SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended July 31, 1995
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition from __________________ to ___________________
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 August 31, 1995 was 11,077,074.
<TABLE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
WTD INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, Except Per-Share Amounts)
(Unaudited)
<CAPTION>
THREE MONTHS ENDED JULY 31
1995 1994
<S> <C> <C>
NET SALES $ 38,798 $ 76,466
COST OF SALES 38,201 70,927
------------------- ------------
GROSS PROFIT 597 5,539
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 2,438 2,708
REORGANIZATION CREDITS -- (39)
------------------- ------------
OPERATING INCOME (LOSS) (1,841) 2,870
OTHER INCOME (EXPENSE)
Interest Expense (1,364) (1,612)
Miscellaneous 108 187
------------------- ------------
(1,256) (1,425)
------------------- ------------
INCOME (LOSS) BEFORE INCOME TAXES (3,097) 1,445
PROVISION FOR INCOME TAXES (BENEFIT) (1,177) 405
------------------- ------------
NET INCOME (LOSS) (1,920) 1,040
PREFERRED DIVIDENDS 608 460
------------------- ------------
NET INCOME (LOSS) APPLICABLE
TO COMMON SHAREHOLDERS $ (2,528) $ 580
=========== ===========
NET INCOME (LOSS) PER COMMON SHARE
Primary ($0.23) $0.05
====== ======
Fully Diluted ($0.23) $0.05
====== ======
<FN>
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
<TABLE>
WTD INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
(In Thousands)
<CAPTION>
JULY 31, APRIL 30,
1995 1995
<S> <C> <C>
CURRENT ASSETS (Unaudited)
Cash and cash equivalents $ 9,102 $ 6,023
Accounts receivable, net 9,429 11,404
Inventories 14,941 18,104
Prepaid expenses 3,400 4,024
Income tax refund receivable -- 503
Deferred tax asset 1,830 1,830
Timber, timberlands and
timber-related assets 7,218 9,299
------------------- ------------
Total current assets 45,920 51,187
NOTES AND ACCOUNTS RECEIVABLE 88 89
TIMBER AND TIMBERLANDS 711 705
PROPERTY, PLANT AND EQUIPMENT,
at cost
Land 2,733 2,733
Buildings and improvements 11,011 11,008
Machinery and equipment 65,755 65,511
------------------- ------------
79,499 79,252
Less accumulated depreciation 48,531 47,727
------------------- ------------
30,968 31,525
Construction in progress 884 600
------------------- ------------
31,852 32,125
DEFERRED TAX ASSET 3,482 2,448
OTHER ASSETS 2,330 2,390
------------------- ------------
$ 84,383 $ 88,944
============ ============
<FN>
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
<TABLE>
WTD INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
(In Thousands, Except Share Information)
<CAPTION>
JULY 31, APRIL 30,
1995 1995
<S> <C> <C>
CURRENT LIABILITIES (Unaudited)
Accounts payable $ 5,344 $ 6,023
Accrued expenses 6,977 7,466
Timber contracts payable 1,199 1,660
Current maturities of long-term debt 2,091 2,298
------------------- ------------
Total current liabilities 15,611 17,447
LONG-TERM DEBT, less current maturities 51,224 51,421
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Preferred stock, 10,000,000 shares authorized
Series A, 270,079 shares outstanding 20,688 20,688
Series B, 6,111 shares outstanding 333 333
Common stock, no par value, 40,000,000 shares
authorized, 11,077,074 issued and outstanding 28,641 28,641
Additional paid-in capital 15 15
Retained deficit (32,129) (29,601)
------------------- ------------
17,548 20,076
------------------- ------------
$ 84,383 $ 88,944
============ ============
<FN>
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
<TABLE>
WTD INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
<CAPTION>
THREE MONTHS ENDED JULY 31
1995 1994
<S> <C> <C>
CASH PROVIDED BY (USED FOR) OPERATING ACTIVITIES:
Net income (loss) $ (1,920) $ 1,040
Adjustments to reconcile net income (loss) to
cash provided by operating activities:
Depreciation, depletion and amortization 1,102 1,991
Deferred income tax (1,034) --
Accounts receivable 1,975 (6,709)
Inventories 3,163 2,795
Prepaid expenses 624 (480)
Timber, timberlands and
timber-related assets - current 1,875 (15)
Payables and accruals (1,596) 3,656
Income taxes 503 395
------------------- ------------
Cash provided by operating activities 4,692 2,673
------------------- ------------
CASH PROVIDED BY (USED FOR) INVESTING ACTIVITIES:
Notes and accounts receivable 1 20
Net additions to timber and timberlands (6) (11)
Acquisition of property, plant and equipment (565) (1,626)
Other investing activities 2 19
------------------- ------------
Cash used for investing activities (568) (1,598)
------------------- ------------
CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES:
Principal payments on long-term debt (437) (615)
Other assets -- 401
Dividends paid on preferred stock (608) (489)
Issuance of common stock -- 24
------------------- ------------
Cash used for financing activities (1,045) (679)
------------------- ------------
INCREASE IN CASH AND CASH EQUIVALENTS 3,079 396
CASH BALANCE AT BEGINNING OF PERIOD 6,023 8,101
------------------- ------------
CASH BALANCE AT END OF PERIOD $ 9,102 $ 8,497
=========== ===========
CASH PAID (REFUNDED) DURING THE PERIOD FOR:
Interest $87 $1,601
Income taxes ($646) $1
<FN>
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
WTD INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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. Certain
reclassifications have been made to the prior period results and
balances to conform to the current period classifications. 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, 1995, filed
with the Securities and Exchange Commission. The results of
operations for the current interim periods are not necessarily
indicative of the results to be expected for the current year.
NOTE 2 - INVENTORIES
Inventories are valued at the lower of cost or market. The
amounts included in inventories at July 31, 1995 and April 30, 1995
are as follows (in thousands):
July 31, April 30,
1995 1995
---------- ----------
Logs $ 4,588 $ 6,100
Lumber 9,178 10,808
Supplies 1,175 1,196
---------- ----------
$ 14,941 $ 18,104
========== ==========
NOTE 3 - STOCKHOLDERS' EQUITY AND COMMON SHARES OUTSTANDING
Stockholders' equity at July 31, 1995 consists of the following:
Series A preferred stock, $100 per share liquidation preference;
500,000 shares authorized; 270,079 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.
Series B preferred stock, $100 per share liquidation preference;
500,000 shares authorized; 6,111 shares issued and outstanding;
limited voting rights; convertible into 212,693 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.
Common stock, no par value; 40,000,000 shares authorized;
11,077,074 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
11,289,767 shares if remaining Series B preferred stock outstanding
at July 31, 1995 is converted to common stock.
NOTE 4 - NET INCOME (LOSS) PER SHARE
The calculations of net income (loss) per share for the three month
periods ended July 31, 1995 and 1994 are summarized below (in
thousands, except per-share data):
<TABLE>
<CAPTION>
THREE MONTHS ENDED JULY 31,
1995 1994
<S> <C> <C>
NET INCOME (LOSS) APPLICABLE TO
COMMON SHAREHOLDERS $ (2,528) $ 580
========= =========
WEIGHTED AVERAGE SHARES OUTSTANDING 11,077 11,069
ADDITIONAL SHARES ASSUMED FROM:
Conversion of Series B
preferred stock -- 213
Exercise of stock options -- 203
--------- ---------
AVERAGE NUMBER OF SHARES AND
EQUIVALENTS OUTSTANDING
- PRIMARY BASIS 11,077 11,485
ADDITIONAL SHARES ASSUMED FROM
EXERCISE OF STOCK OPTIONS -- 16
--------- ---------
AVERAGE NUMBER OF SHARES AND
EQUIVALENTS OUTSTANDING
- FULLY DILUTED 11,077 11,501
========= =========
NET INCOME (LOSS) PER COMMON SHARE
- PRIMARY ($0.23) $0.05
====== ======
- FULLY DILUTED ($0.23) $0.05
====== ======
</TABLE>
NOTE 5 - INCOME TAXES
The income tax provision (benefit) is based on the estimated
effective annual tax rate for each fiscal year. The provision
(benefit) includes anticipated current income taxes payable or
refundable, the tax effect of anticipated differences between the
financial reporting and tax basis of assets and liabilities, and
the expected utilization of net operating loss (NOL) carryforwards.
The federal and state income tax provision (benefit) consists
of the following (in thousands):
Three months ended
July 31,
---------------------
1995 1994
---------- ----------
Income (loss) before income taxes $ (3,097) $ 1,445
========== ==========
Income tax provision (benefit):
Federal $ (1,053) $ 362
State (124) 43
---------- ----------
$ (1,177) $ 405
========== ==========
Current $ (143) $ 405
Deferred (1,034) --
---------- ----------
$ (1,177) $ 405
========== ==========
Deferred tax assets increased during the quarter ended July
31, 1995, principally the result of additional net operating loss
carryforwards stemming from pretax losses.
Management continually assesses the likelihood of utilizing
the recorded deferred tax asset related to its NOL carryforwards,
including its operating history, the cyclical nature of the
industry in which the Company operates, current economic conditions
and the potential outcome of any IRS audits. After considering the
foregoing factors, management established a valuation allowance at
April 30, 1995 of approximately $2.9 million. No change to this
reserve was considered necessary during the quarter ended July 31,
1995.
NOTE 6 - COMMITMENTS AND CONTINGENCIES
The Company is involved in various 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.
The Company is subject to various federal, state and local
regulations regarding waste disposal and pollution control. The
Company believes it is in substantial compliance with all existing
regulations and orders. Various government agencies are
considering new regulations, including those related to log yard
management and disposal of log yard waste. Management believes
that it will be able to comply with any final regulations in this
area without a material adverse impact on its financial condition
or results of operations.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations
- ---------------------
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
industry when exchange rates spur log exports and drive up domestic
log prices, and when a relatively strong U.S. Dollar encourages
lumber imports from competing countries.
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 efficiently 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.
In fiscal 1992, 1993 and 1994, lumber prices rose during the
winter and spring months in anticipation of the coming building
season, and then fell as the building season actually commenced.
In the fall of 1994, lumber prices began declining, as is more
historically typical. Prices continued their decline until mid-
June 1995, the result of weak lumber demand caused by high mortgage
interest rates, strong domestic production and significant levels
of lumber imports from Canada. Log prices did not decline during
this time due to strong export demand resulting in part from
unfavorable exchange rate relationships. A rebounding paper market
led to substantial chip price increases. However, this also served
to keep log prices high, by increasing demand for small sawlogs as
a source of chips. The combination of these factors led to
substantial reductions in gross margins.
Lumber prices have since rebounded, but are still at levels
about 10-15% below those of a year ago. Log prices also declined
during the first quarter of fiscal 1996 and now generally allow a
gross profit margin at current lumber prices. However, 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>
<CAPTION>
Percentage
Increase (Decrease)
Income and Expense Items Three Months
as a Percentage of Net Sales Ended
Three Months ended July 31, 7/31/95
to
1995 1994 7/31/94
<S> <C> <C> <C>
Net sales 100.0 % 100.0 % (49.3)%
Cost of sales 98.5 92.8 (46.1)
-------- --------
Gross profit 1.5 7.2 (89.2)
Selling, general and
administrative expense 6.3 3.5 (10.0)
Reorganization credits -- (0.1) NM
-------- --------
Operating income (loss) (4.7) 3.8 NM
Interest expense (3.5) (2.1) (15.4)
Miscellaneous 0.3 0.2 (42.2)
-------- --------
Income (loss) before
income taxes (8.0) 1.9 NM
Provision for income
taxes (benefit) (3.0) 0.5 NM
-------- --------
Net income (loss) (4.9)% 1.4 % NM
========= =========
<FN>
Note: Percentages may not add precisely due to rounding
NM: Not Meaningful
</TABLE>
Comparison of Three Months Ended July 31, 1995 and 1994
- -------------------------------------------------------
Net sales for the three months ended July 31, 1995 decreased
$37.7 million (49%) from the three months ended July 31, 1994.
This was principally caused by a 48% decrease in lumber shipments,
a 44% decrease in chip deliveries, and a 13% decrease in lumber
prices, partially offset by a 60% increase in chip prices. The
reduced lumber and chip deliveries reflect reduced production
resulting from a weak lumber market in the current quarter and a
relatively strong market in the first quarter of fiscal 1995.
Gross profit for the quarter ended July 31, 1995 was 1.5% of
net sales, compared to 7.2% of sales for the quarter ended July 31,
1994. Lumber prices declined by 12% from the quarter ended July
31, 1995, while the Company's log costs declined by only 4%. The
Company reduced production during the first quarter of fiscal 1996
in response to poor lumber prices and demand.
Selling, general and administrative (S, G & A) expenses in the
three months ended July 31, 1995 decreased by $0.3 million (10%)
from the three months ended July 31, 1994. This decrease reflects
reduced profit-sharing bonus payments stemming from lower pre-tax
profits, as well as the Company's continued focus on cost control.
In the quarter ended July 31, 1995, the Company recorded a tax
credit equal to 38% of its pretax loss. In the quarter ended July
31, 1994, the Company recorded a tax provision equal to 28% of
pretax profits for the three months ended July 31, 1994. See Note
5 to Consolidated Financial Statements.
Liquidity and Capital Resources
- -------------------------------
The Company relies on cash provided by its operations to fund
its working capital needs. There can be no assurance that such
cash will be sufficient to fund the Company's future operations.
Substantially all of the Company's assets are pledged as security
for its various debt obligations.
During the three months ended July 31, 1995, the Company's
cash and cash equivalents increased by $3.1 million, to $9.1
million at July 31. The increase was principally caused by
reductions in accounts receivable and log and lumber inventory,
partially offset by operating losses, capital spending, scheduled
principal repayments, and dividend payments on the Company's Series
A preferred stock.
Working capital decreased by $3.4 million during the first
three months of fiscal 1996, to $30.3 million at July 31. This was
principally the result of operating losses, capital spending, and
scheduled principal and dividend payments.
Capital spending in the first three months of fiscal 1996 was
$0.6 million. Capital spending for the balance of the fiscal year
is currently forecast to be approximately $3.4 million. The
Company had no material commitments for capital spending at July
31, 1995.
WTD INDUSTRIES, INC.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
The Index to Exhibits is located on page 16.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the three
months ended July 31, 1995.
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: August 31, 1995
WTD INDUSTRIES, INC.
INDEX TO EXHIBITS
Sequential
Number
System
Page
Number
19 Other reports furnished to securities holders 17
with respect to the quarter ended July 31, 1995:
President's letter excerpted from Interim Report
to Shareholders for the first quarter of fiscal 1996.
- -----------------------------------------------------------------
All other required Exhibits are listed in the Company's Annual
Report on Form 10-K for the year ended April 30, 1995.
Report from the President
Dear WTD Shareholders:
Our first quarter was disappointing, reflecting lumber prices,
production and shipments significantly lower than our first fiscal
quarter last year due to weaker demand.
Although we experienced some lumber market upturn beginning in
late June, it was not enough to overcome the losses incurred
earlier in the quarter. The present lumber market remains somewhat
improved, apparently helped by declines in mortgage interest rates
and projected strength in the economy.
Adverse operating conditions in the quarter caused us to
adjust raw material pricing and mill operating posture. When there
is insufficient margin between log costs and lumber prices to
operate at a profit, we run for cash flow and temporarily curtail
those mills that would incur losses greater than our shut-down
costs. The improved lumber prices in July allowed us to return to
close to our normal production levels.
Given the adverse operating conditions we have seen for some
time, our strategy of focusing on ways to improve operational
efficiency takes on extra importance. By using zero-base budgeting
and daily expense tracking systems, we better control manufacturing
costs. By staggering lunch hours and breaks instead of shutting
our plants down during those periods, we achieve higher production
per hour and lower manufacturing costs.
Although it is unlikely that we will further reduce debt
(other than scheduled payments) until operating conditions improve,
debt reduction remains part of our long term strategy.
Our common goal is to maximize shareholder value. We continue
to believe that pursuing more efficient operations and reducing
debt are the best ways to achieve that goal.
Bruce L. Engel
President
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM REGISTRANT'S
QUARTERLY REPORT ON FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000797543
<NAME> WTD INDUSTRIES, INC.
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> APR-30-1996
<PERIOD-END> JUL-31-1995
<CASH> 9102
<SECURITIES> 0
<RECEIVABLES> 9429
<ALLOWANCES> 0
<INVENTORY> 14941
<CURRENT-ASSETS> 45920
<PP&E> 80383
<DEPRECIATION> 48531
<TOTAL-ASSETS> 84383
<CURRENT-LIABILITIES> 15611
<BONDS> 51224
<COMMON> 28641
0
21021
<OTHER-SE> (32114)
<TOTAL-LIABILITY-AND-EQUITY> 84383
<SALES> 38798
<TOTAL-REVENUES> 38798
<CGS> 38201
<TOTAL-COSTS> 38201
<OTHER-EXPENSES> 2438
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1364
<INCOME-PRETAX> (3097)
<INCOME-TAX> (1177)
<INCOME-CONTINUING> (1920)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1920)
<EPS-PRIMARY> (0.23)
<EPS-DILUTED> (0.23)
</TABLE>
