Item 1. Business
General
Willamette Industries, Inc. ("Willamette" or the "Company"), was founded in 1906 as the Willamette Valley Lumber Co. in Dallas, Oregon. In 1967, Willamette Valley Lumber Co. and several related firms merged to form Willamette. The Company's stock has been publicly traded since 1968.
Willamette is a diversified, integrated forest products company with 89 plants and mills manufacturing containerboard, bag paper, fine paper, bleached hardwood market pulp, specialty printing papers, corrugated containers, business forms, cut sheet paper, paper bags, inks, lumber, plywood, particleboard, medium density fiberboard, laminated beams and other value-added wood products. It owns or controls 1,206,000 acres of forests.
Willamette is a medium-sized firm in a very competitive industry consisting of thousands of companies, some larger and more diversified; others much smaller, producing only one or two products. Very competitive conditions exist in every industry segment in which Willamette operates. The Company competes in its markets primarily through price, quality and service.
The Company believes its strengths are its vertical integration; its geographically diverse, modern, fiber- and energy-efficient facilities; its concentration on a focused, related product range; its balance among building materials, white paper and brown paper manufacturing and an organizational structure that encourages teamwork as well as individual initiative.
Business Segment Information
The Company has two business segments. The Paper Group segment manufactures and sells pulp and paper products. The Building Materials Group segment manufactures and sells wood products. Sales and operating data for the Paper Group and Building Materials Group segments for the past five years is set forth in the five year comparison captioned "Supplementary Business Segment Information" below. The Company has no foreign operations and is not dependent on any one significant customer or group of customers. Approximately 96% of the Company's total output is sold domestically.
Pulp and Paper
Bleached pulp and fine paper. The Company manufactures bleached hardwood market pulp, which is sold to outside customers, at Hawesville, Kentucky; and fine paper at Hawesville; Marlboro County, South Carolina; and Johnsonburg, Pennsylvania. In 1993, the Company made 4.9% of the nation's bleached hardwood market pulp and accounted for 4.9% of the nation's fine paper production.
Chips from nearby sawmills and plywood plants serve as the primary fiber source for the bleached pulp manufacturing facility. Willamette's timberlands in Tennessee and the Carolinas also serve as a source of fiber for the facility.
- 1 - Containerboard and bag paper. The Company's four paper mills manufactured 4.2% of the nation's 1993 production of linerboard, corrugating medium and bag paper. All of the production was used or traded for the needs of Willamette's box and bag manufacturing plants.
In Louisiana, the Company's sawmills, plywood plants and timberlands can provide 100% of the chips needed by its linerboard mill; in Oregon, approximately 80% of the Company's chip requirements could be provided from those sources.
Recycled fiber, in the form of used corrugated containers, provided 53.5% of the Company's 1993 fiber needs.
Converted Paper Products
Office papers. The Company's six business forms plants manufactured 4.4% of the nation's 1993 production of forms. These forms, mostly long-run continuous computer forms, along with Willcopy(R), Willamette's photocopy and cut sheet printer paper produced at its three cut sheet facilities, are marketed by 47 Willamette sales and distribution centers. The Company's cut sheets represented 5.2% of the nation's 1993 production.
Corrugated containers. Corrugated containers manufactured by the Company's 31 corrugated container plants accounted for 5.5% of the nation's 1993 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 Willamette's own sales force to a variety of industrial and agricultural customers.
Bags. In 1993, the Company's five bag plants made 12.0% of the nation's paper bags. Bags are marketed to grocery, department, drug and hardware stores in the West and South by the Company's sales force.
Building Materials
Plywood and lumber. Plywood products, totaling 7.3% of the nation's 1993 production, are manufactured at the Company's 11 plants in Arkansas, the Carolinas, Louisiana and Oregon.
Six Company sawmills manufactured 1.3% of the nation's 1993 lumber production.
Lumber and plywood products are marketed through independent wholesalers and distributors throughout the U.S.
Composite board. Five Company particleboard plants in Louisiana and Oregon manufactured 14.4% of the nation's particleboard production in 1993. The Company's two medium density fiberboard plants in Arkansas and South Carolina made 18.9% of the nation's MDF in 1993. These plants produce value-added products including color-coated, woodgrain-printed, fire-rated and moisture- resistant boards.
- 2 - Composite board products are sold nationwide through distributors, as well as directly to cabinet and furniture manufacturers.
Laminated beams. The Company's two laminated beam plants in Oregon accounted for 26.4% of the nation's 1993 production. Laminated beams, both stock and custom made, are sold nationwide and internationally.
Timberlands
Willamette's 1,206,000 acres of timberland enable the Company to supply approximately 40% of its long-term log needs. The remainder is purchased through government and private timber sales and open market purchases.
In Oregon, the Company is able to provide approximately 60% of its current log needs from its own timberlands. The Company's Oregon plywood plant and sawmills have operated at reduced levels because of the scarcity of logs resulting from preservationist pressures that virtually halted federal timber sales in the state. Unless the federal timber supply crisis is resolved in a meaningful way, further curtailment of Oregon operations will be necessary to improve the Company's self sufficiency.
The Company now owns or controls cutting rights on 564,000 acres in Louisiana, Arkansas and Texas; 328,000 acres in Oregon; 188,000 acres in Tennessee; and 126,000 acres in the Carolinas. Willamette continually looks for opportunities to expand its fee timber base and make purchases when it is profitable to do so.
Energy
Through cogeneration, the burning of waste materials and the recycling of spent pulping liquors, Willamette's manufacturing facilities are able to generate 62% of their total energy needs.
Employees
The Company employed approximately 12,040 people on December 31, 1993, of whom about 52% are represented by unions with which the Company has collective bargaining agreements. Contracts covering approximately 2,000 hourly employees were negotiated in 1993. Contracts involving about 1,335 hourly employees are subject to renewal in 1994. In excess of 45% of all salaried employees have been with the Company for more than 12 years.
Environmental Matters
See "Management's Discussion and Analysis of Financial Conditions and Results of Operations--Other Matters" for a discussion of the effect on the Company of laws relating to environmental matters.
Item 2.
Item 2. Properties
Manufacturing Facilities
The following table sets forth information respecting the Company's 89 manufacturing facilities at December 31, 1993:
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- 6 - Timberlands
For information respecting the Company's timberlands, see "Business-- Timberlands."
Item 3.
Item 3. Legal proceedings
In August 1993, the Environmental Protection Agency (the "EPA") issued a notice of violation to the Company, claiming that the particulate emissions from the Company's hog fuel boiler at its Marlboro County, South Carolina, pulp and paper mill were excessive. The EPA has initially proposed that the Company pay a civil penalty of $1,231,000 for the alleged violations and requested the Company to respond to this proposal. The Company's capital expenditure budget includes funds for upgraded pollution control equipment designed to reduce the emissions from the boiler to the permitted level. The EPA has agreed that the Company may continue operating the boiler with existing controls until the new equipment is installed.
Item 4.
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, 1993.
Executive Officers of the Registrant
The executive officers of the Company are elected annually by the board of directors. At February 10, 1994, the executive officers of the Company, their ages at December 31, 1993, and their positions with the Company were as follows:
Each executive officer has been employed by the Company in his present or in another managerial capacity for more than the past five years. - 7 - PART II
Item 5.
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
The Company's common stock is traded on the over-the-counter market under the symbol WMTT, and is quoted on the NASDAQ National Market System. At December 31, 1993, there were approximately 6,300 holders of record of the Company's common stock. The following table shows for the periods indicated the high and low closing sales prices of, and the per share dividends paid on, the Company's common stock in each case as adjusted for stock splits.
A dividend of $.24 per share was declared on the common stock for the first quarter of 1994, representing an indicated annual dividend rate of $.96 per share. The Company expects to continue paying regular cash dividends, although there is no assurance as to future dividends as they are dependent on earnings, capital requirements and financial condition.
- 8 - Item 6.
Item 6. Selected Financial Data
The following table shows selected financial data for the Company for the periods indicated: ----------------------------------------------------------------------------
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Item 7.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
Paper products markets tend to follow general economic conditions. The sales and earnings of the building materials business are closely related to new housing starts, remodeling activity and to the availability and terms of financing for construction. The cost of wood fiber, the basic raw material for both industry segments, is sensitive to various supply and demand factors, including environmental issues affecting log supply.
Results of Operations 1993 vs. 1992
Net sales increased 10.5% in 1993 compared to 1992. Paper product sales increased 7.6%. Volume increases were experienced in all paper product lines with the exception of bleached market pulp. The acquisition of eleven corrugated container facilities in June 1992 and the resulting full year's sales in 1993 accounted for nearly all of the increase in paper product sales. Excess industry production capacity and weak foreign markets more than offset improvements in the domestic economy resulting in continued price declines in all paper product lines with the exception of small increases for fine paper and cut sheets.
Building materials sales increased 15.4% compared with 1992 as average sales price realizations increased for all building materials product lines and, most significantly, for lumber products whose average sales price realizations increased approximately 34.0%. Sales volumes increased in composite board panels but decreased in lumber and plywood products 7.0% and 3.5%, respectively, because of reduced operating levels resulting from the lack of logs. As the federal government owns nearly 60% of the commercial timberland in Oregon, preservationist pressures that have stopped federal timber sales have caused a significant reduction in available timber supply. State and private timber supply is inadequate to fill the shortfall. This in turn has resulted in many mill closures at a time when product demand is increasing, creating supply-related pressures on lumber and plywood prices.
Currently the Company is able to provide about 60% of its Oregon log needs from its own timberlands. Further curtailment of Oregon operations will be necessary to improve Willamette's self-sufficiency if there is no meaningful resolution to the federal timber supply crisis.
Gross profit margins increased to 16.4% in 1993 from 15.4% of sales in 1992. Gross profit margins for paper have decreased to 11.6% from 14.8% in 1992 reflecting continued poor pricing for paper products. Building materials gross profit margins increased to 23.9% from 16.3% in 1992 primarily due to increased average sales price realizations in all building materials product lines. At the same time, however, costs for open market logs continue to increase due to supply factors.
Selling and administrative expenses declined to 6.7% of sales in 1993 compared to 7.0% in 1992. The decrease is primarily due to additional sales volume.
Interest expense has declined 4.7% to $63.3 million in 1993 from $66.4 million in 1992. Gross interest expense increased $5.4 million in 1993 over the comparable amount in 1992 as the Company's average outstanding debt increased $129.5 million. However, capitalized interest increased to $15.9 million in 1993 compared to $7.4 million in 1992 which more than offset the increase in gross interest expense. In addition, the impact of increased debt
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has been minimized by an overall reduction of effective interest rates. The weighted average interest rate was 7.31% at December 31, 1993 compared with 8.56% at December 31, 1992.
Results of Operations 1992 vs. 1991
Net sales increased 18.4% in 1992 compared to 1991. Paper product sales increased 9.5% from 1991 as unit volume shipped increased for all paper product lines with the exception of grocery bags and specialty papers. Eleven corrugated facilities acquired on June 30, 1992 accounted for 61.5% of the increase in paper product sales. A slowly recovering national economy and excess industry capacity resulted in low price levels for all paper product lines throughout 1992.
Building materials sales increased 36.6% from 1991 with a number of factors accounting for the significant increase. The acquisition of Bohemia Inc. in September, 1991 contributed a full year's sales in 1992 versus only three months' in 1991. In addition, lumber and plywood markets were relatively strong throughout 1992 with significant price increases occurring in the last half of the year. Overall average sales price realizations for lumber and plywood increased 23.4% in 1992 over 1991.
Gross profit margins increased to 15.4% of sales in 1992 as compared with 14.4% in 1991. Gross profit margins for paper products have decreased to 14.8% from 16.7% in 1991, reflecting poor pricing conditions for paper products, especially bleached paper products. Poor market conditions resulted in a nearly two-week closure of the uncoated free sheet specialty mill in Johnsonburg, Pennsylvania ending January 4, 1993. Building materials gross profit margins increased to 16.3% from 9.6% in 1991, primarily due to strong markets for lumber and plywood in 1992. Costs for open market logs in Oregon increased significantly in 1992 due to the reduced supply of federal timber available.
Selling and administrative costs were 7.0% of net sales in 1992 compared with 7.2% in 1991, primarily due to increased sales volume. Overall selling and administrative costs have increased 15.0% largely as a result of new facilities added in 1992.
Other income (expense) declined to an expense of $1.7 million in 1992 versus $7.1 million in 1991, primarily because 1991 included a charge of $3.0 million for the closure of an Oregon plywood plant.
Interest expense increased 5.0% to $66.4 million in 1992 from $63.3 million in 1991. The increase was primarily due to the issuance of $150 million, 9.0% thirty-year debentures in October 1991 and $100 million, 7.75% ten-year notes in July 1992. Partially offsetting this increase, capitalized interest increased to $7.4 million in 1992 as compared with $.7 million in 1991.
Liquidity and Capital Resources
Willamette generates funds internally via net earnings and non-cash charges against earnings such as depreciation, cost of fee timber harvested and deferred income taxes. Funds generated externally have generally been through debt financing.
In 1993, cash flow from operating activities was $298.6 million and represents an increase of 14.6% over comparable cash flows in 1992 primarily due to additional net earnings, depreciation and deferred income taxes.
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A number of long-term debt financings occurred in 1993. In January 1993, the Company issued $100 million of 7% five-year notes. The net proceeds were used to prepay, without penalty, $75 million of 9 7/8% notes due in 1996. The remaining net proceeds were utilized for capital expenditures. Beginning in April 1993, the Company issued $150 million of medium-term notes with interest rates ranging from 5.66% to 7.3% and maturities ranging from 5 to 20 years. The proceeds were used to pay a $100 million 9.3% note that matured on June 30, 1993 and for capital expenditures. In October of 1993, the Company obtained a $75 million term loan at market interest rates from a bank. The proceeds were used to prepay, without penalty, a $75 million, 8.5% note due in 1996. As a result of the above investing and financing activities, the long-term debt-to- capital ratio is 42.8% at December 31, 1993 compared with 42.0% at December 31, 1992. Working capital was nearly unchanged at $157.6 million.
The Company is continually making capital expenditures at its manufacturing facilities to improve fiber utilization, labor efficiency and to expand operations. In 1993, the Company made such capital expenditures of $361.5 million.
During 1993, the following major capital projects were completed:
- Installation and construction of a boiler and cogeneration facility and a new lime kiln and recausticizing plant at Johnsonburg, Pennsylvania.
- Expansion of the secondary fiber facilities at the Albany, Oregon paper mill.
- Construction of a new preprinted linerboard facility at Richwood, Kentucky.
Major capital projects underway at December 31, 1993 include the following:
- The construction of a second linerboard machine at the paper mill in Campti, Louisiana.
- Construction of a new fiberline and paper machine in Johnsonburg, Pennsylvania.
- Modernization of the plywood plant at Moncure, North Carolina.
- The addition of pulp drying capacity and the expansion of the fiberline at the Marlboro County, South Carolina papermill.
The total cost of all capital projects in progress at December 31, 1993 is estimated to be approximately $521 million of which $309 million has already been spent. These projects will be funded with internally generated cash flows and with external borrowings as needed. The Company believes it has the resources available to meet its liquidity requirements through internally generated cash flows, short-term borrowings and revolving credit agreements which could be arranged with a number of banks.
Other Matters
The Company believes it is in substantial compliance with federal, state and local laws regarding environmental quality. The Environmental Protection - 12 -
Agency (EPA) has issued proposed rules regarding air and water quality referred to as the "cluster rules". These rules are currently undergoing public review and are extremely restrictive with a potential financial impact to the paper industry estimated at $10 billion in capital spending to comply with the proposed rules. This level of regulation does not appear to be justified on either an environmental impact or cost benefit basis and it is hoped compromise can be reached lessening the severity of the rules. In addition to the cluster rules, the EPA is scheduled to issue revised rules for all boilers in the fall of 1994 which may impact the Company's operations. Even if the above proposed rules go into effect, the Company estimates that over the next five years required pollution control capital expenditures will be less than $125 million. Although future pollution control expenditures cannot be predicted with any certainty because of continuing changes in laws, we believe that compliance with pollution control requirements will not have a material effect upon capital expenditures, earnings or competitive position.
Much attention has been given to the controversy concerning preservationists' efforts to stop the harvest of timber from Federal timberlands in the Northwest. Concurrent with these efforts have come increased regulations, limitations, and restrictions on the harvest of timber from privately owned timberlands. Current rules and regulations do not significantly impact the Company's ability to manage its Oregon timberland on a sustained yield basis. If restrictions similar to regulations on Federal timberlands were imposed on private timberland ownership, it could have a significant impact on the sustainable harvest level of the Company's 328,000 acres of Oregon timberlands.
Effective January 1, 1993, the Company adopted the provisions of Statement of Financial Accounting Standards (SFAS) #106 "Employers' Accounting for Postretirement Benefits Other Than Pensions" and SFAS #109 "Accounting for Income Taxes." The total cumulative impact of these two changes was a credit to net earnings in the first quarter of 1993 of $26.4 million or $.48 per share. In August 1993, the federal corporate tax rate increased to 35% retroactive to January 1, 1993 impacting both the current year's provision for income taxes and the deferred tax liability. Accounting standards required that the cumulative impact of the increase in the rate ($5.9 million or $.11 per share) be charged to income in the third quarter of 1993 with a corresponding increase in the deferred tax liability.
Over the years, inflation has resulted in replacement costs higher than those originally needed to purchase existing plants and equipment. Advancing 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 inflationary costs in the cost of sales.
Item 8.
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.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosures
None.
- 13 - PART III
Item 10.
Item 10. Directors and Executive Officers of the Registrant
Information regarding (i) directors of the Company is set forth on pages 3 and 4 of the Company's definitive proxy statement (the "Proxy Statement") for its 1994 annual meeting of shareholders, under the heading "Election of Directors" and (ii) the failure by an executive officer of the Company to file, on a timely basis, a report required by Section 16(a) of the Securities Exchange Act of 1934, is set forth in the last paragraph on page 2 of 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.
Item 11. Executive Compensation
Information regarding compensation of directors and executive officers of the Company is set forth on pages 5-8, 11 and 12 of the Proxy Statement under the headings "Executive Compensation," "Compensation Committee Interlocks and Insider Participation," "Compensation of Directors" and "Employment Agreements," which information is incorporated herein by reference.
Item 12.
Item 12. Security Ownership of Certain Beneficial Owners and Management
Information regarding security ownership of management and certain other beneficial owners is set forth on pages 1 and 2 of the Proxy Statement under the heading "Holders of Common Stock," which information is incorporated herein by reference.
Item 13.
Item 13. Certain Relationships and Related Transactions
Information regarding certain relationships and related transactions is set forth on page 8 of the Proxy Statement under the heading "Compensation Interlocks and Insider Participation," which information is incorporated herein by reference.
PART IV
Item 14.
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
(a) 1. and 2. For a list of the financial statements and financial statement schedules filed herewith, see the index to consolidated financial statements and supplementary data 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 and financial statement schedules filed with this report. Each management contract or compensatory plan or arrangement required to be filed as an exhibit to this report is identified in the list.
(b) Reports on Form 8-K.
No reports on Form 8-K were filed for the quarter ended December 31, 1993.
- 14 - 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/ J. A. PARSONS Dated: February 10, 1994 (J. A. Parsons) Executive Vice President
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below on February 10, 1994, by the following persons on behalf of the registrant in the capacities indicated.
Signature Title
Principal Executive Officer and Director
/s/ WILLIAM SWINDELLS Chairman and Chief Executive Officer and (William Swindells) Director
Principal Financial Officer
/s/ J. A. PARSONS Executive Vice President and (J. A. Parsons) Chief Financial Officer, Secretary and Treasurer
Principal Accounting Officer
/s/ DUANE C. MCDOUGALL Vice President-Controller (Duane C. McDougall)
/s/ C. M. BISHOP Director (C. M. Bishop)
/s/ GERARD K. DRUMMOND Director (Gerard K. Drummond)
/s/ E. B. HART Director (E. B. Hart)
/s/ C. W. KNODELL Director (C.W. Knodell)
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/s/ PAUL N. MCCRACKEN Director (Paul N. McCracken)
/s/ STUART J. SHELK, JR. Director (Stuart J. Shelk, Jr.)
/s/ ROBERT M. SMELICK Director (Robert M. Smelick)
/s/ SAMUEL C. WHEELER Director (Samuel C. Wheeler)
/s/ BENJAMIN R., WHITELEY Director (Benjamin R. Whiteley)
- 16 - Index to Consolidated Financial Statements and Supplementary Data
Page No.
Independent Auditors' Report 18
Consolidated Balance Sheets as of December 31, 1993 and 1992 19
Consolidated Statements of Earnings for the Years ended December 31, 1993, 1992 and 1991 20
Consolidated Statements of Stockholders' Equity for the Years ended December 31, 1993, 1992 and 1991 21
Consolidated Statements of Cash Flows for the Years ended December 31, 1993, 1992 and 1991 22
Supplementary Business Segment Information 23
Selected Quarterly Financial Data 24
Notes to Consolidated Financial Statements 25
Financial Statement Schedules:
Schedule V - Property, Plant and Equipment 34
Schedule VI - Accumulated Depreciation and Amortization of Property, Plant and Equipment 36
Schedule X - Supplementary Income Statement Information 37
- 17 - 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, 1993 and 1992 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, 1993. In connection with our audits of the consolidated financial statements, we also have audited the financial statement schedules on pages 34, 35, 36 and 37. These consolidated financial statements and financial statement schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Willamette Industries, Inc. and subsidiaries at December 31, 1993 and 1992, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1993, in conformity with generally accepted accounting principles. Also, in our opinion, the related financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly, in all material respects, the information set forth herein.
As discussed in the notes to the consolidated financial statements, the Company adopted the provisions of the Financial Accounting Standards Board's Statement of Financial Standards #106, "Employers' Accounting for Postretirement Benefits Other Than Pensions," and Statement of Financial Accounting Standards #109, "Accounting for Income Taxes," in 1993.
KPMG PEAT MARWICK
Portland, Oregon February 10, 1994
- 18 - CONSOLIDATED BALANCE SHEETS December 31, 1993 and 1992 (dollar amounts, except per share amounts, in thousands)
Per share earnings are based upon the weighted average number of shares outstanding and have been adjusted for all stock splits.
- 20 - CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY Years ended December 31, 1993, 1992 and 1991 (dollar amounts, except per share amounts, in thousands)
See accompanying notes to consolidated financial statements.
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CONSOLIDATED STATEMENTS OF CASH FLOWS Years ended December 31, 1993, 1992, and 1991 (dollar amounts in thousands)
See accompanying notes to consolidated financial statements.
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SUPPLEMENTARY BUSINESS SEGMENT INFORMATION (dollar amounts in thousands)
See accompanying notes to consolidated financial statements.
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SELECTED QUARTERLY FINANCIAL DATA (Unaudited)
(Unaudited) (dollar amounts, except per share amounts, in thousands)
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Notes to Consolidated Financial Statements December 31, 1993, 1992 and 1991 (dollar amounts, except per share amounts, in thousands)
1. Summary of Significant Accounting Policies
(a) Principles of Consolidation The consolidated financial statements include the accounts of all majority owned subsidiaries. All material intercompany balances and transactions have been eliminated upon consolidation.
(b) Inventories Inventories are valued at the lower of cost or market. Cost is determined on the last-in, first-out (LIFO) method for all major classes of inventory. All other inventories are valued at average cost.
(c) Property, Plant and Equipment Property, plant and equipment is carried at cost and includes expenditures for new facilities and those which substantially increase the useful lives of existing plants and equipment. Maintenance, repairs and minor renewals are expensed as incurred. When properties are retired or otherwise disposed of, the related cost and accumulated depreciation are removed from the respective accounts and any profit or loss on disposition is credited or charged to income. Depreciation is computed using the straight-line method over the useful lives of the respective assets. Leasehold improvements are amortized over the terms of the respective leases.
(d) Timber, Timberlands and Related Facilities These accounts are stated at their cost less the cost of fee timber harvested and the amortization of logging roads. Amortization of logging roads is charged to expense as timber is harvested. Both the cost of fee timber harvested and amortization rates 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 public and 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; therefore, the timber is not recorded until cut.
(e) Income Taxes Deferred income taxes are provided to reflect the tax effect of temporary differences in reporting income and deductions for tax purposes. Effective January 1, 1993, the Company adopted the provisions of SFAS #109 "Accounting for Income Taxes" which requires deferred taxes payable in the future to be reflected at current statutory tax rates. This change resulted in a credit to net earnings and a reduction in the deferred tax liability by a corresponding amount of $40,000 or $.73 per share.
(f) Capitalized Interest Interest is capitalized on funds borrowed during the construction period on certain assets. Capitalized interest in 1993, 1992 and 1991 was $15,904, $7,354 and $723, respectively, and is netted against interest expense in the consolidated statement of earnings. Such capitalized interest will be amortized over the depreciable life of the related assets.
(g) Statement Reclassifications Certain reclassifications have been made to prior years' data to conform to the 1993 presentation.
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2. Inventories
The major components of inventories for the two years ended December 31, 1993 are as follows:
If current cost rather than LIFO cost had been used by the Company, inven- tories would have been approximately $59,910 and $56,551 higher in 1993 and 1992, respectively.
3. Income Taxes
The provision for income taxes includes the following:
The Company has no foreign pretax income. The Company's deferred income tax liability is mainly due to depreciation. Differences between the effective tax rate and the Federal statutory rate are shown in the following table as a percentage of pretax income:
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The Company's consolidated Federal income tax returns for 1974 through 1989 have been examined by the Internal Revenue Service and while final settlement has not been made, management believes that the Company has provided for all deficiencies that ultimately might be assessed.
The Tax Reform Act of 1986 expanded the corporate alternative minimum tax (AMT). Under this Act, the Company's tax liability is the greater of its regular tax or the AMT. To the extent the Company's AMT liability exceeds its regular tax liability, the AMT liability may be applied against future regular tax liabilities. The Company expects to utilize future AMT credits as taxable income increases and current temporary differences reverse. At December 31, 1993, the Company had AMT credits of $51,000 which have been offset against deferred income taxes related to depreciation. No valuation allowance is required for these credits.
In August 1993, the Federal corporate tax rate increased to 35% retroactive to January 1, 1993 impacting both the current year's provision for income taxes and the deferred tax liability. Accounting standards required that the cumulative impact of the increase in rate ($5,864 or $.11 per share) be charged to income in the third quarter of 1993 with a corresponding increase in the deferred tax liability.
4. Long-term Debt
Long-term debt consists of the following:
Principal payment requirements on the above debt for the four years subse- quent to 1994 are: 1995, $100,956; 1996, $78,543; 1997, $713; 1998, $152,733.
The Company utilized short-term borrowings with a number of banks at various times during 1993 and 1992 with $96,000 being outstanding at December 31, 1993. Such borrowings were backed by a line of credit which carried fees at market rates. Other uncommitted lines of credit are available. At various times throughout the year, a portion of the short-term borrowings were classified as long-term as they were supported by long-term borrowing arrangements, although none were classified as such at December 31, 1993. Interest is based upon prevailing short-term rates in effect at the time of the transaction. Information on short-term debt during 1993 and 1992 is as follows:
The fair value of the Corporation's long-term debt is estimated to be approximately $1,040,000 based on the quoted market prices for the same or similar issues or on the current rates offered to the Company for debt of the same remaining maturities.
5. Pension and Retirement Plans
The Company contributes to multiemployer retirement plans at fixed payments per hour for certain hourly employees.
DEFINED BENEFIT PLANS
Substantially all other employees of the Company are covered by noncontributory defined benefit plans. Under the salaried plan, retirement benefits are based on both years of service and the highest five consecutive years of compensation prior to retirement. Plans covering hourly employees provide benefits of stated amounts for each year of service. Total pension expense in 1993, 1992, and 1991 for all such plans was $6,429, $6,227 and $6,158, respectively.
The Company makes annual contributions to the plans that are between the minimum amounts required by the Employee Retirement Income Security Act and the maximum amounts deductible under current tax regulations. Such contributions are intended to provide not only for benefits attributed to service to date, but also for those expected to be earned in the future.
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The net periodic pension cost for 1993, 1992 and 1991 included the following components:
The following table sets forth the plans' funded status and amount recognized in the Company's consolidated financial statements at December 31, 1993 and 1992:
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The weighted average discount rate and rate of increase in future compensation levels used in determining the actuarial present value of the projected benefit obligation were 7% and 5% in 1993 and 8% and 6% in 1992, respectively. The expected long-term rate of return on assets was 9%. Substantially all plan assets are invested in stocks, bonds and cash equivalents.
CONTRIBUTORY PLANS
The Company covers all salaried employees and some hourly employees under stock purchase plans. The salaried stock purchase plan allows employees to contribute up to 6% of their salary (which the Company matches). Total stock purchase plan expense was $8,417, $7,268 and $6,578 in 1993, 1992 and 1991, respectively.
POSTRETIREMENT BENEFIT PLANS
Effective January 1, 1993, the Company adopted the provisions of SFAS #106 "Employers Accounting for Postretirement Benefits Other Than Pensions" which resulted in a change in accounting for such benefits from the "pay-as-you-go" basis to the accrual basis.
The Company has a contributory postretirement health plan primarily covering its salaried employees. Employees become eligible for these benefits if they meet minimum age and service requirements. The accumulated postretirement benefit obligation (APBO) as of January 1, 1993 was $21,995 and was recorded as a charge, net of tax, against income on a cumulative basis in the amount of $13,600 or $.25 per share. The APBO as of December 31, 1993 was:
The components of net periodic postretirement expenses are as follows:
A weighted average discount rate of 7% was used in determining the APBO at December 31, 1993 and 8% as the interest cost component of the 1993 net periodic expense. - 30 -
For the year 1993, an 11% increase in the medical cost trend rate was assumed. This rate decreases to an annual rate of 5% after 12 years. A 1% increase in the medical trend rate would increase the APBO by $2,900 and increase the net periodic postretirement expense by $314.
6. Stockholders' Equity
The Company has a Stock Option and Stock Appreciation Rights Plan (the Plan). The Plan provides that options be granted at exercise prices equal to market value on the date the option is granted. Options granted generally become exercisable after one year in 33-1/3% increments per year and expire ten years from the date of grant. The Company has reserved 3,000,000 shares for distribution under the Plan. A summary of stock option activity related to the Plan is as follows:
In addition, stock appreciation rights (SARs) which have been awarded and are outstanding to officers of the Company amount to 126,470 shares: of these 8,190 with a basis of $16.75; 10,940 with a basis of $28.875; 23,260 with a basis of $24.25; 38,160 with a basis of $23.25 and 45,920 with a basis of $26.25 were available for exercise at December 31, 1993. SARs permit the optionee to surrender an exercisable option for a cash amount equal to the difference between the market price and option price of the common stock when the right is exercised.
Under the Plan, a committee of the Board of Directors of the Company is authorized to issue up to 500,000 restricted shares of common stock to eligible employees. These shares are subject to certain transfer restrictions including the passage of time, and vesting may be dependent upon continued employment, the attainment of performance goals, or both. The Company has awarded 31,146 restricted shares of common stock to certain officers, without cost. These - 31 -
shares will vest in one-third annual increments beginning after three years of continuous employment. At December 31, 1993, 4,372 restricted shares have vested. Unearned compensation, representing the fair market value of the shares at the date of issuance, is charged to income over the vesting period.
The Company has a shareholder rights plan providing for the distribution of rights to shareholders ten days after a person or group (an "acquiring person") becomes the owner of 20% or more of the Company's common stock or makes a tender offer or exchange offer which would result in the ownership of 30% or more of the common stock. Once the rights are distributed, each right becomes exercisable to purchase, for $175, 1/100th of a share of new series of Company preferred stock, which 1/100th share is intended to equal one common share in market value. Ten days after an acquiring person becomes the owner of 20% or more of the Company's common stock, each right (other than rights held by the acquiring person) becomes exercisable to purchase for $175, common shares with a market value of $350. The rights will expire in 2000 and may be redeemed at $.01 per right any time prior to the tenth day after an acquiring person becomes the owner of 20% or more of the common stock.
The Financial Accounting Standards Board has issued an exposure draft on accounting for stock-based compensation. If implemented, the proposed standard will require compensation expense to be recognized in the financial statements for all stock based compensation plans. The Company anticipates that the impact of the proposed accounting standard will not be material to its financial statements if implemented as drafted.
7. Business Segments
The Company operates in two principal business segments: Paper Products and Building Materials. Timber, timberlands and related facilities have not been allocated to the two segments because they are managed to supply raw materials to both segments. Information with respect to the sales, operating income and identifiable assets of these segments is included in the five-year comparison on page 23. Information with respect to depreciation, cost of fee timber harvested and amortization and capital expenditures for the years ended December 31, 1993, 1992 and 1991 is shown below:
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8. Property, Plant and Equipment
Property, plant and equipment accounts are summarized as follows:
9. Acquisition of Corrugated Facilities
On June 30, 1992, the Company acquired eleven corrugated facilities from Boise Cascade Corporation for cash, including inventories and certain other assets and liabilities. The acquisition was accounted for as a purchase.
Supplemental information concerning the acquisition follows:
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Leasehold improvements are amortized over the life of the lease.
Both cost of fee timber harvested and amortization rates for logging roads are determined with reference to costs and the related existing volume of timber estimated to be recoverable.
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Willamette Industries, Inc. ---------------------------
Certain reclassifications have been made to prior years' data to conform to the 1993 presentation.
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Willamette Industries, Inc. ---------------------------
Supplementary Income Statement Information Schedule X - ------------------------------------------ (Dollars in Thousands)
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INDEX TO EXHIBITS
EXHIBIT
2. Not applicable.
3A. Third Restated Articles of Incorporation of the registrant. [16]
3B. Bylaws of the registrant as amended through November 11, 1993. [15]
4A. Indenture dated as of March 15, 1983, between registrant and The Chase Manhattan Bank. Incorporated by reference from Exhibit 4A of the registration statement on Form S-3 effective December 13, 1985 (File No. 33-1876). [89]
4A1. Terms of the series of 9.55% Notes due 1995 and form of Note for such series. Incorporated by reference from Exhibit 4A4 of the registrant's annual report on Form 10-K for the year ended December 31, 1990 ("1990 Form 10-K"). [5]
4A2. Terms of the series of 9.625% Notes due 2000 and form of Note for such series. Incorporated by reference from Exhibit 4A5 of the 1990 Form 10-K. [5]
4A3. Terms of the series of 9.125% Notes due 2003 and form of Note for such series. Incorporated by reference from Exhibit 4A6 of the registrant's annual report on Form 10-K for the year ended December 31, 1991 ("1991 Form 10-K"). [5]
4A4. Terms of the series of 9.0% Notes due 2021 and form of Note for such series. Incorporated by reference from Exhibit 4A7 of the 1991 Form 10-K. [5]
4A5. Terms of the series of 7.75% Notes due 2002 and form of Note for such series. Incorporated by reference from Exhibit 4A8 of the registrant's annual report on Form 10-K for the year ended December 31, 1992. [5]
4A6. Form of Note for the series of 7.0% Notes due 1998 in the aggregate principal amount of $100,000,000. Incorporated by reference from Exhibit 4D of the registrant's current report on Form 8-K dated December 29, 1992. [5]
4B. Indenture dated as of January 30, 1993 between the registrant and The Chase Manhattan Bank. Incorporated by reference from Exhibit 1B of the registration statement on Form S-3 effective March 1, 1993 (File No. 33-58044) ("1993 Form S-3). [82]
4B1. Form of Medium-Term Note (fixed rate) for the Medium-Term Notes, Series A. Incorporated by reference from Exhibit 4D to the 1993 Form S-3. [2]
4B2. Terms of the Medium-Term Notes, Series A, due 1998-2013. [1]
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4C. Preferred Stock Purchase Rights of Willamette Industries, Inc. Incorporated by reference from Exhibit 2 of the registrant's Form 8-A filed February 26, 1990. [61]
9. Not applicable.
10A. Willamette Industries, Inc. Deferred Compensation Plan for Directors. Incorporated by reference from Exhibit 10 of the registrant's annual report on Form 10-K for the year ended December 31, 1983.* [5]
10B. Willamette Industries, Inc. 1986 Stock Option and Stock Appreciation Rights Plan, as amended. Incorporated by reference from Exhibit 10B of the 1990 Form 10-K.* [6]
10C. Willamette Industries, Inc. Retirement Plan for Non-Employee Directors. Incorporated by reference from Exhibit 10 of the 1989 Form 10-K.* [2]
10D. Willamette Industries Inc. Severance Agreement with Key Management Group. Incorporated by reference from Exhibit 10 of the 1991 Form 10-K.* [13]
10E. Willamette Industries 1993 Deferred Compensation Plan.* [16]
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]
13. Not applicable.
16. Not applicable.
18. Not applicable.
21. Omitted because the registrant's subsidiaries considered in the aggregate as a single subsidiary do not constitute a significant subsidiary.
22. Not applicable.
23. Consent of Independent Accountants to the incorporation by reference of their report dated February 10, 1994, in the registrant's registration statements on Form S-8. [1]
24. Not applicable.
27.-99. Not applicable.
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.
_________________________ - 39 - *Management contract or compensatory plan or arrangement.
Note: Certain instruments with respect to the long-term debt of the registrant are not filed herewith where the total amount of securities authorized thereunder does not exceed 10 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.
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