10-Q 1 wii10q2body.txt QUARTERLY REPORT SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (x) QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarterly Period Ended September 30, 2001 Commission File Number 1-12545 Willamette Industries, Inc. (Exact name of registrant as specified in its charter) State of Oregon 93-0312940 ---------------------------------------------------------------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 1300 S.W. Fifth Avenue, Suite 3800, Portland, Oregon 97201 ------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (503) 227-5581 ---------------------- Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ----- ----- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Common Stock, $.50 par value: 109,879,799 at October 31, 2001. WILLAMETTE INDUSTRIES, INC. AND SUBSIDIARIES FORM 10-Q CONSOLIDATED BALANCE SHEETS PART I (dollar amounts, except per share amounts, in thousands) ITEM 1 September 30, December 31, 2001 2000 ----------------- ---------------- ASSETS Current assets: Cash $ 26,253 24,284 Accounts receivable, less allowance for doubtful accounts of $4,394 (2000 - $4,490) 445,690 459,591 Inventories (Note 2) 472,444 473,788 Prepaid expenses and timber deposits 25,961 35,154 ----------------- ---------------- Total current assets 970,348 992,817 Timber, timberlands and related facilities - net 974,205 1,014,285 Property, plant and equipment, at cost less accumulated depreciation of $2,875,567 (2000 - $2,714,536) 3,220,961 3,017,593 Other assets 90,547 92,975 ----------------- ---------------- $ 5,256,061 5,117,670 ================= ================ LIABILITIES Current liabilities: Current installments on long-term debt $ 5,683 5,499 Notes payable 118,000 122,000 Accounts payable, includes book overdrafts of $66,736 (2000 - $79,708) 229,952 253,292 Accrued payroll and related expenses 75,227 85,084 Accrued interest 26,039 33,910 Accrued expenses 91,513 77,754 Accrued income taxes 22,042 19,184 ----------------- ---------------- Total current liabilities 568,456 596,723 Deferred income taxes 615,076 568,273 Other liabilities 15,988 28,705 Long-term debt, net of current installments 1,532,706 1,542,926 Stockholders' equity: Preferred stock, cumulative, $.50 par value. Authorized 5,000,000 shares - - Common stock, $.50 par value. Authorized 150,000,000 shares; issued and outstanding 109,872,796 shares (2000 - 109,417,087 shares) 54,936 54,709 Capital surplus 244,692 229,598 Retained earnings 2,224,207 2,096,736 ----------------- ---------------- Total stockholders' equity 2,523,835 2,381,043 ----------------- ---------------- $ 5,256,061 5,117,670 ================= ================

2 WILLAMETTE INDUSTRIES, INC. AND SUBSIDIARIES FORM 10-Q CONSOLIDATED STATEMENTS OF EARNINGS PART I (amounts, except per share amounts, in thousands) ITEM 1 Three Months Ended Nine Months Ended September 30, September 30, ------------------------------- ------------------------------- 2001 2000 2001 2000 -------------- --------------- --------------- --------------- Net sales $ 1,124,786 1,169,585 $ 3,392,764 3,524,772 Cost of sales 932,054 943,533 2,809,730 2,834,199 -------------- --------------- --------------- --------------- Gross profit 192,732 226,052 583,034 690,573 Selling and administrative expenses 68,331 65,244 204,449 196,412 Non-recurring and other income (expense) - net (8,012) (2,296) (18,663) (8,300) -------------- --------------- --------------- --------------- 116,389 158,512 359,922 485,861 Interest expense 23,777 31,129 73,773 90,545 -------------- --------------- --------------- --------------- Earnings before provision for income taxes 92,612 127,383 286,149 395,316 Provision for income taxes 26,857 43,947 82,983 136,384 -------------- --------------- --------------- --------------- Net earnings $ 65,755 83,436 $ 203,166 258,932 ============== =============== =============== =============== Per share information: Earnings per share - basic $ 0.60 0.76 $ 1.86 2.35 ============== =============== =============== =============== Earnings per share - diluted $ 0.60 0.76 $ 1.85 2.34 ============== =============== =============== =============== Dividends $ 0.23 0.21 $ 0.69 0.63 ============== =============== =============== =============== Weighted average shares outstanding: Basic 109,853 109,203 109,518 110,216 ============== =============== =============== =============== Diluted 110,437 109,392 110,114 110,833 ============== =============== =============== ===============

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. 3 WILLAMETTE INDUSTRIES, INC. AND SUBSIDIARIES FORM 10-Q CONSOLIDATED STATEMENTS OF CASH FLOWS PART I (dollar amounts in thousands) ITEM 1 Nine Months Ended September 30, ---------------------------------- 2001 2000 -------------- --------------- Cash flows from operating activities: Net earnings $ 203,166 258,932 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation 200,055 186,010 Cost of fee timber harvested 35,519 33,037 Other amortization 12,689 14,347 Deferred income taxes 47,233 60,860 Changes in working capital items: Accounts receivable 13,901 (82,350) Inventories 820 14,620 Prepaid expenses and timber deposits 9,193 9,563 Accounts payable and accrued expenses (33,693) 28,825 Accrued income taxes 2,858 (14,034) -------------- --------------- Net cash provided by operating activities 491,741 509,810 -------------- --------------- Cash flows from investing activities: Proceeds from sale of assets 18,363 1,550 Expenditures for property, plant and equipment (410,875) (246,065) Expenditures for timber and timberlands (45) (2,318) Expenditures for roads and reforestation (14,532) (12,607) Acquisitions - (165,854) Other (8,265) 16,981 -------------- --------------- Net cash used in investing activities (415,354) (408,313) -------------- --------------- Cash flows from financing activities: Net change in operating lines of credit (4,000) 15,870 Debt borrowing 7,430 110,241 Proceeds from sale of common stock 15,313 1,906 Repurchased common stock - (84,071) Cash dividends paid (75,695) (69,490) Payment on debt (17,466) (85,160) -------------- --------------- Net cash used in financing activities (74,418) (110,704) -------------- --------------- Net change in cash 1,969 (9,207) Cash at beginning of period 24,284 25,557 -------------- --------------- Cash at end of period $ 26,253 16,350 ============== =============== Supplemental disclosures of cash flow information: Cash paid during the period for: Interest (net of amount capitalized) $ 81,644 101,258 ============== =============== Income taxes $ 32,892 89,558 ============== ===============

4 WILLAMETTE INDUSTRIES, INC. AND SUBSIDIARIES FORM 10-Q NOTES TO CONSOLIDATED FINANCIAL STATEMENTS PART I SEPTEMBER 30, 2001 ITEM 1 Note 1 The information furnished in this report reflects all adjustments which are, in the opinion of management, necessary to fairly state the results for the interim periods presented. Note 2 The components of inventories are as follows (thousands of dollars): September 30, December 31, 2001 2000 -------------- -------------- Finished product $ 159,014 154,261 Work in progress 7,815 8,792 Raw materials 198,908 205,014 Supplies 106,707 105,721 -------------- ------------ $ 472,444 473,788 ============== ============

Note 3 Sales and cost of sales for the three- and nine-month periods ended September 30, 2000, have been reclassified to conform with Emerging Issues Task Force Issue #00-10, "Accounting for Shipping and Handling Fees and Costs." Certain other reclassifications have been made to the prior year's data to conform with the 2001 presentation. Note 4 Non-recurring and other income (expense) - net is comprised of the following items: Quarter First Reflected: Non-recurring Item: ------------------------ ------------------- 3rd Quarter 2001 - Charge for hostile takeover defense costs of $6.0 million. - Charge for partial closure costs of $2.0 million at our particleboard plant in Bend, Ore. 2nd Quarter 2001 - Charge for hostile takeover defense costs of $6.3 million. - Charge for abandonment of equipment at the Dodson, La., sawmill of $2.9 million. 1st Quarter 2001 - Charge for hostile takeover defense costs of $6.0 million. Gain on sale of non-strategic timberlands of $5.3 million. 2nd Quarter 2000 - Charge for facility closure and alleged Clean Air Act violation settlement costs of $5.1 million. Note 5 In May 2000, the company completed its acquisition of Corrugados Tehuacan S.A. de C.V. for $70.3 million. Also in May 2000, the company purchased a hardwood market pulp mill in Port Wentworth, Ga. After process improvements, the company's total investment in the Port Wentworth facility was $94.3 million. 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. Other notes have been omitted pursuant to Rule 10-01 (a) (5) of Regulation S-X. 5 FORM 10-Q PART I ITEM 2 WILLAMETTE INDUSTRIES, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION SEPTEMBER 30, 2001 The company's three basic businesses - white paper, brown paper and building materials - are affected by changes in general economic conditions. White and brown paper sales and earnings tend to follow the general economy. Building materials activity is closely related to new housing starts, 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 cost of wood and recycled fiber, basic raw materials for all segments, are sensitive to various supply and demand factors including environmental issues affecting supply. SEGMENT INFORMATION ------------------- (Dollars in thousands) Three Months Ended Nine Months Ended September 30, September 30, ------------------------------------- ------------------------------------- 2001 2000 2001 2000 ----------------- ----------------- ----------------- ----------------- Net Sales: White Paper $ 352,648 376,413 $ 1,075,080 1,096,385 Brown Paper 433,924 457,231 1,317,277 1,316,177 Building Materials 338,214 335,941 1,000,407 1,112,210 ----------------- ----------------- ----------------- ----------------- $ 1,124,786 1,169,585 $ 3,392,764 3,524,772 ================= ================= ================= ================= Operating Earnings: White Paper $ 24,461 45,678 $ 95,613 164,300 Brown Paper 88,979 104,134 244,700 251,044 Building Materials 24,019 22,605 77,278 114,052 Corporate (13,058) (11,609) (39,006) (35,235) Non-recurring and other income (expense) - net (8,012) (2,296) (18,663) (8,300) ----------------- ----------------- ----------------- ----------------- $ 116,389 158,512 $ 359,922 485,861 ================= ================= ================= =================

6 RESULTS OF OPERATIONS --------------------- THIRD QUARTER 2001 VS. THIRD QUARTER 2000 ----------------------------------------- Consolidated net sales decreased 3.8% in the third quarter of 2001 compared with the third quarter of 2000. Operating earnings decreased 26.6% in the third quarter of 2001 compared with the third quarter of 2000, reflecting the progressive economic decline. The tragic events of September 11 did not significantly affect the results of operations for the third quarter of 2001, but the future impact of these events are unknown. WHITE PAPER White paper net sales decreased 6.3% and operating earnings declined 46.4% in the third quarter of 2001 compared to the third quarter of 2000. Unit shipments and average net selling prices changed in the third quarter of 2001 compared to the third quarter of 2000 as follows: Unit Average Net Shipments Selling Price ---------------- ---------------- Cut sheets 6.4% (1.0%) Forms (11.6%) 0.0% Fine paper (14.5%) (2.8%) Bleached market pulp 31.7% (45.4%) o Pricing for business forms remained stable, while volumes declined from the third quarter of 2000 to the third quarter of 2001 due to the declining market demand for continuous stock computer forms. o Bleached market pulp shipments increased as a result of the acquisition of the Port Wentworth, Ga., pulp mill, which commenced operations in September 2000. However, in light of soft worldwide market pulp pricing, we are utilizing this mill to produce softwood pulp for internal consumption to the fullest extent possible. o External fine paper shipments have declined as a result of further integration with our converted white paper products. 7 The pricing variances in our white paper products contributed to the decline in our gross profit margin for the white paper segment to 10.9% in the third quarter of 2001 compared to 15.7% in the same period in 2000. We remain cautious about market conditions in the near term as many companies in the industry are not operating at full capacity and the balance between global supply and demand remains tenuous. BROWN PAPER The brown paper segment held up well in the face of difficult market conditions. Brown paper net sales decreased 5.1% and operating earnings decreased 14.6% from the third quarter of 2000 to the third quarter of 2001. Brown paper unit shipments and average net selling prices changed in the third quarter of 2001 compared to the third quarter of 2000 as follows: Unit Average Net Shipments Selling Price ---------------- ---------------- Corrugated containers (3.6%) (2.7%) Grocery bags (5.0%) (1.4%) In the third quarter of 2001 our brown paper operations were impacted by the following when compared to the third quarter of 2000: o A weakening economy resulting in lower sales volumes and pricing pressures. o Decreased old corrugated container (OCC) costs of 22.6%. Gross profit margins for the brown paper segment declined to 26.6% in the third quarter of 2001 compared to 28.4% in the third quarter of 2000, as declines in fiber costs did not fully offset declines in net selling prices and sales volumes. As a result of the slowdown of the general economy, we expect the last quarter of 2001 to be challenging for the brown paper segment. However, as greater than 60% of our corrugated container business relates to food, beverage and consumer staples, our exposure to further economic downturn may be mitigated. 8 BUILDING MATERIALS The building materials segment's results for the third quarter of 2001 reflect a slight improvement from the results of the third quarter of 2000. In the third quarter of 2001, sales increased 0.7% and operating earnings increased 6.3% over the same period of 2000. In the third quarter of 2001, unit shipments and average net selling prices changed from the third quarter of 2000 as follows: Unit Average Net Shipments Selling Price ---------------- ---------------- Lumber 11.9% 5.2% Plywood (9.4%) 8.2% Oriented strand board (OSB) 12.4% 1.2% Domestic particleboard (1.8%) (12.7%) International particleboard 38.1% (3.2%) Domestic MDF 7.3% 5.9% International MDF 10.0% (6.0%) The building materials segment was impacted by the following: o Improvements in average selling prices from the third quarter of 2000 to the third quarter of 2001 in all domestic products except particleboard. o Lower plywood volumes, primarily due to the closure of our Ruston, La., plywood facility in December of 2000. o Costs related to the August start-up of our new particleboard plant in Bennettsville, S.C., of $3.0 million. The building materials segment's gross profit margin increased slightly to 11.5% in the third quarter of 2001 from 11.1% in the third quarter of 2000. While the domestic economy continues to weaken, housing starts have not fallen off significantly. However, a weaker global economy and overall global pressures on imports and exports have continued to cause a supply to demand imbalance. The events of September 11 appear to have had a more significant impact on our building materials segment as compared to our white and brown paper segments. Early fourth quarter net selling prices have declined to levels lower than third quarter 2001 averages. We expect that these events, coupled with normal seasonal pressures, will create an extremely challenging fourth quarter. 9 Selling and administrative expenses increased 4.7% in the third quarter of 2001 compared with the third quarter of 2000 due, in part, to new operations including the new eastern particleboard plant. Our ratio of selling and administrative expenses to net sales increased to 6.1% for the third quarter of 2001 compared to 5.6% for the same period in 2000 as a result of new operations and lower net sales. Nonrecurring and other income (expense) - net for the third quarter of 2001 includes a charge of $2.0 million related to the closure of a manufacturing line at our Bend, Ore., particleboard plant and a charge of $6.0 million for estimated costs to defend against the hostile takeover attempt by Weyerhaeuser Company. Interest expense of $23.8 million for the third quarter of 2001 was $7.3 million less than interest expense of $31.1 million for the third quarter of 2000. Interest expense declined primarily as a result of lower interest rates and higher capitalized interest. The company's effective interest rate decreased from 7.49% in the third quarter of 2000 to 6.57% in the third quarter of 2001. Capitalized interest was $1.2 million in the third quarter of 2000 versus $3.3 million for the same period in 2001. NINE MONTHS ENDED SEPTEMBER 30, 2001 VS. NINE MONTHS ENDED SEPTEMBER 30, 2000 ----------------------------------------------------------------------------- Consolidated net sales decreased 3.7% and operating earnings decreased 25.9% in the first nine months of 2001 compared with the first nine months of 2000. WHITE PAPER White paper sales declined 1.9% and operating earnings declined 41.8% in the first nine months of 2001 compared to the first nine months of 2000. Unit shipments and average net selling prices changed in the first nine months of 2001 compared to the first nine months of 2000 as follows: Unit Average Net Shipments Selling Price ---------------- ---------------- Cut sheets 8.8% (0.6%) Forms (6.9%) 1.8% Fine paper (15.5%) (0.3%) Bleached market pulp 45.8% (38.2%) 10 The operating results in our white paper segment reflect the following developments: o Soft worldwide market pulp pricing, which has accelerated our strategic initiative to convert our Port Wentworth mill to softwood pulp production for internal use. o Volume improvements and stable pricing in our cut sheets business, in the face of industry decline, due to our expansion in these markets. o Higher manufacturing costs, particularly chemicals and energy, when compared to the first nine months of 2000. o Declining forms volumes, but increased market share as our competitors exit this business. Weak market pulp pricing and unfavorable energy and chemical cost variances contributed to the decline in our gross profit margin for the white paper segment. Although energy and chemical costs have moderated in recent months, the white paper segment posted a gross profit margin of 12.7% in the first nine months of 2001 compared to 18.6% in the same period in 2000. BROWN PAPER Brown paper operating earnings decreased 2.5% in the first nine months of 2001 compared to the first nine months of 2000 on nearly flat net sales. Brown paper unit shipments and average net selling prices changed from the first nine months of 2001 to the first nine months of 2000, as follows: Unit Average Net Shipments Selling Price ---------------- ---------------- Corrugated containers (0.7%) 0.3% Grocery bags (6.0%) (1.6%) Our brown paper business was impacted by the following: o Stable pricing in the corrugated business at the end of the first nine months of 2001, but prices are softening as we enter the fourth quarter. 11 o Positive contributions from the operations of two converting operations and a small paper mill in Mexico, which were acquired by the company in May 2000. o Decreases in OCC costs of 39.9% in the first nine months of 2001 compared to the first nine months of 2000. o Increased energy costs in the first nine months of 2001 compared to the first nine months of 2000, although these costs have moderated substantially in recent months. Overall, gross profit margins for the brown paper segment declined slightly to 24.6% in the first nine months of 2001 compared to 24.9% in the first nine months of 2000. BUILDING MATERIALS The building materials segment's results for the first nine months of 2001 reflect significant pricing pressures when compared to the first nine months of 2000. Net sales declined 10.1% and operating earnings declined 32.2% in the first nine months of 2001 compared with the first nine months of 2000. In the first nine months of 2001, unit shipments and average net selling prices changed from the first nine months of 2000 as follows: Unit Average Net Shipments Selling Price ---------------- ---------------- Lumber 8.0% (8.6%) Plywood (19.3%) (2.1%) OSB 5.7% (23.5%) Domestic particleboard (4.7%) (11.3%) International particleboard 18.8% (4.5%) Domestic MDF 3.0% 0.3% International MDF 0.0% (5.2%) In the first nine months of 2001, the building materials segment was impacted by the following: o Plywood volumes decreased due to closures of two facilities during 2000. o Log costs declined 13.3% in the first nine months of 2001 compared with the first nine months of 2000. o Energy costs were higher, although these costs have begun to decline from recent highs. 12 As a result of the market pricing pressures, partially offset by lower log costs, the building materials segment's gross profit margin decreased to 12.2% in the first nine months of 2001 from 14.3% in the first nine months of 2000. Selling and administrative expenses increased $8.0 million, or 4.1%, in the first nine months of 2001 compared with the first nine months of 2000 due, in part, to new operations. Our ratio of selling and administrative expenses to net sales increased to 6.0% for the first nine months of 2001 compared to 5.6% for the same period in 2000, generally due to the decline in net sales and new operations such as our eastern particleboard plant which commenced production in August 2001. Nonrecurring and other income (expense) - net for the first nine months of 2001 includes a gain on the sale of non-strategic timberlands of $5.3 million, charges of $18.3 million for estimated costs to defend against the hostile takeover attempt by Weyerhaeuser Company, and a charge of $2.9 million on equipment abandonments at the Dodson, La., sawmill as a result of our modernization project at that facility. Results for the first nine months of 2000 include charges totaling $5.1 million related to the closure of the Dallas, Ore., plywood mill and settlement costs for alleged violations of the Clean Air Act. Interest expense decreased $16.8 million to $73.8 million for the first nine months of 2001 compared to $90.5 million for the first nine months of 2000. The decline in interest expense is attributable to lower interest rates and higher capitalized interest. The company's effective interest rate decreased from 7.50% in the first nine months of 2000 to 6.78% in the first nine months of 2001. Capitalized interest was $3.4 million in the first nine months of 2000 versus $10.7 million for the first nine months of 2001. 13 FINANCIAL CONDITION AS OF SEPTEMBER 30, 2001 -------------------------------------------- LIQUIDITY AND CAPITAL RESOURCES For the first nine months of 2001, cash flows from operating activities were $491.7 million, compared to $509.8 million for the same period in 2000. Net working capital remained stable at $401.9 million at September 30, 2001, compared with $396.1 million at December 31, 2000. Since year-end, we have reduced our total debt-to-capital ratio to 39.6% at September 30, 2001, which is down from 41.2% at December 31, 2000. In August 2001, the Board of Directors authorized repurchases by the company of up to 10 million shares of its common stock. The company has not yet initiated any repurchases under this program. The company believes it has the resources available to meet its short-term and long-term liquidity requirements. Resources include internally generated funds, short-term borrowing arrangements and the unused portion of the revolving loan available under a bank credit agreement. CAPITAL EXPENDITURES The company is continually making capital expenditures at its manufacturing facilities to improve fiber utilization, achieve labor efficiency and expand production. In the first nine months of 2001, the company incurred $410.9 million in capital expenditures for property, plant and equipment and an additional $14.6 million for roads and reforestation. Major capital projects currently underway include: o the Kingsport, Tenn., paper mill modernization; o the Albany, Ore., pulp mill modernization; o the new Oklahoma City corrugated facility, which we expect to start-up in December of this year; o the particleboard plant modernization in Simsboro, La., and o the softwood pulp conversion project at the pulp mill in Port Wentworth, Ga. In August 2001 we successfully started up our eastern region particleboard facility. 14 DIVIDENDS In each of February, May and August 2001, the Board of Directors declared a quarterly cash dividend of $0.23 per share. However, there is no assurance as to future dividends as they depend on earnings, capital requirements and financial condition. INCOME TAXES The company's effective tax rate is 29.0%. The reduction in rate from 2000 is due to tax credits available to the company, coupled with lower earnings forecasts for 2001. ENVIRONMENTAL COMPLIANCE The company's operations are faced with increasingly stringent environmental regulations. 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) published the final rules regarding air and water quality known as the "cluster rules." Requirements for the first significant compliance date, April 2001, were met by all affected company mills through previously completed projects. Future projects have been planned to ensure compliance with all remaining cluster rule deadlines, which continue through 2006. FORWARD-LOOKING STATEMENTS -------------------------- Statements contained in this report that are not historical in nature, including, without limitation, discussion of general economic conditions, pricing levels, energy costs, adequacy of the company's liquidity resources, and the impact of environmental regulations, are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are subject to risks and uncertainties that may cause actual future results to differ materially from those projected. Such risks and uncertainties with respect to the company, in addition to those included with the forward-looking statements, include, but are not limited to, the effect of general economic conditions; the level of new housing starts and remodeling activity; the availability and terms of financing for construction; competitive factors including pricing pressures; the cost and availability of wood fiber; the effect of natural disasters on the company's timberlands; construction delays; risk of non-performance by third parties; and the impact of environmental regulations including the costs associated with complying with such regulations. In view of these uncertainties, investors are cautioned not to place undue reliance on such forward-looking statements. The company disclaims any obligation to publicly announce the results of any revisions to any forward-looking 15 statements contained herein to reflect future events or developments. Item 3. Quantitative and Qualitative Disclosures about Market Risk ------------------------------------------------------------------ No disclosure is required under this item. 16 FORM 10-Q PART II OTHER INFORMATION Item 1. Legal Proceedings ------------------------- In November 1998, the company received an information request from the EPA under Section 114 of the Clean Air Act (CAA) for information related to the company's Johnsonburg, Pa., pulp and paper mill. This request focused on compliance with regulations under the Prevention of Significant Deterioration (PSD) program under the CAA. Subsequently, on April 19, 1999, the company received a Notice of Violation (NOV) relating to the mill. The NOV alleges violations of the PSD permit program under the CAA relating to two plant modifications. 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 August 1999, the company received a Section 114 information request from the EPA relating to the company's paper mill in Campti, La. 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, Ky. 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, S. C., and Kingsport, Tenn., 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 mills in January 2001. The company submitted responses to these supplemental 17 requests during the first four months of 2001. The company has requested a meeting with the EPA to discuss the responses and expects a meeting to occur during the fourth quarter of 2001. The company believes that the outcome of the foregoing proceedings and other proceedings to which the company is a party will not have a material adverse effect on the company's financial position. Item 6. Exhibits and Reports on Form 8-K ---------------------------------------- (a) Exhibits -------- Exhibit No. Exhibit ----------- ------- 12 Ratio of Earnings to Fixed Charges. (b) Reports on Form 8-K ------------------- No reports on Form 8-K were filed during the quarter for which this report is filed. 18 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. WILLAMETTE INDUSTRIES, INC. By /s/ G. W. Hawley ------------------------- Executive Vice President, Chief Financial Officer, Secretary and Treasurer (Principal Financial Officer) Date: November 7, 2001 19

WILLAMETTE INDUSTRIES INC 10-Q