations: Defined Post-retirement Benefit Plans Benefit Plans ------------------------ ---------------------- 2000 1999 2000 1999 ------------ ----------- ----------- ---------- Change in Benefit Obligation - ---------------------------- Benefit obligation - beginning of year $ 406,630 386,108 35,407 37,348 Service cost 16,683 17,431 1,112 1,203 Interest cost 30,181 27,748 2,586 2,426 Amendments 3,180 17,186 - - Other (243) (821) 1,127 783 Actuarial (gain) loss 2,200 (24,965) 1,267 (2,078) Benefits paid (17,934) (16,057) (4,476) (4,275) ------------ ----------- ------------ --------- Benefit obligation - end of year $ 440,697 406,630 37,023 35,407 ============ =========== ============ ========= Change in Assets - ---------------- Fair value of assets - beginning of year $ 593,242 528,456 - - Actual return on plan assets 15,150 77,218 - - Employer contribution 4,712 4,819 3,349 3,381 Other (324) (1,194) 1,127 894 Benefits paid (17,934) (16,057) (4,476) (4,275) ------------ ------------- ------------- --------- Fair value of assets - end of year $ 594,846 593,242 - - ============ ============= ============= ========= Reconciliation of Funded Status - ------------------------------- Funded status $ 154,149 186,612 (37,023) (35,407) Unrecognized actuarial (gain) loss (168,489) (211,453) 7,134 6,127 Unrecognized prior service cost 25,508 26,201 220 251 Unrecognized asset - (398) - - ------------ ------------- ------------- ---------- Prepaid (accrued) benefit cost $ 11,168 962 (29,669) (29,029) ============ ============= ============= ========== Assumptions as of December 31: - ----------------------------- Discount rate 7.50% 7.50% 7.50% 7.50% Expected return on plan assets 9.00% 9.00% - - Rate of increase in compensation levels 5.00% 5.00% - - Medical cost trend rate - - 7.50% 8.00%
For the year 2000, a 7.5% increase in the medical cost trend rate was assumed. In the future, the rate decreases incrementally to an ultimate annual rate of 5.0%. A 1.0% increase in the medical trend rate would increase the post-retirement benefit obligation (PBO) by $4,133 and increase the service and interest costs by $412. A 1.0% decrease in the medical trend rate would decrease the PBO by $3,293 and decrease the 42 service and interest cost by $328. Various pension plans have benefit obligations in excess of plan assets. The following table sets forth the unfunded status of those plans as of December 31: Defined Benefit Plans -------------------- 2000 1999 -------- -------- Benefit obligation $ 37,304 22,381 ======== ======== Plan assets (fair value) $ 34,268 21,718 ======== ======== The components of net periodic benefit cost are as follows: Defined Post-retirement Benefit Plans Benefit Plans --------------------------------------- --------------------------- 2000 1999 1998 2000 1999 1998 ----------- ------------ ------------- -------- -------- --------- Service cost $ 16,683 17,431 15,401 1,112 1,203 1,182 Interest cost 30,181 27,748 24,585 2,586 2,426 2,428 Expected return on plan assets (46,970) (40,754) (35,138) - - - Amortization of prior service cost 3,429 3,194 1,841 31 31 31 Amortization of net transition obligation (398) (566) (604) - - - Recognized actuarial (gain) loss (8,953) (3,901) (2,625) 260 199 185 ----------- -------------- ------------- -------- -------- -------- Net periodic benefit cost $ (6,028) 3,152 3,460 3,989 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 one-third 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. If the company had accounted for its employee stock options using the fair value method and amortized such expense over the options' vesting period, the reduction in diluted earnings per share would have been $.06 in 2000, $.05 in 1999, and $.04 in 1998. 43 A summary of stock option activity is as follows: Option Price Shares Per Share -------------- -------------- Outstanding December 31, 1997 2,848,570 $ 11.63 - 30.88 Granted 626,370 38.69 Exercised 102,286 13.13 - 30.88 Canceled or surrendered 28,567 25.75 - 38.68 -------------- -------------- Outstanding December 31, 1998 3,344,087 11.63 - 38.69 Granted 555,680 47.25 Exercised 608,484 11.63 - 38.69 Canceled or surrendered 10,597 29.72 - 47.25 -------------- -------------- Outstanding December 31, 1999 3,280,686 11.81 - 47.25 Granted 777,460 37.00 Exercised 279,061 11.81 - 38.69 Canceled or surrendered 67,873 30.56 - 47.25 -------------- -------------- Outstanding December 31, 2000 3,711,212 11.81 - 47.25 ============== ============= Shares exercisable 2,504,507 $ 11.81 - 47.25 ============== ============= 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, 2000, 1,290 restricted shares had not yet vested. The company has a shareholder rights plan under which one right has been issued for each outstanding share of common stock. The rights are initially represented by the common stock certificates and are not exercisable. With certain exceptions, the rights become exercisable if a person or group acquires 15% or more of the common stock. Such an acquisition causes each right to be adjusted to permit the holder to purchase $400 worth of common stock for $200. Rights held by the acquiring person or group become void. The company may also redeem the rights for $.0025 per right or may exchange each right for one share of common stock, subject to restrictions set forth in the plan. The rights will expire in February 2010. In 1995, the board of directors authorized a $100,000 stock repurchase program. In 1998, the company repurchased 470,900 shares of common stock for $13,000. The board re-instituted the program in the first quarter of 2000. In the first half of 2000 the company completed the $100,000 program by repurchasing 2,447,100 shares of common stock for $84,071. 44 Note 9. ACQUISITIONS ------------ In May 2000, the company completed its acquisition of Corrugados Tehuacan, S.A. de C.V. for approximately $70,300. This company operates a state-of-the-art corrugated container plant, a solid fiber box plant and a small recycled linerboard and corrugating medium mill, all located in Mexico. Also in May 2000, the company purchased a pulp mill in Port Wentworth, Georgia. After process improvements, the company's total investment in the facility was approximately $94,300. These acquisitions were accounted for using the purchase method. The operating results of these acquisitions have been included in the consolidated statements of earnings from the date of acquisition. Note 10. 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 debt. Note 11. COMMITMENTS AND CONTINGENCIES ----------------------------- In 2000, the company signed a consent decree to settle alleged violations of the federal Clean Air Act (CAA) and related state regulations related to the company's Building Materials Group. Prior to December 31, 2000, the company paid $11,231 in penalties and interest. In January 2001, an additional $4,000 was paid for supplemental environmental projects, as required by the consent decree. The company established reserves in 1999 and 2000 to provide for these final settlement costs. The consent decree further requires the installation of various pollution control equipment at certain facilities. As of December 31, 2000, our Johnsonburg, Pennsylvania, paper and pulp mill has received a notice of violation (NOV) from the U.S. Environmental Protection Agency (EPA) for alleged violations of the CAA and has received a demand letter to correct the alleged violations. Management has met with federal and state officials to resolve the matters alleged in the NOV. Several of our other U.S. mills have received information requests under Section 114 of the CAA from the EPA. The company has responded, or is in the process of responding, to these requests. To date, the EPA has not issued NOVs related to these mills. 45 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. In the fourth quarter of 2000, Weyerhaeuser Company initiated a hostile tender offer for the common stock of the company. Under contracts with certain of the company's professional advisors, the fees for services rendered are a flat fee plus certain out-of-pocket expenses. These fees are amortized over the expected benefit period which, based on management's current expectations, is expected to exceed 18 months beyond December 31, 2000. In the fourth quarter of 2000, the company recorded an $8,000 charge related to the estimated defense costs. Management expects that defense costs could ultimately reach $50,000. 46 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 25, 2000 (the "Form 8-A"). [14] 3B. Bylaws of the registrant as amended through December 11, 2000. Incorporated by reference to Exhibit (a)(5)(ii) to Amendment No. 1 to the registrant's Schedule 14D-9 filed December 12, 2000. [16] 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. Incorporated by reference to Exhibit 4D of the registrant's annual report on Form 10-K for the year ended December 31, 1999. [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] 4F. Amendment No. 1 to Rights Agreement dated as of February 25, 2000 by and between Willamette Industries, Inc. and Mellon Investor Services LLC (f/k/a Chase Mellon Shareholder Services, L.L.C.). Incorporated by reference to Exhibit (a)(5)(i) to Amendment No. 1 to the registrant's Schedule 14D-9 filed December 12, 2000. [1] 47 10A. Willamette Industries, Inc. 1999 Deferred Compensation Plan for Directors. Incorporated by reference to Exhibit 10A of the registrant's annual report on Form 10-K for the year ended December 31, 1999.* [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. 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. Form of Amendment to Severance Agreement (Exhibit 10C) between the registrant and eleven executives. Incorporated by reference to Exhibit (e)(7) to Amendment No. 3 to the registrant's Schedule 14D-9 filed December 22, 2000.* [1] 10E. Willamette Industries, Inc. 1993 Deferred Compensation Plan. Incorporated by reference to Exhibit 10E to the registrant's annual report on Form 10-K for the year ended December 31, 1993 (No. 1-12545).* [16] 10F. Willamette Industries, Inc. Amended and Restated 1995 Long-Term Incentive Compensation Plan, as amended effective December 21, 2000.* [10] 10G. Consulting agreement dated December 1, 1998, between the registrant and William Swindells. Incorporated by reference to Exhibit 10G to the registrant's annual report on Form 10-K for the year ended December 31, 1998.* [4] 10H. Form of letter agreements with selected key employees that receive annual salary above a specified level providing for severance payments in the event of a change in control of the registrant. Incorporated by reference to Exhibit (e)(4) to the registrant's Schedule 14D-9 filed December 5, 2000* [14] 48 10I. Form of amendment to all individual severance agreements (including Exhibits 10D and 10H) between the registrant and selected key employees.* [3] 10J. Willamette Industries, Inc., Supplemental Benefits Plan, as amended effective December 21, 2000.* [46] 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 8, 2001, in the registrant's registration statements on Form S-3 and Form S-8. [1] 24. Power of attorney of certain officers and directors. [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] - ------------------------ *Management contract or compensatory plan or arrangement. 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. 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. 49 EX-10.F 2 0002.txt 1995 LONG-TERM INCENTIVE COMPENSATION PLAN AMENDED AND RESTATED WILLAMETTE INDUSTRIES 1995 LONG-TERM INCENTIVE COMPENSATION PLAN (Amended and Restated Effective December 21, 2000) 1. General. Pursuant to the terms and conditions of the WILLAMETTE INDUSTRIES 1995 LONG-TERM INCENTIVE COMPENSATION PLAN (the "Plan"), hereinafter set forth, the Committee specified in Article 2 may from time to time grant or award to eligible employees of Willamette Industries, Inc. ("Company"), and of those corporations ("Subsidiaries") in which Company owns at least 50 percent of the total combined voting power of all classes of stock, options to purchase shares of the $.50 par value common stock ("Stock") of Company, stock appreciation rights, and restricted Stock. In addition, the Plan provides for the automatic grant of options to Non-Employee Directors as defined in Article 8. Such options, stock appreciation rights, and restricted Stock are sometimes referred to collectively as "grants and awards." The purpose of the Plan is to motivate special achievement by officers and other key employees of Company and its Subsidiaries by assisting them in acquiring or increasing an equity interest in Company, and, in the case of Non-Employee Directors, to align their interest more closely to that of Company. The options shall be nonqualified stock options subject to Section 83 of the Internal Revenue Code, and not incentive stock options subject to Section 422A of the Internal Revenue Code. 2. Administration. The Board of Directors of Company ("the Board") shall designate a Committee of not less than two members of the Board ("the Committee") who shall administer the Plan and serve at the pleasure of the Board. The number and identity of the members of, and any name given to the Committee, may be changed by the Board at any time and from time to time. The Committee may also have other duties, as would be the case if the Board should designate the Company's Compensation and Nomination Committee (or a successor thereto) to act as the Committee under the Plan. No person shall be eligible or continue to serve as a member of the Committee unless such person is a "disinterested person" within the meaning of Rule 16b-3 ("Rule 16b-3") of the General Rules and Regulations under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), or any law, rule, regulation, or other provision that may hereafter replace such rule. Also, unless the Board determines otherwise, members of the Committee must be "outside directors" within the meaning of Section 162(m) of the Internal Revenue Code of 1986, as amended, and the rules thereunder. Subject to the express provisions of the Plan, the Committee shall have full and final authority, acting in its sole discretion, to interpret the Plan, to establish rules and regulations relating to the Plan, and to take such action and make such determinations as the Committee may deem necessary or advisable in the administration of the Plan. However, Committee shall have no discretion as to any aspect of grants to Non-Employee Directors; these grants shall be governed by Article 8. No member of the Committee shall be liable for any action or determination made in good faith with respect to the Plan or any grant or award made thereunder, nor be liable for any good faith reliance upon any report or other information furnished to the Committee by Company's officers, its independent public accountants, or by any other person or entity. -1- 3. Eligibility. Except as otherwise provided in Article 8, employees eligible to receive grants and awards under the Plan shall be such key employees (including officers, regardless whether they are directors) of Company and its Subsidiaries as may be selected from time to time by the Committee. Except for the provisions in Articles 5, 6, and 7 setting a per-employee maximum limit on the number of stock options, stock appreciation rights, or shares of restricted Stock whose vesting is based on attainment of one or more performance goals, no provision of the Plan shall be construed to prohibit the Committee from making additional grants or awards under the Plan to employees who have previously received grants or awards. No provision of the Plan shall be construed as automatically entitling an employee to a grant or award, regardless whether the employee has received a grant or award in a prior year or has attained a particular executive position or salary level. 4. Shares Subject to the Plan. Subject to Article 16 hereof,the total number of shares of Stock issuable under the Plan shall not exceed 2,750,000. For purposes of this limitation, (a) any option or stock appreciation right which terminates or expires without exercise shall thereafter be deemed not to have been granted, and (b) shares of restricted Stock which are forfeited shall thereafter be deemed not to have been issued. Shares of Stock available for issue under the Plan shall be authorized and unissued shares or shares acquired by Company and held in treasury. 5. Stock Options. The Committee may from time to time grant options to eligible employees. Subject to appropriate adjustment pursuant to Article 16, no employee may receive, under the Plan, stock options or stock appreciation rights which in the aggregate would exceed 350,000 shares of Stock. The price at which a share of Stock may be purchased on exercise of an option shall be fixed by the Committee at the date of grant of such option and shall not be less than the fair market value of a share of Stock at that date. Fair market value, as used in this Article 5 and elsewhere in the Plan, shall, unless the Committee shall determine otherwise, be the closing price of Stock on the date the option is granted as reported on the New York Stock Exchange for such date or, if such closing price is not available for a date (because the date is not a trading day or otherwise), for the next preceding date for which such closing price is available. At the time an option is granted, the Committee shall specify the period during which it is not exercisable, and whether the option is to be thereafter exercisable in full or in installments. The Committee may also specify that all the shares become exercisable no later than upon termination of employment for certain reasons, such as death, disability, or retirement. The Committee may at any time after the grant accelerate the exercisability of the option. Options granted under the Plan shall expire not more than ten years and two days from the date of the grant of the option as specified by the Committee (the "stated period of the option") at date of grant. No employee to whom an option is granted shall be entitled to any of the rights of a shareholder of Company with respect to any shares covered by the option until certificates representing such shares have been issued to the employee. No option may be transferred except by will or the laws of descent and distribution and, during the lifetime of an employee to whom an option is granted, such option -2- may be exercised only by the employee, the employee's guardian or legal representative. Notwithstanding the foregoing, the Committee, in its sole discretion, may include in the agreement referred to in Article 12 evidencing the grant of an option to an employee a provision permitting the employee to transfer such option upon the terms and conditions specified in such agreement, provided that the foregoing provisions of this sentence shall apply to any person subject to the reporting provisions of Section 16(a) of the Exchange Act only to the extent that the exemption given by Rule 16b-3 shall continue to be available to the grant of such option. Upon termination of employment for any reason other than death, disability, or retirement ("disability" and "retirement" are defined in Article 11) of an employee to whom an option has been granted, the employee may, at any time prior to the earlier of (a) 30 days after termination of employment or (b) the expiration of the stated period of the option, exercise the option to the same extent, if any, that the option was exercisable by the employee on the date of termination of employment under the terms of the option. Notwithstanding the foregoing, the Committee may in its discretion, after giving consideration to the circumstances of the termination of employment of an employee to whom an option has been granted, extend said 30-day period to a period of three years after termination of employment. The option shall expire on the date of termination of employment to the extent it was not then exercisable and otherwise shall expire upon the earlier of 30 days (three years, if the Committee has extended the period) after termination of employment or the expiration of the stated period of the option. Upon the termination of employment by reason of death, disability, or retirement of an employee to whom an option has been granted, the employee (or, in case of death, any person or persons, including the legal representative of the employee's estate, to whom the option passes by will or by the laws of descent and distribution) may, at any time prior to the expiration of the stated period of the option, exercise the option to the same extent, if any, that the option was exercisable by the employee on the date of termination of employment under the terms of the option. The option shall expire on the date of termination of employment to the extent it was not then exercisable and otherwise shall expire upon the expiration of the stated period of the option. Payment upon exercise of an option shall be made in cash, by certified check or bank draft payable to the order of Company or, at the Committee's discretion, in whole or in part in any other form, including by personal check or by the delivery to Company of shares of Stock previously acquired by the employee or by any combination of the foregoing. 6. Stock Appreciation Rights. The Committee may from time to time award stock appreciation rights to eligible employees and determine the base price for each stock appreciation right (which may be higher than, equal to, or less than the fair market value of a share of Stock on the date of award). A "stock appreciation right" is a right to receive cash as provided in this Article 6. Subject to appropriate adjustment pursuant to Article 16, no employee may receive, under the Plan, stock options or stock appreciation rights which in the aggregate would exceed 350,000 shares of Stock. Upon the exercise of a stock appreciation right, the optionee shall be entitled to the excess of the fair market value of one share of Stock on the date of such exercise over the base price specified in the award agreement for the stock appreciation right. -3- Except as otherwise provided in this Article 6, the terms and conditions relating to exercise and expiration of stock appreciation rights shall be as determined by the Committee under the same rules as provided in Article 5 for stock options and shall be subject to the same restraints on transferability, except that the exercise of stock appreciation rights shall be subject to such conditions as are required to prevent the employee from incurring liability under Section 16(b) of the Exchange Act. 7. Awards of Restricted Stock. The Committee may from time to time make awards of restricted Stock under the Plan to eligible employees. An award may be either of two types: (a) Stock whose vesting is based on years of continuous employment after the date of award. (b) Stock whose vesting is based on attainment of one or more performance goals. Years of Continuous Employment. At the time of an award of shares whose vesting is based on years of continuous employment, the Committee shall specify the number of continuous years of employment required for vesting, except that full vesting shall occur no later than upon termination of employment by reason of death, disability, or retirement ("disability" and "retirement" are defined in Article 11). The Committee may at any time after the award accelerate the vesting as to part or all the shares awarded. There is no per-employee maximum limit on the number of shares of restricted Stock whose vesting is based on years of continuous employment. Attainment of Goals. At the time of an award of shares whose vesting is based on attainment of performance goals, the Committee shall specify the performance goal or goals which must be attained, and the date by which they must be attained, in order to cause the shares to vest. The performance goal or goals shall be one or more of earnings per share, return on equity, return on assets, growth in earnings, growth in sales revenue, corporate profitability, or shareholder returns. These can be measured in comparison to the performance of a group of peer companies selected by the Committee or based on Company's results. Notwithstanding the foregoing, full vesting shall occur upon death or disability. Also, the Committee may, in its discretion, at the time an award is made, specify that the shares shall become fully vested upon retirement in the event retirement occurs before the attainment of the performance goal or goals. If the specified performance goal or goals are not met within the time specified, the nonvested shares subject to such goal or goals shall be forfeited. Furthermore, upon termination of employment for any reason other than death, disability, or (in those cases where the Committee has specified full vesting on retirement) retirement of an employee to whom an award has been made, any nonvested shares shall be forfeited. Subject to appropriate adjustment pursuant to Article 16, no employee may receive, under the Plan, more than 50,000 shares of restricted Stock whose vesting is based on attainment of performance goals. General Provisions. While the shares are not vested, the employee shall have all the rights of a shareholder of Company as to the nonvested shares, except that the shares may not be sold, assigned, transferred, pledged, or otherwise encumbered. Certificates representing -4- awarded shares shall be registered in the name of the employee but held (with a stock power endorsed in blank) by Company until the shares have vested, at which time they shall be delivered to the employee or legal representative free of restrictions. The Committee may, in its discretion, provide that a portion of the award of restricted Stock shall be made in cash rather than shares. Any such cash shall be payable at the same time or times as the shares to which the cash relates become vested. If shares are forfeited, the related amount of unpaid cash shall also be forfeited. 8. Non-Employee Directors. Grants shall be made to members of the Board who are not employees of Company or any Subsidiary ("Non-Employee Directors") only under this Article 8. No person, including the members of the Board or the Committee, shall have any discretion as to the selection of eligible recipients or the determination of the type, amount, or terms of grants pursuant to this Article 8. The persons eligible to receive grants pursuant to this Article 8 are all Non-Employee Directors. Initial Options. Upon the date of approval of the Plan by Company's shareholders (the "Approval Date"), each person who is then a Non-Employee Director shall be automatically granted an option (a "Director Option") to purchase 1,000 shares of Stock. Each person who becomes a Non-Employee Director after the Approval Date shall be automatically granted, on the date such person becomes a Non-Employee Director, an initial Director Option to purchase 2,000 Shares; provided, however, that a director who was at any time an officer of the Company or any Subsidiary shall not be entitled to a grant of the initial Director Option. Annual Options. Upon the date of each annual meeting of Company's shareholders beginning with the meeting in 2001, each person who is then a Non-Employee Director and who is to continue as a member of the Board following the annual meeting, and without regard to how long the person has been a Non-Employee Director or whether the person had ever been an officer of Company or any Subsidiary, shall be automatically granted an annual Director Option to purchase 2,000 shares of Stock. Option Price. The option price for all Director Options shall be the fair market value of a share of Stock at the date of grant. Option Agreements. Each grant of Director Options made pursuant to this Article 8 shall be governed by and shall be subject to the terms and conditions set forth in an Option Agreement in the form attached to the Plan as Exhibit A. Except to the extent otherwise provided in this Article 8 or in such Option Agreement, each such grant shall be governed by the Plan's provisions relating to the grant of options to, and the exercise of options by, employees. 9. Change in Control. Definition of Change in Control. For purposes of the Plan, a "Change in Control" of Company means: (a) The acquisition by any individual, corporation, limited liability company, partnership, trust, group, association, or other "person," as such term is used in Section 13(d)(3) or 14(d) of the Securities Exchange Act of 1934 (the "Exchange Act") (any "Person") (or by any -5- group of Persons that would constitute a "group" for purposes of Section 13(d) and Rule 13d-5 under the Exchange Act) of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act), other than a Person or group that acquires such beneficial ownership solely because such Person or group has voting power with respect to any issued and outstanding securities ordinarily having the right to vote at elections of Company's directors, including without limitation shares of Stock ("Voting Securities") arising from a revocable proxy or consent given in response to a public proxy or consent solicitation made pursuant to the Exchange Act (as in effect from time to time), of 20 percent or more of the combined voting power of the then outstanding Voting Securities; provided, however, that for purposes of this paragraph (a), the following acquisitions will not constitute a Change in Control: (A) any acquisition directly from Company; (B) any acquisition by Company or a Subsidiary, (C) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by Company or any corporation controlled by Company, (D) any acquisition by any corporation pursuant to a transaction which complies with clauses (A), (B), and (C) of paragraph (c) below, or (E) any acquisition by any Person who is a party to an agreement (a "New Stand-Together Agreement") similar to the former Shareholder Stand-Together Agreement dated as of January 21, 1985 (the "Former Stand-Together Agreement"), which New Stand-Together Agreement (1) provides for unified action by Persons who have, or whose families have, historically held substantial amounts of Company Shares in the event of a threatened change of control and (2) which has as parties at least ten shareholders of Company who were parties to the Former Stand-Together Agreement, but only while such Person remains a party to such New Stand-Together Agreement; or (b) Individuals who, as of December 21, 2000, the date the plan was amended and restated (the "Restatement Date"), constitute the Board (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to the Restatement Date whose election, or nomination for election by Company's shareholders, was approved by a vote of at least two-thirds of the directors then comprising the Incumbent Board will be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board; or (c) Consummation of a reorganization, merger, or consolidation or sale or other disposition of all or substantially all of the assets of Company (a "Business Combination") in each case, unless, following such Business Combination, (A) all or substantially all of the individuals and entities who were the beneficial owners of the Voting Securities outstanding immediately prior to such Business Combination beneficially own, directly or indirectly, more than 50 percent (66 2/3 percent if Company is not the continuing or surviving corporation resulting from such Business Combination) of, respectively, the then outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Business Combination (including, without limitation, a corporation that as a result of such transaction owns Company or all or substantially all of Company's assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Business Combination, of the Voting Securities, (B) no Person -6- (excluding any employee benefit plan (or related trust) of Company or such corporation resulting from such Business Combination) beneficially owns, directly or indirectly, 20 percent or more of, respectively, the then outstanding shares of common stock of the corporation resulting from such Business Combination or the combined voting power of the then outstanding voting securities of such corporation except to the extent that such ownership existed prior to the Business Combination and (C) at least a majority of the members of the board of directors of the corporation resulting from such Business Combination were members of the Incumbent Board at the earlier of the time of the execution of the initial agreement with respect to such Business Combination, or of the action of the Board providing for such Business Combination; or (d) Approval by the shareholders of Company of any plan or proposal for the liquidation or dissolution of Company. Definition of Unapproved Change in Control. For purposes of the Plan, an "Unapproved Change in Control" means an event or series of events that would constitute a change in control under the Plan prior to its amendment effective December 21, 2000. Effect of a Change in Control. Subject to the limitation set forth in Article 10 of the Plan, if any Change in Control or Unapproved Change in Control occurs: (a) All options and stock appreciation rights previously granted or awarded which are not fully exercisable shall become exercisable in full upon the date of such occurrence; provided that for any Change in Control that is not an Unapproved Change in Control, the Committee may, in its discretion, condition such vesting on the employee's agreement to accept a cash amount (based on the amount being received by Company shareholders in connection with the Change in Control) in exchange for cancellation of the applicable option or stock appreciation right. (b) Notwithstanding the provisions of Articles 5 or 6 relating to the expiration of options and stock appreciation rights in connection with termination of employment, upon termination of employment for any reason (other than by reason of conduct which constitutes a felony under federal law or the law of the state in which the employee resides) within the two-year period following the occurrence of the Change in Control, the option and rights may be exercised at any time prior to the earlier of (i) three years after termination of employment or (ii) the expiration of the stated period of the option. (c) All shares of restricted Stock previously awarded which are not vested shall become vested upon the date of such occurrence. Effect of Unapproved Change in Control. If an Unapproved Change in Control occurs: (a) All options and stock appreciation rights that were granted prior to December 21, 2000, and become exercisable in full pursuant to the foregoing provisions under "Effect of a Change in Control" shall remain so exercisable until the earlier of (A) three years after the date of such occurrence, or (B) the expiration of the stated period of the option. After the end of the three-year period, the options and rights shall revert to being exercisable in accordance with their terms, although no option or rights which have previously been exercised or otherwise terminated shall become exercisable. Notwithstanding the foregoing, no stock appreciation rights may be exercised -7- within six months of the date of award of the rights. (b) Each employee (including those who are not officers) holding an unexercised option that was granted prior to December 21, 2000, and regardless whether the option is then otherwise fully exercisable, may make a cash exercise of all or any portion of the option in lieu of the purchase of Stock under the option. A cash exercise may be made, without any payment to Company, by surrendering unexercised the option or any portion thereof. Upon such exercise and surrender, the optionee shall be entitled to receive cash (less applicable withholding taxes) in an amount equal to the excess of the aggregate fair market value of the shares of Stock covered by the option, or the relevant portion thereof, on the date of such exercise and surrender over the aggregate exercise price of such Stock under the option. The cash exercise may be made only during the period beginning on the first day following the date on which Company has actual knowledge of the actual occurrence of the Change in Control and ending on the 45th day following such date. Notwithstanding the foregoing, no cash exercise may be made by an officer (as defined under Section 16 of the Exchange Act) of Company within six months of the date of grant of the option and no cash exercise may be made by any optionee after the expiration of the stated period of the option. 10. Effect on Pooling. Notwithstanding any other provisions of this Plan, upon the occurrence of any Change in Control that is not an Unapproved Change in Control, the exercisability of options or stock appreciation rights and the vesting of restricted stock will not be accelerated pursuant to Article 9 of the Plan if and to the extent necessary (as reasonably determined by the Board) to preserve "pooling of interest" financial accounting treatment of any business transaction. 11. Disability; Retirement. Except as otherwise provided in Exhibit A for Non-Employee Directors, "disability" for purposes of this Plan shall have the same meaning as "total and permanent disability" under the Willamette Industries, Inc., and Associated Companies Salaried Employees' Retirement Plan (regardless whether the employee is covered by such Retirement Plan), and "retirement" shall mean: (a) Termination of employment at or after attainment of age 62, provided the employee has (or would have, if covered by such Retirement Plan) at least ten vesting credits as defined under such Retirement Plan, or (b) Termination of employment at or after attainment of age 65, regardless of the number of such vesting credits, if any. 12. Agreement. Each employee to whom a grant or award is made under the Plan shall execute an appropriate agreement with respect to such grant or award referring to the terms and conditions thereof and of the Plan. The form of agreements may be changed from time to time and need not be identical among those receiving the grants or awards. 13. Withholding Taxes. Company shall have the right to deduct from all cash payments made under the Plan any federal, state, or local taxes required by law to be withheld with respect to such cash payments, and, in the event such cash payments are insufficient to -8- cover the required withholding, the employee or other person receiving such payment may be required to pay to Company the additional amount necessary for this purpose. In the case of an exercise of an option or an award of restricted Stock, the employee or other person exercising such option or taxable in connection with such award may be required to pay to Company the amount of any such taxes that Company is required to withhold with respect to such exercise or award. Company shall also have the right to deduct any such taxes from the shares that would otherwise be issued to or vest in the employee or other person. The Committee may, in its discretion, allow the employee or other person to make the required payment to Company by delivery of shares of previously acquired Stock. 14. Employment. Nothing contained in the Plan or in any grant or award under the Plan shall confer upon any employee any right with respect to the continuation of employment with Company or its Subsidiaries or interfere in any way with the right of Company or its Subsidiaries to terminate the employee's employment at any time. Nothing contained in the Plan shall confer upon any employee or other person any claim or right to any grant or award under the Plan. 15. Governmental Compliance. Each grant and award under the Plan shall be subject to the requirement that, if at any time the Committee shall determine that the listing, registration, or qualification of any shares issuable thereunder upon any securities exchange or under any federal or state law, or the consent or approval of any governmental or self-regulatory body is necessary or desirable as a condition thereof, or in connection therewith, no such grant or award may be exercised or shares issued unless such listing, registration, qualification, consent, or approval shall have been effected or obtained free of any conditions not acceptable to the Committee. 16. Adjustments. The right and power of Company to provide for reclassifications, reorganizations, recapitalizations, stock splits, stock dividends, combination of shares, merger, consolidation, or any other change in the capital structure or shares of Company shall not be affected by the Plan. In the event of any such action, the Committee or the Board may make such adjustments, if any, as it may deem appropriate in the number of shares available for grants and awards under the Plan, that may be granted or awarded to an individual employee or Non-Employee Director, and to grants and awards made under the Plan. 17. Expenses. The expenses of administering the Plan shall be borne by Company. 18. Termination. No grants or awards under the Plan shall be made after April 27, 2005, or such earlier date as the Board may determine. 19. Successors and Assigns. The provisions of the Plan (and interpretations and determinations made by the Committee pursuant thereto) shall be conclusive and binding upon Company and its Subsidiaries, their successors and assigns, and upon each employee receiving grants or awards under the Plan and the employee's heirs, successors, and assigns. 20. Amendment. The Plan may be amended by the Board as it deems advisable, provided that no such amendments shall adversely affect the rights of participants to -9- whom grants and awards under the Plan shall have been made without the consent of the participants affected thereby, nor shall the Board, without approval of Company's shareholders: (a) Except as provided in Article 16, increase the number of shares of Stock that are subject to the Plan or the number of shares that may be received by any one employee; (b) Extend the period during which grants and awards under the Plan may be made; (c) Otherwise materially increase the benefits accruing to participants under the Plan; (d) Amend the requirements of the Plan in respect of eligibility to receive grants and awards under the Plan; or (e) Establish the price at which shares may be purchased on the exercise of an option at less than the fair market value of the Stock at the time the option is granted. The provisions of Article 8 of the Plan shall not be amended more than once every six months, other than to comport with changes in the Internal Revenue Code or in Rule 16b-3 under the Exchange Act. Willamette has adopted this Plan effective as of December 21, 2000. By: ------------------------------- Executive Vice President and Chief Financial Officer -10- EX-10.I 3 0003.txt AMENDMENT TO LETTER AGREEMENT DATED 4/20/99 January 18, 2001 First Name, Last Name Address City, State, Zip Dear ___________________: This letter amends and supplements the letter agreement dated April 20, 1999, between you and Willamette Industries, Inc. ("Willamette") relating to certain benefits following a change in control of Willamette (the "CIC Agreement") as follows: 1. The following provision is added to paragraph 3(d)(ii) of the CIC Agreement: For purposes of this Agreement, "annual incentive compensation" includes, without limitation, annual grants of stock options and restricted stock under the Company's 1995 Long-Term Incentive Compensation Plan, as amended and restated (the "Incentive Plan"). The value of your annual incentive compensation represented by restricted stock granted to you under the Incentive Plan during any fiscal year of the Company, will be equal to the number of Company Shares granted to you multiplied by the market value of a Company share on the grant date. The value of your annual incentive compensation represented by stock options granted to you under the Incentive Plan during any fiscal year of the Company will be equal to the number of Company Shares subject to your stock option multiplied by the value of each stock option determined as of the grant date of that option using the Black Scholes option pricing model and the market value of a Company Share on the grant date and using the following assumptions: (a) The option will be assumed to be fully exercisable as of the grant date; January 18, 2001 Page Two (b) The option will be assumed to have an expected life equal to the average period for which options granted under the Plan have remained outstanding which is 6.4 years; (c) The volatility of the Company Shares underlying each option will be determined based on the simple average of four volatility calculations: 1) the daily close stock price for the three-year period preceding each stock option grant date; 2) the daily close stock price for the 52-week preceding each stock option grant date; 3) the daily close stock price for the most recent peak-to-peak stock cycle, with a duration cycle of over 1 year, preceding each stock option grant date; and 4) the daily close stock price for the most recent trough-to-trough stock cycle, with a duration cycle of over 1 year, preceding each stock option grant date. For any period of time during which the Company's Shares are being solicited in the public arena through a public tender offer or public bidding process, the volatility factor for such period will be the daily average of the S&P forest products index for the four calculations noted above. (d) The risk-free rate will be the yield to maturity on a U.S.Treasury note with a term of 6.4 years. (e) The dividend is the actual per share cash dividend paid with respect to Company Shares in the most current calender quarter prior to the grant date, annualized. 2. Except as expressly provided in this letter, all the terms and conditions of the CIC Agreement will continue in full force and effect. Sincerely, WILLAMETTE INDUSTRIES, INC. By ------------------------- Duane C. McDougall, President and CEO January 18, 2001 Page Three Agreed to this day of , 2001. ----------------------- -------------------- EX-10.J 4 0004.txt SUPPLEMENTAL BENEFITS PLAN WILLAMETTE INDUSTRIES, INC., SUPPLEMENTAL BENEFITS PLAN Amended and Restated Effective as of January 1, 2000 TABLE OF CONTENTS Page ARTICLE I - NATURE OF PLAN 2 ARTICLE II - PARTICIPATION 3 ARTICLE III - BENEFITS 4 3.1 Benefit Entitlement 4 3.2 Unrestricted Benefit 4 3.3 Restricted Benefit 7 3.4 Benefit Credits 7 3.5 Continuous Employment 7 3.6 Break in Service 8 3.7 Loss of Benefit and Vesting Credits 8 3.8 Reinstatement of Benefit and Vesting Credits 8 3.9 Value of Vested and Reinstated Benefit Credits 9 3.10 Compensation 9 3.11 Felix M. Hammack Benefit 10 3.12 Benefit Guidelines 10 3.13 Special Early Retirement Benefit 10 3.14 Dave H. Hill Benefit 11 3.15 Duane C. McDougall Benefit 11 3.16 Greg W. Hawley Benefit 11a ARTICLE IV - VESTING 12 ARTICLE V - PRERETIREMENT DEATH BENEFIT 13 ARTICLE VI - BENEFIT FORM 14 6.1 Single Participant Benefit 14 6.2 Married Participant Benefit 14 6.3 Automatic Cash Out 15 6.4 Actuarial Equivalent 15 ARTICLE VII - TIME OF PAYMENT 17 7.1 Time of Commencement 17 7.2 Amount of Disability Retirement Benefits 17 7.3 Early Retirement 18 7.4 Change-In-Control Benefit 19 ARTICLE VIII - NONASSIGNABILITY OF BENEFITS 29 ARTICLE IX - FUNDING 30 ARTICLE X - ADMINISTRATION OF THE PLAN 31 -i- TABLE OF CONTENTS (continued) Page ARTICLE XI - GOVERNING LAW 32 ARTICLE XII - CLAIMS PROCEDURE 33 12.1 Retirement Board Actions 33 12.2 Filing of Claim 33 12.3 Claims Review Procedure 33 ARTICLE XIII - AMENDMENTS AND TERMINATION 36 EXHIBIT A - SOCIAL SECURITY COVERED COMPENSATION A-1 EXHIBIT B - SPECIAL EARLY RETIREMENT BENEFIT PARTICIPANTS B-1 EXHIBIT C - ACTUARIAL EQUIVALENT FACTORS C-1 -ii- WILLAMETTE INDUSTRIES, INC., SUPPLEMENTAL BENEFITS PLAN Amended and Restated Effective as of January 1, 2000 P A R T I E S This Amended and Restated Plan effective as of January 1, 2000, is adopted by Willamette Industries, Inc., hereinafter referred to as the "Company." R E C I T A L S Effective as of January 1, 1989, the Company last amended and restated the Willamette Industries, Inc., Supplemental Benefits Plan (the "Plan"). The Plan was last amended effective April 20, 1999. The Company desires to further amend and restate the Plan, in accordance with Article XIII of the Plan, in certain respects. A M E N D M E N T A N D R E S T A T E M E N T The Plan is hereby amended and restated effective as of January 1, 2000, to read in full as follows: -1- ARTICLE I NATURE OF PLAN This Plan is intended to be and shall be administered and maintained by the Company as an income tax nonqualified, unfunded plan primarily in part for the purpose of providing excess benefit plan benefits as described in Section 3(36) of the Employee Retirement Income Security Act of 1974, as amended, to those provided under the Willamette Industries, Inc., and Associated Companies Salaried Employees' Retirement Plan ("the Salaried Plan"), and in part for the purpose of providing deferred compensation for a select group of management or highly compensated employees within the meaning of ERISA Sections 201(2), 301(a)(3), and 401(a)(1). -2- ARTICLE II PARTICIPATION Any employee of the Company who is compensated on a monthly salary basis and whose Unrestricted Benefit exceeds the Restricted Benefit, who is entitled to a specific Plan benefit or who is an officer who has an individual Change-in-Control agreement shall be a Participant. The intent of the foregoing officer provision is that such officers get the 7.4(e) Change-in-Control benefits whether or not they have another benefit under this Plan. -3- ARTICLE III BENEFITS 3.1 Benefit Entitlement. Each vested Participant shall be entitled to receive a monthly benefit under this Plan commencing in accordance with 7.1, which is the Actuarial Equivalent of the monthly amount by which such Participant's Unrestricted Benefit exceeds the Participant's Restricted Benefit. 3.2 Unrestricted Benefit. A Participant's Unrestricted Benefit at age 65 is 1/12th of the larger of the benefit derived from (a) or (b) below: (a) The benefit derived from this 3.2(a) is the sum of (1) and (2) below: (1) Total Benefit Credits up to 35 multiplied by (A) 1.15 percent of the Participant's Average Highest- Five Compensation; plus (B) .50 of 1 percent of that portion of the Participant's Average Highest-Five Compensation in excess of the Participant's Social Security Covered Compensation. A Participant's Social Security Covered Compensation is the average of the Social Security taxable wage bases for the 35 calendar years ending with the calendar year of Social Security retirement age. For this purpose, Social Security retirement age is 65 for Participants born before 1938, 66 for Participants born from -4- 1938 through 1954, and 67 for Participants born after 1954. The wage base will be changed and this Plan will automatically be amended whenever the maximum earnings currently subject to Social Security tax are changed and such change is approved by the Internal Revenue Service. The current Social Security Taxable Wage Base table is set forth in Exhibit A attached hereto, which may be replaced without formal Plan amendment upon a change in the wage base as described above. (2) Total Benefit Credits in excess of 35 multiplied by 1.50 percent of the Participant's Average Highest-Five Compensation. (3) Notwithstanding 3.2(a)(1) or (2), no benefit (including a disability benefit) being received by a Participant or beneficiary shall be decreased by reason of any increase in the Social Security Taxable Wage Base and provided further that (A) if a Participant is separated from Service and does not subsequently return to Service and resume membership in the Plan, the Participant's benefit shall not be decreased by reason of any increase in such taxable wage base made after the later of September 2, 1974, and the Participant's separation from Service; or (B) if a Participant is separated from Service and subsequently -5- returns to Service and resumes participation in the Plan, the Participant's benefit shall not be decreased by reason of any increase in such taxable wage base effective after September 2, 1974, and during separation from Service that would decrease the benefits to which the Participant would have been entitled if the Participant had not returned to Service after the separation. (b) Grandfathered Benefit. The benefit derived from this 3.2(b) is the sum of (1) and (2) below: (1) The Participant's benefit earned as of December 31, 1988, under the terms of this Plan as in effect on December 31, 1988, multiplied by a fraction (not less than one), the numerator of which is the Participant's Average Highest-Five Compensation subject to 3.10, determined as of the current Plan Year and using the same definition as used to determine this frozen accrued benefit, and the denominator of which is the Participant's Average Highest-Five Compensation determined as if the Participant terminated employment as of December 31, 1988, and without regard to any Plan amendment made after that date. (2) The Participant's benefit earned as of any date after December 31, 1988, under the terms of this Plan as in effect on January 1, 1989, based on Benefit Credits earned after December 31, 1988, up to the sum of pre-and post-December 31, 1988, Benefit Credits being not more than 25. -6- 3.3 Restricted Benefit. A Participant's Restricted Benefit is the benefit calculated under 3.2, except that Compensation in excess of the limit under Section 401(a)(17) of the Internal Revenue Code of 1986, as amended (the "Code"), shall be ignored, the benefit limitations of Section 415 of the Code shall apply and Compensation used in computing that Restricted Benefit shall not include employee elected deferrals under any nonqualified deferred compensation arrangement as referred to in 3.10. For purposes of this 3.3, compensation in excess of the limit under Code Section 401(a)(17) shall be determined in accordance with the "extended wear-away" provisions of Treasury Regulation Section 1.401(a)(4)-13(c)(4)(iii) with respect to a Participant who is a "Code Section 401(a)(17) employee" within the meaning of Treasury Regulation Section 1.401(a)(17)-1(e)(2)(i) as of any date on or after January 1, 1994. 3.4 Benefit Credits. A whole or fractional Benefit Credit is earned for each completed calendar year of continuous salaried employment or fraction thereof with the Company. 3.5 Continuous Employment. Continuous employment is severed on the later of: (a) The earlier of: (1) Termination of employment; (2) Failure to return from authorized leave of absence within the time specified by the Company or failure to fulfill other terms thereof; (3) Failure to return from layoff within one year or failure to return when the Company required the employee's services within such period; or (4) Failure to return from absence due to illness or accident within one year or after having been pronounced fit for -7- duty by a doctor designated by the Company, whichever first occurs; and (b) The earlier of (1) the date an employee quits, retires, is discharged, or dies, or (2) the first anniversary of the first date of a period in which an employee remains absent from employment (with or without pay) with the Company or its controlled group for any reason other than quit, retirement, discharge or death, such as vacation, holiday, sickness, disability, leave of absence, or layoff. 3.6 Break in Service. Prior to January 1, 1976, a break in service shall occur upon a severance of continuous employment under 3.5(a). After December 31, 1975, a Break in Service shall occur at the expiration of the 12-month period following the date a Participant's continuous employment is severed under 3.5 if the Participant is not reemployed with the Company or its controlled group within such 12-month period. 3.7 Loss of Benefit and Vesting Credits. Subject to reinstatement pursuant to 3.8, all Vesting Credits shall be temporarily forfeited at the time the Break in Service occurs, unless the Participant is vested. All Benefit Credits and the accrued benefit attributable to Company contributions of a nonvested Participant shall be temporarily forfeited when a deemed cash-out distribution occurs on a severance of continuous employment. If a vested Participant is cashed out in a lump-sum payment, all Benefit Credits represented by such payment shall be permanently forfeited. 3.8 Reinstatement of Benefit and Vesting Credits. All Benefit and Vesting Credits and the accrued benefit temporarily forfeited by a nonvested Participant under 3.7 shall be reinstated upon resumption of employment with the Company if the continuous period of -8- severance from service does not exceed the greater of five years or the Participant's Vesting Credits earned prior to the Break in Service. (In computing this total, Vesting Credits not required to be included by operation of this subparagraph by reason of prior Breaks in Service shall be excluded.) 3.9 Value of Vested and Reinstated Benefit Credits. Benefits Credits that are vested or reinstated pursuant to 3.8 shall not receive a higher percentage value than that applicable to retired Participants under 3.2, as written on the earlier of the date continuous employment is severed as defined in 3.5 or the date the Participant becomes an ineligible Company employee. 3.10 Compensation. For the purpose of determining Average Highest-Five Compensation, "Compensation" shall mean the regular fixed salary paid to an employee for service as a salaried employee, including Company contributions made at the election of the employee under any qualified cash or deferred arrangement as defined in Code Section 401(k) or to a Section 125 cafeteria plan, and excluding overtime, any pension, severance pay, retainer fee under contract, bonus, or the like, and any other nonelective Company contributions to this Plan or any other pension or profit sharing plan, whether or not tax qualified, except that, for purposes of determining a Participant's Unrestricted Benefit, "Compensation" shall include deferrals made at the election of the employee under any nonqualified deferred compensation arrangement maintained by the Company, including the Willamette Industries 1993 Deferred Compensation Plan. "Average Highest-Five Compensation" shall mean the amount determined by averaging the annual Compensation received by a Participant in each calendar year during the five-consecutive-calendar-year period prior to a Participant's annuity starting date that produces -9- the highest annual average or such lesser period if the Participant has been an employee for less than five calendar years. 3.11 Felix M. Hammack Benefit. A monthly benefit of $2,752.66 shall be paid to Felix M. Hammack for life with no payments to anyone else after his death. 3.12 Benefit Guidelines. As the benefit payable under this Plan as of any date is to be an excess benefit to the benefit payable from the Salaried Plan, which is restricted as described in 3.3, the Actuarial Equivalent value of the benefit payable under this Plan shall be neither more or less than the Actuarial Equivalent value of such excess benefit that cannot be paid under the Salaried Plan as of the date a benefit is payable under this Plan. The benefit payable under this Plan shall be reduced by the amount of any subsequent increase in the benefit payable from the Salaried Plan. 3.13 Special Early Retirement Benefit. Notwithstanding any other provision of this Plan, Participants designated by the Company in Exhibit B shall be entitled to a benefit at early retirement, as determined under 7.3, except that (a) for purposes of determining the Participant's Unrestricted Benefit and Restricted Benefit, there shall be added to the amount determined under 3.2 four additional Benefit Credits multiplied by 1.50 percent of the Participant's Average Highest-Five Compensation and (b) for purposes of determining the reduction for age under 7.3, applicable solely to the portion of the Participant's benefit determined under 3.2(a)(1)(A) and (2) and this 3.13, the Participant shall be credited with up to four additional years of age, but not beyond age 62. If such a Participant dies prior to having an annuity starting date, the preretirement death benefit under Article V shall be based on the additional benefits described in this 3.13. The Company may, in its discretion, condition -10- designation of a Participant for the additional benefits under this 3.13 upon the Participant's ceasing Company employment not later than a date specified by the Company. 3.14 David H. Hill Benefit. David H. Hill shall be entitled to the additional benefit provided in this section contingent upon his resigning from the employment of the Company as of December 31, 1999, and his surviving until May 1, 2001. This additional benefit shall be the remainder of (a) minus (b) below: (a) The sum of the single life annuity monthly benefits that David H. Hill would have earned under the Salaried Plan and this Plan if his December 31, 1999, employment and Compensation continued beyond that date and through April 30, 2001, and he was age 62 and had three more Benefit Credits as of May 1, 2001. (b) The sum of the single life annuity monthly benefits that David H. Hill earned under the Salaried Plan and this Plan as of December 31, 1999, and that would be payable to him as of May 1, 2001, when he would be age 59. This additional benefit shall begin May 1, 2001, and be paid on an Actuarial Equivalent basis, in the benefit form provided or elected under the Article VI benefit form rules, irrespective of the forms in which the benefits under the Salaried Plan and the other provisions of this Plan are being paid. No preretirement death benefit will be paid with respect to this additional benefit. 3.15 Duane C. McDougall Benefit. In the event of a "Change-In-Control" as defined in 7.4(c), Duane C. McDougall shall be entitled to a total benefit under this Plan that is no less than the product of (a), (b) and (c), reduced by (d): (a) his Benefit Credits up to a total of 25, (b) 2.5 percent, (c) his Average Highest-Three Compensation, and (d) his Restricted Benefit. Average Highest-Three Compensation is the same as Average Highest-Five -11- Compensation except that three years are used instead of five years. In the event of a "Change-in-Control," Mr. McDougall shall be eligible to retire and receive his benefits at age 55 even if he terminates employment before age 55. 3.16 Greg W. Hawley Benefit. In the event of a "Change-in-Control" as defined in 7.4(c), Greg W. Hawley shall be fully vested, shall be deemed to have ten Vesting Credits for purposes of eligibility to retire under 7.1(a) and (c) and shall be deemed to have 15 Vesting Credits for purposes of the subsidized early retirement reduction factors under 7.3 and shall be entitled to retire and receive his benefits at age 55 with these subsidized factors even if he terminates employment before age 55. -11a- ARTICLE IV VESTING A Participant vests in benefits under this Plan when the Participant has five Vesting Credits or attains age 65. Vesting Credits are earned for employment with the Company or its controlled group of corporations and trades or businesses, whether or not as a salaried employee. A Participant earns a whole or partial Vesting Credit for each calendar year of continuous employment. For this purpose continuous employment is severed, broken, lost, and reinstated as provided in 3.5, 3.6, 3.7, and 3.8. In the event a Participant severs continuous employment but is reemployed within 12 months immediately following such severance, the period of absence shall nevertheless be counted as continuous employment for Vesting Credit purposes and eligibility purposes but shall not count for Benefit Credit purposes. -12- ARTICLE V PRERETIREMENT DEATH BENEFIT If a vested Participant dies prior to having an annuity starting date, the Participant's surviving spouse of at least one year shall be paid a monthly benefit for life. That benefit equals the survivor annuity determined below that would have been paid to the spouse under 6.2 had the Participant retired the day before death with the applicable joint and survivor annuity in effect, if the Participant was eligible for retirement at death. If not eligible for retirement, the spouse's benefit shall be determined as if the Participant terminated Company employment on the date of death, retired on the day after the Participant would have attained earliest retirement, and died on the day after such retirement. With respect to a vested Participant who was a Company employee at death or on or after becoming eligible for early retirement, the amount of the spouse's benefit shall be determined under the 100 percent joint and survivor annuity benefit. If such Participant had at least 15 Vesting Credits, the more favorable early retirement factors in 7.3 shall apply, irrespective of the Participant's age. For any other vested Participant, the spouse's benefit shall be determined under the 50 percent joint and survivor annuity benefit, except that, if such Participant has a 100 percent spouse joint and survivor annuity benefit election in effect under 6.2(b) at the time of his or her death, the spouse's benefit shall be determined under the 100 percent joint and survivor annuity benefit. The spouse's benefit is payable as of the Participant's deemed retirement date under the foregoing and cannot be deferred to a later date. -13- ARTICLE VI BENEFIT FORM 6.1 Single Participant Benefit. A Participant who is not married at retirement shall receive the 3.1 benefits under this Plan for life without any payments to anyone after the Participant's death (a "single-life annuity"). 6.2 Married Participant Benefit. (a) Automatic Benefit Form. Unless otherwise elected by the Participant under 6.2(b), a Participant who is legally married at retirement, provided that the marriage was valid under the laws of the state in which it occurred ("Married Participant"), shall receive the 3.1 benefits under this Plan as a reduced "Actuarial Equivalent" retirement allowance for the Participant for life and, following the Participant's death, a retirement allowance for life to his or her spouse (if living at the time of the Participant's death), in an amount that is equal to one half of the reduced amount payable to the retired Participant during the joint lifetime of the retired Participant and his or her spouse. (b) Optional Benefit Form. A Married Participant may elect in writing to waive the automatic benefit form under 6.2(a) and to receive the 3.1 benefits under this Plan either (1) in the form of a single-life annuity or (2) as a reduced "Actuarial Equivalent" retirement allowance for the Participant for life and, following the Participant's death, a retirement allowance for life to his or her spouse (if living at the time of the Participant's death), in an amount that is equal to 100 percent of the reduced amount payable to the retired Participant during the joint lifetime of the retired Participant and his or her spouse. A Married Participant may make such an election at any time prior to ceasing Company employment, provided that an election under this 6.2(b) shall not be effective (A) until the first day of the sixth month -14- following the date the election is filed with the Retirement Board and (B) with respect to an election of a single-life annuity under this 6.2(b), unless the Married Participant's spouse consents in writing to the election, on a form provided by the Retirement Board (which will require the written spouse consent to be witnessed by a notary public). Spouse consent need not be obtained if the spouse cannot be located or under such other circumstances as determined appropriate by the Retirement Board, in its sole discretion. A Married Participant may change an election under this 6.2(b) and elect another optional benefit form under this 6.2(b) or the automatic benefit form under 6.2(a) in the same manner and subject to the same six-month delayed effective date as the Participant's initial election under this 6.2(b). If a Married Participant ceases Company employment before his or her election under this 6.2(b) is effective, the Participant shall receive the 3.1 benefits under this Plan (i) as provided under 6.2(a), in the case of the Participant's initial election under this 6.2(b), or (ii) if a prior election under this 6.2(b) is effective, in the form elected by the Participant in such prior effective election. 6.3 Automatic Cash Out. If the Actuarial Equivalent lump-sum present value of a Participant's retirement benefit has never exceeded $10,000, the Retirement Board shall pay such benefit in a lump sum, notwithstanding 6.1 and 6.2. 6.4 Actuarial Equivalent. "Actuarial Equivalent" shall mean a benefit of equivalent value when computed at the rate of interest and on the basis of the mortality and other tables as set forth in Exhibit C attached hereto, which can be amended by the executive vice president and chief financial officer of the Company by resolution and attachment of an updated exhibit to the Plan to be consistent with such factors for the Salaried Plan. In the event of a change in Exhibit C, the Actuarial Equivalent of the accrued benefit on or after the date of the change is the greater of the Actuarial Equivalent of the accrued benefit as of the -15- date of the change computed on the old basis or the Actuarial Equivalent of the total accrued benefit computed on the new basis. For the purpose of cashing out any benefits, the present value of a Participant's benefit shall be calculated as of the date of the distribution using the "applicable interest rate" and the "applicable mortality table" described in (a) and (b) below: (a) "Applicable interest rate" means the "lookback month" annual interest rate on 30-year Treasury securities as specified by the Commissioner of Internal Revenue for that month, which is appropriately published. Such rate shall apply to distributions through the "stability period." The "lookback month" shall be the second full calendar month, namely November, preceding the first day of the "stability period," namely January 1. The "stability period" shall be the calendar Plan Year from January 1 through December 31 after the "lookback month." (b) "Applicable mortality table" means the 1983 Group Annuity Mortality Table (with blended factors assuming 50 percent male and 50 percent female lives) as published in Internal Revenue Service Revenue Ruling 95-6, or such other table as is subsequently prescribed by the Internal Revenue Service in accordance with Code Section 417(e). -16- ARTICLE VII TIME OF PAYMENT 7.1 Time of Commencement. Benefit payments under this Plan shall commence to a Participant on the earliest first day of the month on or after the Participant ceases Company employment and: (a) Is at least age 55 and has ten Vesting Credits; (b) Is at least age 65; or (c) Is totally and permanently disabled and has ten Vesting Credits. Benefit payments to the surviving spouse of a retired Participant shall commence as of the first day of the month after the Participant's death. A Participant shall be deemed to be totally and permanently disabled if the Retirement Board determines, upon the basis of medical evidence, that the Participant is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment that can be expected to result in death or to be of long, continued, and indefinite duration. The Retirement Board's determination of whether the Participant is totally and permanently disabled shall be conclusive in each case. A disability resulting from an intentional self-inflicted injury is excluded. 7.2 Amount of Disability Retirement Benefits. The monthly amount of disability retirement benefit is the difference between the Participant's Unrestricted Benefit at disability retirement and the Restricted Benefit at disability retirement. The Unrestricted Benefit is, as defined at 3.2, reduced for ages 55 through 64 by the early retirement factors in 7.3 and for ages before 55 on an Actuarial Equivalent basis, based upon the Benefit Credits earned up to the date the Participant ceased to earn Benefit Credits and the benefit formula in effect under the Plan on that date. If the Participant has at least 15 Vesting Credits, the more favorable early -17- retirement factors in 7.3 shall apply, irrespective of the Participant's age. Disability retirement benefits shall be payable in the same forms as provided in Article VI and begin at the time provided in 7.1. The Restricted Benefit is as calculated above with the restrictions provided at 3.3. 7.3 Early Retirement. A Participant retiring prior to age 65 shall be entitled to a reduced monthly retirement allowance commencing at the Participant's early retirement date in an amount equal to the difference between the Participant's Unrestricted Benefit at early retirement and the Restricted Benefit at early retirement. The Unrestricted Benefit is, as defined at 3.2, based on the Benefit Credits and the percentage values in effect at the date of actual retirement, the date continuous employment is severed, or the date the Participant ceases to be a salaried employee of the Company, whichever first occurs, reduced in accordance with the following table (this reduction shall be made prior to any applicable joint and survivor adjustment required by 6.2): Percentage of Age 65 Benefit Age at Early (Prior to Joint and Retirement Survivor Adjustment) 55 46% 56 53% 57 60% 58 67% 59 74% 60 81% 61 88% 62 91% 63 94% 64 97% 65 100% If a Participant is a salaried employee on or after January l, l983, but not on or after January 1, 1989, retires on or after January 1, 1983, and was at least age 55 and had 15 Vesting Credits when the Participant last ceased Company employment, there shall be no such reduction for the -18- period between the 62nd and 65th birthdays and the reduction factors from age 55 to age 62 shall be in accordance with the following table: Percentage of Age 65 Benefit Age at Early (Prior to Joint and Retirement Survivor Adjustment) Percentage of Age 65 Benefit Age at Early (Prior to Joint and Retirement Survivor Adjustment) 55 65% 56 70% 57 75% 58 80% 59 85% 60 90% 61 95% 62 100% 63 100% 64 100% 65 100% If a Participant is a salaried employee on or after January 1, 1989, retires on or after that date, and was at least age 55 and had 15 Vesting Credits when the Participant last ceased Company employment, then the above percentages shall apply, except the age 55 percentage shall be 63 percent and the age 56 percentage shall be 68 percent. The age of a Participant at early retirement shall be computed to the nearest completed month of age. Intermediate percentages in the table shall be established on the basis of the Participant's age as so computed. The Restricted Benefit is as calculated above with the restrictions provided at 3.3. 7.4 Change-In-Control Benefit. (a) Termination After Change-In-Control. A Participant who ceases Company employment on or after reaching age 55 and within 24 months after a "Change-in-Control" (within 36 months after for a Participant with a "Change-in-Control" agreement) may elect to receive a reduced lump-sum benefit equal to 90 percent of the Actuarial Equivalent lump-sum present value of the difference between the Participant's Unrestricted Benefit upon ceasing Company employment and -19- the Restricted Benefit upon ceasing Company employment. The Unrestricted Benefit is, as defined in 3.2, reduced by the early retirement factors in 7.3, based upon the Benefit Credits earned up to the date the Participant ceased to earn Benefit Credits and the benefit formula in effect under the Plan on that date. The Restricted Benefit is as calculated above with the restrictions provided at 3.3. (b) Termination Before Change-In-Control. A Participant who ceases Company employment on or after reaching age 55 but before a "Change in Control" may elect to receive a reduced lump-sum benefit equal to the amount determined under (1) or (2), as follows: (1) If benefit payments to the Participant have commenced, 90 percent of the Actuarial Equivalent lump-sum present value of the remaining benefit payments in the form determined under 6.1 or 6.2, whichever applies. (2) If benefit payments to the Participant have not commenced, 90 percent of the Actuarial Equivalent lump-sum present value of the difference between the Participant's Unrestricted Benefit upon ceasing Company employment and the Restricted Benefit upon ceasing Company employment. The Unrestricted Benefit is, as defined in 3.2, reduced by the early retirement factors in 7.3, based on Benefit Credits and the benefit formula in effect under the Plan on that date. (c) Change-In-Control Defined. For purposes of this 7.4, a "Change in Control" of the Company means as defined herein (in no event will it have a different meaning than as set forth in a Participant's "Change-In-Control" Agreement with the Company). (1) The acquisition by any Person (or by any group of Persons that would constitute a "group" for purposes of Section 13(d) and Rule 13d-5, as in -20- effect on the date of that acquisition, under the Exchange Act) of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act), other than a Person or group that acquires such beneficial ownership solely because such Person or group has voting power with respect to Voting Securities arising from a revocable proxy or consent given in response to a public proxy or consent solicitation made pursuant to the Exchange Act (as in effect from time to time), of 20 percent or more of the combined voting power of the then outstanding Voting Securities; provided, however, that for purposes of this paragraph (1), the following acquisitions will not constitute a Change in Control: (A) any acquisition directly from the Company; (B) any acquisition by the Company or a Subsidiary, (C) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company, (D) any acquisition by any corporation pursuant to a transaction that complies with clauses (A), (B), and (C) of paragraph (3) below, or (E) any acquisition by any Person who is a party to an agreement (a "New Stand-Together Agreement") similar to the former Shareholder Stand-Together Agreement dated as of January 21, 1985 (the "Former Stand-Together Agreement"), which New Stand-Together Agreement (i) provides for unified action by Persons who have, or whose families have, historically held substantial amounts of the Company's common stock, $.50 par value, in the event of a threatened change of control and (ii) which has as parties at least ten shareholders of the Company who were parties to the Former Stand-Together Agreement, but 21 only while such Person remains a party to such New Stand-Together Agreement; or (2) Individuals who, prior to an event, constitute the Board (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to the date of that event whose election, or nomination for election by the Company's shareholders, was approved by a vote of at least two-thirds of the directors then comprising the Incumbent Board will be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board; or (3) Consummation of a reorganization, merger, or consolidation or sale or other disposition of all or substantially all of the assets of the Company (a "Business Combination") in each case, unless, following such Business Combination, (A) all or substantially all of the individuals and entities who were the beneficial owners of the Voting Securities outstanding immediately prior to such Business Combination beneficially own, directly or indirectly, more than 50 percent (66 2/3 percent if the Company is not the continuing or surviving corporation resulting from such Business Combination) of, respectively, the then outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, -22- as the case may be, of the corporation resulting from such Business Combination (including, without limitation, a corporation that as a result of such transaction owns the Company or all or substantially all of the Company's assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Business Combination, of the Voting Securities, (B) no Person (excluding any employee benefit plan (or related trust) of the Company or such corporation resulting rom such Business Combination) beneficially owns, directly or indirectly, 20 percent or more of, respectively, the then outstanding shares of common stock of the corporation resulting from such Business Combination or the combined voting power of the then outstanding voting securities of such corporation except to the extent that such ownership existed prior to the Business Combination, and (C) at least a majority of the members of the board of directors of the corporation resulting from such Business Combination were members of the Incumbent Board at the earlier of the time of the execution of the initial agreement with respect to such Business Combination, or of the action of the Board providing for such Business Combination; or (4) Approval by the shareholders of the Company of any plan or proposal for the liquidation or dissolution of the Company. A Change in Control "occurs" on the date the Change in Control first occurs; provided, however, that if (A) your employment is terminated by the Company after a tender or exchange offer described in a "Change-In-Control" agreement is made, (B) it is reasonably demonstrated that the Participant's termination was at the request of a third party who is seeking to effect a Change -23- in Control or otherwise occurred as a result of an anticipated Change in Control, and (C) a Change in Control in fact occurs within 120 days after the Participant's termination, then for purposes of determining the Participant's right to any severance compensation and benefits under that agreement, the Participant's termination shall be deemed to have occurred after a Change in Control. For this 7.4(c), a "Person" means and includes any individual, corporation, limited liability company, partnership, trust, group, association, or other "person," as such term is used in Section 13(d)(3) or 14(d) of the Exchange Act. For this 7.4(c), "Voting Securities" means all issued and outstanding securities ordinarily having the right to vote at elections of the Company's directors, including without limitation the Company's common stock, $.50 par value. For this 7.4(c), "Subsidiary" means a corporation of which more than 50 percent of the outstanding voting stock is owned, directly or indirectly, by the Company, by one or more other Subsidiaries, or by the Company and one or more other Subsidiaries. For the purposes of this definition, "voting stock" means stock which ordinarily has voting power for the election of directors, whether at all times or only so long as no senior class of stock has such voting power by reason of any contingency. However, any action or determination by the Board under this paragraph will not be deemed to alter or nullify any provisions of any Participant's "Change-In-Control" agreement with the Company. (d) Election. An election under 7.4(a) must be filed with the Retirement Board on or before the later of (1) the last day of the 90-day period that begins with the date the Participant ceases Company employment or (2) the last day of the 24-month period that begins -24- on the date of the Change-in-Control. An election under 7.4(b) must be filed with the Retirement Board on or before the last day of the 24-month period that begins on the date of the Change-in-Control. An election under 7.4 (a) or 7.4 (b) by a Married Participant is subject to the spouse consent requirement under 6.2(b). A Participant who receives the lump-sum benefit under 7.4(a) or 7.4(b) shall not be eligible to receive any other benefit under the Plan. (e) A Participant who has an individual "Change-in-Control" agreement with the Company and who is terminated from employment within 36 months after a "Change-in-Control" (1) without "Cause" or (2) who terminates with "Good Reason" shall, except as limited in (B) below, be credited with: (A) the additional number of Benefit and Vesting Credits, the additional years of Compensation (equal to 12 times the last full month of Compensation) used in determining the Participant's Average Highest-Five Compensation, and the additional years of age, which corresponds to the length of the period used for calculation of years of severance pay under the Participant's Change-in-Control agreement for purposes of: (i) determining vesting under Article IV, and (ii) calculating the amount of the Unrestricted Benefit, and (iii) establishing eligibility for the subsidized early retirement factors, and (iv) determining application of the early retirement reduction factors in calculating the Participant's benefit; but (v) not for determining the earliest age (55) at which benefits can be paid (which remains the Participant's natural age) In addition, if the Participant at such termination, has at least 15 Vesting Credits (including "Change-in-Control" Credits granted above), the leaving employment at or after age 55 requirement (needed to establish eligibility for subsidized early retirement reduction factors -25- under 7.3), will be waived and not be applicable. Also, the requirement in 7.4(a) that employment cease on or after reaching age 55 shall not apply to such a Participant. (B) The additional Benefit and Vesting Credits and years of Compensation shall not exceed the additional Benefit and Vesting Credits and Compensation a Participant would have earned at what would have been mandatory retirement under 5.1(B) of the Salaried Plan had the Participant's employment continued until then. Such a Participant's age at retirement shall be the larger of the sum of the Participant's actual age at the time of the qualifying post-"Change-In-Control" termination of employment and the additional years of age or the Participant's actual age at retirement. A Participant's total Plan benefit as increased under this 7.4(e) shall be payable in any benefit form provided under the Plan, subject to the rules for those benefit forms. (f) For purposes of the added benefits provided in (e) above, termination of such Participant by the Company for "Cause" means termination because, and only because, the Participant committed an act of fraud, embezzlement, or theft constituting a felony, or an act intentionally against the interest of the Company that causes the Company material injury, or the Participant has repeatedly failed, after written notice, to perform his or her responsibilities under his or her "Change-In-Control" agreement. Notwithstanding the foregoing, such Participant will not be deemed to have been terminated for Cause unless and until there has been delivered to the Participant a copy of a resolution duly adopted by the affirmative vote of not less than three-quarters of the entire membership of the Board at a meeting of the Board called and held for the purpose (after reasonable notice to the Participant and an opportunity for the Participant, together with his or her counsel, to be heard before the Board), finding that in the good faith opinion of the Board the Participant was guilty of conduct constituting Cause as defined above and specifying the particulars for such finding in detail. For the purposes of these added benefits, termination by such Participant of his or her employment for "Good Reason" has the following meaning: -26- (1) A change in the Participant's status or position(s) with the Company, which, in the Participant's reasonable judgment, represents a demotion from his or her status or position(s) as in effect immediately prior to the Change in Control, or a change in his or her duties or responsibilities which, in the Participant's reasonable judgment, is inconsistent with such status or position(s), or any removal of the Participant from, or any failure to reappoint or reelect the Participant to, such position(s), except in connection with the termination of the Participant's employment for Cause or Disability or as a result of the Participant's death or termination by the Participant other than for Good Reason. (2) A reduction by the Company in such Participant's base salary as in effect immediately prior to the Change in Control. (3) The failure by the Company to continue in effect any Plan in which the Participant is participating at the time of the Change in Control (or Plans providing the Participant with at least substantially similar benefits) other than as a result of the normal expiration of any such Plan in accordance with its terms as in effect at the time of the Change in Control, or the taking of any action, or the failure to act, by the Company that would adversely affect the Participant's continued participation in any of such Plans on at least as favorable a basis to the Participant as is the case on the date of the Change in Control or that would materially reduce the Participant's benefits in the future under any of such Plans or deprive the Participant of any material benefit enjoyed by the Participant at the time of the Change in Control. -27- (4) The failure by the Company to provide and credit such Participant with the number of paid vacation days to which the Participant is then entitled in accordance with the Company's normal vacation policy or actual practice as in effect immediately prior to the Change in Control. (5) The Company's requiring such Participant to be based anywhere other than where the Participant's office is located immediately prior to the Change in Control except for required travel on the Company's business to an extent substantially consistent with the business travel obligations which the Participant undertook on behalf of the Company prior to the Change in Control. (6) The failure by the Company to obtain from any successor the assent to this Agreement contemplated by such Participant's "Change-In-Control" agreement. (7) Any purported termination by the Company of such Participant employment that is not effected pursuant to a notice of termination satisfying the requirements of the Participant's "Change-In-Control" agreement; and for purposes of that agreement, no such purported termination will be effective. (8) Any refusal by the Company to continue to allow such Participant to attend to matters or engage in activities not directly related to the business of the Company that, prior to the Change in Control, the Participant was permitted by the Board to attend to or engage in. -28- ARTICLE VIII NONASSIGNABILITY OF BENEFITS No Participant or surviving spouse shall have the power to transfer, assign, anticipate, modify, or otherwise encumber in advance any of the payments that may become due hereunder; nor shall any such payments be subject to attachment, garnishment, or execution, or be transferable by operation of law in the event of bankruptcy, insolvency, or otherwise. -29- ARTICLE IX FUNDING This Plan is unfunded. Benefits are payable only from the general assets of the Company or a trust established by the Company, the assets of which are available to the general creditors of the Company. The Company makes no representation that any other assets will be set aside to provide benefits under this Plan. Participants and surviving spouses have no interest in any assets of the Company other than such trust assets. Participants have no rights other than the unsecured promise of the Company to pay benefits in the future except to the extent provided by such trust. A Participant's rights are no greater than the rights of any unsecured general creditor of the Company. Nothing contained herein shall be deemed to create a trust of any kind or to create any fiduciary relationship. -30- ARTICLE X ADMINISTRATION OF THE PLAN The Plan shall be administered by the Retirement Board for the Salaried Plan (the "Retirement Board"). The Retirement Board shall have the exclusive authority and responsibility for all matters in connection with the operation and administration of the Plan. The Retirement Board's powers and duties shall include, but shall not be limited to, the following: (a) responsibility for the compilation and maintenance of all records necessary in connection with Plan;(b) authorizing the payment of all benefits and expenses of the Plan if they become payable under the Plan; and (c) authority to engage such legal, accounting, and other professional services as the Retirement Board may deem proper. Decisions by the Retirement Board shall be final and binding upon all parties affected by the Plan, including beneficiaries of Participants. The Retirement Board may rely on information and recommendations provided by the management of the Company. The Retirement Board shall not allow any Participant to vote on or obtain control over decisions or actions that affect that Participant's Plan benefit. -31- ARTICLE XI GOVERNING LAW This Plan and any amendments shall be construed, administered, and governed in all respects in accordance with applicable federal law and, to the extent not preempted, by the laws of the state of Oregon. -32- ARTICLE XII CLAIMS PROCEDURE 12.1 Retirement Board Actions Binding. Any interpretation or construction of or action by the Retirement Board with respect to the Plan and its administration shall be conclusive and binding upon any and all parties and persons affected thereby subject to the exclusive claims review procedure of 12.3. 12.2 Filing of Claim. Any Participant or any death beneficiary thereof (hereinafter referred to as the "Claimant") requesting a benefit payment from the Plan shall file a written claim with the Retirement Board prepared by the Claimant or the Claimant's authorized representative. 12.3 Claims Review Procedure. (a) Initial Review. (1) Time Period for Denial Notice. Anytime a claim for benefits is wholly or partially denied, the Claimant shall be given written notice of such action within a reasonable period of time after receipt of the claim by the Retirement Board. In no event shall the response to the initial claim be given more than 90 days after receipt of the claim, unless special circumstances require an extension of time for processing. If there is an extension, the Claimant will be notified of such within 90 days of the date the claim was filed. The notice shall indicate the special circumstances and the date by which a decision is expected. The extension will not exceed 90 days from the end of the initial response period. (2) Contents of Notice. Such notice will indicate the specific reason or reasons for denial, specific reference to the Plan provision(s) involved, an explanation of the -33- claims review procedure set forth herein, and a description of any additional material or information necessary to complete the claim. (3) Deemed Denied. If written notice of the decision wholly or partially denying the claim has not been furnished within 90 days after the claim is filed, or if there has been an extension and no notice of a decision is furnished by the end of the extension period, and if the claim has not been granted within such period, the claim shall be deemed denied as of the end of the 90-day or 180-day period for the purpose of proceeding to the review stage described in 12.3(b). (b) Review of Denied Claim. (1) Time Period to Request Review. Any person who has filed a written application with the Retirement Board claiming benefits that has been denied or deemed denied in whole or in part or who is otherwise adversely affected by action of the Retirement Board shall have the right to request review before the Retirement Board. Such request must be in writing and must be made by personal delivery or mailing to the Retirement Board within a reasonable period of time, taking into consideration the nature of the benefit that is the subject of the claim and other attendant circumstances. In no event shall the period for requesting review expire less than 60 days after being advised of the Retirement Board's action or after the date on which the claim is deemed denied. If the written request for review is not made on a timely basis, the Claimant shall waive the right to review. (2) Review Procedure. The Retirement Board shall then conduct a review at which the adversely affected person may present his or her position. In doing so, the affected person may review pertinent documents, if any, and may submit issues and comments in writing. The Retirement Board may hold a hearing if it deems it necessary. -34- (3) Time Period for Decision on Review. The Retirement Board shall issue a written decision promptly reaffirming, modifying, or setting aside its former action. The decision on review shall not ordinarily be made later than 60 days after the date review is requested. If special circumstances require an extension of time (such as the need to hold a hearing), a decision shall be made and furnished to the Claimant not later than 120 days after such receipt. If an extension is required, the Claimant shall be notified of such within 60 days after the request for review was filed. (4) Contents of Review Notice. The decision shall set forth its reasons and pertinent Plan provisions on which it is based. A copy of the decision shall be furnished the Claimant. (5) Effect of Review and Deemed Denied. The decision shall be final and binding upon the Claimant and the Retirement Board and all other persons involved. If the decision on review is not furnished within the applicable time period, the claim shall be deemed denied on review. Any further review, judicial or otherwise, of the decision on review shall be based on the record before the Retirement Board and limited to whether, in the particular instance, the Retirement Board acted arbitrarily or capriciously in the exercise of its discretion. In no event shall any such further review, judicial or otherwise, be on a de novo basis as the Retirement Board has discretionary authority to determine eligibility for benefits and to construe the terms of this Plan. -35- ARTICLE XIII AMENDMENTS AND TERMINATION The Company reserves the power at any time to terminate this Plan or amend it in any manner that it may deem advisable. The executive vice president and chief financial officer of Company is authorized and directed to amend this Plan so that it is consistent in all material respects with amendments to the Salaried Plan. On termination the accrued benefit under the Plan shall be payable in the form previously elected by the Participant or surviving spouse through a paid-up annuity or by a cash Actuarial Equivalent payment, if such benefit has a present value equal to or less than the amount provided for an involuntary cash out of benefits. Any annuity purchased shall be from a company rated A+ with a financial size category of class VIII or larger by A.M. Best Company or a corresponding rating from a comparable entity if such company no longer exists. -36- This amended and restated Plan is executed this day of -------- -----------------, -----. WILLAMETTE INDUSTRIES, INC. By ---------------------- Executive Vice President and Chief Financial Officer -37- EXHIBIT A WILLAMETTE INDUSTRIES, INC., SUPPLEMENTAL BENEFITS PLAN SOCIAL SECURITY COVERED COMPENSATION FOR 2000 (Referent Section 3.2) Calendar Year Covered Calendar Year Covered of Birth Compensation of Birth Compensation - ------------- ------------ ------------- ------------ 1928 $22,716 1948 $60,900 1929 24,312 1949 62,340 1930 25,920 1950 63,660 1931 27,576 1951 64,920 1932 29,304 1952 66,072 1933 31,128 1953 67,164 1934 33,060 1954 68,220 1935 35,100 1955 70,116 1936 37,092 1956 71,004 1937 39,072 1957 71,820 1938 42,984 1958 72,528 1939 44,940 1959 73,176 1940 46,896 1960 73,764 1941 48,816 1961 74,304 1942 50,688 1962 74,748 1943 52,488 1963 75,180 1944 54,252 1964 75,564 1945 55,992 1965 75,864 1946 57,708 1966 76,092 1947 59,376 1967 or later 76,200 -A-1- EXHIBIT B WILLAMETTE INDUSTRIES, INC., SUPPLEMENTAL BENEFITS PLAN SPECIAL EARLY RETIREMENT BENEFIT PARTICIPANTS (Referent Section 3.13) The following Participants have been designated by the Company as entitled to the Special Early Retirement Benefit under 3.13: Lyle Dragoo -B-1- EXHIBIT C WILLAMETTE INDUSTRIES, INC., SUPPLEMENTAL BENEFITS PLAN ACTUARIAL EQUIVALENT FACTORS (Referent Section 6.4) The 1984 Unisex Pension Mortality Table, with ages set back three years for spouses, at 7 percent interest. -C-1- WILLAMETTE INDUSTRIES, INC., SUPPLEMENTAL BENEFITS PLAN FIRST AMENDMENT (Effective December 21, 2000) TO THE SUPPLEMENTAL BENEFITS PLAN Amended and Restated as of January 1, 2000 P A R T I E S THIS FIRST AMENDMENT, effective December 21, 2000, is adopted by Willamette Industries, Inc., hereinafter referred to as "Company." R E C I T A L S Effective as of January 1, 2000, Company last amended and restated the Willamette Industries, Inc., Supplemental Benefits Plan (the "Plan"). The Company desires to further amend the Plan, in accordance with Article XIII of the Plan, in certain respects and has authorized its Compensation Committee to adopt such amendment. A M E N D M E N T The Plan is hereby amended effective as of December 21, 2000, as set forth on the pages attached hereto that are incorporated by reference herein as follows: 1. ARTICLE II--PARTICIPATION Article II at page 3. -A- 2. ARTICLE III--BENEFITS a. 3.3 at page 7. 3. ARTICLE VII--TIME OF PAYMENT 7.4(e) at pages 25 and 26. 7.4(f) is added at pages 26, 27, and 28. The Company has executed this amendment as of the day of --------- , 2000. - --------------- WILLAMETTE INDUSTRIES, INC. By ------------------------ Executive Vice President and Chief Financial Officer -B- EX-12 5 0005.txt COMPUTATION OF RATIOS Exhibit 12 WILLAMETTE INDUSTRIES, INC. AND SUBSIDIARIES COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES (DOLLAR AMOUNTS IN THOUSANDS) Year Ended December 31, ---------------------------------------------------------------- 1996 1997 1998 1999 2000 ---------------------------------------------------------------- Fixed Charges: Interest Cost $ 103,338 136,929 145,579 129,282 124,296 One-third rent 6,906 7,535 8,075 8,076 8,868 ------------ ------------ ----------- ------------ ------------ Total Fixed Charges 110,244 144,464 153,654 137,358 133,164 ------------ ------------ ----------- ------------ ------------ Add (Deduct): Earnings before Income Taxes 306,086 111,263 132,783 413,275 514,387 Interest Capitalized (10,534) (19,939) (13,589) (3,998) (5,163) ------------ ------------ ----------- ------------ ------------ Earnings for Fixed Charges $ 405,796 235,788 272,848 546,635 642,388 ============ ============ =========== ============ ============ Ratio of Earnings to Fixed Charges 3.68 1.63 1.78 3.98 4.82 ==== ==== ==== ==== ====
EX-23 6 0006.txt CONSENTS 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. 333-54156 on Form S-8 and No. 333-32647 on Form S-3 of Willamette Industries, Inc. of our report dated February 8, 2001, relating to the consolidated balance sheets of Willamette Industries, Inc. and subsidiaries as of December 31, 2000 and 1999, 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, 2000, which report appears in the December 31, 2000 annual report on Form 10-K of Willamette Industries, Inc. KPMG LLP Portland, Oregon March 28, 2001 EX-24 7 0007.txt POWER OF ATTORNEY Exhibit 24 POWER OF ATTORNEY Each person whose signature appears below designates and appoints DUANE C. McDOUGALL, G. W. HAWLEY and DONALD S. WADDELL, and each of them, the person's true and lawful attorneys-in-fact and agents to sign the Annual Report on Form 10-K for the year ended December 31, 2000, of Willamette Industries, an Oregon corporation, and to file said report, with all exhibits thereto, with the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended. Each person whose signature appears below also grants full power and authority to these attorneys-in-fact and agents to perform every act and execute any instrument that they deem necessary or desirable in connection with said report, as fully as the person could do in person, hereby ratifying and confirming all that the attorneys-in-fact and agents or their substitutes may lawfully do or cause to be done. IN WITNESS WHEREOF, this power of attorney has been executed by each of the undersigned as of the 8th day of February, 2001. Signature Title --------- ----- - -------------------------------- President and Chief Executive Officer and Duane C. McDougall Director (Principal Executive Officer) - -------------------------------- Executive Vice President and Chief Greg W. Hawley Financial Officer, Secretary and Treasurer (Principal Financial Officer) - -------------------------------- Corporate Controller Donald S. Waddell (Principal Accounting Officer) - -------------------------------- Chairman of the Board William Swindells - -------------------------------- Director Winslow H. Buxton - -------------------------------- Director Gerard K. Drummond - -------------------------------- Director Kenneth W. Hergenhan - -------------------------------- Director G. Joseph Prendergast - -------------------------------- Director Stuart J. Shelk, Jr. - -------------------------------- Director Robert M. Smelick - -------------------------------- Director Michael G. Thorne - -------------------------------- Director Benjamin R. Whiteley -----END PRIVACY-ENHANCED MESSAGE-----