<PAGE>
ANNUAL REPORT
TO THE STOCKHOLDERS OF
LANE PLYWOOD, INC.
FOR THE YEAR ENDED NOVEMBER 30, 1995
DIRECTORS
JAMES E. GENT
PAUL F. EHINGER
FRANCIS D. BALES
CARL M. JENSEN
JOHN W. REVELL
GARY R. JENSEN
PAUL W. JENSEN
OFFICERS
CARL R. WILEY, PRESIDENT
JANIS M. JOHNSON, VICE-PRESIDENT/SECRETARY-TREASURER
AUDITORS
COOPERS & LYBRAND L.L.P.
<PAGE>
LANE PLYWOOD, INC.
_______
<PAGE>
C O N T E N T S
_______
Page(s)
-------
MESSAGE TO STOCKHOLDERS FROM THE CHAIRMAN OF THE
BOARD AND PRESIDENT i
DESCRIPTION OF BUSINESS OPERATIONS ii
DIRECTORS OF THE COMPANY iii
STOCK AND DIVIDEND HISTORY iv
FINANCIAL TABLE OF CONTENTS
Five-Year Summary of Selected Financial Data v
Management's Discussion and Analysis vi-x
Report of Independent Accountants 1
Financial Statements:
Balance Sheets 2
Statements of Operations 3
Statements of Cash Flows 4
Notes to Financial Statements 5-14
LANE PLYWOOD, INC.
<PAGE>
ANNUAL REPORT TO STOCKHOLDERS
MESSAGE TO STOCKHOLDERS
FROM THE CHAIRMAN OF THE BOARD AND PRESIDENT
February 1, 1996
Fiscal year operations ending November 30, 1995 resulted in a loss, after
provision for taxes, of $335,382.
A review of events impacting Lane Plywood during 1995 brings out the unique
character of Lane's net loss. Conditions during 1995 were not normal. The year
began with a proxy fight for two Board seats and a controversial offer to buy
the Company for $24.50 per share. The Board of Directors, as a result of this
confrontation, shifted corporate direction from one of operations to one of
seeking a buyer for the group. Lane began incurring costs that had nothing to
do with operations. Significant funds were spent addressing the legal and
accounting fees related to securities filings and review of offers to purchase
the Company, as well as cleaning up past Company obligations. By far, the most
significant impact on Lane's financial statements came from the Company's
actions that terminated and funded, in full, the old defined benefit plan. This
action added expenses to the 1995 Income Statement totaling $1,357,676. On the
other side of the Income Statement in October, the Company sold to the State of
Oregon, Department of Transportation 7+ acres for a gain of $319,557. By year
end, stockholders had been notified of a tentative offer to merge Lane Plywood
into a new corporation for a price of $49 per share. Point, 1995 was anything
but normal.
Operationally, the Company continued to make gains. If the unusual expenses and
gains had not occurred, Lane would have continued the trend of past years and
reported a net profit. Lane's plywood business was relatively stable throughout
'95. We were able to purchase ample supplies of veneer and experienced no
shortages. Product development and raw materials continue to be critical areas,
but management has made positive gains in both fields. Today it is not uncommon
to see our employees using veneers with names likes: TEPA, ULMO, TAUARI,
CYPRESS, and YELLOW POPLAR.
Change has been part of life in Lane for many years now. Fortunately for all of
us, in Lane Plywood, we have been able to cope with and survive our changing
times. On behalf of Lane Plywood, we would like to say thanks, to all those
employees and stockholders who have given that little something extra to help us
endure these changing times.
Respectively yours,
/S/ GARY R. JENSEN
- ------------------------------
Gary R. Jensen
Chairman of the Board
/S/ CARL WILEY
- ---------------------------------
Carl Wiley
President
LANE PLYWOOD, INC. i
<PAGE>
DESCRIPTION OF BUSINESS OPERATIONS
PLYWOOD OPERATIONS
The Corporation produces softwood plywood at its 92 acre plant site in Eugene,
Oregon. Its business includes purchasing veneer to satisfy veneer needs,
manufacturing and selling plywood from the purchase of veneer, selling green or
dry veneer, custom drying and composing veneer, selling plywood manufacturing
byproducts, and operating a plywood reload operation.
The principal product manufactured and sold by the Corporation is softwood
plywood. Other products include the byproducts and veneers described above.
Sales of dry veneer used in the laminated veneer lumber market accounted for 16%
of 1994 sales and 13% of 1995 sales. No other product contributed as much as
15% to revenue in any of the last three fiscal years. The Corporation's market
for plywood is scattered throughout the 48 contiguous states and Hawaii. Sales
are handled by a one-person sales staff from the Eugene mill. Customers include
brokers and large distribution warehouses. Except for minor local brokers,
sales are made in rail carload or truckload lots, both of which are made from
the mill's shipping facility. The major manufacturing byproduct, ply trim, is
sold to a mill in Oregon.
Nearly all of the Corporation's plywood products are classified as commodities
and are manufactured to voluntary product standards administered by the National
Bureau of Standards. The Corporation has no material new products in the
development stage. However, the Corporation has been working to find niche
noncommodity markets. In 1995, it started to sell plywood blanks to snowboard
manufacturers to serve as the core for the snowboards. Sales in fiscal 1995 of
this product amounted to approximately $80,000.
TREE FARMS
The Corporation purchased its first tree farm in 1974, and has since added
additional timberland to bring its total acreage to 2,105. The Corporation does
not anticipate that it can satisfy its raw material needs from these tree farms.
The tree farms consist of seven separate parcels, all located in Klamath, Lane
and Douglas Counties in Oregon. They consist primarily of cut over acres that
have been or are being reforested. None of the timberland is presently being
used for production, although thinning operations have produced some revenue.
In fiscal 1995, the revenue from thinning was $47,800; in 1994 it was $59,500;
and in 1993 it was $662,794.
LANE PLYWOOD, INC. ii
<PAGE>
DIRECTORS OF THE COMPANY
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION DIRECTOR CURRENT TERM
NAME AND AGE AND EMPLOYER SINCE EXPIRES
------------ ---------------------------- ---------- ------------
<S> <C> <C> <C>
Francis D. Bales, age 58 Sander Operator 1987 1995
Lane Plywood, Inc.
65 N. Bertelsen Road
Eugene, Oregon 97402
Paul F. Ehinger, age 72 Forest Industry Consultant 1986 1998
Paul F. Ehinger & Associates
1200 High Street, Suite 22
Eugene, Oregon 97401
James E. Gent, age 66 Veneer Grader 1979 1997
Lane Plywood, Inc.
65 N. Bertelsen Road
Eugene, Oregon 97402
Carl M. Jensen, age 63 Retired 1989 1996
c/o Lane Plywood, Inc.
65 N. Bertelsen Road
Eugene, Oregon 97402
Gary R. Jensen, age 49 Resource Manager 1988 1998
Lane Plywood, Inc.
65 N. Bertelsen Road
Eugene, Oregon 97402
Paul W. Jensen, age 65 Retired 1991 1997
c/o Lane Plywood, Inc.
65 N. Bertelsen Road
Eugene, Oregon 97402
John W. Revell, age 42 Bank Administrator 1987 1997
Liberty Federal Bank, S.B.
899 Pearl Street
Eugene, Oregon 97401
</TABLE>
LANE PLYWOOD, INC. iii
<PAGE>
STOCK AND DIVIDEND HISTORY
There is no market for Lane common stock. The Corporation has approximately 400
shareholders and Lane common stock trades infrequently. Management of the
Corporation does not request or track information about the price at which stock
changes hands through private transactions. Therefore, the Corporation is
unable to report on historic prices of Lane common stock.
The Board of Directors paid a dividend of $.25 per share on January 15, 1995 to
holders of Lane common stock of record as of November 30, 1994. No other
dividends have been declared or paid during the previous two years.
LANE PLYWOOD, INC. iv
<PAGE>
FIVE-YEAR SUMMARY OF SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
FOR THE YEARS ENDED NOVEMBER 30
-----------------------------------------------------------------------------------------------
1995 (a) 1994 (b)(d) 1993 (c)(d) 1992 (c)(d) 1991
<S> <C> <C> <C> <C> <C>
OPERATING RESULTS
Net sales $ 39,621,899 $ 37,772,648 $ 36,776,328 $ 33,862,168 $ 27,202,211
Operating income (loss) 545,940 804,405 756,398 240,913 (411,269)
Income (loss) before
cumulative effect (335,382) 438,562 449,654 104,571 (389,207)
Cumulative effect on prior
years of change in
accounting principle
for income taxes 185,600
Net income (loss) (335,382) 624,162 449,654 104,571 (389,207)
- ----------------------------------------------------------------------------------------------------------------------------------
PER SHARE DATA
Income (loss) before
cumulative effect $(1.64) $2.14 $2.20 $ .51 $(1.90)
Cumulative effect on prior
years of change in
accounting principle
for income taxes .91
Net income (loss) (1.64) 3.05 2.20 .51 (1.90)
Cash dividends declared
per share .25
- ----------------------------------------------------------------------------------------------------------------------------------
FINANCIAL POSITION
Current assets $ 3,268,653 $ 4,305,444 $ 4,027,152 $ 3,911,464 $ 3,434,973
Current liabilities 1,664,412 2,562,649 2,613,508 2,748,302 1,910,675
Working capital 1,604,241 1,742,795 1,413,644 1,163,162 1,524,298
Total assets 6,258,732 7,530,039 7,449,220 7,217,906 6,169,672
Long-term debt, excludes
current portion 95,021 124,428 418,273 503,401 518,484
- ----------------------------------------------------------------------------------------------------------------------------------
EQUITY
Shareholders' equity $ 4,286,971 $ 4,336,356 $ 3,314,590 $ 3,406,801 $ 3,495,130
Book value per share $20.95 $21.19 $16.20 $16.65 $17.08
Weighted average shares
outstanding 204,662 204,662 204,662 204,662 204,662
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Includes loss on settlement of pension plan of $1,357,676 and gain on sale
of land of $319,557.
(b) Includes additional expense of $61,680 from application of SFAS No. 106,
"Employers' Accounting for Postretirement Benefits Other Than Pensions";
and the cumulative effect (income increase) of $185,600 from SFAS No. 109,
"Accounting for Income Taxes". The amount of the cumulative effect has
been restated from the amount that was previously reported. See footnote 4
to the financial statements.
(c) Operating income includes gain on sale of timber contracts of $200,515 in
1993 and $631,200 in 1992.
(d) Reflects the adoption of SFAS No. 87, "Employers Accounting for Pensions".
The impact was to reduce shareholders' equity by $192,900, $734,767 and
$285,997 in 1992, 1993 and 1994, respectively.
LANE PLYWOOD, INC. v
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
November 30, 1995
GENERAL
The following discussion and analysis provide information which management
believes is relevant to an assessment and understanding of the Company's results
of operations and financial condition. The discussion should be read in
conjunction with the financial statements and notes thereto.
The following discussions concerning veneer and plywood refer to the qualitative
measures based on 3/8 thousand feet (3/8 mft) which is a common industry
standard measurement. Measure pertaining to timber relates to thousand board
feet (mbf).
RESULTS OF OPERATIONS
FISCAL 1995 COMPARED WITH FISCAL 1994
In April 1995, the Company decided to terminate the defined benefit pension plan
since long-term interest rates were favorable to do so. This termination
required a cash payout of $1,262,157 and resulted in a settlement loss recorded
in 1995 in the amount of $1,357,676. This payment was the primary cause of the
net loss in fiscal 1995 of $335,382.
Also in 1995, the Company sold 7.2 acres of land at the mill site to the State
of Oregon Department of Transportation for $342,500 for a gain of $308,750.
Another strip of land equivalent to .4 acres (20' x 100') to be used as an
easement by a neighboring owner was sold for $16,032 for a gain of $10,807.
Dispositions of other assets resulted in a gain of $13,797 for 1995.
The plywood market fluctuated monthly during 1995, with average selling prices
of $315 to $321 being the highs per month and $287 to $303 being the lows. The
average plywood selling price for the fiscal year was $308. Plywood average
selling prices increased 3% and volume increased 1% in 1995 over 1994. The
increase in average selling prices generally reflects the change in the product
mix, which is heavier to sanded plywood and siding materials. The sales volume
increase came despite the Company's continuing decision to reduce production
rather than produce sheathing, which has increasingly been replaced by
alternate products.
Housing starts dropped compared to the prior year, even with lower mortgage
interest rates. The Company's production consisted of about 70% in sanded
plywood, which was used for commercial building, and the 30% balance as
sheathing, which was affected by housing starts. In 1994, sanded plywood was
60% of the Company's production. The plywood plant has operated on a reduced
production schedule, with the exception of periodic rebounds, since the end of
October 1990.
The Company used outside veneer sources for all veneer needs. Monthly average
purchased veneer prices fluctuated erratically from a high of $181 to a low of
$161 during 1995, ending the fiscal year with an overall average purchase price
of $173. Purchased veneer volume increased 4% and average veneer purchase
prices decreased 3% in 1995, compared to 1994. Some sizes and grades have been
more difficult to acquire in 1995.
LANE PLYWOOD, INC. vi
<PAGE>
The market for selling dry veneer graded-on-line to Laminated Veneer Lumber
(LVL) manufacturers was mixed in 1995. This operation resulted in revenue of
$5,300,000 for 1995 on the sales of 22,000 mft of dry veneer at an average
sales price of $245, compared to $5,900,000 on sales of 23,400 mft at an
average sales price of $252 for 1994.
In 1995, thinning operations on the Allen and Mahr Lane tree farms produced
gross revenue of $47,800 from 174 mbf of timber logged. In 1994, a thinning
operation of the Allen tree farm produced gross revenue of $59,500 from 92 mbf
of timber logged.
During 1995, the number of employees increased from 200 at year end 1994 to 208
at year end 1995. Interest expense decreased in fiscal 1995 from fiscal 1994
due to reduced average borrowing on the Company's short-term line of credit due
in part from additional funds received from income tax refunds and the sale of
property.
Federal, state and local laws and regulations establishing standards and
requirements for environmental protection have increased in number and scope in
recent years. The Company cannot predict the future impact of such standards
and requirements which are subject to change and can be applied retrospectively.
The Company continues to monitor these laws and regulations and, to the best of
its knowledge, believes it was in substantial compliance with such laws and
regulations. As of November 30, 1995, the Company has accrued $85,000 for soil
remediation in connection with underground storage tanks removed in 1991, based
in part on advice from its environmental consultants. The Company is aware of
other potential environmental issues arising out of situations at certain of its
properties for which there may be future costs incurred for environmental study
and remediation. The Company is not currently obligated to incur such costs
and, the Company did not contribute to the environmental issue. Management
believes that others will be responsible for any such costs and costs, if any,
related to these issues will not be material to the financial position of the
Company. The Company is not aware of any additional sites for which the Company
has potential environmental liability.
The Directors of the Company have executed an Agreement and Plan of Merger for
the cash sale of all of Lane Plywood, Inc.'s shares of common stock for $49 per
share. The merger must be approved by the shareholders. The shareholder vote
is scheduled to occur at the annual shareholders' meeting, which is tentatively
scheduled for March 30, 1996.
FISCAL 1994 COMPARED WITH FISCAL 1993
Plywood average selling prices increased 3% and volume decreased 3% in 1994 over
1993. The plywood market stayed fairly even during 1994, with a slight rebound
for the last fiscal quarter of 1994 with the increased prices generally
reflecting the change in the product mix, which was heavier to sanded plywood.
The lower sales volume was still indicative of the Company's decision to reduce
production rather than produce sheathing, since sheathing has increasingly been
replaced by alternative products.
Housing starts picked up during the year with the lower mortgage interest rates.
The Company produced about 60% of its production as sanded plywood, which was
used for commercial building, and the 40% balance as sheathing, which was
affected by housing starts. The plywood plant has operated on a reduced
production schedule, with the exception of periodic rebounds, since the end of
October 1990.
LANE PLYWOOD, INC. vii
<PAGE>
The Company used outside veneer sources for most veneer needs, but some sizes
and grades were much harder to get. Prices stayed fairly level after the first
quarter of 1994. Purchased veneer volume decreased 2% and average veneer
purchase price decreased 2% in 1994, compared to 1993.
The market for selling dry veneer graded-on-line to Laminated Veneer Lumber
(LVL) manufacturers was mixed in 1994. This operation resulted in revenue of
$5,890,000 for 1994 on the sales of 23,339 mft of dry veneer at an average
sales price of $252, compared to $4,343,000 on sales of 16,659 mft at an
average sales price of $261 for 1993.
In 1994, a thinning operation of the Allen tree farm produced gross revenue of
$59,500 from 92 mbf of logging. In 1993, thinning operations on three of the
Company's tree farms, with the majority of volume from the Red Hill tree farm,
produced gross revenue of $662,794 from 928 mbf of logging. In 1993, the
Company realized additional revenue of $200,515 from the completion of logging
two U.S. Forest Service timber contracts sold to a third party.
During 1994, employee count decreased from 201 at year end 1993 to 200 at 1994
fiscal year end. Interest expense decreased in fiscal 1994 from fiscal 1993
because the long-term loan held at Key Bank was paid in full.
The Company adopted Financial Accounting Standards Board Statement No. 106,
"Accounting for Postretirement Benefits Other than Pensions", and Statement No.
109, "Accounting for Income Taxes", effective December 1, 1993. The net effect
of these changes was a decrease of net income by $41,000, after tax, for
Statement No. 106 and an increase of net income by $185,600 for Statement No.
109.
IMPACT OF INFLATION
Should the inflation rate stay consistent with the past three years, inflation
will have a negligible affect on the Company. An increase to a double digit
rate of inflation would increase the value of the Company's plant site property,
timber and timberland holdings, but would deal a blow to the plywood plant. The
primary impact would be the reduction of commercial and real estate development
in a higher inflation period with increased interest rates. Higher interest
rates would also affect the Company's line of credit borrowing and other
financing which may be needed.
FACTORS AFFECTING FUTURE OPERATING RESULTS
Future operating results may be affected by further reductions in availability
of raw materials domestically. As more companies expand their search for
resources in foreign markets, those prices can be expected to increase
accordingly. Capital projects, such as the installation of a lay-up line and
veneer composer, may be required to improve the Company's utilization of the
resources we are getting. The increased use of second growth timber products
for peeling has reduced significantly the quality of veneer products, so capital
improvements toward upgrading the veneer will be beneficial as well. Other
options include finding sources of better quality veneer, which will probably be
from foreign timber operations.
At the Annual Meeting of the Stockholders being held on March 30, 1996, the
stockholders will be asked to vote on a merger agreement with Pioneer Merger,
Inc. If this merger agreement is
LANE PLYWOOD, INC. viii
<PAGE>
approved, the new ownership will have their own ideas about capital
improvements and expansion of markets.
LIQUIDITY AND CAPITAL RESOURCES
The Company has in place an operating line of credit for $2,000,000, of which
there was no balance outstanding at November 30, 1995. The line of credit is
renewable in April of each year, and the Company believes the renewal of the
line at similar levels and terms will be granted by the bank. In June 1995,
the Company applied for a short-term loan for $1,000,000 at Bank of America,
with essentially the same terms as the line of credit and secured by the Red
Hill tree farm. The Company anticipated using this short-term financing for
capital improvements, but none of the loan was ever used. The loan will expire
in April 1996. In 1994, the Company had available an operating line of credit
of $2,000,000 with $423,508 outstanding at November 30, 1994.
The Company has a money market account with a balance of $658,000 at November
30, 1995. The balance in investment accounts in 1994 was $600,000. During
April 1995, money market funds held by the Company plus $400,000 from the line
of credit were used to provide a cash payment of $1,262,157 to terminate the
defined benefit pension plan held at Transamerica Insurance Company.
Due to the cash payment required to terminate the defined benefit pension plan,
there was no income to pay dividends and, therefore, no dividends were declared
in fiscal year 1995. On November 17, 1994, the Company declared a dividend of
$.25 per share for all shareholders of record on November 30, 1994, which was
paid on January 15, 1995. No dividends were declared in the prior two years.
The Company's loan agreement with the bank limits annual dividends to a maximum
of 25% of annual net profits, after taxes.
Net cash provided by (used in) operating activities was $(206,184), $599,544 and
$544,699 in 1995, 1994 and 1993, respectively. Negative cash flows in 1995 were
principally due to the payment in settlement of the pension obligation, less
cash provided from a reduction in receviables of $586,624. Accounts receivable
were lower by $586,624 as of November 30, 1995 compared to November 30, 1994
primarily due to a 22% decrease in sales footage and an 11% decrease in average
selling prices during November 1995. Accounts payable were lower by $304,989 as
of November 30, 1995 compared to November 30, 1994 due to a 27% reduction in the
cost of manufacturing materials and a 17% reduction of purchased veneer during
November 1995. Cash flows in 1994 were primarily provided by net income of
$588,662. Cash flows in 1993 were provided primarily by the net income of
$449,654.
Net cash (used in) financing activities was $(406,655), $(697,521) and
$(277,613) for 1995, 1994 and 1993, respectively. In 1995, the use of $423,508
to pay down short-term bank debt was the primary use of cash in financing. In
1994, the Company changed from Key Bank of Oregon to Bank of America, and all
loans to Key Bank were paid in full; the only remaining debt consisted of a loan
from Oregon Business Development Fund for financing the purchase and
installation of pollution control devices and a loan from Douglas County Bank
for financing the purchase of the Allen tree farm in 1979. In 1994, the use of
$348,938 to pay down long-term debt and $297,813 to pay down short-term debt was
the primary use of cash. In 1993, the net cash used in financing resulted from
the use of funds of $397,878 for a reduction in the book overdraft and a
$384,465 reduction of long-term debt, less the proceeds from short-term
financing of $505,180. Subsequent to fiscal year end 1995, the Company paid off
the loan to the Oregon Business Development Fund in the amount of $61,000.
LANE PLYWOOD, INC. ix
<PAGE>
Net cash provided by (used in) investing activities was $189,520, $(19,760) and
$(179,307) for 1995, 1994 and 1993, respectively. In 1995, the primary use of
cash for investing was for capital improvements of $187,112 offset by $376,632
received from the sale of assets. Capital improvements in 1995 included $77,104
to complete the conversion of the #4 dryer to gas, $50,810 for asset repairs and
upgrades, and $59,199 for miscellaneous, rolling stock and safety improvements.
In 1995, all capital improvements were paid from operations and from the line of
credit. The primary use of cash for investing in 1994 was $197,560 in capital
improvements, partially offset by proceeds of $177,800 from the disposition of
property. In 1994, capital improvements were paid from the line of credit. The
use of $421,000 cash for investing in 1993 was partially offset by proceeds of
$242,000 from the disposition of property. In 1993, capital improvements of
$365,000 were paid from the line of credit.
Projected capital improvements approved for the 1996 fiscal year include the
installation of a lay-up line at $2,000,000. The lay-up line was first approved
in 1994, and has been deferred pending the outcome of the merger vote. Should
the lay-up line actually be started in 1996, financing would come from a long-
term loan or lease arrangement.
LANE PLYWOOD, INC. x
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and Board of Directors
Lane Plywood, Inc.:
We have audited the accompanying balance sheets of Lane Plywood, Inc. as of
November 30, 1995 and 1994, and the related statements of operations and
retained earnings, and cash flows for each of the three fiscal years in the
period ended November 30, 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these 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 financial statements referred to above present fairly, in
all material respects, the financial position of Lane Plywood, Inc. as of
November 30, 1995 and 1994, and the results of its operations and its cash flows
for each of the three fiscal years in the period ended November 30, 1995 in
conformity with generally accepted accounting principles.
As discussed in Note 1 to the financial statements, the Company changed its
method of accounting for income taxes and postretirement benefits other than
pensions in 1994. The provision for income taxes and cumulative effect for the
change in accounting method recorded in 1994 have been restated in 1995 as
described in Note 4.
COOPERS & LYBRAND L.L.P.
/s/ Coopers & Lybrand L.L.P.
Eugene, Oregon
January 5, 1996
LANE PLYWOOD, INC. 1
<PAGE>
BALANCE SHEETS
November 30, 1995 and 1994
<TABLE>
<CAPTION>
1994
1995 (Note 4)
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 658,289 $1,081,608
Accounts receivable:
Trade 1,108,399 1,658,880
Other 2,187 38,330
Less allowance for doubtful accounts (17,034) (17,034)
Inventories 896,324 841,093
Prepaid and other current assets 58,693 195,059
Timber and timberlands, held for sale 432,191 432,191
Deferred tax assets 129,604 75,317
---------- ----------
Total current assets 3,268,653 4,305,444
Property, plant and equipment, net 2,374,914 2,444,997
Timber and timberlands, at cost less depletion 615,165 624,976
Long-term defined benefit costs 0 154,622
---------- ----------
Total assets $6,258,732 $7,530,039
---------- ----------
---------- ----------
LIABILITIES
Current liabilities:
Book overdraft $ 95,202
Current portion of long-term debt 29,388 $ 27,164
Short-term bank borrowing 423,508
Accounts payable, trade and other 796,903 1,234,420
Accrued liabilities:
Payroll and related benefits 486,492 404,003
Income taxes payable 169,208 84,915
Other liabilities 87,219 172,639
Defined benefit obligation 0 216,000
---------- ----------
Total current liabilities 1,664,412 2,562,649
Long-term debt, net of current portion 95,021 124,428
Long-term defined benefit obligation 378,230
Deferred taxes 61,604 66,696
Postretirement health benefits 150,724 61,680
---------- ----------
Total liabilities 1,971,761 3,193,683
---------- ----------
Contingencies (Notes 9 and 11)
STOCKHOLDERS' EQUITY
Common stock, no par value; 2,000,000 shares authorized,
204,662 shares issued and outstanding in each year 535,509 535,509
Pension liability, excess of assets (285,997)
Retained earnings 3,751,462 4,086,844
---------- ----------
Total stockholders' equity 4,286,971 4,336,356
---------- ----------
Total liabilities and stockholders' equity $6,258,732 $7,530,039
---------- ----------
---------- ----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
LANE PLYWOOD, INC. 2
<PAGE>
STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
for the fiscal years ended November 30, 1995, 1994 and 1993
<TABLE>
<CAPTION>
1995 1994 1993
(Note 4)
<S> <C> <C> <C>
Net sales $39,621,899 $37,772,648 $36,776,328
Cost of goods sold 38,027,294 36,327,036 35,560,305
----------- ----------- -----------
Gross profit 1,594,605 1,445,612 1,216,023
Gain on sale of equipment 13,797 162,244 186,990
Gain on sale of timber contracts 200,515
Selling, general and administrative expenses (1,062,462) (803,451) (847,130)
----------- ----------- -----------
Operating income 545,940 804,405 756,398
Loss on settlement of pension plan (1,357,676)
Gain on sale of land 319,557
Interest income 33,730 5,742 44,144
Interest expense (81,325) (114,553) (115,888)
----------- ----------- -----------
Income (loss) before income taxes
and cumulative effect of change
in accounting principle (539,774) 695,594 684,654
Provision (benefit) for income taxes (204,392) 257,032 235,000
----------- ----------- -----------
Income (loss) before cumulative effect
of change in accounting principle (335,382) 438,562 449,654
Cumulative effect of change in accounting
principle for income taxes (Note 4) 0 185,600 0
----------- ----------- -----------
Net income (loss) (335,382) 624,162 449,654
----------- ----------- -----------
Retained earnings, beginning of year:
As previously reported 4,051,344 3,513,848 6,023,994
Adjustment (Note 4) 35,500 0 0
----------- ----------- -----------
As restated 4,086,844 3,513,848 6,023,994
----------- ----------- -----------
Dividend declared ($.25 per share) (51,166)
-----------
Retirement of treasury shares (Note 6) (2,959,800)
-----------
Retained earnings, end of year $ 3,751,462 $ 4,086,844 $ 3,513,848
----------- ----------- -----------
----------- ----------- -----------
Average shares outstanding 204,662 204,662 204,662
Income (loss) per share before cumulative
effect of change in accounting principle $(1.64) $2.14 $2.20
Accounting change .00 .91 .00
------ ----- -----
Net income (loss) per share, on
average number of shares $(1.64) $3.05 $2.20
------ ----- -----
------ ----- -----
</TABLE>
The accompanying notes are an integral part of these financial statements.
LANE PLYWOOD, INC. 3
<PAGE>
STATEMENTS OF CASH FLOWS
for the fiscal years ended November 30, 1995, 1994 and 1993
<TABLE>
<CAPTION>
1994
1995 (Note 4) 1993
<S> <C> <C> <C>
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS:
Cash flows from operating activities:
Net income (loss) $ (335,382) $ 624,162 $ 449,654
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation 213,917 193,690 221,998
Depletion of timber 9,811 27,632 93,679
Gain on sale of property (333,354) (162,549) (186,990)
Change in assets and liabilities:
(Increase) decrease in:
Receivables 586,624 (298,641) (165,739)
Inventories (55,231) 91,291 (48,420)
Prepaids and other current assets (127,248) (70,070) 103,276
Increase (decrease) in:
Accounts payable and accrued liabilities (304,989) 120,653 57,241
Deferred accruals 139,668 73,376 20,000
----------- ----------- -----------
Net cash provided by (used in) operating
activities (206,184) 599,544 544,699
----------- ----------- -----------
Cash flows from investing activities:
Additions to property (187,112) (197,560) (420,987)
Proceeds from disposition of property 376,632 177,800 241,680
----------- ----------- -----------
Net cash provided by (used in) investing
activities 189,520 (19,760) (179,307)
----------- ----------- -----------
Cash flows from financing activities:
Dividends paid (51,166)
Increase (decrease) in book cash overdraft 95,202 (50,770) (397,878)
Proceeds from (payment of) short-term bank
borrowing (423,508) (297,813) 505,180
Payment of long-term debt (27,183) (348,938) (384,465)
----------- ----------- -----------
Net cash used in financing activities (406,655) (697,521) (277,163)
----------- ----------- -----------
Net increase (decrease) in cash and cash equivalents (423,319) (117,737) 88,229
Cash and cash equivalents, beginning of year 1,081,608 1,199,345 1,111,116
----------- ----------- -----------
Cash and cash equivalents, end of year $ 658,289 $ 1,081,608 $ 1,199,345
----------- ----------- -----------
----------- ----------- -----------
SUPPLEMENTARY DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $ 82,218 $ 114,553 $ 116,624
Income taxes, net of tax refund received (286,382) 171,616 42,394
SUMMARY OF NONCASH FINANCING ACTIVITIES:
Dividends declared but not paid $ 51,166
</TABLE>
The accompanying notes are an integral part of these financial statements.
LANE PLYWOOD, INC. 4
<PAGE>
NOTES TO FINANCIAL STATEMENTS
November 30, 1995, 1994 and 1993
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
a. DESCRIPTION OF THE COMPANY: Lane Plywood, Inc. (the Company)
manufactures plywood for sale and dries green veneer for both internal
use in plywood manufacturing and external sales. Green veneer used in
manufacturing and sold is purchased on the open market.
The accompanying financial statements include the accounts of the
Company and its wholly-owned subsidiary, Lane International Marketing,
Inc., which is an inactive company.
b. CASH AND CASH EQUIVALENTS: Cash and cash equivalents include highly
liquid investments with original maturities of three months or less.
Cash equivalents consist of money market accounts with high quality
institutions primarily on the West Coast. At times balances may exceed
amounts insured by the Federal Deposit Insurance Corporation .
c. ACCOUNTS RECEIVABLE: Trade accounts receivable is composed of
uncollateralized receivables from customers throughout the United
States. The Company performs ongoing credit evaluations of its
customers and maintains allowances for potential bad debts. In prior
years, the Company has experienced negligible bad debts.
d. INVENTORIES: Inventories are valued at the lower of cost or market,
with cost being determined on the last-in, first-out (LIFO) method for
substantially all inventories of the Company. The Company values its
LIFO increments using its earliest acquisition costs.
e. DEPRECIATION AND CAPITALIZATION POLICIES: Property, plant and
equipment are depreciated using both straight-line and accelerated
methods. Expenses for maintenance, repairs and minor improvements and
additions are charged to expense as incurred. Major improvements and
additions are added to the asset accounts. When property is sold or
retired, the cost and accumulated depreciation are removed from the
accounts and the resulting gain or loss is recorded in income.
ESTIMATED
USEFUL LIVES
Land improvements 5 to 10 years
Buildings 10 to 20 years
Machinery and equipment 3 to 10 years
Continued
LANE PLYWOOD, INC. 5
<PAGE>
NOTES TO FINANCIAL STATEMENTS, Continued
November 30, 1995, 1994 and 1993
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued:
f. TIMBER AND TIMBERLANDS: Timber and timberlands consist of the cost
paid for tracts of timber net of accumulated depletion for timber
harvested. Some of the timber tracts are currently being held for sale
and are classified as current assets, and the remaining are being held
for future growth and are classified as long-term assets.
g. ENVIRONMENTAL EXPENDITURES: Expenditures that relate to current
operations are expensed or capitalized, as appropriate. Expenditures
that relate to an existing condition caused by past operations, and
which do not contribute to future revenues, are expensed. Liabilities
are recorded when remedial efforts are probable and the costs can be
reasonably estimated.
h. POSTRETIREMENT BENEFITS OTHER THAN PENSIONS: The Company provides
certain health care benefits for retired employees. Effective December
1, 1993, the Company adopted the Statement of Financial Accounting
Standards (SFAS) No. 106, "Employers' Accounting for Postretirement
Benefits Other Than Pensions". The Company previously expensed the
cost of these benefits as claims were incurred.
i. INCOME TAXES: Effective December 1, 1993, the Company adopted the
Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting
for Income Taxes". This Statement supersedes Accounting Principles
Board (APB) Statement No. 11, "Accounting for Income Taxes". APB No.
11 required that income taxes be recognized during the year in which
transactions enter into the determination of financial statement
income, with deferred taxes being provided for timing differences.
SFAS No. 109 requires the use of an asset and liability method of
accounting for income taxes, which results in deferred income taxes
being provided on temporary differences resulting from reporting
transactions in different periods for financial reporting and income
tax purposes.
j. EARNINGS PER SHARE: Earnings per share are based upon the Company's
average number of shares of common stock outstanding during the year.
k. RECLASSIFICATIONS: Certain prior-year amounts have been reclassified
to conform with the current-year presentation, which has no impact on
net income or cash flows as previously reported.
LANE PLYWOOD, INC. 6
<PAGE>
NOTES TO FINANCIAL STATEMENTS, Continued
November 30, 1995, 1994 and 1993
2. INVENTORIES:
Inventories at November 30 consist of the following:
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Plywood $ 692,659 $ 492,840
Veneer 629,424 791,842
LIFO provision (488,260) (512,428)
--------- ---------
833,823 772,254
Operating supplies 62,501 68,839
--------- ---------
896,324 841,093
--------- ---------
--------- ---------
</TABLE>
If the first-in, first-out method had been used instead of LIFO, the
valuation assigned to total inventories would have been $1,384,584 and
$1,353,521 at November 30, 1995 and 1994, respectively. In 1994, certain
inventories were reduced, resulting in the liquidation of LIFO layers
carried at lower costs prevailing in prior years as compared with the
current cost of inventory. The effect of these inventory liquidations was
to reduce cost of goods sold by approximately $54,576 or $.27 per share.
3. PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment at November 30, at cost, consist of the
following:
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Land $ 526,488 $ 565,262
Buildings 1,543,065 1,548,687
Machinery and equipment 8,140,732 7,959,833
Construction in progress 16,068 78,700
----------- -----------
10,226,353 10,152,482
Less accumulated depreciation (7,970,295) (7,830,255)
----------- -----------
2,256,058 2,322,227
----------- -----------
Idle equipment 118,856 122,770
----------- -----------
2,374,914 2,444,997
----------- -----------
----------- -----------
</TABLE>
Continued
LANE PLYWOOD, INC. 7
<PAGE>
NOTES TO FINANCIAL STATEMENTS, Continued
November 30, 1995, 1994 and 1993
3. PROPERTY, PLANT AND EQUIPMENT, Continued:
The Company is holding certain assets as idle assets that are no longer
used in the production process. These assets have been used primarily for
the log hauling and veneer production operation that the Company suspended
in 1992 and late 1991. At November 30, the idle assets consist of the
following:
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Assets, at historical cost $ 3,441,412 $ 3,441,412
Accumulated depreciation (3,322,556) (3,318,642)
----------- -----------
Net book value $ 118,856 $ 122,770
----------- -----------
----------- -----------
</TABLE>
The Company believes in the event any of these assets are sold there will
be no material loss on their disposition.
4. TAXES ON INCOME:
The provision (benefit) for income taxes consists of the following at
November 30:
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Federal:
Current $(145,013) $135,053 $215,000
Deferred (24,951) 80,075 20,000
State - deferred (34,428) 41,904 0
--------- -------- --------
$(204,392) $257,032 $235,000
--------- -------- --------
--------- -------- --------
</TABLE>
Upon adoption of SFAS No. 109 on December 1, 1993, the Company recorded the
cumulative effect of the change in accounting. The amount of cumulative
effect benefit previously recorded in 1994 of $55,000 has been restated to
$185,600 ($.91 per share), and the deferred tax component of the 1994
provision for income taxes was increased by $95,100 to properly reflect the
cumulative effect of the adoption of SFAS No. 109. The effect of the
restatement was to decrease 1994 income before cumulative effect of change
in accounting principle from $533,662 to $438,562 ($2.61 per share to $2.14
per share), and to increase 1994 net income by $35,500 from $588,662 to
$624,162 ($2.88 per share to $3.05 per share).
The components of deferred tax provision in 1993 were depreciation of
$60,000, less deferred workers' compensation of $40,000.
Continued
LANE PLYWOOD, INC. 8
<PAGE>
NOTES TO FINANCIAL STATEMENTS, Continued
November 30, 1995, 1994 and 1993
4. TAXES ON INCOME, Continued:
The difference between the statutory federal income tax rate and the
Company's effective rate is summarized as follows:
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Federal (34.0)% 34.0% 34.0%
State (6.4) 6.0
Other differences, net 2.6 (3.0) .3
----- ---- ----
(37.8)% 37.0% 34.3%
----- ---- ----
----- ---- ----
</TABLE>
The Company has approximately $985,000 of state net operating loss (NOL)
carryforwards which can be used to reduce future state taxable income,
which expire through 2006.
The components of the net deferred tax asset/liability at November 30, 1995
and 1994 are as follows:
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Assets:
Vacation accrual $ 63,200 59,000
Postretirement benefits other than pensions 57,300 23,500
Workers' compensation accrual 43,800 32,000
Reforestation reserve 17,000
Environmental liability 32,300
State net operating loss carryforward 61,000 35,500
Other 17,400 33,621
-------- --------
275,000 200,621
-------- --------
Liabilities:
Excess tax over book depreciation 207,000 168,000
Pension payments 0 24,000
-------- --------
207,000 192,000
-------- --------
Net deferred tax asset $ 68,000 $ 8,621
-------- --------
-------- --------
Balance sheet classification:
Current deferred income taxes $129,604 $ 75,317
Deferred income taxes 61,604 66,696
-------- --------
Net deferred tax asset $ 68,000 $ 8,621
-------- --------
-------- --------
</TABLE>
The Company has recognized a deferred tax asset related to the State net
operating loss carryforward. If the Company consummates the merger as
described in Note 12, this asset may not be realized.
LANE PLYWOOD, INC. 9
<PAGE>
NOTES TO FINANCIAL STATEMENTS, Continued
November 30, 1995, 1994 and 1993
5. NOTES PAYABLE AND LONG-TERM DEBT:
At November 30, long-term debt consisted of the following:
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Purchase contract at 8.03%, due in 1999, $1,666
monthly payment including interest, collateralized
by certain assets $ 62,076 $76,452
Purchase contract at 8%, due in 1999, $18,802 annual
payment plus interest, collateralized by certain assets 62,333 75,140
-------- --------
124,409 151,592
Less current portion 29,388 27,164
-------- --------
$ 95,021 $124,428
-------- --------
-------- --------
</TABLE>
Subsequent to fiscal 1996, repayment of principal on the above indebtedness
is as follows:
<TABLE>
<CAPTION>
<S> <C>
1997 $31,793
1998 34,390
1999 28,838
-------
$95,021
-------
-------
</TABLE>
Under a short-term line of credit with the bank, collateralized by accounts
receivable, inventory and machinery, the Company may borrow up to a maximum
of $2,000,000 with interest at the bank's variable basic rate (8.75% at
November 30, 1995; average interest rate of 9.79%) plus 1% with April 30,
1996 expiration. During fiscal year 1995, the maximum borrowing under this
line was $824,798 and the average borrowing equaled $371,728. There was no
principal outstanding at November 30, 1995. The bank charges the line of
credit to cover checks presented which exceed the Company's cash on deposit.
The loan agreement pertaining to the short-term line of credit with the
bank contains, among other things, certain requirements as to the
maintenance of working capital, net worth and debt to net worth, and
restrictions as to the level of capital and lease expenditures, the
incurrence of debt, investments and payment of cash dividends. At November
30, 1995, the Company is in compliance with all loan requirements. Under
the most restrictive requirements, the Company must maintain $3,600,000 of
stockholders' equity and $775,000 working capital after allowances for
accounting entries relating to the defined benefit pension plan.
The Company has an additional short-term line of credit, collateralized by
certain real property, which was not used during 1995. Under this
agreement, the Company may borrow up to a maximum of $1,000,000, with
interest at the bank's variable basic rate plus 1%, with an April 30,
1996 expiration. At November 30, 1995, there was no principal outstanding.
LANE PLYWOOD, INC. 10
<PAGE>
NOTES TO FINANCIAL STATEMENTS, Continued
November 30, 1995, 1994 and 1993
6. STOCKHOLDERS' EQUITY:
The Company's loan agreement with the bank includes a limitation on the
payment of dividends. In 1995, the maximum dividend allowed was 25% of
annual net profits, after taxes.
Pursuant to Oregon law, shares of common stock reacquired by a corporation
constitute unissued shares. Accordingly, during the year ended November
30, 1993, the Company retired 510,912 shares held in treasury that were
accounted for as treasury shares at cost.
7. SALES TO CUSTOMERS:
Five customers account for most of the sales throughout the United States.
Receivables resulting from sales are uncollateralized. Sales included net
sales to a customer in the amounts $16,686,925, $16,706,383 and $19,054,472
for the years ended 1995, 1994 and 1993, respectively. Another customer
accounted for net sales of $1,504,176, $1,771,410 and $4,279,621 in 1995,
1994 and 1993, respectively. In the opinion of management, the loss of any
customer would not materially affect the Company's net income. The
Company's products are commodity items and are sold at prevailing market
rates; therefore, these customers could be replaced.
8. PENSION PLANS:
The Company has a defined contribution plan which covers all its employees
and through April 11, 1995 had a noncontributory defined benefit plan. On
December 31, 1987, the defined benefit plan was suspended and all future
benefits were frozen. In April 1995, the Company entered into an agreement
to transfer sufficient assets to Transamerica Life Insurance Co. and
purchased annuities to fully settle the defined benefit plan and to relieve
the Company of any further obligation.
A pre-tax loss of $1,357,676 was recognized on settlement of the defined
benefit plan in 1995 pursuant to Statement of Financial Accounting
Standards (SFAS) No. 88, "Employers' Accounting for Settlements and
Curtailments of Defined Benefit Pension Plans and for Termination
Benefits". The amount of the loss on settlement varied from the estimate
of the loss available to the Company on January 5, 1995, when the Board
adopted a resolution to terminate the plan primarily because of a change in
interest rates.
Continued
LANE PLYWOOD, INC. 11
<PAGE>
NOTES TO FINANCIAL STATEMENTS, Continued
November 30, 1995, 1994 and 1993
8. PENSION PLANS, Continued:
Subject to applicable limitations prescribed under the Internal Revenue
Code, participants may elect to make salary reduction 401(k) contributions
to the defined contribution plan of up to 15% of their compensation. In
addition, the Company may, but is not required, to make contributions to
the defined contribution plan for any year.
Company contributions to the defined contribution plan are made and
allocated based upon each participant's compensation. As defined in the
contribution plan, "compensation" means a participant's straight-time pay,
plus two-thirds of overtime, holiday and vacation pay, plus any salary
reduction contribution made by the participant to the plan. Company
contributions to the defined contribution plan were $285,802, $269,458 and
$256,259 in 1995, 1994 and 1993, respectively. In 1994 and 1993, the
Company funded the defined benefit plan in accordance with the
recommendations of the plan's actuary. Total expense under these plans,
including the settlement loss incurred by the retirement of the defined
benefit plan, was $1,643,478 in 1995, $384,759 in 1994 and $337,690 in 1993.
9. INCENTIVE PROFIT SHARING PLAN:
The Company has an incentive profit sharing plan which provides for bonus
payments to eligible employees. The total bonus distribution to eligible
employees is based on 30% of income before income taxes, adjusted for the
effect of major gains or losses on dispositions of assets, if any, and
adjusted for the effect of inventory costs determined under the LIFO method
(see Note 1) in excess of a base provision equal to the sum of 5% of
stockholders' equity and 10% of long-term debt at the beginning of the
fiscal year.
During the period March 1, 1981 to July 31, 1983, wages and salary rates
for all employees were either reduced or restored dependent upon the
Company's financial position. An accumulation of the net earnings
reduction due to the reduced wage and salary rates during this period was
maintained for this group of employees and, as provided in the incentive
profit sharing plan, were to be paid out of 20% of the future profits when
realized and as defined in the incentive profit sharing plan. There were
no payments due under the plan for 1995. The amount of payments due for
1994 and 1993 under the terms of the plan for this class of employees was
$77,491 and $44,638, respectively. At November 30, 1995, the accumulated
amount of earnings eligible for future payment, contingent upon future
profits as defined by the plan, totaled $868,262. The remaining 10% of
profits earned in accordance with the incentive profit sharing plan are
distributed to all eligible employees. There were no bonus wages accrued
in 1995; bonus wages were accrued in the amount of $38,745 in 1994 and
$22,319 in 1993.
LANE PLYWOOD, INC. 12
<PAGE>
NOTES TO FINANCIAL STATEMENTS, Continued
November 30, 1995, 1994 and 1993
10. POSTRETIREMENT BENEFIT PLANS OTHER THAN PENSIONS:
As discussed in Note 1, effective December 1, 1993, the Company adopted
SFAS No. 106.
Accumulated postretirement benefit obligation as of November 30:
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Retirees $ 22,900 $ 14,558
Fully eligible plan participants 10,782 8,047
Other active plan participants 482,290 424,615
-------- --------
Accumulated postretirement benefit obligation
(the plan is not funded) 515,972 447,220
Unrecognized net transition obligation 365,248 385,540
-------- --------
Postretirement benefit obligation included in the
balance sheet at November 30 $150,724 $ 61,680
-------- --------
-------- --------
</TABLE>
Net periodic postretirement benefit cost for the year ended November 30
consisted of the following components:
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Service cost $ 49,546 $ 26,895
Interest cost 33,542 32,467
Amortization of transition obligation 20,292 20,292
-------- --------
Net periodic postretirement benefit expense $103,380 $ 79,654
-------- --------
-------- --------
</TABLE>
The assumed health care cost trend rate used in measuring the accumulated
postretirement benefit obligations was 9% until 2001 and 5% thereafter in
1995 (10% until 1999 and 6% thereafter in 1994). A one percentage point
increase in the assumed health care cost trend for each year would increase
the accumulated postretirement benefit obligation as of November 30, 1995
and net postretirement health care cost by approximately 10.5%. The
assumed discount rate used in determining the accumulated postretirement
benefit obligation was 7.5% in 1995 and 8.5% in 1994. Postretirement
health care benefits paid on behalf of retired employees were $14,336 in
1995, $17,974 in 1994 and $22,067 in 1993.
LANE PLYWOOD, INC. 13
<PAGE>
NOTES TO FINANCIAL STATEMENTS, Continued
November 30, 1995, 1994 and 1993
11. CONTINGENCIES:
a. RETROSPECTIVE RATED INSURANCE: The Company purchases insurance
policies subject to retrospective adjustments for workers' compensation
costs. At November 30, 1995, management has accrued all costs
estimated as payable under these policies. The Company's maximum
retrospective premium exposure is approximately $450,000.
b. CLAIMS AND OTHER LEGAL PROCEEDINGS: The Company is involved in claims
incurred in the normal course of business. In the opinion of
management, the ultimate outcome of these claims will not have a
material effect on the Company's results of operations.
c. ENVIRONMENTAL ISSUES: Federal, state and local laws and regulations
establishing standards and requirements for protection have increased
in number and scope in recent years. The Company cannot predict the
future impact of such standards and requirements, which are subject to
change and can be retroactive. The Company continues to monitor the
status of these laws and regulations. Such monitoring involves the
review of past and current operations and properties. To the best of
its knowledge, the Company believes it is in substantial compliance
with such current laws and regulations.
As of November 30, 1995, the Company has made an accrual based on the
current estimate to bring the Company in compliance with existing
environmental laws and regulations with respect to an environmental
matter. Based in part on advice from its experts, management has
estimated that future costs will be approximately $85,000, and the
Company has accrued this amount as the best estimate of the future
costs. The Company is aware of other potential environmental issues
arising out of situations existing on or in certain of its properties,
at which there may be future costs incurred for environment study and
remediation. Management's opinion is that the Company is not currently
obligated to incur such costs, and the Company did not contribute to
the environmental issue. Management believes that others will be
responsible for any such costs and costs, if any, related to these
issues will not be material to the financial position of the Company.
However, the potential future environmental costs may increase due to
such factors as: the identification of additional contaminated areas;
advances in technology; and changes in environmental laws and
regulations and their applications.
12. SUBSEQUENT EVENT
The Directors of the Company have executed an Agreement and Plan of Merger
for the sale of all of Lane Plywood, Inc.'s shares of common stock. The
merger must be approved by the shareholders. The shareholder vote is
scheduled to occur at the annual shareholders' meeting, which is
tentatively scheduled for March 30, 1996.
LANE PLYWOOD, INC. 14
