Willamette Industries, Inc. Business Information, Profile, and History

Company Perspectives:

One of Willamette's strengths is its ability to make products literally from the ground up, assuring customers of quality and reliability at reasonable prices.

History of Willamette Industries, Inc.

Willamette Industries, Inc., headquartered in Portland, Oregon, is a medium-sized, diversified forest-products company. The company owns and operates more than 100 manufacturing facilities in 23 U.S. states, as well as in Ireland, France, and Mexico. Willamette pursues two primary lines of business--paper products, both white and brown, and building materials. Among the products offered by Willamette are pulp, fine paper, paper bags, corrugated containers, kraft linerboard, business forms, cut sheet paper, inks, lumber, plywood, particleboard, medium-density fiberboard (MDF), oriented-strand board (OSB), I-joists, and laminated beams. The company owns or manages about 1.7 million acres of timberland, mostly in the Pacific Northwest and the South, which supply nearly 60 percent of its lumber requirements.

A Mix of Controversy and Success: 1900s-20s

Willamette Industries, Inc., was first organized in 1906 in Dallas, Oregon, as the Willamette Valley Lumber Company. The company consisted of a sawmill, a small railroad, some logging equipment, and 1,200 acres of timberland. A pair of entrepeneurs, Louis and George Gerlinger, father and son, were two of the partners in the original corporation. The Gerlinger family would retain an interest in Willamette into the 1990s when the company's chief executive officer and president was William Swindells, grandson of George Gerlinger.

The company grew enormously in its first 15 years. The original corporation, including timberland, mill, and equipment, had been founded with $50,000. In 1920 a half-interest in the company was offered for sale for $375,000. Net assets of the company were valued at $1.5 million at that time. The original sawmill had been expanded and improved, and the Gerlingers had built a planing mill and drying kilns. The company owned more than 11,000 acres of timberland, containing more than 334 million board feet of timber.

Some of the company's early prosperity, like that of other lumber companies in the Pacific Northwest, was due to a tremendous demand for timber following the United States's entry into World War I. Because the army needed spruce to build military aircraft, Pacific Northwest lumber companies were able to sell as much spruce as they could cut. Willamette benefitted, although the company also suffered from the labor agitation that racked the industry.

Lumber workers in Oregon, Washington, and Idaho were strong supporters of the Industrial Workers of the World (IWW), a socialist labor union whose members were known as Wobblies. With much of the work force off to war and lumber production running at full capacity, many longstanding labor grievances were brought to a crisis point in 1917. Long hours, low pay, and unhealthy working conditions were the main points of contention. In the summer of 1917 the IWW organized a general strike throughout the Pacific Northwestern lumber industry. In July 1917 a large grain elevator in Klamath Falls, Oregon, burned to the ground; the fire was attributed to IWW arson. A fire at Willamette's Balderee camp created more than $200,000 in damages and was thought to have been set by Wobblie provocateurs. This fire put a temporary stop to all logging in the county, and arson hysteria swept the area. The allegations of arson were never substantiated, although the governor of Oregon sent a special military force to the area to investigate.

Eventually the federal government stepped in, taking an unprecedented step to ensure continued production of lumber for the war effort. In November 1917, the government instituted the first federally sponsored labor union: the Loyal Legion of Loggers and Lumbermen. The Four L's, as it came to be called, worked quickly to recruit members from the IWW. Workers took a loyalty oath, swearing to faithfully support their company to produce logs and lumber for the construction of army planes and ships. The new union then wrested reforms from management. Workers were granted an eight-hour day, and improvements in living conditions followed. Never before or since had the federal government acted as a union organizer, but it seemed to be the only way to get the stumbling timber industry back on its feet. Throughout the war, Willamette's George Gerlinger served on the Loyal Legion's central committee. Recognizing the great contribution the Loyal Legion had made to labor relations, Gerlinger helped convince the industry to keep the union on after the war was over.

Early Innovation in the 1930s

Willamette achieved a competitive edge early on by finding ways to utilize timber products ignored by other companies. Up to the 1940s, for example, hemlock was considered an unusable species of tree. Willamette's timber lands, however, were almost 30 percent hemlock, and the company found many uses for this wood, marketing the wood for ladders, refrigerators, and door moldings. In 1932 Willamette started selling its waste hemlock chips for papermaking. Chips that could not be sold were burned to produce power. Willamette's policy was to sell or use everything it cut, and this efficiency helped the company through the lean years of the Great Depression. The Willamette mill ran double shifts throughout the Depression, closing down only once because of lack of logs. Many larger lumber companies were much harder hit.

To stimulate the economy, President Franklin D. Roosevelt instituted the National Industrial Recovery Act (NIRA) in 1933, which called for regulation of prices and set production quotas for the lumber industry. Large companies wanted to hold production down in order to boost prices, so Willamete was ordered to shut down its second shift. Willamette's president, George Gerlinger, protested the quota to the National Recovery Administration in Washington, D.C., but his appeals were turned down. Willamette was forced to comply with the code, and 250 workers were laid off. Willamette's management, however, saw that while it could be forced to limit hours at its Dallas mill, the Lumber Code did not prevent the opening of new mills. Thus, the week after Gerlinger's appeal was denied by a federal court judge, Gerlinger announced that within the month Willamette would open a small log mill, for which he rehired laid off workers.

Gerlinger's son-in-law, William Swindells, bought an interest in Willamette in 1930 and began to learn the business. In 1935 Willamette bought the nearby Corvallis Lumber Company, and Swindells was named manager of this new venture. Willamette bought close to 10,000 acres of timberland in 1938 and acquired almost 4,000 more the next year. Despite a crippling fire in 1940, by the time the United States entered World War II, Willamette was again ready to produce as much timber as the government could buy for military ships and planes. When George Gerlinger died in 1948, Swindells took over as president. He continued the course of growth embarked on by Gerlinger.

Diversification and Steady Growth After World War II

After World War II, Willamette began to diversify. The company acquired a substantial interest in the Santiam Lumber Company in 1950. Willamette and Santiam set about to make a business out of selling their waste wood chips. In 1954 the two companies formed a third, the Western Kraft Corporation, which built a paper mill to process the chips for use in kraft paper. Willamette acquired the Western Veneer and Plywood Company in 1952. Another subsidiary of Willamette was the Western Corrugated Box Company, formed in 1955. A venture into another wastewood product, particleboard, yielded the Wood Fiberboard Company in 1959. By the end of the 1950s, Willamette Valley Lumber Company had developed a solid base of timberlands and a network of related companies that processed every part of the tree.

These related companies continued to expand in the following decade. Paper, bag, and plywood mills were opened in the South and West. By 1967 it became clear that a merger of Willamette's subsidiaries and joint ventures into one large company would yield substantial savings in taxes and management costs. On March 3, 1967, five companies--Willamette Valley Lumber Company, Santiam Lumber Company, Wood Fiberboard Company, Western Veneer and Plywood Company, and Dallas Lumber and Supply Company-merged into one entity. The new company took the neutral name Columbia Forest Products, but it was changed a few weeks later to the present name, Willamette Industries, Inc. The Western Kraft Corporation became an 80-percent-owned subsidiary of the new company, until its outstanding shares were purchased in 1970. It too merged with the parent Willamette in 1973.

William Swindells, Sr., was named president of the new company; Gene Knudson, a forester with Willamette since 1949, executive vice-president; and two of Swindells's sons, William, Jr., and George, were vice-presidents. The newly consolidated Willamette Industries surprised Wall Street with its success. In the ten years following the merger, Willamette's sales more than tripled, from $114 million in 1967 to $420 million in 1975. In 1972 Willamette acquired Hunt Lumber Company in a stock swap. In 1976 the company's 444,000 acres of timberland still represented a fraction of the land its competitors owned, yet Willamette was consistently one of the most profitable corporations in the forest products industry. Its management was expert at keeping costs down, and the company had achieved an excellent balance between its lumber and paper divisions. In general, paper and lumber run in opposite business cycles; that is, when building products are in high demand, paper products fall into a lull, and vice versa. As Willamette was spread evenly in both wood and paper, the company experienced relatively stable growth. Industry observers noted that Willamette enjoyed one of the most balanced mixes of paper and building materials in the entire forest products field during the post-merger decade.

Willamette Industries made a major acquisition in 1980, purchasing the Woodard-Walker Lumber Company in northern Louisiana for $85 million, giving Willamette two new plywood plants and approximately 50,000 more acres of timberland. The company then owned a total of more than 550,000 more acres of timber. Aware that worldwide resources were waning, Willamette increased attention to its longstanding policy of careful and efficient management of its trees.

The only significant lag in Willamette's steady growth since the late 1960s was caused by antitrust litigation. In 1972 plywood buyers brought a class action suit against more than 50 plywood producers, including Willamette. The suit charged producers with conspiring to fix freight rates. In 1978 a jury found Willamette, Weyerhauser, and Georgia-Pacific guilty of billing their plywood customers as if the product had been shipped form the Pacific Northwest, even though the transaction might involve buyers in Mississippi and sellers in Louisiana. The case dragged through several appeals until in 1982 Willamette agreed to pay a $29 million settlement. Earnings from operations were low in 1982, and with payment of the settlement, the company sustained its first loss in 75 years.

William Swindells, Sr., retired in 1976. Gene Knudson then became chairman and chief executive officer. William Swindells, Jr., took over leadership of the company in 1980. He was promoted to president and chief operations officer when Knudson made plans to retire.

New Challenges in the 1980s and Early 1990s

Throughout Willamette's history, the company attempted to provide stable employment for its work force. Even during the Great Depression the Willamette mill closed down only once. In the 1980s, however, labor relations grew more strained. Several strikes hit Willamette mills in the Pacific Northwest and in the South. As demand for forest products lessened worldwide, many Pacific Northwest lumber companies had to cut production. Willamette workers in Oregon struck in 1986 and 1988 but eventually settled for contracts that reduced average hourly wages.

Several Willamette sawmills closed in 1989 and 1990. Political decisions restricting timber supply and the limited availability of quality softwood and hardwood logs led to the shutdown of mills in Sweet Home, Oregon; Moncure, North Carolina; and Chester, South Carolina. Meanwhile, the company began to build vertically integrated operations in North Carolina and South Carolina in 1987. The company also continued to grow in non-hardwood areas. A new hardwood-and-softwood-mix finepaper mill in Marlboro County, South Carolina, opened in 1990, and the company began construction of a MDF plant at the same location. Willamette also made some acquisitions in 1990, including fine-papers manufacturer Penntech Papers, Inc., of Pennsylvania. The following year Willamette bought Bohemia, Inc., which had plants in Oregon that processed wood and made laminated beams, among other wood products. Bohemia also owned more than 45,000 acres of timberland in Oregon. Also in 1991 a new plant to make corrugated containers in the Houston, Texas, area was completed. Willamette's sales exceeded $2 billion that busy year.

In 1992 Willamette further boosted its presence in the corrugated products business by acquiring 11 corrugated container facilities from Boise Cascade. The plants were all located east of the Rockies--in Alabama, Arkansas, Colorado, Illinois, Indiana, Kentucky, Minnesota, North Carolina, and Tennessee. Willamette opened an MDF plant in South Carolina and a fine paper converting facility in Pennsylvania in 1992 as well.

By the early 1990s Willamette had grown into a significant player in the forest products industry. When Willamette Industries formed in 1967, the business operated 30 plants in six states. In 1992, as Willamette celebrated its 25th anniversary, the company had three times as many facilities and had expanded both geographically and in its product lines.

Continued Growth and Diversification: 1995 and Beyond

Willamette continued to hone its operations and grow steadily as it moved toward the new millennium. When the company made acquisitions, it chose them carefully, focusing on companies that would strengthen Willamette's existing operations in white paper, brown paper, and building materials. The company also grew through building additional facilities and updating existing plants. To maximize capital, Willamette did its own engineering and contracting when building, which was uncommon in the forest products industry. Also during the 1990s the company had to face growing environmental concerns and restrictions over the logging of the Pacific Northwest's public timberlands. These issues prompted Willamette to begin securing private lands and to expand in the East, which had less stringent regulations.

In 1995 new CEO Steven Rogel came on board when William Swindells retired. Under Rogel, Willamette acquired a paper mill in Tennessee from Mead and modernized its Campti, Louisiana, plant by adding a new linerboard machine. The following year the company made a major acquisition when it bought 1.1 million acres of timberland in the Pacific Northwest and the South from Cavenham Forest Industries, part of British conglomerate Hanson plc. Willamette paid $950 million for the Cavenham lands, and the purchase made Willamette the largest private landowner in Oregon. The company eventually sold about half of the land to others, keeeping more than 500,000 acres.

Looking for opportunities abroad, Willamette acquired a fiberboard plant in Clonmel, Ireland, in 1996 for $61.5 million. The following year the company purchased an interest in Corrugados La Colmena, S.A. de C.V., a corrugated box manufacturer in Mexico. In 1998 Willamette continued its European expansion with the purchase of MDF plant MDF D'Aquitaine, located in Morcenx, France. The acquisition allowed Willamette to better serve European customers and further penetrate the European market.

Improvements to existing facilities and new plants strengthened Willamette's operations in the late 1990s. 1998 volumes in the corrugated container division grew eight percent over 1997 volumes, a solid gain compared to the industry growth average of one percent. A new cut sheet plant in Brownsville, Tennessee, began operating in 1998, resulting in an increase in cut sheet production, and a second machine was added to the Hawesville, Kentucky, paper mill, boosting fine paper production and making Willamette the fourth-largest producer of uncoated free sheet. The company's business forms division, which consisted of six plants in six states, made 21 percent of the U.S. production of continuous forms bond during 1998. Willamette also manufactured 12 percent of the nation's paper bags through four plants in four states. Of Willamette's sales in 1998, brown paper product sales accounted for 37 percent, and white paper products represented 29 percent.

The building materials division grew as well, supported by the opening of a sawmill in Louisiana, which increased lumber production; the expansion of a laminated veneer lumber (LVL) facility in Oregon; and the completion of an engineered wood products facility in Simsboro, Louisiana, designed to make LVL and I-joists. The company planned to offer a comprehensive array of engineered wood products to serve the wide-ranging needs of customers, and in 1998 Willamette made 22 percent of the nation's supply of MDF. Through its European plants, Willamette made seven percent of Europe's production of MDF. Plywood production, however, did not fare as well, as a fire resulted in a six-month closure of a Zwolle, Louisiana, plywood plant in 1998, and a plywood plant in Taylor, Louisiana, was closed in mid-1997. Willamette sold 117,000 acres of timberland in southwestern Washington State to Cathlamet Timber Company for $234 million in 1998 as well, land that had been part of the Cavenham purchase. The company planned to pare down outstanding debt with the proceeds from the sale.

Much to the surprise of Willamette management, CEO Rogel left the company after only two years in order to become CEO at competitor Weyerhaeuser Company, based in Washington. Duane McDougall was named as Rogel's successor. Overall, Willamette did quite well in 1998, with sales up 5.7 percent from 1997 and net income up 22 percent. Early in 1999 Willamette announced plans to build a new cut sheet converting facility in the Midwest. The new plant would allow the company to better meet increased demand for cut sheet products. Willamette also planned to build a new $85 million particleboard plant in South Carolina. Construction was scheduled to commence in 2000. An additional acquisition in Europe was finalized in 1999 as well, when Willamette purchased Darbo, S.A., a particleboard manufacturer located in Linxe, France. Although some observers characterized Willamette's growth as cautious, the company demonstrated few signs of slowing down in the next century.

Principal Subsidiaries: Willamette Timber Company, Inc.; Wimer Logging Co.

Principal Competitors: Boise Cascade Corporation; International Paper Company; Smurfit-Stone Container Corporation; The Mead Corporation; Georgia-Pacific Corporation; Weyerhaeuser Company.

Chronology

• Key Dates:

• 1906: Willamette Valley Lumber Company is formed in Dallas, Oregon.
• 1954: Willamette and Santiam Lumber Company establish the Western Kraft Corporation.
• 1967: Merger creates Willamette Industries, Inc.
• 1973: Western Kraft merges with Willamette.
• 1983: Willamette reaches annual sales of more than $1 billion.
• 1996: Company acquires Cavenham timberlands for $950 million and also expands overseas in Ireland.