SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549

                                    FORM 10-K

              [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
                       THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 1998       Commission file number 1-12545

                           WILLAMETTE INDUSTRIES, INC.
             (Exact name of registrant as specified in its charter)

                OREGON                                  93-0312940
     (State of incorporation)                       (I.R.S. Employer
                                                   Identification No.)
     1300 S.W. FIFTH AVENUE, SUITE 3800
     PORTLAND, OREGON                                          97201
 (Address of principal executive offices)                      (Zip Code)

       REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (503) 227-5581

           SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:

   Title of each class                 Name of each exchange on which registered
   -------------------                 -----------------------------------------
Common stock, $.50 par value                  New York Stock Exchange
Preferred stock purchase rights               New York Stock Exchange

        SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: None

         Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934  during  the  preceding  12 months  (or for such  shorter  period  that the
registrant was required to file such reports),  and (2) has been subject to such
filing requirements for the past 90 days. Yes X No

         Indicate by check mark if disclosure of delinquent  filers  pursuant to
Item 405 of Regulation S-K is not contained  herein,  and will not be contained,
to the best of  registrant's  knowledge,  in  definitive  proxy  or  information
statements  incorporated  by  reference  in Part  III of this  Form  10-K or any
amendment to this Form 10-K. [ ]

         State  the  aggregate   market  value  of  the  voting  stock  held  by
non-affiliates of the registrant.

                       $ 3,257,282,315 at January 31, 1999

         Indicate the number of shares  outstanding of each of the  registrant's
classes of common stock as of the latest practicable date.

         Class                                 Outstanding at January 31, 1999
         -----                                 -------------------------------
Common Stock, $.50 par value                          110,988,980 shares

                      DOCUMENTS INCORPORATED BY REFERENCE.
Portions of the  registrant's  definitive  proxy  statement  for its 1999 annual
meeting of shareholders are incorporated by reference into Part III hereof.

<PAGE>


                              CROSS REFERENCE SHEET
        Showing Location in Definitive Proxy Statement of Items Required
                                  By Form 10-K


Item No.
-------
Caption         Form 10-K Caption               Definitive Proxy Statement
-------         -----------------               --------------------------

Item 10         Directors and Executive         Election of Directors
                 Officers of the Registrant     Section 16(a) Beneficial
                                                  Ownership Reporting Compliance

Item 11         Executive Compensation          Executive Compensation
                                                Compensation Committee
                                                  Interlocks and Insider
                                                  Participation
                                                Compensation of Directors
                                                Employment Agreements

Item 12         Security Ownership of           Holders of Common Stock
                  Certain Beneficial
                  Owners and Management

Item 13         Certain Relationships and       Compensation Committee
                  Related Transactions            Interlocks and Insider
                                                  Participation

<PAGE>


                                      INDEX
                                      -----


                                                                            Page
                                                                            ----
Part I
------
Item 1.  Business............................................................1
         General.............................................................1
         Business Segment Information........................................1
         White Paper.........................................................1
         Brown Paper.........................................................2
         Building Materials..................................................2
         Timberlands.........................................................3
         Energy .............................................................3
         Employees...........................................................3
         Environmental Matters...............................................3
Item 2.  Properties..........................................................4
Item 3.  Legal Proceedings...................................................7
Item 4.  Submission of Matters to a Vote of Security Holders.................8
         Executive Officers of the Registrant................................9

Part II
-------
Item 5.  Market for Registrant's Common Equity
             and Related Stockholder Matters................................10
Item 6.  Selected Financial Data............................................11
Item 7.  Management's Discussion and Analysis of
             Financial Condition and Results of Operations..................12
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.........19
Item 8.  Financial Statements and Supplementary Data........................19
Item 9.  Changes in and Disagreements with
             Accountants on Accounting and Financial Disclosure.............19

Part III
--------
Item 10. Directors and Executive Officers of the Registrant.................20
             (See Part I for Executive Officers of the Registrant)
Item 11. Executive Compensation.............................................20
Item 12. Security Ownership of Certain Beneficial
             Owners and Management..........................................20
Item 13. Certain Relationships and Related
             Transactions...................................................20

Part IV
-------
Item 14. Exhibits, Financial Statement Schedules
             and Reports on Form 8-K........................................21
         Signatures.........................................................22
         Index to Consolidated Financial Statements.........................24
         Index to Exhibits..................................................41

<PAGE>

                                     PART I

Item 1. Business

GENERAL

  Willamette  Industries,  Inc. (the "Company" or  "Willamette")  was founded in
1906 as the Willamette Valley Lumber Co. in Dallas,  Oregon. In 1967, Willamette
Valley and several related firms merged to form Willamette Industries,  Inc. Its
stock  has  been  publicly  traded  since  1968.  Willamette  is a  diversified,
integrated  forest  products  company with 100  manufacturing  facilities  in 23
states, France, Ireland and Mexico.

  The Company's manufacturing  facilities produce kraft linerboard,  corrugating
medium, bag paper, paper bags, corrugated containers, hardwood market pulp, fine
paper, specialty printing papers, business forms, cut sheet paper, inks, lumber,
plywood,  particleboard,  medium  density  fiberboard,  oriented  strand  board,
laminated beams,  laminated veneer lumber,  I-joists and other  value-added wood
products.  We own or manage  1,729,000  acres of timberland in the United States
and employ approximately 14,000 people.

  We are 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 the Company  operates.  The  Company  competes in its
markets primarily through price,  quality and service. We feel our strengths are
our  vertical  integration;  our  geographically  diverse,  modern,  fiber-  and
energy-efficient facilities; our engineering and construction capabilities;  our
concentration  on a focused,  related product range;  our balance among building
materials and white and brown paper products;  our 58% saw log self-sufficiency;
and an organizational  structure that encourages  teamwork as well as individual
initiative.

  Willamette is included in the Fortune 500. The  Company's  common stock trades
on the New York Stock Exchange (NYSE) under the symbol: WLL.

BUSINESS SEGMENT INFORMATION

  The Company operates in three business segments:  white paper, brown paper and
building materials. Sales and operating data for the three segments for the past
five years are set forth in the five year  comparison  captioned  "Supplementary
Business Segment  Information"  located on page 29. The Company is not dependent
on any one significant customer or group of customers.  Approximately 90% of the
Company's total output is sold domestically.

WHITE PAPER

Market pulp and fine paper
  Four mills in Kentucky, Pennsylvania, Tennessee and South Carolina manufacture
9% of the nation's uncoated free sheet production.

                                       1
<PAGE>

Additionally,  our mill in Kentucky  produces 5% of the nation's hardwood market
pulp, which is sold to outside  customers.  Chips from nearby sawmills,  plywood
plants and chip mills  serve as the  primary  fiber  source for our white  paper
products.

Forms and cut sheets
  Six  business  forms  plants in six  states  manufacture  21% of the  nation's
production of continuous forms bond. These forms are mostly long-run  continuous
computer forms. Additionally,  our five cut sheet facilities in four states make
private brand and Willamette brand (Willcopy(R)) photocopy and cut sheet printer
paper.  Our cut sheets represent 12% of the nation's cut sheet  production.  Our
business  forms and cut sheets are  marketed by our own sales force to a variety
of consumers and distributors.

BROWN PAPER

Brown paper
  Four paper mills in California,  Kentucky, Louisiana and Oregon manufacture 5%
of the nation's  production  of  linerboard,  corrugating  medium and bag paper.
Nearly all of the product is used by, or traded for,  the needs of  Willamette's
box and bag manufacturing plants. In Louisiana and Oregon, our sawmills, plywood
plants  and  timberlands  can  provide  nearly  all of our  chip  needs  for our
linerboard  mills.  Recycled  fiber,  in the form of old  corrugated  containers
(OCC), provides 56% of the total fiber needs.

Corrugated containers and sheets
  Corrugated  containers and sheets are  manufactured  by 35 plants in 20 states
and Mexico.  Domestic output accounts for 6% of U.S.  corrugated box production.
Products range from colorful store displays to  eye-catching  preprinted  boxes;
from sturdy wax-coated  shipping  containers to the plain brown box.  Corrugated
containers  are marketed by our own sales force to a variety of  industrial  and
agricultural customers.

Bags
  Four bag plants in four states make 12% of the nation's  paper bags,  marketed
to grocery,  department, drug and hardware stores in the West, Midwest and South
by our sales force.

BUILDING MATERIALS

Lumber
  Eight sawmills in Oregon and Louisiana  manufacture 2% of the nation's  lumber
production.  Lumber products are marketed  through  independent  wholesalers and
distributors throughout the U.S.

Structural Panels
  Plywood  panels are  manufactured  at nine plants in Arkansas,  the Carolinas,
Louisiana and Oregon.  Oriented  strand board (OSB) is manufactured at our plant
in Louisiana.  The Company's  output of these  products  accounts for 8% and 3%,
respectively,  of the nation's  

                                       2
<PAGE>

production  and is  marketed  nationwide  through  independent  wholesalers  and
distributors.

Composite Panels
  Four  particleboard  plants in  Louisiana  and Oregon  manufacture  13% of the
nation's  particleboard.   Three  medium  density  fiberboard  (MDF)  plants  in
Arkansas, Oregon and South Carolina produce 22% of the nation's MDF. MDF is also
manufactured  at  facilities in Clonmel,  Ireland,  and Morcenx,  France,  which
together  account for 7% of European  production.  The  composite  panel  plants
produce   value-added   products  including   color-coated,   woodgrain-printed,
fire-rated  and  moisture-resistant  boards.  Composite  panel products are sold
nationwide through independent wholesalers and distributors.

Engineered wood products
  Two  laminated  beam  plants in Oregon and  Louisiana  account  for 27% of the
nation's  production.  Two laminated  veneer lumber (LVL) plants and one I-joist
plant,  all  located  in Oregon,  manufacture  8% and 7%,  respectively,  of the
nation's total production.  An additional integrated LVL and I-joist facility in
Louisiana was completed in late December,  1998. Engineered wood products, stock
and custom made, are sold in both the domestic and international markets.

TIMBERLANDS

  Willamette's  1,729,000 acres of timberland  supply  approximately  58% of our
long-term saw log needs. The remainder is purchased through private timber sales
and open market  purchases.  Our  timberlands  are comprised of 736,000 acres in
Louisiana,  Arkansas and Texas;  610,000  acres in Oregon;  and 383,000 acres in
Tennessee,  Missouri and the Carolinas. We continually look for opportunities to
expand our fee timber base and make purchases when it is profitable to do so.

ENERGY

  Through  cogeneration,  the burning of waste  materials  and the  recycling of
spent  pulping  liquors,  Willamette's  manufacturing  facilities  are  able  to
generate 59% of total energy needs.

EMPLOYEES

  Willamette  employs  approximately  14,000  people,  of  whom  about  49%  are
represented by labor unions with collective  bargaining  agreements.  Agreements
covering  approximately  1,180  employees  were  negotiated in 1998.  Agreements
involving  about  1,340  hourly  employees  are  subject  to  renewal  in  1999.
Approximately 47% of all salaried  employees have been with the Company for more
than twelve years.

ENVIRONMENTAL MATTERS

  See "Management's  Discussion and Analysis of Financial  Condition and Results
of  Operations--Other  Matters" for a discussion of the effect on the Company of
laws relating to environmental matters.

                                       3
<PAGE>



Item 2.  Properties

MANUFACTURING FACILITIES

  The  following  table sets  forth  information  regarding  the  Company's  100
manufacturing facilities at December 31, 1998:

Building Materials:

         Facility                         1999 Forecast
         --------                         -------------
Western Plywood (3 plants)           M Square Ft. (3/8" Basis)
  Dallas, Oregon                              118,000
  Foster, Oregon                              154,000
  Springfield, Oregon                         120,000
                                            ---------
    Total Western Plywood                     392,000
                                            ---------

Southern Plywood (4 plants)
  Dodson, Louisiana                           229,000
  Emerson, Arkansas                           240,000
  Ruston, Louisiana                           120,000
  Zwolle, Louisiana                           237,000
                                            ---------
    Total Southern Plywood                    826,000
                                            ---------

Eastern Plywood (2 plants)
  Chester, South Carolina                     245,000
  Moncure, North Carolina                     110,000
                                            ---------
    Total Eastern Plywood                     355,000
                                            ---------

      Total Plywood                         1,573,000
                                            ---------

Oriented Strand Board (1 plant)
  Arcadia, Louisiana                          308,000
                                              -------
                                                        (1998 Production-
      Total Structural Panels               1,881,000      1,717,000)
                                            =========

Western Lumber (5 mills)                     M Board Ft.
  Coburg, Oregon                              177,000
  Dallas, Oregon                              161,000
  Lebanon, Oregon (2 mills)                   156,000
  Warrenton, Oregon                           152,000
                                            ---------
    Total Western Lumber                      646,000
                                            ---------

Southern Lumber (3 mills)
  Dodson, Louisiana                            59,000
  Taylor, Louisiana                            51,000
  Zwolle, Louisiana                            56,000
                                            ---------
    Total Southern Lumber                     166,000
                                            ---------
                                                        (1998 Production-
      Total Lumber                            812,000        755,000)
                                            =========

                                       4
<PAGE>


                                          1999 Forecast
                                          -------------
Particleboard (4 plants)             M Square Ft. (3/4" Basis)
  Albany, Oregon                              216,000
  Bend, Oregon                                177,000
  Lillie, Louisiana                           118,000
  Simsboro, Louisiana                         107,000
                                            ---------
                                                        (1998 Production-
      Total Particleboard                     618,000        616,000)
                                            =========

Medium Density Fiberboard (5 plants)
  Bennettsville, South Carolina               126,000
  Clonmel, Ireland                            180,000
  Eugene, Oregon                               64,000
  Malvern, Arkansas                           145,000
  Morcenx, France                              76,000
                                            ---------
                                                        (1998 Production-
      Total MDF                               591,000        540,000)
                                            =========

Engineered Wood Products (7 plants)
Laminated Beams                             M Board Ft.
  Simsboro, Louisiana                          24,000
  Vaughn, Oregon                               51,000
                                            ---------
                                                        (1998 Production-
      Total Laminated Beams                    75,000         75,000)
                                            =========

Laminated Veneer Lumber                     Cubic Ft.
  Albany, Oregon                            2,469,000
  Simsboro, Louisiana                       1,849,000
  Winston, Oregon                           1,901,000
                                            ---------
                                                        (1998 Production-
      Total LVL                             6,219,000      3,401,000)
                                            =========

I-Joists                                    M Lineal Ft.
  Woodburn, Oregon                             53,000
  Simsboro, Louisiana                          37,000
                                            ---------
                                                        (1998 Production-
                                               90,000         45,000)
      Total I-Joists                        =========

Other Divisions (3 facilities)
  Coburg Veneer - Coburg, Oregon
  Custom Products - Albany, Oregon
  Lebanon Machine - Lebanon, Oregon

Brown Paper:

  Brown Paper (4 mills)                        Tons
    Albany, Oregon                            554,000
    Campti, Louisiana                         898,000
    Hawesville, Kentucky                      176,000
    Oxnard, California                        197,000
                                            ---------
                                                        (1998 Production-
      Total Brown Paper                     1,825,000      1,792,000)
                                            =========

                                       5
<PAGE>



                                          1999 Forecast
                                          -------------
Corrugated Container and Sheets(35 plants) M Square Ft.
    Aurora, Illinois                        1,130,000
    Beaverton, Oregon                         896,000
    Bellevue, Washington                      775,000
    Bellmawr, New Jersey                      719,000
    Bowling Green, Kentucky                   861,000
    Cerritos, California                      861,000
    Compton, California                       769,000
    Dallas, Texas                           1,002,000
    Delaware, Ohio                            660,000
    Elk Grove, Illinois                       535,000
    Fort Smith, Arkansas                      924,000
    Fridley, Minnesota                      1,025,000
    Golden, Colorado                          760,000
    Griffin, Georgia                        1,086,000
    Huntsville, Alabama                       949,000
    Indianapolis, Indiana                     771,000
    Kansas City, Kansas                       825,000
    Lincoln, Illinois                         579,000
    Louisville, Kentucky                      569,000
    Lumberton, North Carolina                 832,000
    Maryland Heights, Missouri                690,000
    Matthews, North Carolina                  432,000
    Memphis, Tennessee                         41,000
    Mexico City, Mexico                       452,000
    Moses Lake, Washington                    924,000
    Newton, North Carolina                    562,000
    Plant City, Florida                       823,000
    Portland, Oregon                          262,000
    Sacramento, California                    786,000
    San Leandro, California                 1,298,000
    Sanger, California                        924,000
    Sealy, Texas                              840,000
    St. Paul, Minnesota                       634,000
    Tulsa, Oklahoma                            51,000
    West Memphis, Arkansas                    814,000
                                           ----------   (1998 Production-
      Total Corrugated Containers          26,061,000     24,491,000)
                                           ==========

Kraft Bags and Sacks (4 plants)                 Tons
  Beaverton, Oregon                            39,000
  Buena Park, California                       33,000
  Dallas, Texas                                21,000
  Kansas City, Missouri                        20,000
                                           ----------   (1998 Production-
      Total Kraft Bags and Sacks              113,000        105,000)
                                            =========

Preprinted Linerboard (2 plants)           M Square Ft.
  Richwood, Kentucky                          497,000
  Tigard, Oregon                              787,000
                                           ----------
                                                        (1998 Production-
      Total Preprinted Linerboard           1,284,000      1,185,000)
                                            =========

                                       6
<PAGE>

                                           1999 Forecast
                                           -------------
Inks and Specialty Products (2 plants)          Tons
  Beaverton, Oregon                             5,000
  Delaware, Ohio                                2,000
                                            ---------
                                                        (1998 Production-
      Total Inks                                7,000          7,000)
                                            =========


White Paper:

Market Pulp and Fine Paper (5 mills)
  Hawesville, Kentucky
    Market Pulp                               133,000
    Fine Paper                                521,000
  Johnsonburg, Pennsylvania                   407,000
  Kingsport, Tennessee                        166,000
  Marlboro, South Carolina                    320,000
                                           ----------
                                                        (1998 Production-
      Total Market Pulp and Fine Paper      1,547,000      1,399,000)
                                            =========

Business Forms (6 plants)
  Cerritos, California                         61,000
  Dallas, Texas                                45,000
  Indianapolis, Indiana                        64,000
  Langhorne, Pennsylvania                      61,000
  Rock Hill, South Carolina                    53,000
  West Chicago, Illinois                       60,000
                                            ---------
                                                        (1998 Production-
       Total Business Forms                   344,000        316,000)
                                            =========

Cut Sheets and Other Converting (5 plants)
  Brownsville, Tennessee                      111,000
  DuBois, Pennsylvania                        158,000
  Kingsport, Tennessee                        126,000
  Owensboro, Kentucky                         179,000
  Tatum, South Carolina                        99,000
                                            ---------
                                                        (1998 Production-
      Total Cut Sheets                        673,000        586,000)
                                            =========

TIMBERLANDS

  For   information   with   respect   to   the   Company's   timberlands,   see
"Business--Timberlands."

Item 3.  Legal proceedings

    As first  reported in the Company's  Form 8-K report filed January 26, 1998,
the Company received from the Environment  Protection Agency (EPA) a request for
information  under  Section  114 of the  Clean  Air  Act  (the  Act)  requesting
information  for a period  covering  22 years.  The  requests  were  focused  on
compliance with  regulations  under the Prevention of Significant  Deterioration
Program  under the Act.  On May 7, 1998,  the EPA  issued a Notice of  Violation
(NOV)  alleging  violations  of the Act and related  state  regulations,  and on
December 11, 1998,  issued a second NOV  supplementing  and clarifying the first
NOV.  The Company is  reviewing


                                       7
<PAGE>

the allegations contained in the NOVs and is meeting with the EPA to negotiate a
resolution of the issues raised by the NOVs.  Settlements by other  companies in
the wood  products  industry that have received NOVs under the Act have involved
payment  of fines and  agreements  to install  emission  control  equipment  and
undertake supplemental environmental projects.

     The Company believes that the outcome of the foregoing proceedings will not
have a material adverse effect on the Company's financial position.

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, 1998.


                                       8
<PAGE>

                      Executive Officers of the Registrant

  The  executive  officers of the  Company are elected  annually by the board of
directors.  At February 11, 1999 the  executive  officers of the Company,  their
ages at December 31, 1998, and their positions with the Company were as follows:

          Name                   Age                  Position
          ----                   ---                  --------
Duane C. McDougall               46              President and chief
                                                 executive officer

Marvin D. Cooper                 55              Executive vice president -
                                                 Pulp and paper mills

William P. Kinnune               59              Executive vice president-
                                                 corrugated containers and 
                                                 bags

J. Eddie McMillan                53              Executive vice president -
                                                 building materials group

Michael R. Onustock              59              Executive vice president-
                                                 pulp and fine paper
                                                 marketing

J. A. Parsons                    63              Executive vice president
                                                 and chief financial
                                                 officer, secretary and
                                                 treasurer

  Each  executive  officer has been employed by the Company in his present or in
another managerial capacity for more than five years.

                                       9
<PAGE>

                                     PART II

Item 5.  Market for Registrant's Common Equity and Related Stockholder Matters

  The Company's  common stock trades on the New York Stock Exchange (NYSE) under
the symbol WLL. At December  31, 1998 there were  approximately  22,000  holders
(beneficial) 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.  All amounts have been adjusted
for the 2-for-1 stock split on September 12, 1997.

                             1998                               1997
                    ------------------------------  ---------------------------
                                    Closing                     Closing
                    Dividends        Price         Dividends     Price
                      Paid          High-Low         Paid       High-Low
                    ---------  ------------------- --------  -------------------
1st Quarter...       $0.16      39 3/4  - 30 13/16  $0.16    34 11/16 - 30 11/16
2nd Quarter...        0.16      40 7/16 - 29 7/8     0.16    38 7/16  - 30 1/16
3rd Quarter...        0.16      32      - 23 1/4     0.16    42 3/8   - 35 1/4
4th Quarter...        0.16      36      - 26 1/4     0.16    39 3/16  - 30

  A dividend of $0.16 per share was  declared on the common  stock for the first
quarter of 1999  representing  an indicated  annual  dividend  rate of $0.64 per
share.  The Company expects to continue paying regular cash dividends,  although
there  is no  assurance  as to  future  dividends  as they  are  dependent  upon
earnings, capital requirements and financial condition.

                                       10
<PAGE>

Item 6.  Selected Financial Data

  The  following  table shows  selected  financial  data for the Company for the
periods indicated:
<TABLE>
<CAPTION>

   Financial Results
   (dollar amounts, except per share amounts, in thousands)
                                                           1998          1997          1996           1995           1994
   ===========================================================================================================================
<S>                                                 <C>                <C>           <C>            <C>             <C>      
   Net Sales                                        $    3,700,282     3,501,376     3,425,173      3,873,575       3,007,949
   ===========================================================================================================================
   Costs and Expenses:
     Depreciation, amortization and cost
       of fee timber harvested..................    $      371,141       338,949       302,937        249,165         217,252
     Materials, labor and other operating
       expenses.................................         2,813,887     2,690,943     2,495,345      2,528,570       2,239,185
                                                      -----------------------------------------------------------------------
     Gross profit...............................           515,254       471,484       626,891      1,095,840         551,512
     Selling and administrative expenses........           252,510       245,319       231,862        201,784         184,699
                                                      -----------------------------------------------------------------------
     Operating earnings.........................           262,744       226,165       395,029        894,056         366,813
     Interest expense...........................           131,990       116,990        92,804         71,050          71,513
     Other income (expense).....................             2,029         2,088         3,861            798          (6,377)
                                                      -----------------------------------------------------------------------
     Earnings before provision for income taxes.           132,783       111,263       306,086        823,804         288,923
     Provision for income taxes.................            43,800        38,300       114,000        309,000         111,300
                                                      -----------------------------------------------------------------------
     Net earnings...............................            88,983        72,963       192,086        514,804         177,623
     Cash dividends paid........................            71,227        71,005        68,520         62,874          52,807
     Earnings retained in the business..........            17,756         1,958       123,566        451,930         124,816
     Capital expenditures.......................           441,839       527,908       485,769        453,523         393,161
   ==========================================================================================================================
   Financial Condition:
     Working capital............................    $      366,846       308,093       289,134        359,258         138,528
     Long-term debt (noncurrent portion)........         1,821,083     1,916,001     1,766,917        790,210         915,797
     Stockholders' equity.......................         2,002,431     1,994,480     1,976,281      1,846,890       1,387,865
     Total assets...............................         4,697,668     4,811,055     4,720,681      3,413,555       3,033,398
   ==========================================================================================================================
   Common Stock:
     Number of stockholders (beneficial)........            22,000        20,000        20,000         19,000          17,000
     Shares outstanding (in thousands)(1).......           110,981       111,350       110,707        110,448         110,072
   ==========================================================================================================================
   Per Share: (1)
     Net earnings...............................    $         0.80          0.66          1.74           4.67            1.62
     Cash dividends paid........................              0.64          0.64          0.62           0.57            0.48
     Stockholders' equity.......................             18.04         17.91         17.85          16.72           12.61
     Year-end stock price.......................             33.50        32.188        34.813         28.125           23.75
   ==========================================================================================================================
   Financial Returns:
     Percent return on equity (2)...............              4.5%          3.7%         10.4%          37.1%           14.1%
     Percent return on net sales................              2.4%          2.1%          5.6%          13.3%            5.9%
   ==========================================================================================================================
   Employment:
     Number of employees........................            14,000        13,800        13,700         13,180          12,260
     Wages, salaries and cost of employee
      benefits..................................    $      734,068       717,693       672,280        627,835         580,561
   ==========================================================================================================================
<FN>

   (1) All share and per share amounts have been adjusted for stock splits.
   (2) Calculated on stockholders' equity at the beginning of the year.
</FN>
</TABLE>


                                       11
<PAGE>

Item 7.  Management's Discussion and Analysis of Financial Condition and Results
of Operations

  The Company's three basic  businesses - white paper,  brown paper and building
materials,  are affected by changes in general  economic  conditions.  White and
brown paper product sales and earnings tend to follow the general  economy.  The
sales and earnings of the building materials business are closely related to new
housing starts,  remodeling activity and the availability and terms of financing
for  construction.  All industry  segments  are  influenced  by global  economic
factors of supply and demand. In addition,  the cost of wood and recycled fiber,
basic raw materials for all segments, are sensitive to various supply and demand
factors including environmental issues affecting log supply.

RESULTS OF OPERATIONS 1998 VS. 1997
-----------------------------------

  Consolidated net sales increased 5.7% and operating  earnings  increased 16.2%
in 1998 compared to 1997. A strong  performance from the brown paper segment and
increases in unit  shipments  for many product lines  contributed  to the better
results.

  Brown  paper was the top  performing  segment  in 1998 as  operating  earnings
increased  141.5% when  compared  to 1997.  Driving  the  increase in  operating
earnings  was an  increase  in net  sales of  14.1%,  as  average  sales  prices
increased in all product lines.  Corrugated  container prices increased 7.3% and
grocery bag prices  increased  4.8% over the prior year.  While price  movements
were  positive in 1998,  unit  shipment  fluctuations  also played a significant
factor in increasing  sales and earnings.  Corrugated  container  unit shipments
increased 7.9% over the prior year, however grocery bag unit shipments decreased
7.3%.  Approximately 50% of the increase in corrugated  container  shipments was
due to increased internal converting capacity from capital project enhancements.
The  remainder  of the  increase was a result of a full year of operation at our
box plant in Plant City, Florida, and our sheet plant in Portland,  Oregon, both
of which came on line in the second  quarter of 1997.  In addition,  the Company
acquired a 46.0%  interest in a box plant in Mexico  City,  Mexico,  in January,
1998.

  Raw material costs had a mixed impact on operating earnings during 1998 as OCC
costs declined 16.5% while chip costs increased 14.8% from the prior year.

  White paper net sales  increased 3.6% over the prior year as increases in unit
shipments more than offset  decreases in average sales prices.  While sales were
up compared to 1997,  operating earnings decreased 20.0% in 1998, primarily as a
result of pricing pressures on market pulp and fine paper.  Average sales prices
for cut sheet and continuous  forms showed slight increases over the prior year.
Significant price declines from 1997, came from hardwood market pulp,  declining
9.0%,  and fine  paper,  declining  9.6%.  The price  decline  was the result of
pricing pressure which existed throughout much of 1998 as difficulties occurring
in the Asian economies impacted markets.  Also negatively  impacting white paper
results were  increased  chip costs of 6.6% and start-up costs for the new paper
machine at Kentucky Mills in 1998.

                                       12
<PAGE>

  Overall, white paper unit shipments showed positive gains over 1997, which led
to the increase in net sales.  Cut sheets increased 12.7% while continuous forms
decreased  5.5%.  The  increased  cut  sheet  volume  was the  result of our new
Brownsville,  Tennessee,  cut sheet plant which came on line in February,  1998.
Hardwood  market pulp  declined 6.9% while fine paper unit  shipments  increased
12.7%. The fine paper increase was the result of our new Kentucky paper machine,
which successfully came on line at the end of the second quarter of 1998.

  Building  materials  operating  earnings decreased 35.4% in 1998 and net sales
slightly decreased from the prior year.  Declining prices were the cause for the
drop in  operating  earnings.  Lumber  reflected  the most  dramatic  erosion as
average sales prices  decreased  18.7%.  Other price  declines  included 4.9% in
particleboard  and 2.4% in medium density  fiberboard (MDF). The difficulties in
the Asian  economies  continued  to create  supply and demand  imbalances,  thus
keeping prices  depressed for these  products in 1998. The pricing  exception in
1998 was oriented strand board (OSB), which realized a price increase of 38.3%.

  While prices were down for most product  lines,  strong housing starts and low
interest  rates helped fuel unit  shipment  increases  for most product lines in
1998. Lumber was the primary  benefactor as unit shipments  increased 21.0% over
the prior  year.  In  addition,  the  start-up of our new  small-log  sawmill in
Taylor,  Louisiana, in August, 1998 and other capital project completions helped
increase unit shipments. Other unit shipment increases included particleboard of
3.8% and MDF of 15.7% over the prior year.  MDF increased due to expansion  from
capital  projects and the acquisition of a new facility in Morcenx,  France,  in
March,  1998.  Decreased  plywood shipments of 7.7% were the result of having no
production at our Taylor,  Louisiana,  mill in 1998, which closed in July, 1997,
and  downtime at our Zwolle,  Louisiana,  mill for six months due to a fire that
halted production in the second quarter of 1998.

  In December,  1998, the Company completed the construction of a new integrated
LVL and I-joist plant in Simsboro, Louisiana. While the completion had no volume
impact in 1998, the addition will double the Company's  production  capacity for
I-joist products in 1999.

  Selling  and  administrative  expenses  (SG&A)  increased  2.9% in 1998 due to
assimilation of acquisitions  and expansions that occurred during the year. SG&A
as a percentage of sales,  however,  decreased to 6.8% for 1998 compared to 7.0%
for 1997.

  Interest  expense was $132.0  million in 1998  compared  to $117.0  million in
1997, a 12.8% increase.  The weighted  average  interest rate remained stable at
7.1% in 1998 and 1997.  The increase in expense was primarily due to an increase
of $166.0  million in average  outstanding  debt and a decrease  in  capitalized
interest to $13.6 million in 1998 from $19.9 million in 1997, as a result of the
completion of the expansion at Hawesville, Kentucky, in June of 1998.

                                       13
<PAGE>

RESULTS OF OPERATIONS 1997 VS. 1996
-----------------------------------

  Consolidated net sales increased 2.2% while operating earnings decreased 42.7%
compared to 1996, as average sales prices declined for most products.

  White paper product sales were down 0.9% in 1997, as sales prices  declined in
all product  lines except  specialty  paper  products and hardwood  market pulp.
While specialty paper products were flat compared to 1996,  hardwood market pulp
prices increased 11.0% in 1997. Unit shipment  increases  partially offset sales
price  decreases  as volumes  increased in most product  lines.  Unit  shipments
increased 20.3% for cut sheets and 1.4% for continuous forms,  while market pulp
remained  steady with 1996 levels.  The cut sheet increase was the result of our
development  of market  share in  anticipation  of the  start-up of the #2 paper
machine in Hawesville, Kentucky. The impact of these changes reduced white paper
operating earnings 51.0% in 1997.

  Brown paper products  didn't fare much better in 1997 as sales  decreased 6.5%
and operating  earnings  decreased  63.3% from 1996.  Corrugated  container unit
shipments  increased 4.8% while grocery bags decreased 4.6%.  Increases achieved
in the  corrugated  container line were due to the new Portland,  Oregon,  sheet
plant and the new  corrugated  box plant in Plant City,  Florida,  both of which
came on line in the first half of 1997.

  Building  materials  sales increased  16.8% and operating  earnings  increased
21.6% in 1997 compared with 1996 as increases in unit shipments more than offset
decreases in average sales prices.  Unit shipment increases were realized from a
full year of  operation  at the  Warrenton,  Oregon,  sawmill;  the MDF plant in
Clonmel,  Ireland; the converted MDF plant in Eugene,  Oregon; and the OSB plant
in  Arcadia,  Louisiana.  Additionally,  the  Company  began  exporting  logs in
January, 1997. Unit shipments increased 16.0% in lumber, 116.6% in OSB and 64.0%
in MDF.  Plywood  incurred an 11.6% decrease in unit shipments  primarily due to
the July  closure  of the  Taylor,  Louisiana,  plywood  facility.  Sales  price
decreases  partially  offset unit shipment  increases as prices  declined in all
product lines except plywood and European MDF.  Plywood prices  remained  stable
with a slight  increase of 4.0% over 1996. In addition,  the European MDF market
continued to be strong as prices increased 5.5% over the fourth quarter of 1996.
Sales prices in remaining  product lines decreased,  ranging from 1.8% in lumber
to 15.9% in OSB, as supply and demand imbalances kept prices trending downward.

  Selling and  administrative  expenses (SG&A) increased to 7.0% of net sales in
1997 compared to 6.8% in 1996. Overall, SG&A increased 5.8% over 1996.

  Interest expense was $117.0 million in 1997 compared to $92.8 million in 1996.
Interest  expense  increased as a result of  increased  debt related to the 1996
acquisitions  discussed  in  Note 9 to the  consolidated  financial  statements.
Partially offsetting the effects of increased  outstanding debt was the decrease
in the Company's  weighted  average interest rate from 7.12% in 1996 to 7.05% in
1997. In addition,  capitalized interest increased from $10.5 million in 1996 to
$19.9

                                       14
<PAGE>

million in 1997 due primarily to the capital expansion at Hawesville, Kentucky.

LIQUIDITY AND CAPITAL RESOURCES

  Willamette  generates funds internally via net earnings  adjusted for non-cash
charges against earnings such as depreciation,  cost of fee timber harvested and
deferred income taxes. Funds generated externally have usually been through debt
financing.

  In 1998,  cash  flows  from  operating  activities  were  $435.4  million  and
represented  an  increase  of 11.8%  from  comparable  cash  flows in 1997.  The
increase was primarily  achieved through increased net earnings and depreciation
in 1998 compared to the prior year.
Internally generated cash flows funded 98.6% of capital expenditures in 1998.

  Net working  capital  increased  to $366.8  million at December  31, 1998 from
$308.1 million at December 31, 1997. The increase was primarily  attributable to
increases in inventories  resulting from new facilities and decreases in current
notes payable and accounts payable.

  The Company is continually  making capital  expenditures at its  manufacturing
facilities  to improve  fiber  utilization  and labor  efficiency  and to expand
production. In 1998, the Company made $417.8 million in capital expenditures for
property, plant and equipment.

  During 1998 the following major capital projects were completed:

         >        Addition of a new uncoated free sheet paper machine at
                  Hawesville, Kentucky.
         >        Installation of a new biomass boiler at the Kingsport,
                  Tennessee, fine paper mill.
         >        Construction of a new cut sheet plant in Brownsville,
                  Tennessee.
         >        Construction of a new, integrated LVL and I-joist plant near
                  Simsboro, Louisiana.
         >        Construction of a new small-log sawmill at Taylor, Louisiana.
         >        Relocation of a corrugated facility in Sacramento, California.

  Major capital projects underway at December 31, 1998 include:

         >        Expansion of secondary fiber capacity at the paper mill in
                  Campti, Louisiana.
         >        Upgrade of a paper machine at Johnsonburg, Pennsylvania.
         >        Construction and installation of a new recovery boiler at the
                  Albany, Oregon, paper mill.

  The cost of all major  capital  projects in  progress at December  31, 1998 is
estimated  to be  approximately  $253.3  million,  of which  $106.0  million has
already been spent. These projects will be funded with internally generated cash
flows and with external borrowings if needed.

  In  December,  1998,  the  Company  finalized  the  sale of  117,000  acres of
southwest  Washington  timberland for $234.0 million.  The Company  acquired the
land in 1996 as part of the purchase of Cavenham Forest

                                       15
<PAGE>

Industries.  The  forest  lands  were  sold as they  were  not  critical  to the
long-term fiber supply needs of the Company's Northwest operations.  Proceeds of
the sale were used to pay down existing debt.

  In June,  1998,  the Company  initiated a Medium-term  Note Program and issued
$100.2  million of notes as of December 31, 1998.  The  medium-term  notes carry
interest rates ranging from 6.45% to 6.60% and  maturities  from 11 to 15 years.
In addition, in January, 1998, the Company issued $200.0 million in debentures -
$100.0  million  at 6.45% due 2005 and  $100.0  million  at 7.00% due 2018.  The
proceeds from both  issuances  were used to replace  notes  maturing in 1998 and
reduce other bank borrowing.

  The total  debt-to-capital  ratio decreased to 48.3% at December 31, 1998 from
50.0% at December 31, 1997. 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  agreements  and the unused
portion of a $650.0 million  revolving loan available  under an existing  credit
agreement.

  In 1998, the Board of Directors  authorized the repurchase of $25.0 million of
the Company's common stock. The Company repurchased 470,900 shares of its common
stock for $13.0 million during the third and fourth quarters of 1998.

  On August 5, 1997,  the Board of Directors  declared a 2-for-1  stock split of
its  outstanding  common stock.  The split was  implemented as a stock dividend,
payable  September  12,  1997 at the rate of one share of common  stock for each
share held of record on August 25, 1997.

OTHER MATTERS

  The Company believes it is in substantial  compliance with federal,  state and
local laws regarding environmental quality.

  The U.S.  Environmental  Protection  Agency  (EPA)  released  the final  rules
regarding  air and water  quality  referred to as the  "cluster  rules" in early
1998.  Compliance  with the  cluster  rules is  required  within  three years of
enactment, or by 2001. However,  certain exceptions to the rules extend the time
period for specific  compliance  requirements  up to eight  years.  The Company,
through previously completed and future projects, is making significant progress
toward  upgrading  our  mills.  The  Company  plans  to have  all our  mills  in
compliance with the cluster rules by the required deadlines.

  In addition to the impact of the cluster  rules on pulp and paper  mills,  the
Company's other operations are faced with increasingly  stringent  environmental
regulations.  In the first quarter of 1998, the Company  received from the EPA a
request  for  information  under  Section  114 of the  Clean  Air Act (the  Act)
requesting information for a period covering 22 years. The requests were focused
on compliance with regulations under the Prevention of Significant Deterioration
Program  under the Act.  On May 7, 1998,  the EPA  issued a Notice of  Violation
(NOV)  alleging  violations  of the Act and related  state  regulations,  and on
December 11, 1998,  issued a second NOV  supplementing  and clarifying the first
NOV.  The Company is  reviewing  the  allegations  contained  in

                                       16
<PAGE>

the NOVs and is meeting  with the EPA to  negotiate a  resolution  of the issues
raised by the NOVs. Settlements by other companies in the wood products industry
that have  received  NOVs under the Act have  involved  the payment of fines and
agreements to install  emission  control  equipment  and undertake  supplemental
environmental projects.

  In November, 1998, the Company received from the EPA a request for information
under  Section  114  of the  Act  requesting  information  with  respect  to the
Company's paper operations.  The request,  which the Company believes is similar
to requests received by others in the paper industry, also focuses on compliance
with regulations under the Prevention of Significant Deterioration Program under
the Act.

  Based upon either enacted or proposed regulations,  the Company estimates that
over the next  five  years,  additional  capital  expenditures  to  comply  with
environmental  regulations  will not  exceed  $100.0  million.  Although  future
environmental  capital  expenditures  cannot  be  predicted  with any  certainty
because of continuing changes in laws, the Company believes that compliance with
such environmental  regulations will not have a material adverse effect upon the
Company's financial position.

  Much attention has been given to the controversy concerning  preservationists'
efforts to stop the harvest of timber from Federal timberlands.  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
timberlands on a sustained yield basis.

  The Year 2000 (Y2K) issue, which is common to most businesses, arises from the
inability  of systems  and  certain  software  application  programs to properly
recognize and process dates and date sensitive information on and beyond January
1, 2000. In 1996,  the Company began working to address the possible  effects of
the Y2K issue on its information,  financial and  manufacturing  systems.  These
efforts  include  inventory  assessment,  modification  and testing of these key
systems. Willamette is fortunate in that many of the Company's systems have been
replaced  during the past few years as we implemented  new  technology.  Many of
these new systems are already Y2K compliant. To date, the Company has spent $3.5
million on Y2K  compliance  and  currently  estimates  that total  spending will
approximate  $10.0  million.  These costs are being expensed as incurred and are
not expected to have a material impact on the Company's financial position.

  As of  December  31,  1998,  a  majority  of  the  Company's  mission-critical
financial  and  information  systems  have  been  modified  and  tested  for Y2K
compliance  and are expected to be compliant by the second  quarter of 1999.  In
the  manufacturing  area, the Company has completed the process of  inventorying
and assessing its primary manufacturing systems for Y2K compliance.  To date, no
significant issues have been identified with the Company's manufacturing systems
and the Company  expects to resolve any compliance  issues with these systems by
the third quarter of 1999.

                                       17
<PAGE>

The Company has also been surveying its major  vendors,  suppliers and customers
to assess  the  potential  impact  on its  operations  of these key  third-party
relationships.  This process includes  obtaining a letter of certification as to
their efforts associated with Y2K compliance. To date, no significant compliance
issues have been  identified  with these  third  parties.  The Company  plans to
continually  update  and  evaluate  compliance  with  these  key  third  parties
throughout 1999.

  The most  reasonably  likely  worst case  scenario  facing the  Company is the
occurrence of unscheduled  down-time at its  facilities  resulting from internal
system  difficulties  or third  party  failures  that could  have a  significant
adverse effect on the Company's earnings.  While it is the Company's belief that
all of its systems will be assessed and modified  before January 1, 2000,  there
can be no guarantee  that issues will not arise  pertaining  to these systems or
that  vendors,  suppliers  and  customers  will  adequately  address  their  Y2K
compliance requirements. The Company is developing contingency plans relating to
mission-critical  systems  and key  third  parties.  These  include  identifying
alternative  suppliers  and  manufacturing   systems,  and  working  with  major
customers  who may be  affected  by Y2K  issues.  The Y2K  compliance  effort is
continuously  monitored by a special task force which makes  regular  reports to
senior management and the audit committee of the Board of Directors.

  Over the years,  inflation has resulted in replacement costs higher than those
originally needed to purchase existing plant 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  these
inflationary costs in the cost of sales.

FORWARD-LOOKING STATEMENTS

  Statements  contained  in this  report  that  are not  historical  in  nature,
including  without  limitation the discussion of forecasted sales and production
volumes,  the  impact  of  environmental  regulations,  the  impact of Year 2000
compliance  and  the  adequacy  of  the  Company's  liquidity   resources,   are
forward-looking   statements  within  the  meaning  of  the  Private  Securities
Litigation Reform Act of 1995.  Forward-looking  statements are subject to risks
and  uncertainties  that may cause actual future  results to differ  materially.
Such risks and  uncertainties  with respect to the Company include the effect of
general  economic  conditions;  the level of new housing  starts and  remodeling
activity; the availability and terms of financing for construction;  competitive
factors,  including pricing pressures;  the cost and availability of wood fiber;
the effect of  natural  disasters  on the  Company's  timberlands;  construction
delays;   risk  of  non-performance   by  third  parties;   and  the  impact  of
environmental  regulations and the  construction and other costs associated with
complying with such regulations.  In view of these uncertainties,  investors are
cautioned not to place undue reliance on such  forward-looking  statements.  The
Company  disclaims  any  obligation  to  publicly  announce  the  results of any
revisions to any forward-looking  statements  contained herein to reflect future
events or developments.

                                       18
<PAGE>

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

  No disclosure is required under this item.

Item 8.  Financial Statements and Supplementary Data

  The financial  statements and supplementary  data filed as part of this report
follow the signature pages of this report.

Item 9.  Changes  in  and  Disagreements  with  Accountants  on  Accounting  and
Financial Disclosure

  None.

                                       19
<PAGE>

                                    PART III

Item 10.  Directors and Executive Officers of the Registrant

  Information  regarding  (i)  directors  of the  Company  is set  forth  in the
Company's definitive proxy statement (the "Proxy Statement") for its 1999 annual
meeting of  shareholders,  under the heading  "Election of  Directors"  and (ii)
Section  16(a) of the  Securities  Exchange  Act of  1934,  is set  forth  under
"Section  16(a)  Beneficial   Ownership  Reporting   Compliance"  in  the  Proxy
Statement,  which information is incorporated  herein by reference.  Information
regarding the  executive  officers of the Company is set forth under the heading
"Executive Officers of the Registrant" in Part I of this report.

Item 11.  Executive Compensation

  Information regarding  compensation of directors and executive officers of the
Company  is set  forth in the Proxy  Statement  under  the  headings  "Executive
Compensation,"  "Compensation  Committee Interlocks and Insider  Participation,"
"Compensation  of Directors" and "Employment  Agreements."  Such  information is
incorporated herein by reference.

Item 12.  Security Ownership of Certain Beneficial Owners and Management

  Information  regarding  security  ownership of  management  and certain  other
beneficial owners is in the Proxy Statement under the heading "Holders of Common
Stock" which information is incorporated herein by reference.

Item 13.  Certain Relationships and Related Transactions

  Information  regarding certain  relationships and related  transactions is set
forth  in  the  Proxy  Statement  under  the  heading  "Compensation   Committee
Interlocks and Insider  Participation"  which information is incorporated herein
by reference.

                                       20
<PAGE>

                                     PART IV

Item 14.  Exhibits, Financial Statement Schedules and Reports on
Form 8-K.

(a) 1. and 2.      For a list of the financial  statements  filed herewith,  see
                   the index to consolidated  financial statements following the
                   signature pages of this report.

(a) 3.             For a list of the exhibits filed  herewith,  see the index to
                   exhibits  following the financial  statements filed with this
                   report.  Each  management  contract or  compensatory  plan or
                   arrangement required to be filed as an exhibit to this report
                   is identified in the list.

(b)                Reports on Form 8-K.

                   No reports on Form 8-K were filed  during the last quarter of
                   the period covered by this report.

                                       21
<PAGE>

                                   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 11, 1999                          (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 11, 1999, by the  following  persons on behalf
of the registrant in the capacities indicated.


           Signature                              Title
           ---------                              -----
Principal Executive Officer

/S/  DUANE C. MCDOUGALL                President and Chief Executive Officer
    (Duane C. McDougall)

Principal Financial Officer

/S/    J. A. PARSONS                   Executive Vice President and
      (J. A. Parsons)                  Chief Financial Officer, Secretary and
                                       Treasurer

Principal Accounting Officer

/S/     G. W. HAWLEY                   Vice President-Controller
       (G. W. Hawley)

/S/   WILLIAM SWINDELLS                Chairman of the Board
     (William Swindells)

/S/   WINSLOW H. BUXTON                Director
     (Winslow H. Buxton)

/S/  GERARD K. DRUMMOND                Director
    (Gerard K. Drummond)

/S/  KENNETH W. HERGENHAN              Director

    (Kenneth W. Hergenhan)

                                       22
<PAGE>

/S/   PAUL N. McCRACKEN                Director
    (Paul N. McCracken)

/S/ G. JOSEPH PRENDERGAST              Director
   (G. Joseph Prendergast)

/S/  STUART J. SHELK, JR.              Director
    (Stuart J. Shelk, Jr.)

/S/  ROBERT M. SMELICK                 Director
    (Robert M. Smelick)

/S/  SAMUEL C. WHEELER                 Director
    (Samuel C. Wheeler)

/S/ BENJAMIN R. WHITELEY               Director
   (Benjamin R. Whiteley)

                                       23
<PAGE>

Index to Consolidated Financial Statements

                                                              Page No.
                                                              --------
Independent Auditors' Report.....................................   25

Consolidated Balance Sheets as of December 31, 1998 and 1997 ....   26

Consolidated Statements of Earnings for years ended
  December 31, 1998, 1997 and 1996...............................   27

Consolidated Statements of Stockholders' Equity
  for years ended December 31, 1998, 1997 and 1996...............   28

Consolidated Statements of Cash Flows for years ended
  December 31, 1998, 1997 and 1996...............................   29

Supplementary Business Segment Information.......................   30

Selected Quarterly Financial Data................................   31

Notes to Consolidated Financial Statements.......................32-40

                                       24
<PAGE>

KPMG Peat Marwick LLP
Suite 2000
1211 South West Fifth Avenue
Portland, OR 97204

                          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, 1998 and 1997 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, 1998.  These
consolidated  financial  statements  are  the  responsibility  of the  Company's
management.  Our  responsibility is to express an opinion on these  consolidated
financial statements based on our audits.

We  conducted  our  audits  in  accordance  with  generally   accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated  financial statements referred to above present
fairly,  in  all  material  respects,   the  financial  position  of  Willamette
Industries,  Inc. and  subsidiaries  as of December  31, 1998 and 1997,  and the
results  of their  operations  and their cash flows for each of the years in the
three-year period ended December 31, 1998, in conformity with generally accepted
accounting principles.


                                                       /S/ KPMG PEAT MARWICK LLP
February 11, 1999

                                       25
<PAGE>
<TABLE>
<CAPTION>
=============================================================================================
CONSOLIDATED BALANCE SHEETS
=============================================================================================
December 31, 1998 and 1997
(dollar amounts, except per share amounts, in thousands)

<S>                                                      <C>                       <C>   
Assets                                                             1998              1997
                                                             ---------------    -------------
Current assets:
  Cash                                                     $         31,359           27,600
  Accounts receivable, less allowance for doubtful
    accounts of $4,300 (1997 - $4,571)                              306,332          307,002
  Inventories (note 3)                                              411,316          394,595
  Prepaid expenses and timber deposits                               45,316           36,991
                                                             ----------------   -------------
        Total current assets                                        794,323          766,188
                                                             ----------------   -------------

Timber, timberlands and related facilities, net (note 9)          1,112,180        1,396,946
Property, plant and equipment, net (notes 4 and 9)                2,707,146        2,566,291
Other assets                                                         84,019           81,630
                                                             ---------------    -------------
                                                           $      4,697,668        4,811,055
                                                             ===============    =============

Liabilities and Stockholders' Equity
Current liabilities:
  Current installments on long-term debt (note 5)          $          2,267            8,633
  Notes payable (note 5)                                             47,252           73,264
  Accounts payable, includes book overdrafts of $55,030
    (1997 - $49,421)                                                196,134          206,463
  Accrued payroll and related expenses                               70,670           71,842
  Accrued interest                                                   39,533           38,339
  Other accrued expenses                                             55,540           55,723
  Accrued income taxes (note 6)                                      16,081            3,831
                                                             ---------------    -------------
        Total current liabilities                                   427,477          458,095
                                                             ---------------    -------------
Deferred income taxes (note 6)                                      404,518          402,896
Other liabilities                                                    42,159           39,583
Long-term debt, net of current installments (note 5)              1,821,083        1,916,001
Stockholders' equity (note 8):
  Preferred stock, cumulative, of $.50 par value                          -                -
     Authorized 5,000,000 shares
  Common stock of $.50 par value
     Authorized 150,000,000 shares; issued 110,980,768 shares
     (1997 - 111,349,956 shares)                                     55,490           55,675
  Capital surplus                                                   285,140          294,760
  Retained earnings                                               1,661,801        1,644,045
                                                             ---------------    -------------
        Total stockholders' equity                                2,002,431        1,994,480
                                                             ---------------    -------------
                                                           $      4,697,668        4,811,055
                                                             ===============    =============

See accompanying notes to consolidated financial statements.
</TABLE>
                                       26
<PAGE>
<TABLE>
<CAPTION>

=============================================================================================================
CONSOLIDATED STATEMENTS OF EARNINGS
=============================================================================================================
Years ended December 31, 1998, 1997 and 1996
(dollar and share amounts, except per share amounts, in thousands)


                                                                1998              1997              1996
                                                               ------            ------            ------
<S>                                                   <C>                        <C>               <C>      
Net sales                                             $       3,700,282          3,501,376         3,425,173
Cost of sales                                                 3,185,028          3,029,892         2,798,282
                                                         ---------------   ----------------  ----------------
     Gross profit                                               515,254            471,484           626,891

Selling and administrative expense                              252,510            245,319           231,862
                                                         ---------------   ----------------  ----------------
     Operating earnings                                         262,744            226,165           395,029
Other income                                                      2,029              2,088             3,861
                                                         ---------------   ----------------  ----------------
                                                                264,773            228,253           398,890
Interest expense                                                131,990            116,990            92,804
                                                         ---------------   ----------------  ----------------
     Earnings before provision for income taxes                 132,783            111,263           306,086
Provision for income taxes (note 6)                              43,800             38,300           114,000
                                                         ---------------   ----------------  ----------------
     Net earnings                                     $          88,983             72,963           192,086
                                                         ===============   ================  ================
Earnings per share(1)                                 $            0.80               0.66              1.74
                                                         ===============   ================  ================
Earnings per share - assuming dilution(1)             $            0.80               0.65              1.73
                                                         ===============   ================  ================
Weighted average shares outstanding                             111,302            110,975           110,536
                                                         ===============   ================  ================
Weighted average shares outstanding - diluted(2)                111,747            111,550           111,032
                                                         ===============   ================  ================
<FN>
(1)  Per share earnings are based upon the weighted average number of shares
     outstanding.

(2)  Weighted  average shares  outstanding,  assuming  dilution,  are calculated
     using  the  treasury  stock  method  and  assuming  all stock  options  are
     exercised. See note 8.
</FN>
</TABLE>

See accompanying notes to consolidated financial statements.

                                       27
<PAGE>
<TABLE>
<CAPTION>

=============================================================================================================
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

=============================================================================================================
Years ended December 31, 1998, 1997 and 1996 (dollar  amounts,  except per share
amounts, in thousands)
<S>                                                   <C>                        <C>               <C>      
                                                                1998              1997              1996
                                                               ------            ------            ------
Common Stock:
  Balance at beginning of year                        $          55,675             27,677            27,612
    2-for-1 stock split                                               -             27,787                 -
    Shares issued for options exercised                              50                211                65
    Stock repurchased and canceled                                 (235)                 -                 -
                                                         ---------------    ---------------    --------------
  Balance at end of year                              $          55,490             55,675            27,677
                                                         ===============    ===============    ==============

Capital Surplus:
  Balance at beginning of year                        $         294,760            306,517           300,757
    2-for-1 stock split                                               -            (27,787)                -
    Shares issued for options exercised                           3,124             16,030             5,760
    Stock repurchased and canceled                              (12,744)                 -                 -
                                                         ---------------    ---------------    --------------
  Balance at end of year                              $         285,140            294,760           306,517
                                                         ===============    ===============    ==============

Retained Earnings:
  Balance at beginning of year                        $       1,644,045          1,642,087         1,518,521
    Net earnings                                                 88,983             72,963           192,086
    Less cash dividends on common stock
      ($.64,$.64, and $.62 per share in
      1998, 1997 and 1996, respectively)                        (71,227)           (71,005)          (68,520)
                                                         ---------------    ---------------    --------------
  Balance at end of year                              $       1,661,801          1,644,045         1,642,087
                                                         ===============    ===============    ==============
</TABLE>

See accompanying notes to consolidated financial statements.

                                       28
<PAGE>
<TABLE>
<CAPTION>

==============================================================================================================
CONSOLIDATED STATEMENTS OF CASH FLOWS
==============================================================================================================
Years ended December 31, 1998, 1997 and 1996
(dollar amounts in thousands)
<S>                                                   <C>                           <C>              <C>    
                                                                1998              1997              1996
                                                               ------            ------            ------
Cash flows from operating activities:
  Net earnings                                        $          88,983             72,963           192,086
  Adjustments to reconcile net earnings
    to net cash from operating activities:
    Depreciation                                                296,466            268,030           246,638
    Cost of fee timber harvested                                 54,376             52,649            43,381
    Other amortization                                           20,299             18,270            12,918
    Increase in deferred income taxes                             7,683             28,650            40,717
  Changes in working capital items:
    Accounts receivable                                           4,167            (34,293)           56,549
    Inventories                                                 (14,623)           (28,646)           49,575
    Prepaid expenses and timber deposits                         (7,778)             1,463            14,282
    Accounts payable and accrued expenses                       (26,381)            23,568            11,810
    Accrued income taxes                                         12,250            (13,276)           (8,692)
                                                         ---------------    ---------------    --------------
  Net cash from operating activities                            435,442            389,378           659,264
                                                         ===============    ===============    ==============

Cash flows from investing activities:
    Proceeds from sale of assets                                237,422              2,493             1,781
    Expenditures for property, plant & equipment               (417,772)          (506,348)         (454,744)
    Expenditures for timber and timberlands                      (8,767)            (7,782)          (16,991)
    Expenditures for roads and reforestation                    (15,300)           (13,778)          (14,034)
    Acquisitions (note 9)                                             -                  -        (1,019,274)
    Assets held for sale (note 9)                                     -            160,218          (160,218)
    Other                                                        (9,582)             9,624            (8,517)
                                                         ---------------    ---------------    --------------
  Net cash from investing activities                           (213,999)          (355,573)       (1,671,997)
                                                         ===============    ===============    ==============

Cash flows from financing activities:
    Net change in operating lines of credit                     (27,630)            23,985            28,962
    Debt borrowing                                                  591            175,415         1,211,950
    Proceeds from sale of common stock                            3,117             16,109             5,697
    Repurchased common stock                                    (12,979)                 -                 -
    Cash dividends paid                                         (71,227)           (71,005)          (68,520)
    Payment on debt                                            (109,556)          (172,931)         (161,095)
                                                         ---------------    ---------------    --------------
  Net cash from financing activities                           (217,684)           (28,427)        1,016,994
                                                         ===============    ===============    ==============

Net change in cash                                                3,759              5,378             4,261
Cash at beginning of year                                        27,600             22,222            17,961
                                                         ---------------    ---------------    --------------
Cash at end of year                                   $          31,359             27,600            22,222
                                                         ===============    ===============    ==============

Supplemental disclosures of cash flow information
 Cash paid during the year for:
    Interest (net of amount capitalized)              $         130,796            116,987            74,896
                                                         ---------------    ---------------    --------------
    Income taxes                                      $          24,369             22,926            81,663
                                                         ===============    ===============    ==============
</TABLE>
See accompanying notes to consolidated financials statements.

                                       29
<PAGE>

<TABLE>
<CAPTION>
<S>                                <C>        <C>      <C>       <C>        <C>        <C>      <C>       <C>         <C>        <C>
===================================================================================================================================
SUPPLEMENTARY BUSINESS SEGMENT INFORMATION
===================================================================================================================================
(dollar amounts in thousands)
                                      1998    %           1997    %            1996    %           1995    %             1994    %
                             ------------------  ------------------  -------------------  ------------------  --------------------
Sales to outside customers:
  White Paper:
    Forms and cut sheets      $    725,866   20        683,435   19         722,881   21        829,472   22          435,828   14
    Market pulp and fine paper     340,710    9        346,214   10         316,383    9        403,741   10          233,777    8
                              -----------------  ------------------  -------------------  ------------------  --------------------
      Total White Paper          1,066,576   29      1,029,649   29       1,039,264   30      1,233,213   32          669,605   22
                              -----------------  ------------------  -------------------  ------------------  --------------------

  Brown Paper:
    Packaging                    1,151,366   31      1,007,765   29       1,077,892   31      1,276,901   33        1,015,792   34
    Other                          228,512    6        201,270    6         226,756    7        299,408    8          200,561    7
                              -----------------  ------------------  -------------------  ------------------  --------------------
      Total Brown Paper          1,379,878   37      1,209,035   35       1,304,648   38      1,576,309   41        1,216,353   41
                              -----------------  ------------------  -------------------  ------------------  --------------------

  Building Materials:
    Lumber                         244,274    7        248,401    7         218,153    7        169,753    4          188,445    6
    Structural panels              362,195   10        366,690   10         378,959   11        428,707   11          441,397   15
    Composite panels               371,447   10        349,652   10         277,375    8        284,724    7          304,259   10
    Other wood products            275,912    7        297,949    9         206,774    6        180,869    5          187,890    6
                              -----------------  ------------------  -------------------  ------------------  --------------------
      Total Building Materials   1,253,828   34      1,262,692   36       1,081,261   32      1,064,053   27        1,121,991   37
                              -----------------  ------------------  -------------------  ------------------  --------------------
        Total net sales (1)   $  3,700,282  100      3,501,376  100       3,425,173  100      3,873,575  100        3,007,949  100
                              =================  ==================  ===================  ==================  ====================

Intersegment sales at market value:
  Building Materials          $     60,813              47,100               42,692              61,082               36,121
                              ==============     ===============     ================     ===============     ================
Gross Profit (GP):                          GP%                 GP%                  GP%                 GP%                   GP%
                                           ----                ----                 ----                ----                  ----
  White Paper                 $    116,728   11        130,987   13         203,569   20        438,713   36           61,951    9
  Brown Paper                      263,413   19        162,121   13         272,376   21        416,341   26          198,879   16
  Building Materials               135,113   11        178,376   14         150,946   14        240,786   23          290,682   26
                              -----------------  ------------------  -------------------  ------------------  --------------------
    Total gross profit        $    515,254   14        471,484   13         626,891   18      1,095,840   28          551,512   18
                              =================  ==================  ===================  ==================  ====================
Operating earnings:
  White Paper                 $     58,654              73,349              149,558             390,208                16,244
  Brown Paper                      166,680              69,017              187,947             338,079               122,196
  Building Materials                80,601             124,697              102,513             198,158               249,272
  Corporate                        (43,191)            (40,898)             (44,989)            (32,389)              (20,899)
                              --------------      --------------     ----------------       -------------       --------------
    Total operating earnings  $    262,744             226,165              395,029             894,056               366,813
                              ==============      ==============     ================       =============       ==============
Other income (expense)               2,029               2,088                3,861                 798                (6,377)
Interest expense                   131,990             116,990               92,804              71,050                71,513
Earnings before provision for
  income taxes                --------------      ---------------    ----------------       -------------       --------------
                              $    132,783             111,263              306,086             823,804               288,923
                              ==============      ===============     ===============       =============       ==============

Depreciation, cost of fee timber
harvested and amortization:
  White Paper                 $    139,240             114,449              106,250              96,801                85,691
  Brown Paper                       90,484              90,403               88,566              81,242                67,398
  Building Materials               135,018             128,754              103,354              67,385                60,740
  Corporate                          6,309               5,343                4,767               3,737                 3,423
                              --------------      ---------------    ----------------       -------------       --------------
                              $    371,141             338,949              302,937             249,165               217,252
                              ==============      ===============    ================       =============       ==============

Capital expenditures:

  White Paper                 $    215,503             371,894              275,726             151,662                44,652
  Brown Paper                      120,827              82,935               82,867             140,861               241,275
  Building Materials               101,884              72,075              126,932             157,382               102,509
  Corporate                          3,625               1,004                  244               3,618                 4,725
                               -------------       -------------       --------------       -------------       --------------
                              $    441,839             527,908              485,769             453,523               393,161
                               =============       =============       ==============       =============       ==============

Identifiable assets:
  White Paper                 $  1,860,673           1,785,493            1,486,842           1,369,101             1,240,596
  Brown Paper                    1,021,180             987,097              968,624           1,027,664               881,834
  Building Materials             1,735,257           1,966,136            2,008,542             946,216               847,673
  Corporate                         80,558              72,329              256,673              70,574                63,295
                               -------------       -------------       --------------       -------------       --------------
                              $  4,697,668           4,811,055            4,720,681           3,413,555             3,033,398
                               =============       =============       ==============       =============       ==============
<FN>
(1) The Company is not dependent on any one significant customer or group of customers.  Approximately 90% of the Company's total
    output is sold domestically.
</FN>
See accompanying notes to consolidated financial statements.
</TABLE>
                                       30
<PAGE>
<TABLE>
<S>                                      <C>                           <C>                 <C>                  <C>
===============================================================================================================================
SELECTED QUARTERLY FINANCIAL DATA
===============================================================================================================================
(Unaudited)(dollar amounts, except per share amounts, in thousands)


                                                     Net              Gross                        Net Earnings
                                                                                  ---------------------------------------------
1998                                                Sales            Profit                Amount             Per Share
-------------------------------------------------------------------------------------------------------------------------------

1st Quarter.......... ...                $           900,075           124,252             22,081               .20
2nd Quarter..............                            946,390           128,947             24,014               .21
3rd Quarter..............                            956,794           151,308             35,735               .32
4th Quarter..............                            897,023           110,747              7,153               .07
-------------------------------------------------------------------------------------------------------------------------------
     Total...............                $         3,700,282           515,254             88,983               .80
===============================================================================================================================

                                                     Net              Gross                        Net Earnings
                                                                                   ---------------------------------------------
1997                                                Sales            Profit                Amount             Per Share
-------------------------------------------------------------------------------------------------------------------------------
1st Quarter..............                $           855,192           109,296             13,317               .12
2nd Quarter..............                            879,348           118,815             17,750               .16
3rd Quarter..............                            888,795           122,668             20,697               .19
4th Quarter..............                            878,041           120,705             21,199               .19
===============================================================================================================================
     Total...............                $         3,501,376           471,484             72,963               .66
===============================================================================================================================

                                                     Net              Gross                        Net Earnings
                                                                                  ---------------------------------------------
1996                                                Sales            Profit                Amount             Per Share
-------------------------------------------------------------------------------------------------------------------------------
1st Quarter..............                $           866,112           187,946             73,370               .67
2nd Quarter..............                            858,792           153,985             48,254               .43
3rd Quarter..............                            862,674           155,142             43,129               .39
4th Quarter..............                            837,595           129,818             27,333               .25
===============================================================================================================================
     Total...............                $         3,425,173           626,891            192,086              1.74
===============================================================================================================================
</TABLE>

                                       31
<PAGE>

NOTES TO  CONSOLIDATED  FINANCIAL  STATEMENTS
December 31, 1998, 1997 and 1996 (dollar amounts,  except per share amounts,  in
thousands)

Note 1.  Nature of Operations
         --------------------

  Willamette  Industries,  Inc. is a  diversified,  integrated  forest  products
company with 100  manufacturing  facilities  in 23 states,  France,  Ireland and
Mexico.  The Company's  principal lines of business are white paper, brown paper
and building  materials.  The Company  produces  kraft  linerboard,  corrugating
medium, bag paper, fine paper,  hardwood market pulp, specialty printing papers,
corrugated  containers,  business  forms,  cut sheet  paper,  paper bags,  inks,
lumber,  plywood,  particleboard,  medium density  fiberboard,  oriented  strand
board, laminated beams, laminated veneer lumber,  I-joists and other value-added
wood products.  Based on 1998 sales, the Company's  business is comprised of 29%
white paper, 37% brown paper and 34% building  materials.  The Company sells 90%
of its products in the United  States  domestic  market and its primary  foreign
markets are Asia and Europe.

Note 2.  Summary of Significant Accounting Policies
         ------------------------------------------

  (a) Principles of Consolidation
    The  consolidated   financial   statements   include  the  accounts  of  all
  majority-owned   subsidiaries.   All   material   intercompany   balances  and
  transactions have been eliminated upon consolidation.

  (b) Inventories
    Inventories are valued at the lower of cost or market. Cost is determined on
  the last-in,  first-out (LIFO) method for all major classes of inventory.  All
  other inventories are valued at average cost.

  (c) Property, Plant and Equipment
    Property,  plant and equipment is carried at cost and includes  expenditures
  for new facilities and those which substantially  increase the useful lives of
  existing  plant 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.  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.

                                       32
<PAGE>

    The  Company  obtains a portion  of its  timber  requirements  from  various
  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
    The Company  utilizes the liability  method of accounting  for income taxes.
  This method  requires that deferred tax  liabilities and assets be established
  based on the difference  between the financial  statement and income tax bases
  of assets and liabilities using existing tax rates.

  (f) Capitalized Interest
    Interest is capitalized on funds borrowed during the construction  period on
  certain  assets.  Capitalized  interest  in 1998,  1997 and 1996 was  $13,589,
  $19,939 and $ 10,534, respectively,  and is netted against interest expense in
  the consolidated  statements of earnings.  Such  capitalized  interest will be
  amortized over the depreciable life of the related assets.

  (g) Business Segments
    The  Company  adopted  SFAS  No.  131,  "Disclosures  About  Segments  of an
  Enterprise and Related  Information"  in 1998. The Company's  various  product
  lines have been aggregated into three segments,  white paper,  brown paper and
  building materials,  based on the similar nature of the products, the economic
  conditions  affecting  those  products,  and management and reporting of those
  products  within the  Company.  Information  with  respect to the  segments is
  included in the five-year  comparison labeled  Supplementary  Business Segment
  Information on page 29.

  (h)  Use of Estimates
    Generally  accepted   accounting   principles  require  management  to  make
  estimates  and  assumptions   that  affect  the  reported  amount  of  assets,
  liabilities and contingencies at the date of the financial  statements and the
  amounts of revenues  and  expenses  during the period.  Actual  results  could
  differ from those estimates.

  (i) Restatements and Reclassifications
    All share and per share  amounts  have been  restated to reflect the 2-for-1
  stock split on September 12, 1997. Certain reclassifications have been made to
  prior years' data to conform with 1998 presentation.


                                       33
<PAGE>

Note 3. Inventories
        -----------
  The major components of inventories are as follows:

                                                   December 31,       
                                           ---------------------------
                                             1998              1997   
                                           ---------         ---------
Finished product.......................    $131,383            118,046
Work in progress.......................       6,909              7,404
Raw material...........................     184,734            187,912
Supplies...............................      88,290             81,233
                                           --------           --------
                                           $411,316            394,595
                                           ========           ========
Valued at:
  LIFO cost............................    $276,549            268,447
  Average cost.........................     134,767            126,148

  If  current  cost  rather  than  LIFO  cost  had  been  used  by the  Company,
inventories would have been approximately $49,548 and $62,662 higher in 1998 and
1997, respectively.

Note 4. Property, Plant and Equipment
        -----------------------------

  Property, plant and equipment accounts are summarized as follows:

                             Principal
                             range of              December 31,
                                              ---------------------
                            useful lives         1998        1997
                            ------------      ----------    -------
Land........................       -         $   40,446     39,389
Buildings...................    15 - 30         366,125    342,041
Machinery & equipment.......     5 - 25       4,354,789  3,724,617
Furniture & fixtures........     3 - 10          90,606     85,715
Leasehold improvements......  life of lease       7,209      6,443
Construction in progress....       -            101,522    386,292
                                              ---------  ---------
                                              4,960,697  4,584,497
Accumulated depreciation....                  2,253,551  2,018,206
                                              ---------  ---------
                                             $2,707,146  2,566,291
                                              =========  =========

Note 5.  Long-term Debt
         --------------

  Long-term debt consists of the following:
                                                      December 31,
                                                -----------------------
                                                  1998          1997
                                                --------      ---------
Notes payable to public:
  7.00%, due in 1998.......................      $    -       100,000
  9.625%, due in 2000......................        150,000    150,000
  7.75%, due in 2002.......................        100,000    100,000
  9.125%, due in 2003......................         50,000     50,000
  6.45%, due 2005..........................        100,000       -
  7.00%, due 2018..........................        100,000       -
  9.00%, due in 2021.......................        150,000    150,000


                                       34
<PAGE>

  7.35%, due in 2026 ......................        200,000    200,000
  7.85%, due in 2026.......................        200,000    200,000


Medium-term notes, with interest
  rates ranging from 6.45% to 7.30%,
  due in varying amounts through 2013......        205,700    150,000

Bank loans, with interest rates
  averaging 5.52% and 6.04%, due
  in varying amounts through 2001..........        445,000    700,000

Revenue bonds, with interest
  rates averaging 4.59% and 4.94%,
  due in varying amounts
  through 2026.............................        113,800    121,640

Other long-term debt, with
  interest rates averaging
  7.43% and 6.76%, due in
  varying amounts through 2006.............          8,850      2,994
                                                ----------  ---------
                                                 1,823,350  1,924,634
Less: Current installments.................          2,267      8,633
                                                ----------  ---------
                                                $1,821,083  1,916,001
                                                ==========  =========

  Principal payment requirements on the above debt for the four years subsequent
to 1999 are: 2000, $151,166; 2001, $146,187; 2002, $111,095; 2003, $64,134.

  In January,  1998,  the Company  issued $200.0  million in debentures - $100.0
million at 6.45% due 2005 and $100.0  million at 7.0% due 2018.  In June,  1998,
the Company  initiated a Medium-term  Note Program and had issued $100.2 million
of notes as of December 31, 1998.  The  medium-term  notes carry  interest rates
ranging from 6.45% to 6.60% and maturities from 11 to 15 years.  The proceeds of
both  issuances  were used to  replace  notes  maturing  in 1998 and other  bank
borrowings.

  The  Company has a revolving  loan with a group of banks  which  provides  for
borrowings up to $650.0  million in principal  amount and provides  backup for a
Master Note Program. At December 31, 1998, the outstanding balance covered under
the revolving loan was $445.0 million.

  The Company utilized  short-term  borrowings with a number of banks at various
times  during 1998 and 1997 of which  $47,252 was  outstanding  at December  31,
1998. The weighted  average  interest rate on short-term  borrowings at December
31,  1998 and 1997 was 5.46% and  5.75%,  respectively.  Interest  is based upon
prevailing short-term rates in effect at the time of the transaction.

  The  fair  value  of  the  Company's   long-term   debt  is  estimated  to  be
approximately  $1,913,000,  based on the  quoted  market  prices for the same


                                       35
<PAGE>

or similar  issues or on the current  rates offered to the Company for debt with
the same remaining maturities.


Note 6. Income Taxes
        ------------

  The provision for income taxes includes the following:

                                            1998      1997      1996  
                                          -------   -------   --------

Payable from taxable earnings.......... $  26,018    (4,350)   73,283
Payable due to AMT.....................    10,100    14,000         -
                                          -------   -------   -------
Currently payable......................    36,118     9,650    73,283
Deferred taxes due to temporary
  differences for:
    Accelerated depreciation...........    26,974    23,395    37,501
    Other..............................   (19,292)    5,255     3,216
                                          -------   -------   -------
    Total deferred ....................     7,682    28,650    40,717
                                          -------   -------   -------
      Total provision.................. $  43,800    38,300   114,000
                                          =======   =======   =======
Federal income taxes................... $  36,664    31,600    97,000
Other income taxes.....................     7,136     6,700    17,000
                                          -------   -------   -------
                                        $  43,800    38,300   114,000
                                          =======   =======   =======

  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:

                                                   1998    1997    1996
                                                   -----   -----   -----

Federal statutory rate.......................      35.0%   35.0%   35.0%
State income taxes, net of
  Federal tax effect.........................       2.3     2.3     3.6
Benefit from foreign taxes...................      (3.6)   (1.3)      -
Other........................................      (0.7)   (1.6)   (1.4)
                                                   -----   -----   -----
                                                   33.0%   34.4%   37.2%
                                                   =====   =====   =====

  The Company's  consolidated  Federal income tax returns through 1993 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. At December 31, 1998, the Company had $24,100 in AMT credits.


                                       36
<PAGE>

Note 7.  Pension and Retirement Plans
         ----------------------------

Contributory Plans
  The Company  covers all salaried  employees  and some hourly  employees  under
401(k) plans. The amounts  contributed by the Company vary for the plans.  Total
plan  expenses  were  $11,221,  $10,903  and  $10,430  in 1998,  1997 and  1996,
respectively.

Defined Benefit Plans
  The Company  contributes to multi-employer  retirement plans at fixed payments
per hour for certain hourly employees.  Substantially all other employees of the
Company  are  covered  by  noncontributory  defined  benefit  plans.  Retirement
benefits  are based on years of service and  compensation  prior to  retirement.
Total  pension  expense in 1998,  1997 and 1996 for all such  plans was  $8,863,
$10,770 and $10,628, respectively.

  As advised by its actuaries,  the Company makes such  contributions to provide
not only for benefits  attributed to past service,  but also for those  benefits
expected to be earned in the future.

Postretirement Benefit Plans
  The Company has a contributory  postretirement  health plan primarily covering
its salaried  employees.  Employees  become  eligible for these benefits if they
meet minimum age and service requirements.

  The following table sets forth reconciliations of the benefit obligation, plan
assets,  funded status and disclosure of assumptions utilized in the December 31
calculations:

<TABLE>
<S>                                                            <C>                          <C>                 <C>
                                                                                            Postretirement
                                                   Defined Benefit Plans                     Benefit Plans
                                             ----------------------------------    ----------------------------------
                                                  1998               1997               1998               1997
                                             ---------------    ---------------    ---------------    ---------------
Change in Benefit Obligation:

Benefit obligation - Beginning of year       $      342,065            311,273             34,277             31,676
Service cost                                         15,401             14,533              1,182              1,182
Interest cost                                        24,585             22,576              2,428              2,290
Other                                                 1,945              3,883                680                967
Actuarial loss                                       15,448              2,286              3,072                834
Benefits paid                                       (13,336)           (12,486)            (4,291)            (2,672)
                                              ---------------    ---------------    ---------------    ---------------
Benefit obligation - End of year             $      386,108            342,065             37,348             34,277
                                              ===============    ===============    ===============    ===============

Change in Assets:

Fair value of assets - Beginning of year     $      460,911            390,375               -                  -
Actual return on plan assets                         77,610             80,404               -                  -
Employer contribution                                 2,740              3,564              3,611              2,051
Other                                                   531               (946)               680                621
Benefits paid                                       (13,336)           (12,486)            (4,291)            (2,672)
                                              ---------------    ---------------    ---------------    ---------------
Fair value of assets - End of year           $      528,456            460,911               -                  -
                                              ===============    ===============    ===============    ===============
</TABLE>

                                       37
<PAGE>
<TABLE>
<S>                                                <C>                <C>                   <C>                <C>  
Reconciliation of Funded Status:

Funded status                                 $     142,348            118,846            (37,348)           (34,277)
Unrecognized actuarial (gain)/loss                 (154,298)          (129,642)             8,515              5,628
Unrecognized prior service cost                      12,209             12,380                282                314
Unrecognized asset                                     (964)            (1,568)                -                  -
                                               -------------      -------------      -------------      -------------
Prepaid (accrued) benefit cost                $        (705)                16            (28,551)           (28,335)
                                               =============      =============      =============      =============

Assumptions as of December 31:

Discount rate                                          7.00%              7.25%              7.00%              7.25%
Expected return on plan assets                         9.00%              9.00%                -                  -
Rate of increase in compensation levels                5.00%              5.00%                -                  -
Medical trend rate                                       -                  -                8.50%              9.00%
</TABLE>

  For the year  1998,  an 8.5%  increase  in the  medical  cost  trend  rate was
assumed.  In the future, the rate decreases  incrementally to an ultimate annual
rate of 5.0%.  A 1.0%  increase in the  medical  trend rate would  increase  the
postretirement  benefit  obligation (PBO) by $4,200 and increase the service and
interest cost by $490. A 1.0% decrease in the medical trend rate would  decrease
the PBO by $3,800 and decrease the service and  interest  cost by $430.  Various
pension plans have benefit  obligations in excess of plan assets.  The following
table sets forth the unfunded status of those plans:

                                      Defined Benefit Plans  
                                       1998                1997
                                ----------------    ----------------
Benefit obligation             $       9,491               1,149
                                ================    ================
PLan assets (fair value)       $       8,676                 996
                                ================    ================

The components of net periodic benefit cost are as follows:
<TABLE>
<S>                                               <C>               <C>                 <C>              <C>

                                                                                            Postretirement
                                                   Defined Benefit Plans                     Benefit Plans
                                              ---------------------------------    -----------------------------
                                                  1998               1997               1998               1997
                                              --------------     -------------     --------------      ---------
Service cost                                 $   15,401             14,533              1,182             1,182
Interest cost                                    24,585             22,576              2,428             2,290
Expected return on plan assets                  (35,138)           (31,107)               -                 -
Amortization of prior service cost                1,841              1,765                 31                31
Amortization of net transition obligation          (604)              (604)               -                 -
Recognized actuarial (gain)/loss                 (2,625)            (1,507)               185               205
                                              -----------        -----------       -----------         ---------
Net periodic benefit cost                    $    3,460              5,656              3,826             3,708
                                              ===========        ===========       ===========         =========
</TABLE>
Note 8. Stockholders' Equity
        --------------------

  The Company's 1995 Long-term  Incentive  Compensation  Plan (the Plan),  which
replaced an earlier plan, provides for grants of stock options,

                                       38
<PAGE>

awards of stock  appreciation  rights and  restricted  shares of common stock to
directors  and key  employees.  Options are granted at exercise  prices not less
than  the  market  value of the  common  stock  on the  date of  grant.  Options
generally become  exercisable  after one year in 33 1/3% increments per year and
expire ten years from the date of grant.  The  Company  has  reserved  5,500,000
shares for  distribution  under the Plan. The Company has elected to account for
stock based  compensation  under  Accounting  Principles  Board  Opinion  #25. A
summary of stock option activity is as follows:

                                         Option            Price
                                         Shares          Per Share
                                      ----------       -------------
Outstanding December 31, 1995.......   2,563,608      $11.625-25.75
  Granted ..........................     546,060           30.875
  Exercised.........................     251,494       11.625-25.75
  Canceled or surrendered..........        9,480       11.625-30.875 
Outstanding December 31, 1996.......   2,848,694       11.625-30.875
  Granted ..........................     776,940           30.563
  Exercised.........................     650,092       11.625-30.875
  Canceled or surrendered..........      126,972       22.685-30.875 
                                      ----------       --------------
Outstanding December 31, 1997.......   2,848,570       11.625-30.875
  Granted ..........................     626,370           38.6875
  Exercised.........................     102,286       13.125-30.875
  Canceled or surrendered..........       28,567        25.75-38.675
                                      ----------        -------------
Outstanding December 31, 1998......    3,344,087       11.625-38.6875
                                      ==========       ==============
Shares exercisable..................   2,278,096      $11.625-38.6875
                                      ==========       ==============

  Restricted  shares have been awarded to certain officers at no cost based upon
continued  employment and the attainment of performance  goals,  or both.  These
shares will vest in one-third annual  increments  beginning after three years of
continuous employment. At December 31, 1998, 7,792 restricted shares had not yet
vested.

  The Company has a shareholder  rights plan providing for the  distribution  of
rights to shareholders ten days after a person or group becomes the owner of 20%
or more of the Company's  common stock or makes a tender or exchange offer which
would  result in the  ownership  of 30% or more of the  common  stock.  Once the
rights are distributed,  each right becomes  exercisable to purchase,  for $280,
1/100th of a share of a new series of Company  preferred  stock,  which  1/100th
share is  intended to equal four common  shares in market  value.  Each right is
exercisable  to purchase,  for $280,  common shares with a market value of $560.
The rights will expire in 2000.

  In September,  1998, the Board of Directors authorized the repurchase of up to
$25.0 million of the Company's  common stock.  The Company  repurchased  470,900
shares of common  stock for $13.0  million in the third and fourth  quarters  of
1998.

                                       39
<PAGE>

Note 9.  Acquisitions/Dispositions
         -------------------------

    In  December  1998,  the  Company  finalized  the sale of  117,000  acres of
timberland in  southwestern  Washington for $234.0  million.  The timberland was
acquired in 1996 as part of the Cavenham acquisition noted below. The timberland
was sold as it was not critical to the  long-term  supply needs of the Company's
Northwest operations. Proceeds of the sale were used to pay down existing debt.

    In  May,  1996,  the  Company  acquired  approximately  1,088,000  acres  of
timberland,  a sawmill and related assets in Louisiana and the Pacific Northwest
from  Cavenham  Forest  Industries,  Inc.,  an  affiliate  of Hanson  PLC.  (the
"Cavenham  acquisition").  The  purchase  price for the  properties  was  $1.588
billion.  The  Company  sold  542,000  acres of the  acquired  property to third
parties for an aggregate  price of $641.0  million.  After giving  effect to the
sales to third parties,  the Company  acquired  546,000 acres of  timberland,  a
sawmill and related  assets for $947.0  million,  plus certain  closing costs of
approximately $10.0 million.

    In November,  1996,  the Company  purchased  the capital  stock of Medite of
Europe Limited  ("Medite") for $61.5 million in cash plus certain closing costs.
Medite produces medium density fiberboard at its plant in Clonmel, Ireland.

    Both acquisitions were accounted for as purchases.  Supplemental information
concerning the two acquisitions follows:

                                             Cavenham               Medite
                                      --------------------------------------
Cash purchase price.................    $   957,274                 62,000
                                         ============           ============

Purchase price was allocated to:
  Current assets....................    $      -                   29,913
  Timber and timberlands............        950,380                  -
  Property, plant and equipment.....          8,612                60,569
  Debt assumed......................           -                  (20,804)
  Other assets and liabilities......         (1,718)               (7,678)
                                          -----------           ------------
                                        $   957,274                62,000
                                          ===========           ============

Note 10.  Contingencies
          -------------

    There are various lawsuits, claims and environmental matters pending against
the Company.  While any proceeding or litigation has an element of  uncertainty,
management  believes that the outcome of any lawsuit or claim that is pending or
threatened,  or all of them combined, will not have a material adverse effect on
the Company's financial condition or operations.


                                       40
<PAGE>

                                INDEX TO EXHIBITS


EXHIBIT
-------
3A.      Third Restated Articles of Incorporation of the registrant, as amended.
         Incorporated by reference from Exhibit 3A of the registrant's quarterly
         report on Form 10-Q for the quarter ended March 31, 1996. [16]

3B.      Bylaws of the registrant as amended through December 1, 1998. [23]

4A.      Indenture  dated as of March 15, 1983,  between the  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]

4B.      Indenture  dated as of January 30, 1993 between the  registrant and The
         Chase Manhattan Bank.  Incorporated by reference from Exhibit 4A of the
         registration  statement on Form S-3  effective  March 1, 1993 (File No.
         33-58044). [82]

4C.      Credit Agreement dated as of May 10, 1996,  among the registrant,  Bank
         of America National Trust and Savings Association,  ABN Amro Bank N.V.,
         Morgan Guaranty Trust Company of New York, Nationsbank,  N.A., Wachovia
         Bank  of  Georgia,  N.A.,  and  other  financial  institutions  parties
         thereto,  authorized  $1,000,000,000.  Incorporated  by reference  from
         Exhibit 4 of the registrant's  current report on Form 8-K/A,  amendment
         No. 1, dated May 15, 1996.

10A.     Willamette  Industries,  Inc. Deferred Compensation Plan for Directors.
         Incorporated by reference from Exhibit 10A of the  registrant's  annual
         report on Form 10-K for the year  ended  December  31,  1996 ("the 1996
         Form 10-K").* [3]

10B.     Willamette  Industries,  Inc. 1986 Stock Option and Stock  Appreciation
         Rights Plan, as amended.  Incorporated by reference from Exhibit 10B of
         the 1996 Form 10-K.* [8]

10C.     Willamette Industries,  Inc. Retirement Plan for Nonemployee Directors.
         Incorporated by reference from Exhibit 10C of the 1996 Form 10-K.* [2]

10D.     Willamette  Industries  Inc.  Severance  Agreement  with Key Management
         Group.  Incorporated  by  reference  from  Exhibit 10D of the 1996 Form
         10-K.* [13]

10E.     Willamette Industries 1993 Deferred Compensation Plan.  Incorporated by
         reference  from Exhibit 10E to the  registrant's  

                                       41
<PAGE>

         annual report on Form 10-K for the year ended December 31, 1993.* [16]


10F.     Willamette  Industries  1995  Long-Term  Incentive  Compensation  Plan.
         Incorporated by reference from Exhibit 10F of the  registrant's  annual
         report on Form 10-K for the year ended December 31, 1994.* [12]

10G.     Consulting  agreement dated December 1, 1998 between the registrant and
         William Swindells.* [4]

10H.     Rights  Agreement  dated as of February 26, 1990,  amended  December 3,
         1996 ("Rights Agreement"). Incorporated by reference from Exhibit 10 of
         the  registrant's  quarterly  report on Form 10-Q for the quarter ended
         June 30, 1997. [61]

10I.     Ammendment No.2 to Rights Agreement dated as of November 13, 1997.

11.      Computation  of per share  earnings is  obtainable  from the  financial
         statements filed with this annual report on Form 10-K.

12.      Computation of Ratio of Earnings to Fixed Charges.  [1]

21.      Omitted  because  the  registrant's   subsidiaries  considered  in  the
         aggregate  as a  single  subsidiary  do not  constitute  a  significant
         subsidiary.

23.      Consent of Independent  Auditors to the  incorporation  by reference of
         their report dated February 11, 1999, in the registrant's  registration
         statements on Form S-3 and Form S-8. [1]

27.      Financial Data Schedule.  [1]

99.      Description of capital stock.  [4]

  The  registrant  will  furnish a copy of any exhibit to this annual  report on
Form  10-K to any  security  holder  for a fee of $0.30  per  page to cover  the
registrant's  expenses  in  furnishing  the  copy.  The  number of pages of each
exhibit is indicated in brackets at the end of each exhibit description.
------------------------
*Management contract or compensatory plan or arrangement.

Note:  Certain  instruments with respect to the long-term debt of the registrant
are  not  filed  herewith  where  the  total  amount  of  securities  authorized
thereunder  does not exceed 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.

                                       42