SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended January 31, 1994
Commission file number 0-16158
WTD Industries, Inc.
(Exact name of Registrant as specified in its charter)
Oregon 93-0832150
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
10260 S.W. Greenburg Road, Suite 900, Portland, Oregon 97223
(Address of principal executive offices) (Zip Code)
(Registrant's telephone number, including area code) (503) 246-3440
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 whether the Registrant has filed all
documents and reports required to be filed by Sections 12, 13 or
15(d) of the Securities Exchange Act of 1934 subsequent to the
distribution of securities under a plan confirmed by a court.
Yes X No
The number of shares outstanding of Registrant's Common Stock,
no par value, at March 3, 1994 was 10,681,086.
Page 1 of 19
WTD INDUSTRIES, INC.
INDEX
Page
Number
PART I. Financial Information (Unaudited)
Item 1. Financial Statements
Consolidated Statement of Income -
Three Months and Nine Months Ended
January 31, 1994 and 1993 3
Consolidated Balance Sheet -
January 31, 1994 and April 30, 1993 4
Consolidated Statement of Cash Flows -
Nine Months Ended January 31, 1994 and 1993 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of
Operations 11
PART II. Other Information
Item 5. Other Information 16
Item 6. Exhibits and Reports on Form 8-K 16
<TABLE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
WTD INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
(In Thousands, Except Per-Share Amounts)
(Unaudited)
<CAPTION>
THREE MONTHS ENDED JANUARY 31, NINE MONTHS ENDED JANUARY 31,
----------------------------- ----------------------------
1994 1993 1994 1993
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
NET SALES $ 85,673 $ 49,706 $ 205,417 $ 170,520
COST OF SALES 74,470 45,176 186,044 159,567
---------- ---------- ---------- ----------
GROSS PROFIT 11,203 4,530 19,373 10,953
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 3,814 2,901 9,354 8,505
REORGANIZATION CHARGES (CREDITS) (110) (858) (1,804) 563
---------- ---------- ---------- ----------
OPERATING INCOME 7,499 2,487 11,823 1,885
OTHER INCOME (EXPENSE)
Interest Expense (1,640) (1,155) (4,974) (1,197)
Miscellaneous 150 78 282 105
---------- ---------- ---------- ----------
(1,490) (1,077) (4,692) (1,092)
---------- ---------- ---------- ----------
INCOME BEFORE INCOME TAXES 6,009 1,410 7,131 793
PROVISION FOR INCOME TAXES 2,035 309 2,282 309
---------- ---------- ---------- ----------
INCOME BEFORE
EXTRAORDINARY ITEMS 3,974 1,101 4,849 484
EXTRAORDINARY ITEMS
Gain on debt restructure, net of
tax provision of $7,614 -- 11,966 -- 11,966
Tax benefit of net operating
loss carryforward -- 7,923 -- 7,923
---------- ---------- ---------- ----------
-- 19,889 -- 19,889
---------- ---------- ---------- ----------
NET INCOME 3,974 20,990 4,849 20,373
ACCUMULATED PREFERRED DIVIDENDS (405) (259) (1,212) (259)
---------- ---------- ---------- ----------
NET INCOME APPLICABLE
TO COMMON SHAREHOLDERS $ 3,569 $ 20,731 $ 3,637 $ 20,114
========== ========== ========== ==========
NET INCOME PER SHARE - PRIMARY
Income before
extraordinary items $0.31 $0.10 $0.32 $0.05
Extraordinary items -- 2.35 -- 4.45
------ ------ ------ ------
$0.31 $2.45 $0.32 $4.50
====== ====== ====== ======
NET INCOME PER SHARE - FULLY DILUTED
Income before
extraordinary items $0.31 $0.10 $0.32 $0.05
Extraordinary items -- 2.35 -- 4.45
------ ------ ------ ------
$0.31 $2.45 $0.32 $4.50
====== ====== ====== ======
<FN>
The accompanying notes are an integral part of these consolidated financial statements.
-3-
</TABLE>
<TABLE>
WTD INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
ASSETS
(In Thousands)
<CAPTION>
JANUARY 31, APRIL 30,
1994 1993
---------- ----------
<S> <C> <C>
CURRENT ASSETS (Unaudited)
Cash and cash equivalents $ 2,505 $ 2,124
Accounts receivable, net 17,245 19,583
Inventories 33,432 18,322
Prepaid expenses 3,250 2,399
Deferred tax asset 1,172 --
Timber, timberlands and
timber-related assets 11,670 18,998
---------- ----------
Total current assets 69,274 61,426
NOTES AND ACCOUNTS RECEIVABLE 123 161
TIMBER AND TIMBERLANDS 845 847
PROPERTY, PLANT AND EQUIPMENT,
at cost
Land 2,572 2,572
Buildings and improvements 10,286 9,953
Machinery and equipment 59,363 59,553
---------- ----------
72,221 72,078
Less accumulated depreciation (40,981) (37,839)
---------- ----------
31,240 34,239
Construction in progress 609 493
---------- ----------
31,849 34,732
IDLE ASSETS 350 974
Less costs of disposal (84) (574)
---------- ----------
266 400
OTHER ASSETS 3,159 2,473
---------- ----------
$ 105,516 $ 100,039
========== ==========
<FN>
The accompanying notes are an integral part of these consolidated financial statements.
-4-
</TABLE>
<TABLE>
WTD INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
LIABILITIES AND STOCKHOLDERS' EQUITY
(In Thousands, Except Share Information)
<CAPTION>
JANUARY 31, APRIL 30,
1994 1993
---------- ----------
<S> <C> <C>
CURRENT LIABILITIES (Unaudited)
Accounts payable $ 8,666 $ 7,390
Accrued expenses 9,453 8,549
Reserve for disputed and
unallowed prepetition claims 1,077 1,204
Income taxes payable 2,193 --
Timber contracts payable 2,666 2,695
Current maturities of long-term debt 1,552 2,333
---------- ----------
Total current liabilities 25,607 22,171
DEFERRED INCOME TAXES PAYABLE 1,172 --
LONG-TERM DEBT, less current maturities 61,286 64,184
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Preferred stock; 10,000,000 shares authorized
Series A 20,654 20,581
Series B 2,909 5,756
Common stock, no par value 26,027 23,123
Additional paid-in capital 15 15
Accumulated (deficit) (32,154) (35,791)
---------- ----------
17,451 13,684
---------- ----------
$ 105,516 $ 100,039
========== ==========
<FN>
The accompanying notes are an integral part of these consolidated financial statements.
-5-
</TABLE>
<TABLE>
WTD INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(In Thousands)
(Unaudited)
<CAPTION>
NINE MONTHS ENDED JANUARY 31,
------------------------------------------------
1994 1993
---------- ----------
<S> <C> <C>
CASH PROVIDED BY (USED FOR) OPERATING ACTIVTIES:
Net income $ 4,849 $ 20,373
Adjustments to reconcile net income to
cash provided by (used for) operations:
Depreciation, depletion and amortization 6,304 7,588
Gain on debt restructure -- (19,580)
Reorganization charges (1,804) 563
Accounts receivable 2,338 4,774
Inventories (15,110) 8,230
Prepaid expenses (851) (643)
Timber, timberlands and
timber-related assets - current 5,988 4,978
Payables and accruals 2,320 (10,963)
Income taxes 2,193 --
---------- ----------
Cash provided by operating activities 6,227 15,320
---------- ----------
CASH PROVIDED BY (USED FOR) INVESTING ACTIVITIES:
Net reductions of (additions to) timber
and timberlands 13 (155)
Acquisition of property, plant and equipment (2,107) (3,454)
Proceeds from sale of idle assets 2,013 4,613
Cost of holding idle assets (123) (989)
Other investing activities 206 109
---------- ----------
Cash provided by investing activities 2 124
---------- ----------
CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES:
Principal payments on long-term debt (3,817) (9,264)
Other assets (876) (29)
Dividends paid (1,212) (388)
Restricted cash -- 7,606
Issuance of common stock 57 --
---------- ----------
Cash used for financing activities (5,848) (2,075)
---------- ----------
INCREASE IN CASH AND CASH EQUIVALENTS 381 13,369
BALANCE AT BEGINNING OF PERIOD 2,124 4,738
---------- ----------
BALANCE AT END OF PERIOD $ 2,505 $ 18,107
========== ==========
CASH PAID (REFUNDED) DURING THE PERIOD FOR:
Interest $5,765 $1,117
Income taxes $75 --
<FN>
The accompanying notes are an integral part of these consolidated financial statements.
-6-
</TABLE>
NOTE 1 - SUMMARY OF FINANCIAL STATEMENT PRESENTATION
In the opinion of management, the consolidated financial
statements of WTD Industries, Inc. and subsidiaries ("WTD" or "the
Company") presented herein include all adjustments, which are
solely of a normal recurring nature, necessary for a fair
presentation of the financial position, results of operations, and
cash flows for the interim periods presented. The financial
statements should be read with reference to "Management's
Discussion and Analysis of Financial Condition and Results of
Operations" contained in this report, and the "Notes to
Consolidated Financial Statements" set forth in the Company's
Annual Report on Form 10-K for the year ended April 30, 1993, filed
with the Securities and Exchange Commission.
NOTE 2 - INVENTORIES
Inventories are valued at the lower of cost or market. The
amounts included in inventories at January 31, 1994 and April 30,
1993 are as follows (in thousands):
January 31, April 30,
1994 1993
Logs $16,622 $ 7,569
Lumber 15,564 9,515
Supplies 1,246 1,238
------- -------
$33,432 $18,322
NOTE 3 - REORGANIZATION CHARGES (CREDITS)
Reorganization credits for the nine months ended January 31,
1994 principally reflect the disposal of idle assets at amounts in
excess of their carrying values. Reorganization charges in the
nine months ended January 31, 1993 reflect legal and other
professional fees associated with the Company's Chapter 11
proceedings, partially offset by net gains on the sale of idle
assets and the settlement of associated liabilities in connection
with the Reorganization.
NOTE 4 - STOCKHOLDERS' EQUITY AND COMMON SHARES OUTSTANDING
Stockholders' equity at January 31, 1994 consists of the
following:
Series A preferred stock, $100 per share liquidation
preference; 500,000 shares authorized; 269,636 shares
issued and outstanding; limited voting rights; cumulative
dividends payable quarterly in advance at the prime rate,
with a minimum rate of 6% and a maximum rate of 9%;
convertible into common stock at $7.50 per share after
April 30, 1999; redeemable at original issue price plus
accrued dividends at the option of the Board of
Directors, in the form of cash or in exchange for senior
unsecured debt with 12% coupon. The holders of the
Series A preferred stock will be granted voting control
of the Company's Board of Directors in the event the
Company misses three consecutive quarterly dividend
payments, four quarterly dividend payments within twenty
-four months or a total of eight quarterly dividend
payments. The Company has paid all scheduled dividends.
Series B preferred stock, $100 per share liquidation
preference; 500,000 shares authorized; 53,380 shares
issued and outstanding; limited voting rights;
convertible into 1,857,890 shares of common stock;
dividends payable only if paid on the Company's common
stock; redeemable at original issue price plus accrued
dividends at the option of the Board of Directors after
all Series A preferred stock has been redeemed. During
the period from May 1, 1993 through January 31, 1994,
52,244 shares of Series B preferred shares were converted
into 1,818,350 common shares.
Common stock, no par value; 40,000,000 shares authorized;
9,404,877 shares issued and outstanding. Before giving
effect to any shares that might be issued pursuant to the
management incentive stock option plan or conversion of
any Series A preferred stock, the total number of common
shares would increase to 11,262,767 shares if all
remaining Series B preferred stock outstanding at January
31, 1994 is converted to common stock.
NOTE 5 - NET INCOME PER SHARE
The computations of net income per share are based upon the
weighted average number of common shares and common share
equivalents outstanding during the interim periods presented. For
primary earnings per share purposes, weighted average shares of
11,388,713 and 11,366,985 were used for the three and nine month
periods ended January 31, 1994, respectively. For fully diluted
earnings per share, weighted average shares of 11,464,680 and
11,456,594 were used for the three and nine month periods ended
January 31, 1994, respectively. Weighted average shares of
8,455,000 and 4,465,000 were used in the computations of both
primary and fully diluted earnings per share for the three and nine
month periods ended January 31, 1993, respectively. Weighted
average shares for the three and nine month periods ended January
31, 1993 were adjusted to reflect a four-for-ten reverse common
stock split effective November 30, 1992.
NOTE 6 - PROVISION FOR INCOME TAXES
The Company has available net operating loss (NOL)
carryforwards of approximately $27 million for federal income tax,
and about $35 million for state income tax purposes. The ownership
change brought about by the Company's reorganization limits the
utilization of these carryforwards to approximately $2.27 million
per year for federal tax purposes and approximately $1.5 million
per year for state tax purposes. The tax provision for the nine
months ended January 31, 1994 reflects a reduction from statutory
rates as a result of utilizing the allowable NOL carryforwards.
Effective May 1, 1993, the Company adopted Statement of
Financial Accounting Standards 109, "Accounting for Income Taxes".
This statement mandates the asset and liability approach to
determining income tax provision or benefit. Deferred income tax
benefits and liabilities are recognized for the tax consequences of
temporary differences in the carrying value of assets and
liabilities for financial reporting and income tax purposes. Such
deferred tax benefits and liabilities must be grouped as short-term
and long-term, depending on the expected time before the
differences in values reverse.
As a result of this pronouncement, the Company has recorded a
current deferred tax asset of $1,172,000, principally related to
charges recognized for financial reporting purposes in advance of
their deductibility for income tax purposes. In addition, the
Company has recorded a long-term deferred tax liability of
$1,172,000. The principal items comprising this liability at
January 31, 1994 are as follows (in thousands):
Differences in methods used to depreciate
assets for financial reporting and tax
purposes $ 3,480
Tax benefit of net operating loss carryforward,
principally resulting from reorganization under
Chapter 11 (10,951)
Valuation allowance against tax benefit of net
operating loss carryforward 8,643
-------
$ 1,172
=======
NOTE 7 - COMMITMENTS AND CONTINGENCIES
On November 30, 1990, the Company received a tax assessment
from the State of Washington for Business and Occupation (B&O)
taxes in the amount of approximately $900,000, including interest
and penalties. The tax was assessed against TreeSource, Inc., a
wholly-owned subsidiary which acts as the Company's sales agent,
based on sales made by TreeSource on behalf of the Company's
Washington mills. B&O taxes were in fact paid by the Company's
Washington mills on their sales. On April 8, 1993 the Company's
request for reconsideration was denied. The Company continues to
contest the assessment. A trial is set for April 11, 1994 in the
U.S. Bankruptcy Court for the Western District of Washington.
Should WTD be ultimately found liable for such taxes, management
believes the liability would be discharged pursuant to the
Company's Plan of Reorganization in installments ending in 1996.
The Company is involved in other litigation primarily arising
in the normal course of its business. In the opinion of
management, the Company's liability, if any, under such pending
litigation would not have a material adverse impact upon the
Company's consolidated financial condition or results of
operations.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Reorganization
On November 23, 1992, WTD's Second Amended Joint Plan of
Reorganization was confirmed by the U.S. Bankruptcy Court for the
Western District of Washington. Distributions under the Plan
commenced November 30, 1992. An extraordinary gain on debt
restructure of about $19.6 million, less a tax provision of $7.6
million, was recognized as a result of the distributions.
As of November 30, 1992, the Company resumed paying interest
on its debt and began paying dividends on its Series A preferred
stock. Based upon the current prime rate, interest expense and
preferred dividend payments are projected to be approximately $6.6
million and $1.6 million, respectively, in the year ending April
30, 1994. Approximately $0.3 million of such interest expense will
not require a cash outlay during that period. Partially offsetting
the additional interest expense and dividend payments, the Company
no longer incurs legal and professional fees associated with the
reorganization proceedings. Such charges totalled $1.8 million in
the nine months ended January 31, 1993.
Results of Operations
Overview
On a quarter-to-quarter basis, the Company's financial results
have varied widely, and will continue to vary, due to seasonal
fluctuations and market factors affecting the demand for logs,
lumber and other wood products. The industry is subject to
fluctuations in sales and earnings due to such factors as industry
production in relation to product demand and variations in interest
rates and housing starts. Currency fluctuations affect the forest
products industry when exchange rates affect log exports, which in
turn influence domestic log prices.
The industry is also affected by weather conditions and
changing timber management policies. Fire danger and excessively
dry or wet conditions temporarily reduce logging activity and may
increase open market log prices. Timber management policies of
various governmental agencies change from time to time, causing
actual or feared shortages in some areas periodically. These
policies change because of environmental concerns, public agency
budget issues, and a variety of other reasons. Therefore, past
results for any given year or quarter are not necessarily
indicative of future results.
It is generally the Company's practice to curtail production
at facilities from time to time due to conditions which temporarily
impair log flow, or when imbalances between log costs and product
prices cause the cost of operation to exceed the cost of shutdown.
Management believes its labor practices and compensation systems,
as well as a relatively low capital cost in relation to production
capacity, give it the flexibility to curtail operations and resume
production as conditions warrant.
Raw materials comprise the majority of the cost of products
sold by the Company. The Company depends principally on open
market log purchases for its raw materials needs. WTD's log
inventory policy is to maintain, where possible, a supply equal to
three to four weeks of production.
During the fiscal year ended April 30, 1993, there were
significant increases in log costs coupled with record increases in
lumber prices. Beginning in April of 1993, the industry
experienced a sharp decline in lumber prices from the record high
levels reached in March 1993. Log prices did not decline as
quickly as those of lumber, resulting in substantially reduced
gross margins.
Since that time, the margin between product prices and
log costs has improved. Log supply is currently adequate. Log
prices, while very high by historical standards, generally allow a
profit margin at current lumber prices. Although there are
indications of a sustainable recovery in housing demand, there can
be no assurance that the margins recently experienced by the
Company will continue or improve.
The following table sets forth the percentages which certain
expenses and income (loss) items bear to net sales, and the period
- -to-period percentage change in each item.
<TABLE> Percentage
<CAPTION>
Income and Expense Items as a Percentage of Net Sales Increase (Decrease)
----------------------------------------------------------------- ------------------------
Three Months Nine Months
Three Months Nine Months Ended Ended
Ended January 31, Ended January 31, 1/31/94 1/31/94
--------------------------- --------------------------- to to
1994 1993 1994 1993 1/31/93 1/31/93
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net sales 100.0 % 100.0 % 100.0 % 100.0 % 72.4 % 20.5 %
Cost of sales 86.9 90.9 90.6 93.6 64.8 16.6
---------- ---------- ---------- ----------
Gross profit 13.1 9.1 9.4 6.4 147.3 76.9
Selling, general and
administrative expense 4.5 5.8 4.6 5.0 31.5 10.0
Reorganization charges (0.1) (1.7) (0.9) 0.3 NM NM
---------- ---------- ---------- ----------
Operating income 8.8 5.0 5.8 1.1 201.5 527.2
Interest expense (1.9) (2.3) (2.4) (0.7) 42.0 315.5
Miscellaneous 0.2 0.2 0.1 0.1 92.3 168.6
---------- ---------- ---------- ----------
Income before income taxes 7.0 2.8 3.5 0.5 326.2 799.2
Provision for income taxes 2.4 0.6 1.1 0.2 558.6 638.5
---------- ---------- ---------- ----------
Income before extraordinary items 4.6 2.2 2.4 0.3 260.9 901.9
Extraordinary items -- 40.0 -- 11.7 NM NM
---------- ---------- ---------- ----------
Net income 4.6 % 42.2 % 2.4 % 11.9 % NM NM
========== ========== ========== ==========
<FN>
Note: Percentages may not add precisely due to rounding
NM: Not Meaningful
</TABLE>
Comparison of Three Months Ended January 31, 1994 and 1993
Net sales for the three months ended January 31, 1994
increased $36 million (72%) from the three months ended January 31,
1993. This was caused by a 38% increase in lumber prices, a 38%
increase in lumber shipments and a 24% increase in chip deliveries.
Gross profit for the quarter ended January 31, 1994 was 13.1%
of net sales, compared to 9.1% of net sales for the quarter ended
January 31, 1993. The Company's margin between lumber sales prices
and raw materials costs on a unit basis improved by 42% in the
third quarter of fiscal 1994 over the comparable period last year.
The Company also improved its raw materials utilization 2% and
lowered its unit conversion costs by 9%. A portion of the decrease
in conversion cost was due to a 46% increase in production.
Selling, general and administrative (S, G & A) expenses in the
three months ended January 31, 1994 increased by $0.9 million
(31.5%) from the three months ended January 31, 1993. This
increase was principally attributable to increased profit sharing
bonus payments resulting from higher pretax profits. S, G & A
expenses were 4.5% of net sales in the quarter ended January 31,
1994, compared to 5.8% of net sales in the quarter ended January
31, 1993.
During the quarter ended January 31, 1994, the Company
disposed of certain assets associated with its idle facilities at
amounts in excess of their carrying values. This resulted in net
gains of about $0.1 million which were recognized as reorganization
credits. Reorganization credits in the quarter ended January 31,
1993 principally reflect net gains of about $1.3 million on the
disposal of certain idle assets and discharge of associated claims,
offset by professional fees associated with the Chapter 11
proceedings.
Interest expense in the quarter ended January 31, 1994 was
$0.5 million higher than in the third quarter of last year. In
accordance with AICPA Statement of Position 90-7, the Company did
not accrue interest on unsecured and under-secured instruments
during the Chapter 11 period which concluded on November 30, 1992.
Interest expense in the three months ended January 31, 1993 would
have been approximately $0.6 million higher had all contractual
interest been accrued.
In the quarter ended January 31, 1994, the Company adjusted
its tax provision to equal 32% of pretax profits for the nine
months ended January 31, 1994. No net tax provision was recorded
in the quarter ended January 31, 1993 because management did not
believe there would be a tax liability for the year ended April 30,
1993.
Comparison of Nine Months Ended January 31, 1994 and 1993
Net sales for the nine months ended January 31, 1994 increased
$35 million (20%) from the nine months ended January 31, 1993.
This was principally caused by a 36% increase in lumber prices,
offset by a 2% decrease in lumber shipments and a 10% decrease in
chip deliveries. The reduction in chip deliveries was the result
of the Company's efforts to improve its raw materials utilization
and less log chipping activity. The Company's lumber sales average
for the third quarter of fiscal 1994 was 23% greater than in the
first quarter.
Gross profit for the nine months ended January 31, 1994 was
9.4% of net sales, compared to 6.4% of net sales for the nine
months ended January 31, 1993. The margin between lumber prices
and log costs on a unit basis improved by 33% in the first nine
months of fiscal 1994 over the comparable period in fiscal 1993.
The Company was able to offset a portion of the increase in its log
prices by improving its raw materials utilization 3% over the
average for the nine months ended January 31, 1993.
Selling, general and administrative (S, G & A) expenses in the
nine months ended January 31, 1994 increased by $0.8 million (10%)
from the nine months ended January 31, 1993. This increase is
principally the result of higher profit-sharing bonus payouts
stemming from a higher level of pretax profits. S, G & A expenses
were 4.6% of net sales in the nine months ended January 31, 1994
and 5.0% of net sales in the nine months ended January 31, 1993.
During the nine months ended January 31, 1994, the Company
disposed of certain assets associated with its idle facilities at
amounts in excess of their carrying values. This resulted in net
gains of about $1.8 million, which were recognized as
reorganization credits. Reorganization charges in the nine months
ended January 31, 1993 principally reflect $1.8 million in
professional fees associated with the Chapter 11 proceedings,
offset by net gains of $1.3 million on the sale of certain idle
assets and the settlement of associated liabilities in connection
with the Company's Reorganization.
Interest expense in the nine months ended January 31, 1994 was
$3.8 million higher than in the nine months ended January 31, 1993.
In accordance with AICPA Statement of Position 90-7, the Company
did not accrue interest on unsecured and under-secured instruments
during the Chapter 11 period which concluded on November 30, 1992.
Interest expense in the nine months ended January 31, 1993 would
have been approximately $4.4 million higher had all contractual
interest been accrued.
The Company recorded a tax provision equal to 32% of pretax
profits for the nine months ended January 31, 1994. This provision
reflects the estimated rate for the fiscal year and expected
utilization of net operating loss carryforwards. No tax provision
was recorded for the nine months ended January 31, 1993, because
management did not believe there would be a tax liability for the
year ended April 30, 1993.
Liquidity and Capital Resources
Substantially all of the Company's assets are pledged as
security for its various debt instruments. The Company relies on
cash provided by its operations to fund its working capital needs.
The Company's Credit and Security Agreement (CSA) requires
mandatory prepayments each July 29 to the holders of the Company's
senior secured debt if the Company's cumulative operating income
exceeds certain specified amounts. Further, the CSA requires that
some or all of the proceeds from the sale of certain assets be paid
over to holders of the Company's senior secured debt. There can be
no assurance that cash provided by the Company's operations and
sale of its idle assets will be sufficient to fund its future
operations and required debt service.
During the nine months ended January 31, 1994, the Company's
cash and cash equivalents increased by $0.4 million to $2.5 million
at January 31. This increase was the result of profitable
operating activities, offset by principal payments on long-term
debt, the payment of dividends on the Company's Series A preferred
stock and deposits made to secure various long-term obligations.
Capital spending in the first nine months of fiscal 1994 was
$2.1 million. Capital spending for the balance of the fiscal year
is currently forecast to be approximately $1.7 million. The
Company had no material commitments for capital spending at January
31, 1994.
During the nine months ended January 31, 1994 the Company
received aggregate proceeds of $2.0 million on the disposal of
certain idle assets. Approximately $1.2 million of these proceeds
were used to pay down long-term debt. The Company intends to
dispose of its remaining idle assets as promptly as possible.
Working capital increased by $4.4 million during the first
nine months of fiscal 1994, to $43.7 million at January 31. This
was the result of profitable operating activity, the net proceeds
retained from the sale of idle facilities and a deferred tax asset
recorded as a result of implementing Statement of Financial
Accounting Standards 109. This increase was partially offset by
capital spending, principal payments, dividend payments on the
Company's Series A preferred stock, and long-term cash deposits
made to secure certain obligations.
WTD INDUSTRIES, INC.
PART II. OTHER INFORMATION
Item 5. Other Information
On January 28, 1994, K. Stanley Martin, Vice President-Finance
and Chief Financial Officer of the Company was elected to the
WTD Board of Directors, filling the seat vacated by the
resignation of Teri E. Engel. At that same date, Robert J.
Riecke, Vice President-Administration and a Director of the
Company, was elected Secretary of the Corporation.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
The Index to Exhibits is located on page 18.
(b) No reports on Form 8-K were filed during the three months
ended January 31, 1994.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
WTD INDUSTRIES, INC.
(Registrant)
By: s/ Bruce L. Engel
--------------------
Bruce L. Engel
President
By: s/ K. Stanley Martin
--------------------
K. Stanley Martin
Vice President-Finance
Dated: March 7, 1994
INDEX TO EXHIBITS
Sequential
Number
System
Page
Number
2.1 Final form of Registrant's Second Amended Joint Plan
of Reorganization dated October 5, 1992, filed with
the United States Bankruptcy Court for the Western
District of Washington. (1)
4.2 Credit and Security Agreement dated as of November 30,
1992, between Registrant and Principal Mutual Life
Insurance Company, Aetna Life Insurance Company, The
Northwestern Mutual Life Insurance Company, Chemical
Bank, Seattle-First National Bank, and Bank of America
Oregon. (2)
4.3 Indenture dated as of November 30, 1992, between
Registrant and State Street Bank & Trust Company, as
Trustee, with respect to 8% Senior Subordinated Notes
due 2005. (3)
21 Other statements furnished to securities holders with
respect to the quarter ended January 31, 1994:
President's letter excerpted from Interim Report to
Shareholders for the third quarter of 1994. 19
- -----------------------------------------------------------------
(1) Incorporated by reference to the exhibit of like number
to the Registrant's report on Form 8-K dated November
23, 1992, previously filed with the Commission.
(2) Incorporated by reference to the exhibit of like number
to the Registrant's quarterly report on Form 10-Q for
the quarter ended October 31, 1992, dated December 14,
1992, previously filed with the Commission.
(3) Incorporated by reference to the exhibit of like number
to the Registrant's quarterly report on Form 10-Q for
the quarter ended January 31, 1993, dated March 15,
1993, previously filed with the Commission.
Report from the President
Dear WTD Shareholders:
We are pleased to resume, with this issue, quarterly financial
reports including a president's letter.
We are also pleased to announce unusually high earnings for
the quarter ended January 31, 1994.
Quarterly net income of $3.97 million and $0.31 per share are
both highest for the third quarter operating results in the history
of WTD as a public company.
The Company's third quarter is historically a difficult
earnings period, as low lumber market demand and adverse seasonal
operating conditions combine to limit profitability. However,
solid construction activity across the country, adequate log supply
and relatively good operating conditions combined to provide the
basics for a very good earnings period.
Looking ahead, we are guardedly optimistic. Despite the
continuing volatility of log and lumber prices, lumber demand
appears to be real as the economy recovers and interest rates
remain reasonable. Log supplies look promising as relatively low
export demand has combined with the market incentive to harvest
private land provided by high domestic log prices.
We have continued our concentration on increasing mill
efficiency through quality control testing and appropriate capital
projects. Our mills experienced steady operation during the
quarter. We were also able to increase total lumber output by
extending hours or adding shifts at some mills. It is our goal to
further extend operating hours where log and lumber market
conditions allow.
We believe that our third quarter demonstrates the earnings
potential of the facilities with which we emerged from Chapter 11.
I am happy to announce that K. Stanley Martin, Vice President
- -Finance of the Company, has been elected to the WTD Board
of Directors and that Robert J. Riecke has been elected Secretary.
I would like to express our appreciation for the interest and
support of our shareholders and to those of you who have joined
this Company since our reorganization, welcome.
Bruce L. Engel
President
