<PAGE>
WTD INDUSTRIES, INC.
United States Securities and Exchange Commission, Washington, D.C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the fiscal year ended Commission file number
APRIL 30, 1996 0-16158
WTD INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
OREGON 93-0832150
(State of Incorporation) (I.R.S. Employer Identification No.)
10260 S.W. GREENBURG ROAD, SUITE 900 Registrant's telephone number,
PORTLAND, OREGON 97223 including area code: (503) 246-3440
(Address of principal executive offices)
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, NO PAR VALUE (Title of Class)
- -------------------------------------------------------------------------------
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
---
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 twelve 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
--- ---
State the aggregate market value of the voting stock held by non-affiliates
of the registrant, as of June 28, 1996: $11,315,490.
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distributions of securities under a plan
confirmed by a court.
Yes X No
--- ---
Indicate the number of shares outstanding of each of the registrant's
classes of Common Stock, as of June 28, 1996: Common Stock, no par value:
11,077,074.
<PAGE>
FORM 10-K TABLE OF CONTENTS
Item No. Page No.
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Part I
1. Business 3
2. Properties 7
3. Legal Proceedings 7
4. Submission of Matters to a Vote of Security Holders 7
Part II
5. Market for the Registrant's Common Stock and
Related Stockholder Matters 8
6. Selected Financial Data 9
7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
8. Financial Statements and Supplementary Data 15
9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure 15
Part III
10. Directors and Executive Officers of the Registrant 16
11. Executive Compensation 19
12. Security Ownership of Certain Beneficial Owners
and Management 25
13. Certain Relationships and Related Transactions 26
Part IV
14. Exhibits, Financial Statement Schedules, and Reports
on Form 8-K
(a)(1) Financial Statements 27
(a)(2) Financial Statement Schedules 27
(a)(3) Exhibit Index 27
(b) Reports on Form 8-K 31
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<PAGE>
PART I
ITEM 1. BUSINESS
WTD Industries, Inc. is a forest products company organized in Oregon in
1983, whose subsidiaries manufacture softwood and hardwood lumber and by-
products. WTD Industries, Inc. and its subsidiaries are hereinafter referred to
as "WTD" or the "Company." The Company markets its products primarily in the
United States and Canada through its subsidiary TreeSource, Inc.
The Company and its subsidiaries filed for protection under Chapter 11 of
the Federal Bankruptcy Code in late January 1991 following extreme adverse
conditions in the forest products industry in 1990. WTD emerged from
bankruptcy on November 30, 1992 pursuant to the Company's court-approved Second
Amended Joint Plan of Reorganization ("Plan") under which it continues to
operate.
PRODUCTS AND MARKETS
SOFTWOOD LUMBER
The Company manufactures a wide variety of softwood lumber products,
predominantly from Douglas fir, hemlock, and white fir. The Company produces
softwood studs in several species, generally as 2x4 or 2x6 lumber in lengths of
8 to 10 feet. The Company also makes dimension softwood lumber in a wide range
of widths and thicknesses in lengths from 6 to 26 feet. Softwood lumber
accounted for 79% of net sales in fiscal 1996, 84% in fiscal 1995, and 83% in
fiscal 1994.
The Company sells softwood lumber to a large number of customers, primarily
distribution centers, wholesalers and directly to large retailers. Softwood
lumber is used in a variety of applications, including residential and
commercial construction, packaging, and industrial uses.
OTHER PRODUCTS
The Company produces a small quantity of hardwood lumber in sizes targeted
principally for the furniture and cabinet industries. Wood chips, a by-product
of the manufacturing process, are sold principally to pulp and paper
manufacturers. Wood chips and other by-products accounted for 14% of net sales
in fiscal 1996, 12% in fiscal 1995, and 11% in fiscal 1994.
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<PAGE>
DISTRIBUTION AND MARKETING
The Company markets, distributes, and arranges transportation for its
lumber products through its wholly owned subsidiary and sales agent, TreeSource,
Inc. Through TreeSource, the production capabilities of individual mills are
coordinated to meet a broad range of customer needs. TreeSource sells primarily
through telephone contacts from its office in Portland, Oregon.
Shipments of wood products are generally made by rail or truck directly
from the mill. Exports do not represent a material portion of the Company's net
sales.
The Company does not attempt to accumulate a large backlog of orders.
WTD's general practice is to maintain an order file representing about two to
four weeks' production. The filling of orders for certain items, however, may
require a substantially longer period of time. The dollar value of the
Company's backlog of orders at April 30, 1996 was $12.4 million compared to $6.0
million at April 30, 1995. Backlog on any particular date may not be indicative
of the Company's average backlog, or net sales or the backlog for any succeeding
period.
One customer accounted for 12.1% of the Company's net sales during fiscal
1996. The loss of any one customer would not, in management's opinion, have a
material adverse impact on the Company and its subsidiaries taken as a whole.
TIMBER SUPPLY
The Company generally purchases timber and logs in sufficient quantities to
match the current operating requirements of its mills. Management attempts to
maintain log inventories equal to an average of three to four weeks' operating
requirements, except where seasonal or weather factors necessitate larger
volumes. The goals of the Company's procurement strategy are to limit the
speculative aspects of timber purchasing and to maintain the Company's
adaptability to changing lumber market conditions.
The Company relies mainly on open market log purchases to supply its raw
materials needs. It also purchases timber-cutting contracts ("timber
contracts"), primarily at public timber sales, and has historically obtained
logs to a minor extent from its own fee timberlands. At April 30, 1996, the
Company owned a small amount of fee timberlands in the vicinity of various
mills. The following table shows the percentages of logs supplied by open market
purchases, timber contracts and fee timberlands, and total log footage required:
Public
Year Ended Open Timber Fee Log
April 30, Market Contracts Timber Requirements
- ----------- ------ --------- ------ ------------
1992 88% 8% 4% 338,000 MBF
1993 90% 6% 4% 306,000 MBF
1994 94% 5% 1% 305,100 MBF
1995 95% 5% -- 317,100 MBF
1996 94% 5% 1% 228,162 MBF
MBF - Thousand Board Feet
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<PAGE>
The availability and cost of timber and logs have been, and should continue
to be, influenced by a variety of factors, including demand by competitors and
exporters, the environmental and harvest policies of federal and state agencies,
and, in the long term, the level of reforestation. For further discussion of
current industry conditions relating to timber supply, see the section entitled
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
EMPLOYEES
The Company and its subsidiaries had approximately 1,160 employees at June
28, 1996. The Company uses bonus programs to motivate its workers. See Note 8
to Consolidated Financial Statements.
ENVIRONMENTAL REGULATION
The Company is subject to federal, state and local waste disposal and
pollution control regulations, including air, water and noise pollution, which
have required, and are expected to continue to require, additional operating and
capital expenditures. During fiscal 1996, the Company incurred expenditures of
approximately $512,000 for waste disposal and pollution control. Such
expenditures are projected to be approximately $500,000 for each of fiscal year
1997 and fiscal year 1998. Various governmental agencies have enacted or are
considering regulations regarding log yard management and disposal of log yard
waste that may require material expenditures in the future.
INDUSTRY CONDITIONS
The United States lumber industry is highly sensitive to the condition of
the nation's economy and tends to experience poor financial results during
general economic downturns. In addition, sales traditionally increase in the
spring and summer months and decline during the fall and winter months in
response to seasonal building construction cycles. However, in fiscal years
1993 and 1994, relatively strong lumber demand occurred in the winter months and
relatively weak demand occurred during the spring months. Management believes
this situation occurred because lumber buyers, concerned about supply in light
of public timber harvest restrictions, made defensive purchases before the
traditional spring buying period. In addition, demand in the early part of 1994
was muted by severe winter conditions in the midwestern and eastern portions of
the U.S. In fiscal 1995 the Company experienced a more typical winter slowdown
in lumber demand. During fiscal 1995, conditions remained weak in the spring
due in large measure to high interest rates, increased lumber imports from
Canada and high raw materials costs. Although interest rates moderated during
fiscal 1996, lumber demand and prices remained weak during most of the fiscal
year, with Canadian imports continuing to have a negative impact on the lumber
market. However, at the end of the fourth quarter of fiscal 1996 demand for
lumber increased resulting in higher sales prices. The increased lumber demand
at the end of the fiscal year was fueled in part by economic recovery in
California and a broadly based seasonal increase in building activity.
Wood chip demand and prices are determined by conditions in the pulp and
paper industry and generally are not affected by seasonal business cycles. Due
to a strong demand for pulp and paper products, chip prices reached a high
during the second quarter of fiscal 1996. However, by the end of fiscal 1996
reduced demand for pulp
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<PAGE>
and paper products and pulp and paper production curtailments had driven chip
prices to a level that was approximately 34% of the fiscal year high. Low
demand for chips at the end of fiscal year 1996 may have constrained lumber
production and with increased lumber demand, contributed to lumber price
increases. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations" for further discussion.
COMPETITION
The wood products industry is highly competitive and includes a large
number of companies manufacturing relatively standardized products. The
principal means of competition in the lumber industry are unit production costs,
pricing, product quality, and the ability to satisfy customer needs promptly.
The Company feels it competes effectively based on the foregoing factors. Some
of WTD's competitors are large, integrated companies with substantially greater
total resources than those of the Company. Some of these competitors have a
significant base of low-cost fee timberlands and timber contracts. The Company
could be at a disadvantage to such competitors since it relies on the open log
market to supply the bulk of its raw materials requirements.
The competition includes lumber manufacturers located in Canada. Canadian
lumber producers benefit from advantageous exchange rates when exporting lumber
into the United States. Because of the increasing presence of Canadian
producers in the U.S. lumber market, the U.S. government initiated trade talks.
Canada has agreed that as of April 1, 1996, and subject to specific exceptions,
certain provinces will pay export taxes if pre-established levels of exports to
the U.S. are exceeded. The goal of the trade agreement is to reduce the volume
of lumber exported to the U.S. by Canadian producers. It is unknown if the
trade agreement will have the desired effect.
See the sections entitled "Timber Supply" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
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<PAGE>
ITEM 2. PROPERTIES
<TABLE>
<CAPTION>
MANUFACTURING FACILITIES(1) Thousand Board Feet
------------------------
Fiscal Est. Annual
1996 Production
Softwood Lumber Production Capacity(2)
- --------------- ---------- -----------
<S> <C> <C>
Burke Lumber Co., West Burke, Vermont(3) 44,000 46,000
Central Point Lumber Co., Central Point, Oregon 23,000 110,000
Glide Lumber Products Co., Glide, Oregon 67,000 125,000
Morton Forest Products Co., Morton, Washington 26,000 90,000
North Powder Lumber Co., North Powder, Oregon 43,000 90,000
Pacific Softwoods Co., Philomath, Oregon 36,000 80,000
Philomath Forest Products Co., Philomath, Oregon 72,000 245,000
Sedro-Woolley Lumber Co., Sedro-Woolley, Washington 29,000 140,000
Spanaway Lumber Co., Tacoma, Washington(4) 39,000 85,000
Trask River Lumber Co., Tillamook, Oregon(4) 36,000 120,000
Tumwater Lumber Co., Tumwater, Washington(4) 55,000 70,000
Hardwood Lumber
- ---------------
Pacific Hardwoods-South Bend Co., South Bend, Washington(4) 15,000 19,000
</TABLE>
(1) The machinery and equipment of all facilities are subject to the security
interest of certain lenders.
(2) Capacity is generally computed using a two shift-per-day, five day-per-week
operating schedule.
(3) The Company has reached an agreement in principle to sell this facility.
Completion of the transaction is subject to the parties reaching agreement
on a definitive agreement, approval by each company's Board of Directors,
approval of the transaction by the Company's secured lenders, and
completion by purchaser of its due diligence investigation.
(4) These subsidiaries lease all, or a substantial portion, of the real
property on which the mill is located pursuant to ground leases.
ITEM 3. LEGAL PROCEEDINGS
On or about January 30, 1991, WTD Industries, Inc. and each of its
subsidiaries filed a voluntary petition for reorganization under Chapter 11 of
the Federal Bankruptcy Code. The proceeding was filed in the United States
Bankruptcy Court for the Western District of Washington in Seattle (the
"Bankruptcy Court"). The jointly administered proceeding is entitled: "IN RE
SEDRO-WOOLLEY LUMBER CO., WTD INDUSTRIES, INC., TREESOURCE, INC., ET AL.", Case
Numbers 91-00707 through 91-00721, 91-00736 through 91-00741, 91-00752 through
91-00756, 91-00773 through 91-00778, and 91-01140 through 91-01149. The
Company's Second Amended Joint Plan of Reorganization was confirmed by the
Bankruptcy Court on November 23, 1992, effective November 30, 1992. On April
26, 1996 and June 28, 1996, Orders were entered in the Bankruptcy Court closing
the Chapter 11 cases of all subsidiaries of WTD Industries, Inc.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
-7-
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
PRINCIPAL MARKET
Registrant's Common Stock is traded in the over-the-counter market.
Quotations are reported on the National Market System of the National
Association of Securities Dealers (NASD). The Company's stock trades under the
NASDAQ symbol WTDI. The number of holders of record of WTD Industries, Inc.
Common Stock at June 28, 1996 was 686. The Company estimates that the total
number of its direct and beneficial shareholders is approximately 4,200.
STOCK PRICE AND DIVIDEND INFORMATION
The following tables show the stock price range for the two years ended
April 30, 1996:
Fiscal Year Ended Stock Price Range
------------------------
April 30, 1996 Low High
----------------- ------- --------
First Quarter $1 5/16 $1 15/16
Second Quarter $ 3/4 $1 11/16
Third Quarter $ 1/2 $1 1/8
Fourth Quarter $ 1/2 $ 13/16
Fiscal Year Ended Stock Price Range
------------------------
April 30, 1995 Low High
--------------- ----------- ---------
First Quarter $2 7/32 $3 1/4
Second Quarter $1 61/64 $2 3/4
Third Quarter $1 5/8 $2 1/2
Fourth Quarter $1 5/8 $2 1/8
The share prices shown are those published by the NASD and represent prices
between dealers. They do not include retail markups, markdowns, or commissions.
Prior to the Company's October 1986 public stock offering, there was no public
trading market for its Common Stock.
WTD does not pay any cash dividends on its Common Stock. The Company's
various debt instruments restrict the payment of dividends. See Notes 4 and 6
to Consolidated Financial Statements.
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<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
WTD INDUSTRIES, INC. AND SUBSIDIARIES
FIVE-YEAR SELECTED FINANCIAL DATA
(In Thousands, Except Per-Share Amounts and Ratios)
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30,
------------------------------------------------------------------------------
1996 1995 1994 1993 1992
---------- ---------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C>
NET SALES $191,964 $274,966 $278,115 $246,887 $213,896
COST OF SALES 186,514 262,334 253,732 227,040 195,386
---------- ---------- ---------- ---------- ----------
GROSS PROFIT 5,450 12,632 24,383 19,847 18,510
GENERAL, SELLING AND
ADMINISTRATIVE EXPENSES 9,685 10,366 12,423 12,615 12,047
REORGANIZATION CHARGES (CREDITS) (409) (532) (2,487) 563 3,272
---------- ---------- ---------- ---------- ----------
OPERATING INCOME (LOSS) (3,826) 2,798 14,447 6,669 3,191
INTEREST EXPENSE (5,318) (5,972) (6,541) (2,864) (235)
OTHER INCOME 646 1,228 418 151 36
---------- ---------- ---------- ---------- ----------
INCOME (LOSS) BEFORE INCOME TAXES (8,498) (1,946) 8,324 3,956 2,992
PROVISION FOR INCOME TAXES (BENEFIT) (2,454) (5,646) 2,024 1,543 1,167
---------- ---------- ---------- ---------- ----------
INCOME (LOSS) BEFORE
EXTRAORDINARY ITEMS (6,044) 3,700 6,300 2,413 1,825
EXTRAORDINARY ITEMS -- -- -- 21,345 1,167
---------- ---------- ---------- ---------- ----------
NET INCOME (LOSS) (6,044) 3,700 6,300 23,758 2,992
PREFERRED DIVIDENDS 2,364 2,126 1,616 647 --
---------- ---------- ---------- ---------- ----------
NET INCOME (LOSS) APPLICABLE TO
COMMON SHAREHOLDERS ($8,408) $1,574 $4,684 $23,111 $2,992
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
NET INCOME (LOSS) PER
COMMON SHARE, PRIMARY
- before extraordinary items ($0.76) $0.14 $0.41 $0.29 $0.73
- extraordinary items -- -- -- $3.46 $0.47
- net income (loss) ($0.76) $0.14 $0.41 $3.75 $1.20
Average shares outstanding (1) 11,077 11,492 11,433 6,166 2,492
NET INCOME (LOSS) PER
COMMON SHARE, FULLY DILUTED
- before extraordinary items ($0.76) $0.14 $0.41 $0.28 $0.73
- extraordinary items -- -- -- $3.43 $0.47
- net income (loss) ($0.76) $0.14 $0.41 $3.71 $1.20
Average shares outstanding (1) 11,077 11,510 11,519 6,231 2,492
CASH DIVIDENDS PER COMMON SHARE -- -- -- -- --
PERIOD END BALANCES
Working capital $25,052 $33,740 $44,796 $ 39,255 $ 46,162
Total assets 77,396 88,944 97,100 100,039 113,561
Long-term debt, excl. current maturities (2) 50,310 51,421 60,587 64,184 519
Liabilities subject to compromise (2) -- -- -- -- 134,351
Stockholders' equity (deficit) 11,686 20,076 18,512 13,684 (43,553)
SELECTED FINANCIAL RATIOS
Net income (loss) to average:
Total assets (7.3)% 4.0% 6.4% 22.2% 2.7%
Stockholders' equity (38.1)% 19.2% 39.1% NM NM
Average stockholders' equity to average
total assets 19.1 % 20.7% 16.3% NM NM
</TABLE>
(1) Restated to reflect effect of four-for-ten reverse split as of November 30,
1992.
(2) During fiscal year 1992, the Company reclassified certain debt obligations
between fully secured debt and liabilities subject to compromise.
NM - Not Meaningful
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<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
OVERVIEW
On a quarter-to-quarter basis, the Company's financial results have and
will vary widely, due to seasonal fluctuations and market factors affecting the
demand for logs, lumber and other wood products. Therefore, past results for
any given year or quarter are not necessarily indicative of future results.
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 spur log exports and drive up domestic log
prices, and when a relatively strong U.S. Dollar encourages imports of lumber
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, periodically causing actual or perceived shortages in some areas. These
policies change because of environmental concerns, public agency budget issues
and a variety of other reasons.
It is generally WTD'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 that WTD's 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. The Company may also permanently close
facilities that are determined to lack future profit potential under expected
operating conditions.
Market conditions in the housing sector deteriorated during the third and
fourth quarters of fiscal year 1995 and continued weak through the third quarter
of fiscal year 1996. In addition, lumber imported into the United States from
Canada continued at high volumes and put downward pressure on lumber prices in
the United States. Low lumber prices, combined with relatively high log prices,
created losses for the Company during each quarter of fiscal year 1996. In
response to the generally weak market conditions, the Company curtailed
production at selected mills and reduced the level of operations at various
times during the year. By the end of the fiscal year, lumber prices had
increased and operating conditions had improved enough to allow the Company to
run substantially all of its mills on a full one-shift operation in March and
April, 1996.
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<PAGE>
RAW MATERIALS
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 1980's, public timber accounted for a significant portion of the
supply used by the forest products industry in the Pacific Northwest. On June
22, 1990, the northern spotted owl was listed by the U.S. Fish and Wildlife
Service as a threatened species in Oregon, Washington and Northern California.
This required the U.S. Forest Service (USFS) and Bureau of Land Management (BLM)
to develop plans to protect the owl's habitat, primarily in old-growth timber,
by limiting timber harvests on public lands in the Pacific Northwest. This
decision resulted from many years of controversy and litigation surrounding the
harvest of "old-growth" timber in Oregon, Washington and Northern California.
Since that time, new controversies surrounding ecosystem management, biological
diversity, and other threatened species such as various strains of wild salmon,
have caused the USFS and BLM to limit further timber harvests.
In 1992 the marbled murrelet was listed as a threatened species and on May
15, 1996 the federal government designated almost 3.9 million acres of forest in
Oregon, Washington and California as critical habitat for the bird, which may
result in further restrictions on timber harvesting.
As a result of these controversies, logging on public lands is greatly
reduced from the harvest levels of the 1980's. State and federal policies
regarding the appropriate level of timber harvests on public lands will continue
to be challenged by industry and preservationist groups resulting in increased
uncertainty regarding the availability of public timber.
During fiscal years 1993 through 1996, the Company operated most of its
mills on a one-shift basis, typically using logs purchased on the open market
from industrial and non-industrial private land owners. The ability to maintain
the present level of operations at the Company's mills depends on a continuing
supply of logs from these private sources.
The sharp reduction in available timber in the Pacific Northwest
contributed to increased open market log costs since the late 1980's. However,
log costs have stabilized, although at much higher levels, in the Company's last
three fiscal years. The Company has generally been able to obtain sufficient
raw materials for its mills from private sources at prices which ensure a gross
margin. However, management anticipates that uncertainty associated with timber
supply issues, combined with a continued lack of significant public timber sale
activity, may contribute to further log price volatility. Log and lumber
markets may continue to experience rapid changes in values due to actual and
perceived market conditions, which may sometimes result in inconsistent
relationships between log and lumber prices. These changes could result in
large swings in the gross margin on lumber produced. The long-term impact of
this issue cannot be predicted at this time.
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<PAGE>
YEARLY COMPARISONS
The following table compares certain income and expense items as a
percentage of net sales, and the period-to-period percentage change for each
item:
<TABLE>
<CAPTION>
INCOME AND EXPENSE ITEMS AS PERCENTAGE
A PERCENTAGE OF NET SALES INCREASE (DECREASE)
----------------------------------------- -----------------------
1996 1995
Year Ended April 30, vs vs
-----------------------------------------
1996 1995 1994 1995 1994
---------- ---------- ---------- --------- --------
<S> <C> <C> <C> <C> <C>
Net sales 100.0 % 100.0 % 100.0 % (30.2)% (1.1)%
Cost of sales 97.2 95.4 91.2 (28.9) 3.4
------ ------ -----
Gross profit 2.8 4.6 8.8 (56.9) (48.2)
Selling, general and
administrative expense 5.0 3.8 4.5 (6.6) (16.6)
Reorganization credits (0.2) (0.2) (0.9) (23.1) (78.6)
------ ------ -----
Operating income (loss) (2.0) 1.0 5.2 (236.7) (80.6)
Interest expense (2.8) (2.2) (2.4) (11.0) (8.7)
Miscellaneous 0.3 0.4 0.2 (47.4) 193.8
------ ------ -----
Income (loss) before income taxes (4.4) (0.7) 3.0 NM NM
Provision for income taxes (benefit) (1.3) (2.1) 0.7 NM NM
------ ------ -----
Net income (loss) (3.1) % 1.3 % 2.3 % (263.4) (41.3)
------ ------ -----
------ ------ -----
</TABLE>
Note: Percentages may not add precisely due to rounding.
NM: Not meaningful.
COMPARISON OF 1996 TO 1995
Net sales for the year ended April 30, 1996 decreased $83 million (30
percent) from the year ended April 30, 1995. This was principally caused by a
28 percent decrease in lumber shipments, a 31 percent decrease in chip
deliveries and a 6 percent decrease in lumber prices, partially offset by a 28
percent increase in chip prices. The reduced lumber and chip deliveries reflect
the Company's reduced production resulting from a weak lumber market during most
of fiscal 1996.
Gross profit for the year ended April 30, 1996 was 2.8 percent of net
sales, compared to 4.6 percent of net sales for the year ended April 30, 1995.
Lumber prices declined by 6 percent from the year ended April 30, 1995, while
the Company's log costs increased by 2 percent. The higher chip prices were not
sufficient to offset the effect of lower lumber prices and higher log costs.
Management believes that a significant portion of the increase in log cost is
attributable to the strength in chip demand. Despite the sharply lower
production levels in fiscal 1996, the Company reduced its unit manufacturing
costs by 3 percent from fiscal 1995. This reduction resulted from steps taken
to increase operating time without increasing payroll costs, and from continued
focus on cost control. The gross profit for the fourth quarter ended April 30,
1996 was 5.0%, but there is no assurance that margin improvement will continue.
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<PAGE>
Selling, general and administrative expenses in the year ended April 30,
1996 decreased by $0.7 million (7 percent) from the year ended April 30, 1995.
This decrease reflects reduced profit-sharing bonus payments stemming from lower
pretax profits, as well as the Company's continued focus on cost control.
Interest expense in the year ended April 30, 1996 was $0.7 million below
that incurred in the year ended April 30, 1995. This decrease was the result of
scheduled reduction of debt.
In the year ended April 30, 1996, the Company recorded a tax benefit equal
to 29 percent of its pretax loss. In the year ended April 30, 1995, the Company
recorded a benefit of 290 percent of the pretax loss, which included $4.5
million as a result of certain elections made under Internal Revenue Service
Regulations which allow it to utilize net operating loss carryforwards without
annual limitation. See Note 5 to Consolidated Financial Statements.
COMPARISON OF 1995 TO 1994
Net sales for the year ended April 30, 1995 decreased by $3.1 million (1
percent) from the year ended April 30, 1994. This decrease was mainly the
result of a 10 percent decrease in lumber prices, partially offset by a 5
percent increase in lumber production, a 6 percent increase in chip production
and a 7 percent increase in chip prices.
Gross profit in fiscal 1995 was 4.6 percent of sales versus 8.8 percent of
sales in fiscal 1994. Lumber prices received by the Company during fiscal 1995
were, on average, 10 percent lower than in fiscal 1994, while the Company's log
costs were, on average, only 3 percent lower than in the prior year.
Selling, general and administrative (SG&A) expenses in the year ended April
30, 1995 decreased by $2.1 million (17 percent) from those of a year earlier.
This decrease was the result of lower profit-sharing bonus payments resulting
from a lower level of pretax profits, as well as from ongoing efforts to reduce
overhead expenses. SG&A expenses were 3.8 percent of sales in fiscal 1995
versus 4.5 percent of sales in fiscal 1994.
Reorganization credits in fiscal 1995 primarily reflect the reduction of
certain valuation and holding costs reserves associated with the Company's
remaining non-core assets. Reorganization credits in fiscal 1994 primarily
reflect gains recognized on the sale of idle assets. See Note 7 to Consolidated
Financial Statements.
Interest expense in the year ended April 30, 1995 was $0.6 million below
that incurred in the year ended April 30, 1994. This decrease was the result of
both scheduled and voluntary reductions of debt.
The Company's tax benefit in fiscal 1995 was 290 percent of its pretax
loss, pursuant to the provisions of SFAS Number 109. See Note 5 to Consolidated
Financial Statements.
-13-
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
At April 30, 1996, the Company had net working capital of $25.1 million, or
$8.7 million less than at April 30, 1995. The working capital decrease was
primarily the result of operating losses, capital spending, scheduled principal
payments and dividends paid on the Company's Series A preferred stock.
Cash and cash equivalents decreased by $1.4 million during the year ended
April 30, 1996, to $4.6 million at year-end. Approximately $7.0 million of cash
was provided by operations. About $2.4 million was used to repay various debt
obligations. The Company also paid $2.3 million in dividends to holders of its
Series A preferred stock.
During fiscal 1996, the Company spent $3.9 million for capital improvements
to its facilities. Capital spending for the year ending April 30, 1997 is
currently projected to be approximately $4.0 million. The Company had no
material commitments for capital spending at April 30, 1996.
The Company does not have a credit facility for working capital and
therefore relies on cash provided by its operations to fund its working capital
needs. There is no assurance that such cash will be sufficient to fund the
Company's operations. Substantially all of the Company's assets are pledged to
secure various debt obligations.
The Company's Credit and Security Agreement dated as of November 30, 1992
contains certain covenants, including the maintenance of prescribed levels of
collateral coverage (as defined), tangible net worth, working capital and
adjusted cumulative operating income (as defined). This debt agreement was most
recently amended as of May 1, 1996, with respect to certain affirmative
financial performance covenants. See Note 4 to Consolidated Financial
Statements.
At April 30, 1996 the Company's tangible net worth was $11.2 million
compared to $11 million required by the covenant. At that same date, the
Company's working capital was $25.1 million, compared to $19.0 million required
by the covenant. Also, at April 30, 1996, the Company's adjusted cumulative
operating income was $21.1 million, compared to $19.0 million required. The
collateral coverage ratio at April 30,1996 was 62.2 percent, compared to a 56
percent minimum required level. The required level of working capital increases
to $22.5 million on July 1, 1996 and to $25 million on July 1, 1997. The
required level of tangible net worth decreases to $9 million from July 1, 1996
through June 30, 1997, then increases to $10 million at July 1, 1997, $12
million at May 1, 1998 and $14.5 million at May 1, 1999. The required level of
adjusted cumulative operating income increases to $22.5 million at July 1, 1996,
$25 million at January 1, 1997 and $27.5 million at July 1, 1997. The minimum
required collateral coverage ratio increases to 60 percent at July 1, 1996, and
to 65 percent at May 1, 1998. Improved operating results from those achieved in
fiscal year 1996 will be necessary for the Company to remain in compliance with
its debt agreement. During the year ended April 30, 1996, the Company's
adjusted cumulative operating income decreased by $3 million while incurring a
loss before tax benefit of $8.5 million. See Note 1 to Consolidated Financial
Statements.
-14-
<PAGE>
In accordance with the Company's primary debt agreement, additional
prepayments are required if the Company's cumulative operating income exceeds
certain specified amounts. No such prepayment will be required for the year
ended April 30, 1996. In connection with the May 1, 1996 Amendment, the Company
has agreed to an additional prepayment computed at 30 percent of quarterly net
income.
The Company has no floating rate debt, but the dividend rate on its Series
A preferred stock varies based on Bank of America's prime rate in effect at the
time the dividends are declared. Based on the prime rate in effect at June 28,
1996, annual preferred dividends would decrease by about $0.1 million from the
amount incurred in the year ended April 30, 1996.
Information included in this report on Form 10-K relating to projected
environmental and capital expenditures constitutes forward looking statements.
From time to time, information provided by the Company or statements made by its
employees may contain other forward looking statements. Factors that could
cause actual results to differ materially from the forward looking statements
include but are not limited to: general economic conditions, increased interest
rates which may cause a decrease in building activity, use of substitute
products in the construction industry, increased competition from foreign
producers of lumber, increased competition from foreign purchasers of logs,
reduction in harvest levels of timber on private land, inadequate cash reserves
to support the desired level of business activity, labor strikes, additional
environmental regulations or enforcement actions, change in rules pertaining to
the Company's use of its net operating loss carryforward (NOL) or other change
in the Company's ability to use its NOL.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and supplementary data required by this item are
listed in Item 14 of Part IV of this report which begins at page 27.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
-15-
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The directors and executive officers of the Company are:
NAME AGE POSITION
---- --- --------
Scott Christie. . . . . 47 Director
Richard W. Detweiler. . 54 Director
Bruce L. Engel. . . . . 55 Director and President
David J. Loftus . . . . 54 Treasurer
K. Stanley Martin . . . 54 Director, Vice President-Finance and
Chief Financial Officer
Robert J. Riecke. . . . 46 Director, Vice President-Administration,
General Counsel and Secretary
John C. Stembridge. . . 37 Vice President-Sales and Marketing
James R. Wilson . . . . 46 Vice President-Timber
William H. Wright . . . 61 Director
The composition of the Board of Directors of the Company is determined by
Article XII of the Company's Second Amended Joint Plan of Reorganization. At
its annual meeting during calendar year 1996, four Board seats for a one year
term will be filled by election of the shareholders. In the event the Company
fails to make a certain number of scheduled dividend payments, or if a certain
financial ratio covenant violation has occurred and is continuing, on its Series
A preferred stock, holders of such stock may, under the circumstances and in the
manner provided in the Company's Fourth Restated Articles of Incorporation,
elect a majority of the Board of Directors by replacing incumbent Board members
or increasing the size of the Board.
Scott Christie has been a director of the Company since 1988. Mr. Christie
is currently general partner of Christie Capital Management. Since 1987 Mr.
Christie has been engaged as an investment advisor for his own account and the
account of other individuals. From 1983 until 1987 Mr. Christie was senior vice
president of Kidder, Peabody & Co. Incorporated, an investment banking firm.
Mr. Christie headed Kidder, Peabody's underwriting team for the Company's
initial public offering and 1987 debenture offering.
Richard W. Detweiler joined the Company's Board of Directors on December
14, 1995. Since 1990 Mr. Detweiler has been chief executive officer of
Precision Aerotech, a diversified manufacturing company. Mr. Detweiler has 20
years of manufacturing management experience.
Bruce L. Engel, the Company's founder, has been president and a director of
the Company since its inception. Mr. Engel, a graduate of the University of
Chicago Law School, practiced business and corporate law, including
representation of clients in the wood products industry, from 1964 to 1984.
Mr. Engel became engaged in sawmill operations in 1981 with the acquisition of a
mill in Glide, Oregon, now owned by a subsidiary of the Company. Mr. Engel is
involved in various other businesses. Mr. Engel is president and a director of
Encore Group, Inc. Mr. Engel is a former executive officer of Kimber of Oregon,
Inc., a company which filed a petition under Chapter 7 of the U.S. Bankruptcy
Code in January 1991.
-16-
<PAGE>
David J. Loftus was appointed treasurer of the Company in October 1993 and
continues to serve as vice president-finance of TreeSource, the Company's
marketing subsidiary, a position he has held since May 1986. As treasurer, Mr.
Loftus is primarily responsible for cash management matters and credit and
banking relationships. For the eight years prior to joining TreeSource, Mr.
Loftus served as the assistant treasurer for a publicly-traded company with
operations in the forest products industry.
K. Stanley Martin is vice president-finance of the Company, a position held
since September 1983, and has been chief financial officer since April 1991.
Mr. Martin has been a director of the Company since January 1994. Mr. Martin is
responsible for all financial affairs of the Company. For the eleven years
prior to 1983, Mr. Martin served as a financial officer for publicly-traded
companies having all or a substantial portion of their operations in the forest
products industry. Mr. Martin is a certified public accountant.
Robert J. Riecke became vice president-administration of the Company in May
1989, has been general counsel of the Company since January 1987, assistant
secretary from March 1983 until January 1994, and a director of the Company
since March 1986. Mr. Riecke was named corporate secretary in January 1994.
Mr. Riecke has primary responsibility for the Company's legal, risk management,
environmental compliance, investor relations, and human resources functions.
From 1976 through 1986, Mr. Riecke was in private law practice. Since 1983,
Mr. Riecke has devoted much of his professional endeavors to legal matters
relating to the Company and its subsidiaries. Mr. Riecke is a graduate of the
University of Illinois School of Law.
John C. Stembridge was appointed vice president-sales and marketing of the
Company in February 1995. Mr. Stembridge joined TreeSource, the Company's
marketing subsidiary, in 1989 and continues to serve as its vice president and
general manager, a position he has held since June 1991. Mr. Stembridge has
primary responsibility for managing all aspects of the Company's lumber sales
and transportation. For the nine years prior to joining TreeSource, Mr.
Stembridge was involved in domestic and export lumber sales, primarily with
North Pacific Lumber Co.
James R. Wilson was appointed vice president-timber of the Company in
October 1993. Mr. Wilson has primary responsibility for the Company's timber
supply program. Prior to his present position, Mr. Wilson served at both mill
and corporate levels of WTD Industries commencing in February 1992. Prior to
1992, Mr. Wilson served as general manager of Estacada Lumber Company, a
division of RSG Forest Products. From 1973 to 1984, Mr. Wilson was involved in
all phases of the wood products industry with Crown Zellerbach Corporation.
William H. Wright has been a director of the Company since April of 1992.
Mr. Wright has held a variety of management positions in the forest products
industry since 1957. He is currently president of Heartwood Consulting Service,
which advises forest products clients. From 1989 until 1994 he was president
and chief executive officer of Dee Forest Products Inc., a manufacturer of
hardboard and related products. From 1984 to 1989 Mr. Wright was general
manager of Stevenson Co-Ply Inc., a manufacturer of veneer and plywood.
-17-
<PAGE>
REPORTING OF SECURITIES TRANSACTIONS
Under the federal securities laws, officers and directors of the Company
and persons holding more than 10 percent of the Company's Common Stock are
required to report, within specified monthly and annual due dates, their initial
ownership in the Company's Common Stock and all subsequent acquisitions,
dispositions or other transfers of beneficial interests therein, if and to the
extent reportable events occur which require reporting by such due dates. The
Company is required to describe in this section whether, to its knowledge, any
person required to file such a report may have failed to do so in a timely
manner.
Based solely on its review of the copies of such forms received by it and
written representations that no other reports were required for those persons,
the Company believes that, during fiscal 1996, all Section 16(a) filing
requirements applicable to its executive officers, directors and owners of more
than 10 percent of the Company's Common Stock were complied with except that
Scott Christie filed his Form 4 seven days late for a transaction for 400 shares
occurring in December 1995.
-18-
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table shows the cash and non-cash compensation paid by the
Company for the last three fiscal years to the chief executive officer and the
four other most highly compensated executive officers.
Annual Compensation
---------------------
Name and Principal Position Year Salary Bonus
- --------------------------- ---- ------ -----
Bruce L. Engel 1996 $ 300,000 $ 23,142
President 1995 $ 300,000 $ 48,200
1994 $ 300,000 $ 151,936
K. Stanley Martin 1996 $ 120,000 $ 9,256
Vice President-Finance and 1995 $ 120,000 $ 19,280
Chief Financial Officer 1994 $ 104,250 $ 51,659
Robert J. Riecke 1996 $ 132,000 $ 10,183
Vice President- 1995 $ 132,000 $ 21,209
Administration, General 1994 $ 132,000 $ 66,853
Counsel and Secretary
John C. Stembridge 1996 $ 100,000 $ 12,197
Vice President-Sales and 1995 $ 86,667 $ 15,539
Marketing 1994 $ 80,000 $ 45,944
James R. Wilson 1996 $ 100,000 $ 7,714
Vice President-Timber 1995 $ 85,833 $ 12,853
1994 $ 70,250 $ 41,245
OPTION GRANTS IN LAST FISCAL YEAR
No executive officer named above received option grants during the fiscal
year ended April 30, 1996.
-19-
<PAGE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
The following table provides information on option exercises for the last
fiscal year by the named executive officers and the value of such officers'
unexercised options as of April 30, 1996:
<TABLE>
<CAPTION>
Value of Unexercised
Number of Unexercised In-the-Money Options
Options at April 30, 1996 at April 30, 1996
---------------------------- --------------------------
Shares
Acquired
Name or Exercised Exercisable Unexercisable Exercisable Unexercisable
---- ------------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Bruce L. Engel -- 307,200 76,800 $ -- $ --
K. Stanley Martin -- 28,000 3,800 $ -- $ --
Robert J. Riecke -- 31,200 3,800 $ -- $ --
John C. Stembridge -- 6,000 4,000 $ -- $ --
James R. Wilson -- 6,000 4,000 $ -- $ --
</TABLE>
BENEFITS
The Company maintains an IRC Section 401(k) retirement savings plan under
which employees, including executive officers, are permitted to make salary
deferral contributions. Executive officers are not entitled to employer
matching contributions pursuant to this plan.
COMPENSATION OF DIRECTORS
Each of the Company's outside directors is paid an annual retainer of
$15,000 for attending up to six Board meetings, plus $750 for each additional
meeting attended and $225 for each telephone conference meeting attended or
written consent minutes executed. Directors who are also employees of the
Company do not receive additional compensation for their services as directors.
Directors who were not employees of the Company each received initial option
grants with respect to 35,000 shares of the Company's Common Stock and receive
option grants with respect to 10,000 shares in subsequent fiscal years to a
maximum aggregate of 80,000 shares. One Director received options for 35,000
shares upon his initial election to the Board in fiscal 1996 and the other
outside Directors were each granted options with respect to 10,000 shares in
fiscal 1996.
-20-
<PAGE>
EXECUTIVE BONUSES
Monthly discretionary bonuses are paid to the Company's executive officers,
as well as other management and administrative employees, pursuant to the
Company's profit sharing bonus plan. The bonuses are based upon net pretax
profits and are generally allocated according to base salary level. Bonuses
paid to executive officers for services rendered to the Company during the year
ended April 30, 1996 are included in the amounts shown in the "Summary
Compensation Table."
STOCK OPTION PLAN
In July 1986 the Company adopted a Stock Option Plan ("Option Plan"). The
Option Plan was amended by the Company's Chapter 11 Plan of Reorganization to
(a) increase to 1,245,900 the number of shares available for grant, (b) provide
for the grant of nonqualified stock options, as well as incentive stock options,
(c) permit nonemployee agents, consultants, and independent contractors to
participate in the Option Plan and (d) provide automatic initial and annual
option grants in defined amounts to the Company's non-employee directors. The
purpose of the Option Plan is to motivate special achievement by the Company's
officers and key employees by encouraging them to acquire an equity interest in
the Company. The Option Plan terminated July 11, 1996.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee of the Board of Directors is composed of Mr.
Christie and Mr. Wright. The Compensation Committee determines compensation for
executive officers, including executive officers who are directors. It also
administers the Company's Option Plan.
BOARD COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee is composed of two independent non-employee
directors.
The Compensation Committee is responsible for recommending to the full
Board of Directors, for its approval, the base compensation for all executive
officers. Executive officers who serve on the Company's Board of Directors do
not participate in any deliberations or decisions regarding their own
compensation. The Compensation Committee receives recommendations from the
chief executive officer regarding appropriate levels of base compensation for
the other executive officers.
Awards to executive officers (and other employees) under the Company's 1986
Amended and Restated Stock Option Plan are made by the Compensation Committee
acting as an Administrative Committee.
The Company's executive officer compensation policies are designed to
attract, motivate and retain senior management by providing an opportunity for
overall competitive compensation based on an adequate base compensation amount
and participation in a profit based bonus system in effect for all salaried
employees of the Company.
-21-
<PAGE>
The profit sharing component of the overall compensation system is designed
to reward all salaried employees, including executive officers, in relation to
the Company's monthly performance and to encourage salaried employees at all
levels of the Company to work together for the common goal of maximizing
profits. Salaried employees at the WTD corporate level (including all executive
officers) receive 10% of monthly consolidated pre-tax profits, allocated
according to base salary level.
It is the Company's practice to participate in and use, as a basis for
comparison, an analysis of executive compensation in the Northwest prepared by
the compensation consulting group of Milliman & Robertson, Inc. This analysis
is useful in establishing base salary levels and monitoring overall compensation
levels as compared to other publicly-traded companies of similar size.
Executive officers' compensation paid during fiscal year 1996, with respect to
bonus and total cash compensation, was below the median levels published in the
1995/1996 Milliman & Robertson compensation survey of all industries and except
as noted below, base salaries of executive officers were below the published
median levels.
The Company also uses long-term stock-based incentive opportunities in the
form of options to purchase the Company's Common Stock. The Company's Amended
and Restated 1986 Stock Option Plan provides for the grant of stock options to
employees of the Company to purchase shares of the Company's Common Stock
subject to minimum exercise price limitations imposed by the Company's Plan of
Reorganization. Stock option awards are determined on a discretionary basis by
the Compensation Committee. No stock options were awarded to executive officers
during the 1996 fiscal year.
Stock options remaining available for grant to employees (including
executive officers) have a minimum exercise price of the greater of 85% of the
fair market value per share of the Company's stock at the time of grant or $3.00
per share.
The Committee believes that stock-based performance compensation
arrangements are beneficial in aligning management's and shareholders' interests
in the advancement of shareholder value.
WTD provides the same group life and health insurance coverage to executive
officers as other employees and requires all employees, including executive
officers, to pay approximately 25% of health insurance premiums by payroll
deduction.
The Company allows its executive officers and all other employees to
contribute a percentage of their compensation to the Company-sponsored 401(k)
Retirement Savings Plan. Executive officers and other salaried employees are
not generally entitled to matching contributions.
Neither the executive officers nor other employees are covered by any other
Company-sponsored retirement plans.
-22-
<PAGE>
CHIEF EXECUTIVE OFFICER COMPENSATION
All of the policies described above apply to Mr. Engel's compensation. No
additional benefits or requirements specifically apply to the chief executive
officer.
Mr. Engel's base salary for fiscal year 1996 was $300,000. The median base
salary for chief executive officers of comparably sized public companies, as
published by the Milliman & Robertson compensation survey, is $285,582.
Mr. Engel received a cash bonus of $23,142 during fiscal year 1996 under
the profit sharing plan described above, reflecting profitable operations during
three months of the fiscal year. Mr. Engel's bonus and total cash compensation
amounts were below the published median levels; the published median levels were
$171,926 and $425,882, respectively.
COMPENSATION COMMITTEE MEMBERS
Scott Christie
William H. Wright
-23-
<PAGE>
STOCK PERFORMANCE GRAPH
[GRAPH]
<TABLE>
<CAPTION>
Base
Period Return Return Return Return Return
Company/Index Name April 1991 April 1992 April 1993 April 1994 April 1995 April 1996
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
WTD Industries 100 100.00 81.82 89.09 50.92 19.99
S&P 500 Index 100 114.03 124.56 131.19 154.10 200.66
S&P Paper & Forest Products Index 100 126.32 129.57 130.12 156.45 175.98
</TABLE>
-24-
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table shows beneficial ownership of the Company's Common
Stock by each director, shareholders known to the Company to beneficially own
more than 5 percent of the Common Stock, by the executive officers named in the
Summary Compensation Table, and all directors and officers as a group. Except
as otherwise specifically noted, each person noted below has sole investment and
voting power with respect to shares indicated.
<TABLE>
<CAPTION>
Amount and Nature
Name and Address of Beneficial Owner of Beneficial Ownership(1)(2) Percent
- ------------------------------------ ----------------------------- ---------
<S> <C> <C>
Quinault Corporation
P.O. Box C
Aberdeen, WA 98570 1,183,000 10.7%
</TABLE>
<TABLE>
<CAPTION>
Amount and Nature
Name of Directors and Executive Officers of Beneficial Ownership(2)(3) Percent
- ---------------------------------------- ----------------------------- --------
<S> <C> <C>
Scott Christie 65,000 .6%
Richard W. Detweiler 8,750 .1%
Bruce L. Engel(4) 660,040 5.8%
K. Stanley Martin 38,000 .3%
Robert J. Riecke 31,200 .3%
John C. Stembridge 9,300 .1%
James R. Wilson(5) 8,100 .1%
William H. Wright 65,000 .6%
All directors and executive officers as a group
(9 persons) 889,390 7.7%
- ------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------
</TABLE>
(1) As determined by reference to the beneficial owner's most recent Form 4 or
13D filing.
(2) Beneficial Ownership is calculated as of June 28, 1996.
(3) Includes shares reserved for issuance under options exercisable within 60
days of June 28, 1996 as follows: Mr. Christie 65,000; Mr. Detweiler
8,750; Mr. Engel 307,200; Mr. Martin 28,000; Mr. Riecke 31,200; Mr.
Stembridge 8,000; Mr. Wilson 8,000; and Mr. Wright 65,000.
(4) Mr. Engel shares with his spouse Teri E. Engel voting and investment power
as to 352,840 shares beneficially owned. See Note 3 above for details of
individual option rights. Mr. Engel's shares are pledged to third parties
in connection with certain personal obligations.
(5) Mr. Wilson shares with his spouse Christine R. Wilson voting and investment
power as to 100 shares beneficially owned. See Note 3 above for details of
individual option rights.
-25-
<PAGE>
ITEM 13.CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During the 1996 fiscal year the Company purchased on behalf of itself and
three subsidiaries operating in the area advertising and promotional services
from Grays Harbor Gulls, a professional baseball team located near the Company's
hardwood lumber facility. Messrs. Engel and Wilson are officers and
shareholders of Grays Harbor Gulls. The total cost of the two-season
advertising and promotional program is $50,000.
-26-
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) (1) FINANCIAL STATEMENTS PAGE
- ----------------------------- ----
The following consolidated financial statements
of the Registrant and its subsidiaries are contained in
this report:
Report of Independent Certified Public Accountants 33
Consolidated Statements of Operations for the Years
Ended April 30, 1996, 1995 and 1994 34
Consolidated Balance Sheets at April 30, 1996 and 1995 35
Consolidated Statements of Cash Flows for the Years
Ended April 30, 1996, 1995 and 1994 37
Consolidated Statement of Changes in Stockholders'
Equity for the Years Ended April 30, 1996,
1995 and 1994 38
Notes to Consolidated Financial Statements 39
(a) (2) FINANCIAL STATEMENT SCHEDULES
- --------------------------------------
The schedules called for under Regulation S-X are not submitted because
they are not applicable, are not required, or because the required information
is not material or is included in the financial statements or notes thereto.
(a) (3) EXHIBIT INDEX Page
- ---------------------- ----
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)
3.1 Fourth Restated Articles of Incorporation of the
Registrant adopted November 27, 1992. (1)
3.2 Second Restated Bylaws of the Registrant effective
November 27, 1992. (9)
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<PAGE>
Page
----
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)
4.2.1 Amendment dated as of October 18, 1994 to 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. (10)
4.2.2 Amendment dated as of January 27, 1995 to 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. (12)
4.2.3 Amendment dated as of May 1, 1995 to 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. (12)
4.2.4 Amendment dated as of January 1, 1996 to 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. (13)
4.2.5 Amendment dated as of May 1, 1996 to 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. 54
4.3 Indenture dated as of November 30, 1992, between
Registrant and State Street Bank and Trust Company,
as Trustee, with respect to 8% Senior Subordinated
Notes due 2005. (3)
10.1 Amended and Restated 1986 Stock Option Plan dated
December 30, 1992.* (4)
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<PAGE>
Page
----
10.1.2 Form of Stock Option Agreement for directors of
Registrant.* (9)
10.1.3 Form of Stock Option Agreement for executive
officers of the Registrant.* (9)
10.2 General Indemnity Agreement dated March 29,
1984, among the Registrant, Bruce L. Engel
("Engel"), Teri E. Engel and Employers
Insurance of Wausau ("Wausau") and other
related parties and an Agreement dated
June 25, 1986, among Wausau, the Registrant,
Engel and other related parties.* (5)
10.2.1 Letter dated November 18, 1986, from Wausau to
the Registrant and General Agreement of Indemnity
dated January 19, 1987, among Wausau, the Reg-
istrant, Bruce L. Engel and Teri E. Engel.* (6)
10.3 Form of Indemnification Agreement for directors,
officers and certain employees effective January
30, 1991.* (9)
10.4 Description of Management Profit-Sharing Bonus
Plan.* (5)
10.61 WTD Industries, Inc. Retirement Savings Plan
and Trust dated as of May 1, 1989.* (7)
10.62 Amendment No. 1 to WTD Industries, Inc. Retirement
Savings Plan and Trust Effective May 1, 1989.* (8)
10.63 Amendment No. 2 to WTD Industries, Inc. Retirement
Savings Plan and Trust adopted May 30, 1991.* (8)
10.64 Amendment No. 3 to WTD Industries, Inc. Retirement
Savings Plan and Trust adopted June 26, 1992.* (8)
10.65 Amendment No. 4 to WTD Industries, Inc. Retirement
Savings Plan and Trust adopted April 30, 1993.* (9)
10.66 Amendment No. 5 to WTD Industries, Inc. Retirement
Savings Plan and Trust adopted December 28, 1994.* (11)
12.2 Computation of Registrant's Net Income (Loss) to
Average Total Assets. 60
12.3 Computation of Registrant's Net Income (Loss) to
Average Stockholders' Equity (Deficit). 61
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<PAGE>
Page
----
12.4 Computation of Registrant's Average Stockholders'
Equity (Deficit) to Average Total Assets. 62
21 Subsidiaries of the Registrant (list updated as
of June 28, 1996). 63
23 Consent of Independent Certified Public
Accountants. 64
27 Financial Data Schedule**
(1) Incorporated by reference to the exhibit of like number to the
Registrant's report on Form 8-K dated November 23, 1992.
(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.
(4) Incorporated by reference to exhibit 6.0 to the Registrant's
Registration Statement on Form S-8 (No. 33-62714) filed with the Commission on
May 14, 1993.
(5) Incorporated by reference to the exhibit of like number to the
Registrant's Registration Statement on Form S-1 (No. 33-7389) filed with the
Commission on July 21, 1986, as amended by Amendment Nos. 1 through 3 thereto
filed with the Commission on September 3, 1986, October 14, 1986 and October 24,
1986, respectively.
(6) Incorporated by reference to the exhibit of like number to the
Registrant's Registration Statement on Form S-1 (No. 33-12644) filed with the
Commission on March 16, 1987, as amended by Amendment Nos. 1 and 2 thereto filed
with the Commission on April 1, 1987 and April 24, 1987, respectively.
(7) Incorporated by reference to the exhibit of like number to the
Registrant's annual report on Form 10-K for the year ended April 30, 1989,
previously filed with the Commission.
(8) Incorporated by reference to the exhibit of like number to the
Registrant's annual report on Form 10-K for the year ended April 30, 1992,
previously filed with the Commission.
(9) Incorporated by reference to the exhibit of like number to the
Registrant's annual report on Form 10-K for the year ended April 30, 1993,
previously filed with the Commission.
(10) 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,
1994, previously filed with the Commission.
-30-
<PAGE>
(11) 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,
1995, previously filed with the Commission.
(12) Incorporated by reference to the exhibit of like number to the
Registrant's annual report on Form 10-K for the year ended April 30, 1995,
previously filed with the Commission.
(13) 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,
1996, previously filed with the Commission.
* Management contract or compensatory plan or arrangement.
** This schedule has been submitted in the electronic form prescribed by
EDGAR.
Except for instruments already filed as exhibits to this Form 10-K,
the Registrant agrees to furnish the Commission upon request a copy of each
instrument with respect to long-term debt of the Registrant and its consolidated
subsidiaries, the amount of which does not exceed 10% of the total assets of the
Registrant and its subsidiaries on a consolidated basis.
Other exhibits listed in Item 601 of Regulation S-K are not applicable.
(b) REPORTS ON FORM 8-K
- --- -------------------
No reports on Form 8-K were filed during the quarter ended April 30, 1996.
-31-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
WTD Industries, Inc.
(Registrant)
By: S/ BRUCE L. ENGEL
-----------------------------------------
Bruce L. Engel
President
July 23, 1996
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
S/ BRUCE L. ENGEL S/ K. S. MARTIN
- --------------------------------- -----------------------------------
Bruce L. Engel K. Stanley Martin
President (Principal Executive Officer) Vice President-Finance (Principal
and Director Financial and Accounting Officer)
and Director
S/ SCOTT CHRISTIE S/RICHARD W. DETWEILER
- --------------------------------- -----------------------------------
Scott Christie, Director Richard W. Detweiler, Director
S/WILLIAM H. WRIGHT S/ROBERT J. RIECKE
- --------------------------------- -----------------------------------
William H. Wright, Director Robert J. Riecke
Vice President-Administration
and Director
Each of the above signatures is affixed as of July 23, 1996.
-32-
<PAGE>
[MOSS ADAMS LETTERHEAD]
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Shareholders
WTD Industries, Inc.
We have audited the accompanying consolidated balance sheets of WTD Industries,
Inc. and subsidiaries (the "Company") as of April 30, 1996 and 1995, and the
related consolidated statements of operations, cash flows and changes in
stockholders' equity, for each of the years in the three-year period ended April
30, 1996. 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 audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of WTD Industries, Inc.
and subsidiaries as of April 30, 1996 and 1995, and the results of their
operations and their cash flows for each of the years in the three-year period
ended April 30, 1996, in conformity with generally accepted accounting
principles.
/s/ Moss Adams LLP
-----------------------------------
MOSS ADAMS LLP
Beaverton, Oregon
June 7, 1996
-33-
<PAGE>
WTD INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in Thousands, Except Per-Share Amounts)
YEAR ENDED APRIL 30,
-----------------------------------------
1996 1995 1994
----------- ----------- -----------
NET SALES $ 191,964 $ 274,966 $ 278,115
COST OF SALES 186,514 262,334 253,732
----------- ----------- -----------
GROSS PROFIT 5,450 12,632 24,383
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 9,685 10,366 12,423
REORGANIZATION CREDITS (409) (532) (2,487)
----------- ----------- -----------
OPERATING INCOME (LOSS) (3,826) 2,798 14,447
OTHER INCOME (EXPENSE)
Interest expense (5,318) (5,972) (6,541)
Miscellaneous 646 1,228 418
----------- ----------- -----------
(4,672) (4,744) (6,123)
----------- ----------- -----------
INCOME (LOSS) BEFORE INCOME TAXES (8,498) (1,946) 8,324
PROVISION FOR INCOME TAXES (BENEFIT) (2,454) (5,646) 2,024
----------- ----------- -----------
NET INCOME (LOSS) (6,044) 3,700 6,300
PREFERRED DIVIDENDS 2,364 2,126 1,616
----------- ----------- -----------
NET INCOME (LOSS) APPLICABLE
TO COMMON SHAREHOLDERS $ (8,408) $ 1,574 $ 4,684
----------- ----------- -----------
----------- ----------- -----------
NET INCOME (LOSS) PER COMMON SHARE
- PRIMARY ($0.76) $0.14 $0.41
----------- ----------- -----------
----------- ----------- -----------
- FULLY DILUTED ($0.76) $0.14 $0.41
----------- ----------- -----------
----------- ----------- -----------
The accompanying notes are an intregal part of these consolidated
financial statements.
-34-
<PAGE>
WTD INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
(In Thousands)
APRIL 30,
--------------------------------
1996 1995
------------ ------------
CURRENT ASSETS
Cash and cash equivalents $ 4,576 $ 6,023
Accounts receivable, net 10,190 11,404
Inventories 13,891 18,104
Prepaid expenses 1,568 4,024
Income tax refund receivable 2,135 503
Deferred tax asset 1,112 1,830
Assets held for sale 737 --
Timber, timberlands and
timber-related assets 6,243 9,299
------------ ------------
Total current assets 40,452 51,187
NOTES AND ACCOUNTS RECEIVABLE 164 89
TIMBER AND TIMBERLANDS 679 705
PROPERTY, PLANT AND EQUIPMENT, at cost
Land 2,943 2,733
Buildings and improvements 11,085 11,008
Machinery and equipment 68,313 65,511
------------ ------------
82,341 79,252
Less accumulated depreciation 51,391 47,727
------------ ------------
30,950 31,525
Construction in progress 339 600
------------ ------------
31,289 32,125
DEFERRED TAX ASSET 3,388 2,448
OTHER ASSETS 1,424 2,390
------------ ------------
$ 77,396 $ 88,944
------------ ------------
------------ ------------
The accompanying notes are an integral part of these consolidated
financial statements.
-35-
<PAGE>
WTD INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
(In Thousands, Except Share Information)
APRIL 30,
-----------------------------
1996 1995
------------ ------------
CURRENT LIABILITIES
Accounts payable $ 5,791 $ 6,023
Accrued expenses 6,198 7,466
Timber contracts payable 2,252 1,660
Current maturities of long-term debt 1,159 2,298
------------ ------------
Total current liabilities 15,400 17,447
LONG-TERM DEBT, less current maturities 50,310 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 (37,991) (29,601)
------------ ------------
11,686 20,076
------------ ------------
$ 77,396 $ 88,944
------------ ------------
------------ ------------
The accompanying notes are an intregal part of these consolidated
financial statements.
-36-
<PAGE>
WTD INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30,
--------------------------------------------------------
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
CASH PROVIDED BY (USED FOR) OPERATING ACTIVITIES:
Net income (loss) $ (6,044) $ 3,700 $ 6,300
Adjustments to reconcile net income (loss) to
cash provided by operating activities:
Depreciation, depletion and amortization 4,903 7,058 8,146
Deferred income tax (222) (4,262) (16)
Reorganization credits (409) (532) (2,487)
Accounts receivable 1,214 (2,770) 10,949
Inventories 4,213 8,692 (8,474)
Prepaid expenses 2,456 (879) (746)
Timber, timberlands and
timber-related assets - current 3,198 2,132 5,691
Payables and accruals (587) 1,974 (5,196)
Income taxes (1,632) (786) 283
------------ ------------ ------------
Cash provided by operating activities 7,090 14,327 14,450
------------ ------------ ------------
CASH PROVIDED BY (USED FOR) INVESTING ACTIVITIES:
Notes and other receivables (75) 75 (1)
Net reductions of timber and timberlands 26 140 13
Acquisition of property, plant and equipment (3,904) (6,467) (4,066)
Cost of holding idle facilities (4) (7) (125)
Poceeds from sale of idle facilities 145 -- 2,013
Other investing activities 106 227 281
------------ ------------ ------------
Cash used for investing activities (3,706) (6,032) (1,885)
------------ ------------ ------------
CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES:
Principal payments on long-term debt (2,379) (8,952) (4,190)
Other assets (106) 749 (853)
Dividends paid on preferred stock (2,346) (2,194) (1,616)
Issuance of common stock -- 24 71
------------ ------------ ------------
Cash used for financing activities (4,831) (10,373) (6,588)
------------ ------------ ------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (1,447) (2,078) 5,977
CASH BALANCE AT BEGINNING OF PERIOD 6,023 8,101 2,124
------------ ------------ ------------
CASH BALANCE AT END OF PERIOD $ 4,576 $ 6,023 $ 8,101
------------ ------------ ------------
CASH PAID (REFUNDED) DURING THE PERIOD FOR:
Interest $3,095 $6,989 $7,229
Income taxes ($598) ($613) $1,742
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
-37-
<PAGE>
WTD INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(In Thousands)
<TABLE>
<CAPTION>
SERIES A SERIES B
PREFERRED STOCK PREFERRED STOCK COMMON STOCK
--------------------- --------------------- -----------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Balance at April 30, 1993 269 $ 20,581 106 $ 5,756 7,548 $ 23,123
Shares issued pursuant
to reorganization plan 1 73 -- -- -- --
Shares converted -- -- (100) (5,423) 3,464 5,423
Stock options exercised -- -- -- -- 49 71
Dividends paid -- -- -- -- -- --
Net income -- -- -- -- -- --
------ --------- ------ ------- --------- ---------
Balance at April 30, 1994 270 20,654 6 333 11,061 28,617
Shares issued pursuant
to reorganization plan -- 34 -- -- -- --
Stock options exercised -- -- -- -- 16 24
Dividends paid -- -- -- -- -- --
Net income -- -- -- -- -- --
------ --------- ------ ------- --------- ---------
Balance at April 30, 1995 270 20,688 6 333 11,077 28,641
Dividends paid -- -- -- -- -- --
Net loss -- -- -- -- -- --
------ --------- ------ ------- --------- ---------
Balance at April 30, 1996 270 $ 20,688 6 $ 333 11,077 $ 28,641
------ --------- ------ ------- --------- ---------
------ --------- ------ ------- --------- ---------
<CAPTION>
STOCK
RETAINED HOLDERS'
PAID-IN EARNINGS EQUITY
CAPITAL (DEFICIT) (DEFICIT)
------- --------- ---------
<S> <C> <C> <C>
Balance at April 30, 1993 $ 15 $ (35,791) $ 13,684
Shares issued pursuant
to reorganization plan -- -- 73
Shares converted -- -- --
Stock options exercised -- -- 71
Dividends paid -- (1,616) (1,616)
Net income -- 6,300 6,300
-------- ----------- ----------
Balance at April 30, 1994 15 (31,107) 18,512
Shares issued pursuant
to reorganization plan -- -- 34
Stock options exercised -- -- 24
Dividends paid -- (2,194) (2,194)
Net income -- 3,700 3,700
-------- ----------- ----------
Balance at April 30, 1995 15 (29,601) 20,076
Dividends paid -- (2,346) (2,346)
Net loss -- (6,044) (6,044)
-------- ----------- ----------
Balance at April 30, 1996 $ 15 $ (37,991) $ 11,686
-------- ----------- ----------
-------- ----------- ----------
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
-38-
<PAGE>
WTD INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION AND OPERATIONS - The consolidated
financial statements include the accounts of WTD Industries, Inc. and its wholly
owned subsidiaries (hereinafter "WTD" or "the Company"). All significant
intercompany accounts and transactions have been eliminated.
The Company operates in one industry segment, the manufacture and sale
of softwood and hardwood lumber products, wood chips and other by-products.
Most lumber products are sold to wholesalers, distributors or directly to large
retailers. The Company's products are used in many applications, including
residential and commercial construction, packaging and industrial uses.
Market conditions in the housing sector deteriorated during the third
and fourth quarters of fiscal year 1995 and continued weak through the third
quarter of fiscal year 1996. In addition, lumber imported into the United
States from Canada continued at high volumes and put downward pressure on lumber
prices in the United States. Low lumber prices, combined with relatively high
log prices, created losses for the Company during each quarter of fiscal year
1996. In response to the generally weak market conditions, the Company
curtailed production at selected mills and reduced the level of operations at
various times during the year. By the end of the fiscal year, lumber prices had
increased and operating conditions had improved enough to allow the Company to
run substantially all of its mills on a full one-shift operation in March and
April, 1996.
The fiscal year 1996 results were such that management initiated
amendments to its primary debt agreement. This debt agreement was amended as of
January 1, 1996 and as of May 1, 1996 with respect to certain financial
performance covenants. These amendments followed a similar amendment as of May
1, 1995. Improved operating conditions from those in existence during fiscal
year 1996 will be necessary for the Company to remain in compliance with its
primary debt agreement. See Note 4 to Consolidated Financial Statements.
The Company's sales are predominantly in the United States; export
sales are not material. During the year ended April 30, 1996, the Company had
sales to one major customer of $23,235,000 or 12.1% of net sales. During the
year ended April 30, 1995, the Company had sales to one major customer of
$33,346,000, or 12.1% of net sales. The loss of any one customer would not, in
the opinion of management, have a material adverse impact on the financial
results of the Company.
Temporary cash investments and trade receivables potentially subject
the Company to concentrations of credit risk. The Company places its temporary
cash investments with high credit-quality financial institutions, and by policy
limits the amount of credit exposure to any one institution. The Company
reviews a customer's credit history before extending credit and continuously
evaluates its accounts receivable. Concentrations of credit risk on trade
receivables are limited due to the
-39-
<PAGE>
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED)
Company's large number of customers and their widely varying locations.
Generally, the Company does not require collateral or other security to support
its trade receivables.
WTD has from time to time utilized futures contracts to minimize the
Company's exposure to adverse movements in the log and lumber markets. This
activity has not been significant in the past and the Company had no material
futures position at April 30, 1996.
CASH AND CASH EQUIVALENTS - Financial instruments with a maturity of
three months or less are considered to be cash equivalents.
ACCOUNTS RECEIVABLE - Trade accounts receivable are shown net of
allowances for doubtful accounts and discounts of $112,000 and $199,000 at April
30, 1996 and 1995, respectively.
INVENTORIES - Inventories are valued at the lower of cost or market.
Cost is determined using the average cost and first-in, first-out (FIFO)
methods. A summary of inventory by principal product classification follows (in
thousands):
APRIL 30,
-------------------------
1996 1995
---------- ----------
Logs $ 5,899 $ 6,100
Lumber 6,786 10,808
Supplies 1,206 1,196
---------- ----------
$ 13,891 $ 18,104
---------- ----------
---------- ----------
At April 30, 1996 and 1995, $502,000 and $375,000, respectively, of
log inventory was valued at market, which approximated cost. At both April 30,
1996 and 1995, lumber inventory was generally valued at market, which
represented reductions of $873,000 and $2,729,000, respectively, from cost.
PROPERTY, PLANT AND EQUIPMENT - Property, plant and equipment of the
Company's facilities are stated at cost. For financial reporting purposes, the
Company uses the units-of-production method for computing depreciation over the
estimated useful lives of assets, ranging from ten to thirty years for buildings
and improvements, and three to ten years for machinery and equipment. When
assets are retired or disposed of, cost and accumulated depreciation are
reversed from the related accounts and any gain or loss is included in the
consolidated statement of operations.
TIMBER AND TIMBERLANDS - Timber and timberlands are stated at the
lower of aggregate cost or estimated disposal value, less the amortized cost of
timber harvested. The portion of the cost attributable to standing timber is
charged against income as timber is cut, at rates determined periodically based
on the relationship between unamortized timber value and the estimated volume of
recoverable timber. The costs of roads and land improvements are capitalized
and amortized over their
-40-
<PAGE>
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED)
economic lives. The carrying costs of timber, timberlands and related assets
are expensed as incurred. The Company classifies timber and timber-related
assets as current or long-term assets based upon expected harvest and disposal
plans.
TIMBER-CUTTING CONTRACTS - The Company purchases timber under various
types of contracts. Certain contracts, for which the total purchase price is
fixed, are recorded as assets along with the related liability at the date
acquired. The remaining contracts, for which the total purchase price depends
on the volume of timber removed, are considered to be commitments (as discussed
in Note 9) and are not recorded until the timber is removed.
INCOME TAXES - Income taxes are provided for transactions in the year
in which they are reflected in earnings, even though they may be reported for
tax purposes in a different year. The resulting difference between taxes
charged to operations and taxes paid is reported as deferred income taxes. Tax
credits are recognized in the year utilized, using the flow-through method.
Effective May 1, 1993, the Company adopted Statement of Financial Accounting
Standard Number 109 "Accounting for Income Taxes". No gain or loss was recorded
as a result of implementing this pronouncement. See Note 5 to Consolidated
Financial Statements.
ACCRUED EXPENSES - The following is a summary of the components of
accrued expenses (in thousands):
APRIL 30,
-------------------------
1996 1995
---------- ----------
Payroll and related items $ 4,129 $ 5,127
Freight payable 834 867
Other 1,235 1,472
---------- ----------
$ 6,198 $ 7,466
---------- ----------
---------- ----------
RESERVES FOR SELF-INSURANCE - WORKERS' COMPENSATION - Under its self-
insurance plan, the Company accrues the estimated cost of workers' compensation
claims based on prior year's open claims. An accrual for such costs of $2.1
million is included in the accompanying fiscal year 1996 financial statements.
Payments based on actual fiscal year 1996 claims ultimately filed could differ
materially from these estimates.
USE OF ESTIMATES - The preparation of the financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
-41-
<PAGE>
NOTE 2 - NET INCOME (LOSS) PER SHARE
This computation is based on net income (loss) less preferred dividends for
the period, divided by the weighted average number of shares of Common Stock and
equivalents assumed to be outstanding during the period. Anti-dilutive common
stock equivalents are excluded from the calculation.
The calculations of net income (loss) per share for the years ended April
30, 1996, 1995 and 1994 are summarized below (in thousands, except per-share
data):
<TABLE>
<CAPTION>
Year Ended April 30,
---------------------------------------
1996 1995 1994
---------- ---------- -------
<S> <C> <C> <C>
Net income (loss) $ (6,044) $ 3,700 $ 6,300
Preferred dividends 2,364 2,126 1,616
---------- ---------- -------
Net income (loss) applicable to
common shareholders $ (8,408) $ 1,574 $4,684
---------- ---------- -------
---------- ---------- -------
Weighted average shares outstanding 11,077 11,075 9,477
Additional shares assumed from:
- Conversion of Series B preferred stock -- 213 1,770
- Exercise of stock options -- 204 186
---------- ---------- -------
Average number of shares and equivalents outstanding
- Primary basis 11,077 11,492 11,433
Additional shares assumed from exercise of stock
options -- 18 86
---------- ---------- -------
Average number of shares and equivalents outstanding
- Assuming full dilution 11,077 11,510 11,519
---------- ---------- -------
---------- ---------- -------
Net income (loss) per common share
- Primary
Before extraordinary items $ (0.76) $ 0.14 $ 0.41
Extraordinary items -- -- --
---------- ---------- -------
$ (0.76) $ 0.14 $ 0.41
---------- ---------- -------
---------- ---------- -------
Net income (loss) per common share
- Assuming full dilution
Before extraordinary items $ (0.76) $ 0.14 $ 0.41
Extraordinary items -- -- --
---------- ---------- -------
$ (0.76) $ 0.14 $ 0.41
---------- ---------- -------
---------- ---------- -------
</TABLE>
-42-
<PAGE>
NOTE 3 - TIMBER, TIMBERLANDS AND TIMBER-RELATED ASSETS
The following summarizes the components of timber, timberlands and
timber-related assets (in thousands):
APRIL 30,
1996 1995
---------- ---------
Timber held under contract $ 4,029 $ 5,565
Timber, timberlands and timber deposits 1,892 3,353
Logging roads (at amortized cost) 322 381
---------- ---------
$ 6,243 $ 9,299
---------- ---------
---------- ---------
Timber and timberlands, long-term $ 679 $ 705
---------- ---------
---------- ---------
Timber held under contract is comprised of various public and private
timber contracts representing approximately 19.5 million board feet (MMBF) at
April 30, 1996 and 23 MMBF at April 30, 1995. Outstanding obligations relating
to these contracts at April 30, 1996 and 1995, were $2,252,000 and $1,660,000,
respectively.
-43-
<PAGE>
NOTE 4 - LONG-TERM DEBT
Long-term debt consists of the following (in thousands):
<TABLE>
<CAPTION>
APRIL 30,
-------------------------
1996 1995
--------- --------
<S> <C> <C>
Senior secured debt, bearing interest at 10%; principal
payable in quarterly installments of $225 through
December 15, 1997, then quarterly installments of $400
through December 15, 1998, then quarterly installments of
$1,000 beginning March 15, 1999, and a final payment in
December 2004; secured by substantially all assets of the
Company. $ 49,544 $ 50,523
Secured notes, interest at 10%; payable on various dates;
secured by various assets. 130 987
Priority notes, $31 payable in fiscal 1997 and $17 payable
in fiscal 1998, plus interest at 8.3%; senior to all other
unsecured obligations. 48 275
Unsecured senior subordinated notes, net of discount of
$407 ($428 at April 30, 1995); 8% coupon, effective
interest rate of 13.3%; semi-annual interest payments due
each June 30 and December 31; principal due in full June
30, 2005. 1,070 1,048
Other unsecured debt, net of discount of $134 ($229 at
April 30, 1995); payable in equal annual installments of
$270; non-interest bearing; effective interest rate of
12.3% 677 886
-------- --------
51,469 53,719
Less current maturities (1,159) (2,298)
-------- --------
$ 50,310 $ 51,421
-------- --------
-------- --------
</TABLE>
The Company's primary debt agreement includes certain covenants,
including the maintenance of specified levels of adjusted cumulative operating
income (as defined), tangible net worth, working capital, and collateral
coverage (as defined). This agreement also imposes certain restrictions and
limitations on capital expenditures, investments, dividend payments, new
indebtedness, and transactions with officers, directors, shareholders and
affiliates. This debt agreement was most recently amended as of May 1, 1996,
with respect to certain affirmative financial performance covenants.
At April 30, 1996 the Company's tangible net worth was $11.2 million,
compared to $11 million required by the covenant. At that same date, the
Company's working capital was $25.1 million, compared to $19 million required by
the covenant. Also, at April 30, 1996, the Company's adjusted cumulative
operating income was $21.1 million, compared to $19 million required. The
collateral coverage ratio at April 30, 1996 was 62.2%, compared to a 56% minimum
required level. The required level of working capital increases to $22.5
million on July 1, 1996 and to $25 million on July 1, 1997. The required level
of tangible net worth decreases to $9 million from July 1,
-44-
<PAGE>
1996 through June 30, 1997, then increases to $10 million at July 1, 1997, $12
million at May 1, 1998 and $14.5 million at May 1, 1999. The required level of
adjusted cumulative operating income increases to $22.5 million at July 1, 1996,
$25 million at January 1, 1997 and $27.5 million at July 1, 1997. The minimum
required collateral coverage ratio increases to 60% at July 1, 1996, and to 65%
at May 1, 1998. Improved operating results from those achieved in fiscal year
1996 will be necessary for the Company to remain in compliance with its debt
agreement. During the year ended April 30, 1996, the Company's adjusted
cumulative operating income decreased by $3 million while incurring a loss
before tax benefit of $8.5 million. See Note 1 to Consolidated Financial
Statements.
In accordance with the Company's primary debt agreement, additional
prepayments are required if the Company's cumulative operating income exceeds
certain specified amounts. No such prepayment will be required for the year
ended April 30, 1996. In connection with the May 1, 1996 amendment, the Company
has agreed to an additional prepayment computed at 30% of quarterly net income.
Future minimum repayments, exclusive of any mandatory prepayments if
certain earnings thresholds are reached, under the terms of all of the Company's
debt are as follows (in thousands):
Fiscal year ending April 30, 1997 $ 1,159
Fiscal year ending April 30, 1998 1,313
Fiscal year ending April 30, 1999 2,447
Fiscal year ending April 30, 2000 4,006
Fiscal year ending April 30, 2001 4,006
thereafter 38,538
----------
$ 51,469
----------
----------
NOTE 5 - PROVISION FOR INCOME TAXES
The income tax provision or benefit is based on the estimated
effective annual tax rate for each fiscal year. The provision or 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.
Effective May 1, 1993, the Company adopted Statement of Financial
Accounting Standard (SFAS) Number 109, "Accounting for Income Taxes." This
statement mandates the asset and liability approach to determining the 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.
The cumulative effect of adopting SFAS Number 109 as of May 1, 1993 was not
material. The Company's prior year financial statements have not been restated
for the provisions of this pronouncement.
-45-
<PAGE>
NOTE 5 - PROVISION FOR INCOME TAXES - (CONTINUED)
The federal and state income tax provision consists of the following (in
thousands):
Year Ended April 30,
-------------------------------------
1996 1995 1994
----------- ---------- ---------
Income (loss) before income taxes $ (8,498) $ (1,946) $ 8,324
---------- ---------- --------
---------- ---------- --------
Provision for income taxes (benefit):
Federal $ (2,114) $ (5,052) $ 1,984
State (340) (594) 40
---------- ---------- --------
$ (2,454) $ (5,646) $ 2,024
---------- ---------- --------
---------- ---------- --------
Current $ (2,232) $ (1,384) $ 2,040
Deferred (222) (4,262) $ (16)
---------- ---------- --------
$ (2,454) $ (5,646) $ 2,024
---------- ---------- --------
---------- ---------- --------
The income tax provision in fiscal year 1994 differs from the amount
computed by applying the federal statutory rate principally as a result of
recognizing the tax benefits of NOL carryforwards. The tax provision in fiscal
year 1995 and fiscal year 1996 differs from the amount computed by applying the
federal statutory rate principally as a result of elections made under the
Internal Revenue Code regarding the calculation and use of NOL carryforwards.
In the quarter ended January 31, 1995, the Company recorded current
and deferred income tax benefits of $5.4 million associated with elections made
by the Company under Internal Revenue Service (IRS) Regulations regarding the
calculation and use of NOL carryforwards. These elections required the Company
to reduce its federal NOL by approximately $8.2 million and its state NOL by
approximately $5.9 million. These reductions related to interest expense
recorded on debts which were converted to equity in the reorganization, and
taxable income not recognized on the conversion of debt to stock. However, the
elections permit the remaining NOL to offset taxable income without annual
limitation.
Accordingly, the Company filed its fiscal years 1994 and 1995 tax
returns and amended its fiscal year 1993 tax returns to reflect utilization of
its remaining federal and state NOL without annual limitation. This resulted in
refunds of prior year and current year taxes and deposits aggregating
approximately $1.9 million. In the quarter ended April 30, 1996, the Company,
utilizing available ten-year carryback provisions of the Internal Revenue Code,
carried back its fiscal year 1995 loss to prior years and also amended and
carried back its fiscal year 1993 tax return loss to fiscal year 1987. These
carrybacks resulted in the Company recording an income tax refund receivable of
$2.1 million as of April 30, 1996, and reducing the available NOL at April 30,
1996 by $7.9 million. As of June 17, 1996, the Company had received $1.1
million of the income tax refund receivable shown at April 30, 1996. The
Company can expect audits of its tax returns by various taxing authorities for
the years ended after April 30, 1991. The results of any such examinations
could affect the refunds received and the
-46-
<PAGE>
NOTE 5 - PROVISION FOR INCOME TAXES - (CONTINUED)
amount of NOL carryforwards available to offset future tax liabilities. The
Company's remaining NOL at April 30, 1996 is approximately $18.6 million for
federal income tax and $22.4 million for state income tax purposes. These
carryforwards expire in 2006 and 2011.
SFAS Number 109 requires that all current deferred tax assets and
liabilities be grouped and reported as one amount and that all non-current
deferred tax assets and liabilities be grouped and reported as one amount.
Classification as current or non-current is based upon the classification of the
related asset or liability for financial reporting. For deferred tax amounts
that do not relate to an asset or liability for financial reporting,
classification is to be based upon the expected utilization.
At April 30, 1996 and 1995, deferred tax assets and liabilities were
comprised of the following (in thousands):
Year Ended April 30,
------------------------
1996 1995
--------- ---------
Current deferred tax assets:
Non-deductible accruals $ 1,070 $ 1,741
Reserves for doubtful accounts and discounts 42 89
--------- ---------
Net current deferred tax assets $ 1,112 $ 1,830
--------- ---------
--------- ---------
Non-current deferred tax assets:
Tax benefit of net operating loss carryforward
and investment tax credit carryforward $ 8,702 $ 7,107
Valuation allowance against tax benefit of net
operating loss carryforwards (2,914) (2,946)
--------- ---------
5,788 4,161
Non-current deferred tax liabilities:
Differences in depreciation and capitalization
of assets for financial reporting and tax purposes (2,400) (1,713)
--------- ---------
Net long-term deferred tax assets $ 3,388 $ 2,448
--------- ---------
--------- ---------
Total net deferred tax asset $ 4,500 $ 4,278
--------- ---------
--------- ---------
Management has assessed the likelihood of utilizing the recorded
deferred tax asset related to its NOL carryforwards. This analysis included 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. Based upon the above factors, management believes that a valuation
allowance of approximately $2.9 million is necessary. Management periodically
reviews the above factors and may change the amount of valuation allowance as
facts and circumstances dictate.
-47-
<PAGE>
NOTE 6 - STOCKHOLDERS' EQUITY
Stockholders' equity at April 30, 1996 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 any 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 not
missed any dividend payments on the Series A preferred stock.
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 the remaining outstanding Series B preferred stock is
converted to Common Stock.
NOTE 7 - REORGANIZATION CHARGES (CREDITS)
In fiscal 1993, the Company reorganized under Chapter 11 of the
Federal Bankruptcy Code. In conjunction with the restructuring, management
reduced the value of assets associated with certain facilities to their
estimated net realizable value and established certain reserves for expenses
related to the cost of holding and disposing of such facilities. In fiscal
years 1994, 1995 and 1996, the reorganization credits related to the Company's
sale of idle assets and settlement of obligations at amounts which varied from
their original estimates.
-48-
<PAGE>
NOTE 8 - STOCK OPTIONS, WARRANTS AND EMPLOYEE BENEFIT PLANS
Effective December 30, 1992, the Company's Stock Option Plan ("Option
Plan") was amended and restated, and new options were granted. Non-qualified
stock options may be granted to directors, independent contractors, consultants,
and employees, and incentive stock options may be granted to employees to
acquire up to 1,245,900 shares of Common Stock. Options may be granted for a
term not to exceed 10 years and are not transferable other than by will or the
laws of descent and distribution. The Option Plan terminates on July 11, 1996,
or such earlier time as the Board of Directors may determine. The Option Plan
provides for incremental vesting based upon the optionee's period of service
with the Company and is administered by the Compensation Committee of the Board
of Directors.
Following is a summary of the activity with respect to the Option Plan
for the years ended April 30, 1994, 1995 and 1996:
<TABLE>
<CAPTION>
Non-Employee
Employee Stock Options Stock Options
---------------------- ---------------------
Option Number of Option Number of
Price Shares Price Shares
-------- --------- ------- --------
<S> <C> <C> <C> <C>
Shares under option at April 30, 1994 $.95625 $1.50
to $3.00 650,400 to $3.00 180,000
Options granted $3.00 40,000 $3.00 40,000
Options exercised $.95625 (16,000) --
Options cancelled $.95625
to $3.00 (38,000) --
-------- -------
Shares under option at April 30, 1995 636,400 220,000
$1.50
Options granted to $3.00 65,000(1)
Options cancelled $.95625 $1.50
to $3.00 (59,800) to $3.00 (120,000)
-------- -------
Shares under option at April 30, 1996 576,600 165,000 (1)
-------- -------
-------- -------
Shares exercisable at April 30, 1996 452,360 130,000
-------- -------
-------- -------
</TABLE>
(1) Includes 35,000 options granted
outside the option plan.
-49-
<PAGE>
NOTE 8 - STOCK OPTIONS, WARRANTS AND EMPLOYEE BENEFIT PLANS
(CONTINUED)
Options for 462,500 shares remain available for grant. Options for
19,000 shares will have an exercise price of the greater of $1.50 per share, or
an amount per share determined by the Plan Administrator, but not less than 85
percent of the fair market value of the Company's Common Stock on the date of
grant. The balance of the options will have an exercise price of the greater of
$3.00 per share, or an amount per share determined by the Plan Administrator,
but not less than 85 percent of the fair market value of the Company's Common
Stock on the date of grant.
The Company maintains a weekly discretionary bonus program for its
mill workers based on the performance of each production shift at individual
mills. The bonus program for mill workers is designed to reward productivity,
safety and regular attendance. The Company also has a monthly discretionary
profit sharing bonus program for management and administrative employees.
Profit sharing bonuses are based on net pre-tax profits and are generally
allocated according to base salary level. Amounts paid under all bonus programs
were approximately $4,500,000; $6,800,000; and $8,500,000 in fiscal years 1996,
1995 and 1994, respectively.
The Company maintains a 401(k) Retirement Savings Plan. Under the
plan, eligible participants may contribute 2 percent to 20 percent of their
compensation. The Company matches contributions of employees participating in
the Production/Safety/Attendance Bonus program on a monthly basis in an amount
as determined from time to time by the Board of Directors. Salaried employees
are not generally entitled to matching contributions. During the years ended
April 30, 1996, 1995 and 1994 the Company incurred expenses for matching
contributions and plan administration of $214,000; $377,000; and $391,000;
respectively. Company contributions to this plan are funded on a current basis.
-50-
<PAGE>
NOTE 9 - COMMITMENTS AND CONTINGENCIES
(a) TIMBER COMMITMENTS - At April 30, 1996, the Company had contracts
to purchase approximately 25.3 MMBF of timber from the U.S. Forest Service and
others for an estimated stumpage cost of $6,956,000. Deposits were made on
these contracts and additional payments are required as timber is removed.
Because of the volatility of product prices, the long-term nature of these
contracts and the options of selling logs, or processing them into lumber, it is
not possible to estimate potential losses, if any, that might be incurred under
these contracts at April 30, 1996. The expiration dates of the contracts are as
follows:
Footage Stumpage
Year Ending April 30, MMBF Cost
- ----------------------- -------- --------
1997 8.4 $ 2,485,000
1998 6.8 2,584,000
1999 10.1 1,887,000
---- ------------
25.3 $ 6,956,000
---- ------------
---- ------------
(b) LEASES - At April 30, 1996, the Company had future minimum rental
commitments for new or assumed operating leases as follows: 1997 - $850,000;
1998 - $759,000; 1999 - $803,000; 2000 - $596,000; 2001 - $364,000; thereafter -
$27,000.
Total rental expense for all leases was $1,124,000, $1,196,000 and
$1,131,000 for the years ended April 30, 1996, 1995 and 1994, respectively.
Actual rental expense includes short-term rentals and leases shorter than one
year, which are not included in the commitments.
(c) LITIGATION - The Company is involved in certain 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 will
not have a material impact upon the Company's consolidated financial condition
or results of operations.
(d) ENVIRONMENTAL COMPLIANCE - The Company is subject to various
federal, state and local regulations regarding waste disposal and pollution
control. Various governmental agencies have enacted, or are considering
regulations, regarding log yard management and disposal of log yard waste that
may require material expenditures in the future. Management believes that the
Company will be able to comply with any final regulations in this area without a
material adverse impact on its consolidated financial condition or results of
operations.
-51-
<PAGE>
NOTE 10 - UNAUDITED QUARTERLY FINANCIAL INFORMATION
The following quarterly information for the years ended April 30, 1996
and 1995 is unaudited but includes all adjustments (which consist of normal
recurring adjustments) which management considers necessary for a fair
presentation of such information (in thousands, except per-share amounts):
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30, 1996
--------------------------------------------------------------------
QUARTER
-----------------------------------------------------
FIRST SECOND THIRD FOURTH TOTAL
--------- -------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net sales $ 38,798 $ 64,161 $ 37,852 $ 51,153 $ 191,964
Gross profit (loss) $ 597 $ 3,104 $ (810) $ 2,559 $ 5,450
Net income (loss) $ (1,920) $ (535) $ (2,337) $ (1,252) $ (6,044)
Net income (loss) per common share $ (0.23) $ (0.10) $ (0.26) $ (0.17) $ (0.76)
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30, 1995
--------------------------------------------------------------------
QUARTER
----------------------------------------------------
FIRST SECOND THIRD FOURTH TOTAL
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net sales $ 76,466 $ 79,157 $ 61,592 $ 57,751 $ 274,966
Gross profit (loss) $ 5,539 $ 6,328 $ 1,251 $ (486) $ 12,632
Net income (loss) $ 1,040 $ 1,664 $ 3,997 $ (3,001) $ 3,700
Net income (loss) per common share $ 0.05 $ 0.10 $ 0.30 $ (0.31) $ 0.14
</TABLE>
-52-
<PAGE>
NOTE 11 - VALUATION AND QUALIFYING RESERVES
The following table summarizes the activity associated with the
Company's reserves for doubtful accounts and allowances for discounts for the
years ended April 30, 1996, 1995 and 1994 (in thousands):
Allowance for doubtful accounts -
deducted from accounts receivable in the
balance sheet
<TABLE>
<CAPTION>
Year Ended April 30,
-------------------------------------------
1996 1995 1994
------------ ---------- ----------
<S> <C> <C> <C>
Balance at beginning of year $ 115 $ 584 $ 504
Charged (credited) to costs and expenses (82) (10) 458
Deductions (1) (9) (459) (378)
------------ ---------- ----------
Balance at end of year $ 24 $115 $ 584
------------ ---------- ----------
------------ ---------- ----------
</TABLE>
Allowance for discounts -
deducted from accounts receivable in the
balance sheet
<TABLE>
<CAPTION>
Year Ended April 30,
-------------------------------------------
1996 1995 1994
------------ ---------- ----------
<S> <C> <C> <C>
Balance at beginning of year $ 84 $ 74 $ 135
Charged to costs and expenses 1,688 2,482 2,520
Deductions (1) (1,684) (2,472) (2,581)
----------- ------------ ------------
Balance at end of year $ 88 $ 84 $ 74
------------ ----------- -----------
------------ ----------- -----------
</TABLE>
(1) Uncollected receivables written off, net of recoveries, and discounts
taken by customers.
-53-
<PAGE>
EXHIBIT 4.2.5
AMENDMENT
DATED AS OF MAY 1, 1996
TO
CREDIT AND SECURITY AGREEMENT
DATED AS OF NOVEMBER 30, 1992
Reference is hereby made to that certain Credit and Security Agreement
("Credit Agreement") dated as of November 30, 1992 among 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, and WTD Industries, Inc. and its Affiliates and the Term Notes
issued by the Borrowers in connection with the Credit Agreement. Capitalized
terms used herein shall have the same meaning ascribed thereto in the Credit
Agreement.
The Term Note originally issued to Aetna Life Insurance Company was split
into two Notes which were sold to Franklin Principal Maturity Trust ("Franklin")
and Foothill Group, Inc. The Term Notes originally issued to Chemical Bank,
Seattle-First National Bank, and Bank of America Oregon were sold to Oppenheimer
& Co., Inc. ("Oppenheimer"). The Franklin note is now held by Bank of America
Illinois ("Bank of America").
The Credit Agreement is hereby modified as follows:
1. The following new definition is added to Section 1.01:
"Percentage of Income Payment Date" means the sixtieth (60th) day
after the end of each fiscal quarter of Borrowers except that for the last
quarter of Borrowers' fiscal year, the Percentage of Income Payment Date
shall be the ninetieth (90th) day after the end of the fiscal quarter. If
the date for payment is not a Business Day, then the payment shall be made
on the next succeeding Business Day.
2. Section 2.04 (g) is added and shall read as follows:
(g) PERCENTAGE OF INCOME PAYMENT ("PIP"). Commencing May 1, 1996
Borrowers shall pay, on each Percentage of Income Payment Date, an amount
equal to thirty percent (30%) of Borrowers' quarterly Net Income (before
payment of any dividends on the Senior Preferred Stock) EXCLUDING therefrom
gain or loss from the sale or other disposition of Fixed Production
Facility Assets.
-54-
<PAGE>
(i) Fifty percent (50%) of the PIP shall be applied to scheduled
principal payments due under the Term Notes in inverse order of their
maturities, such payment to be split pro rata among all the Term Notes
based upon the outstanding principal amount of each Term Note.
(ii) Fifty percent (50%) of the PIP shall be used as follows, it
being Borrowers' sole discretion to determine application of said payment
between the categories:
(a) For the purchase of Term Notes at ninety percent (90%)
or less of par, provided that any such purchase offer is made to all
holders in accordance with attached Exhibit A and the purchase price shall
be paid not later than the applicable Percentage of Income Payment Date;
(b) For payment of scheduled principal payments due under
the Term Notes in inverse order of their maturities, such payment to be
split pro rata among all the Term Notes based upon the outstanding
principal amount of each Term Note and applied to scheduled principal
payments in inverse order of maturity.
Any amounts paid, used or applied under SECTION 2.04 (g) shall be credited
toward any Cash Sweep required under SECTION 2.04 (e). In no event shall
Borrowers be required to pay more than four million dollars ($4,000,000) during
any fiscal year under this SECTION 2.04 (g).
3. Credit Agreement Section 6.01.C is hereby restated to read as follows:
C. COLLATERAL COVERAGE RATIO. Maintain a ratio of Borrower's
Current Collateral to the outstanding balance of the Term Loan (the
"Collateral Ratio"), not less than the Collateral Ratio set forth below, at
all times during the periods set forth below:
PERIOD COLLATERAL RATIO
------ ----------------
Effective Date through 4/30/95 0.55 (55%)
5/1/95 through 12/31/95 0.60 (60%)
1/1/96 through 2/29/96 0.54 (54%)
3/1/96 through 3/31/96 0.55 (55%)
4/1/96 through 6/30/96 0.56 (56%)
7/1/96 through 4/30/98 0.60 (60%)
5/1/98 and beyond 0.65 (65%)
As used herein, "Current Collateral" means for Borrowers, on a consolidated
basis, all in accordance with GAAP, (i) all Current Assets, less (ii) the sum of
(x) Borrower's current assets which are classified on Borrowers' consolidated
balance sheet as "prepaid expenses", excluding the amount of interest prepaid on
the Term Notes, and otherwise included in prepaid expenses, (y) Borrowers'
current liabilities
-55-
<PAGE>
which are classified on Borrowers' consolidated balance sheet as "accounts
payable", and (z) all of Borrowers' current liabilities which are classified on
Borrowers' consolidated balance sheet as "timber contracts payable."
4. Credit Agreement Section 6.01.D is hereby restated to read as follows:
D. TANGIBLE NET WORTH. Maintain a positive Tangible Net Worth of
not less than the respective amount set forth below, at all times during
the periods set forth below:
PERIOD TANGIBLE NET WORTH
------ ------------------
Effective Date through 7/31/93 $ 6.5 Million
8/1/93 through 4/30/94 $ 8.0 Million
5/1/94 through 4/30/95 $10.0 Million
5/1/95 through 10/31/95 $15.0 Million
11/1/95 through 12/31/95 $13.5 Million
1/1/96 through 6/30/96 $11.0 Million
7/1/96through 6/30/97 $ 9.0 Million
7/1/97 through 4/30/98 $10.0 Million
5/1/98 through 4/30/99 $12.0 Million
5/1/99 and beyond $14.5 Million
5. Credit Agreement Section 6.01.G is hereby restated to read as follows:
G. MINIMUM CUMULATIVE ADJUSTED EBITDA. Maintain a minimum EBITDA
(calculated from and including the first day of the first calendar month
following the Effective Date) MINUS (a) actual Capital Expenditures, MINUS
(b) Timber and Timberlands Expenditures Non-Current, of not less than the
respective amount set forth below, at all times during the periods set
forth below:
PERIOD MILLIONS OF DOLLARS
------ -------------------
Effective Date through 4/30/93 0
5/1/93 through 7/31/93 2
8/1/93 through 1/31/94 5
2/1/94 through 7/31/94 10
8/1/94 through 12/31/95 20
1/1/96 through 6/30/96 19
7/1/96 through 12/31/96 22.5
1/1/97 through 6/30/97 25
7/1/97 through 4/30/98 27.5
5/1/98 through 4/30/99 40
5/1/99 through 4/30/00 52.5
5/1/00 and beyond 67.5
-56-
<PAGE>
6. Credit Agreement Section 6.01.I is hereby restated to read as follows:
I. TOTAL LIABILITIES RATIO. Maintain a ratio of Borrowers' Total
Liabilities to Total Assets (the "LIABILITIES RATIO"), not greater than the
Liabilities Ratios set forth below, at all times during the periods set
forth below:
PERIOD LIABILITIES RATIO
------ -----------------
Effective Date through 7/31/94 0.95 (95%)
8/1/94 through 4/30/95 0.90 (90%)
5/1/95 through 12/31/95 0.85 (85%)
1/1/96 through 10/31/96 0.87 (87%)
11/1/96 through 6/30/97 0.89 (89%)
7/1/97 through 4/30/98 0.87 (87%)
5/1/98 and beyond 0.85 (85%)
7. Credit Agreement Section 6.01.J is hereby restated to read as follows:
J. MINIMUM WORKING CAPITAL. Maintain minimum working capital, at
all times during the periods set forth below, calculated as Current Assets
MINUS Current Liabilities; PROVIDED, for the purpose of computing Current
Assets under this SECTION 6.01.J, the portion of Current Assets which
consists of Timber and Timberlands Current or contract rights relating
thereto shall be included only up to an amount equal to (x) on or before
January 31, 1993, forty-five percent (45%) and (y) thereafter, forty
percent (40%), of the amount of Borrowers' overall Current Assets
determined in accordance with GAAP:
PERIOD MILLIONS OF DOLLARS
------ -------------------
Effective Date through 12/31/95 25
1/1/96 through 6/30/96 19
7/1/96 through 6/30/97 22.5
7/1/97 and beyond 25
8. In all other respects, the Credit Agreement shall remain unchanged and
in full force and effect.
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<PAGE>
EFFECTIVE DATE: May 1, 1996.
PRINCIPAL MUTUAL LIFE THE NORTHWESTERN MUTUAL LIFE
INSURANCE COMPANY INSURANCE COMPANY
By:____________________________ By:___________________________
Its:___________________________ Its:__________________________
(Pro Rata Interest: 20.235984%)
By:____________________________
Its:___________________________ FOOTHILL GROUP, INC.
(Pro Rata Interest: 47.228439%)
By:___________________________
OPPENHEIMER & CO., INC. Its:__________________________
(Pro Rata Interest: 18.729872%)
By:_____________________________
Its:____________________________ WTD INDUSTRIES, INC.
(Pro Rata Interest: 6.838639%)
By:____________________________
BANK OF AMERICA ILLINOIS Its:___________________________
By:______________________________
Its:_____________________________
(Pro Rata Interest: 6.967066%)
-58-
<PAGE>
Exhibit A
to AMENDMENT
DATED AS OF MAY 1, 1996
Mechanics of Tender Offer for Term Notes
WTD sends a written notice (the "Offer") to each holder of Term Notes,
offering to purchase Term Notes at one price per $1000 of the outstanding
principal amount of Term Notes tendered for sale. The Offer would also explain
that, if accepting holders agreed to sell a larger outstanding principal amount
of Term Notes than WTD could purchase according to the terms of the Offer, WTD
would pro rate among accepting holders (a) the outstanding principal amount of
Term Notes that WTD would purchase and (b) the total purchase price that WTD
would pay for (a).
Together with the Offer, WTD sends a written form of acceptance (the
"Acceptance") to each holder, which each accepting holder must use in order to
accept WTD's offer. Each accepting holder would indicate on the Acceptance (a)
the maximum outstanding principal amount of Term Notes that it agreed to sell to
WTD and (b) instructions for payment of the purchase price by wire transfer of
immediately available funds.
WTD's offer to purchase remains open until 5:00 p.m. Pacific time on the
tenth business day after the date of the Offer (the "Deadline"), and WTD honors
all Acceptances that it receives by the Deadline.
If accepting holders agree to sell a larger outstanding principal amount of
Term Notes than WTD could purchase according to the terms of the Offer, WTD
would calculate for each accepting holder (a) the pro ration to which paragraph
1(a) refers by multiplying the maximum outstanding principal amount of Term
Notes that such holder has agreed to sell by a fraction (the "Fraction"), the
numerator of which is the maximum outstanding principal amount of Term Notes
that such holder has agreed to sell, and the denominator of which is the total
of such maximum amounts for all accepting holders, and (b) the pro ration to
which paragraph 1(b) refers by multiplying the purchase price that WTD would
have paid to such holder, if pro ration of the total purchase price had been
unnecessary, by the Fraction.
Not later than the second business day after the Deadline, WTD sends to all
holders a written notice showing the maximum outstanding principal amount of
Term Notes that each accepting holder has agreed to sell to WTD and the pro
rations calculated for each accepting holder pursuant to paragraph 4.
Not later than the tenth business day after the Deadline, each accepting
holder delivers to WTD Term Notes in an appropriate principal amount, against
its receipt of its pro rata share of the total purchase price and substitute
Term Notes for any unsold, pro rated portion of the Term Notes that such holder
delivered. Not later than the tenth business day after the Deadline, WTD pays
the appropriate purchase price to each accepting holder by wire transfer of
immediately available funds, and WTD issues and delivers to each accepting
holder the appropriate substitute Term Notes.
-59-
<PAGE>
EXHIBIT 12.2
WTD INDUSTRIES, INC. AND SUBSIDIARIES
COMPUTATION OF REGISTRANT'S NET INCOME (LOSS)
TO AVERAGE TOTAL ASSETS
(In Thousands, Except Ratios)
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30,
------------------------------------------------------------------
1996 1995 1994 1993 1992
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
NET INCOME (LOSS) $ (6,044) $ 3,700 $ 6,300 $ 23,758 $ 2,992
----------- ---------- ---------- ---------- ----------
AVERAGE TOTAL ASSETS
Beginning of period $ 88,944 $ 97,100 $ 100,039 $ 113,561 $ 106,038
End of period 77,396 88,944 97,100 100,039 113,561
Average $ 83,170 $ 93,022 $ 98,570 $ 106,800 $ 109,800
---------- ---------- ---------- ---------- ----------
RATIO OF NET INCOME (LOSS) TO
AVERAGE TOTAL ASSETS (7.3)% 4.0 % 6.4 % 22.2 % 2.7 %
</TABLE>
-60-
<PAGE>
EXHIBIT 12.3
WTD INDUSTRIES, INC. AND SUBSIDIARIES
COMPUTATION OF REGISTRANT'S NET INCOME (LOSS)
TO AVERAGE STOCKHOLDERS' EQUITY (DEFICIT)
(In Thousands, Except Ratios)
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30,
------------------------------------------------------------------
1996 1995 1994 1993 1992
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
NET INCOME (LOSS) $ (6,044) $ 3,700 $ 6,300 $ 23,758 $ 2,992
---------- ---------- ---------- ---------- ----------
AVERAGE STOCKHOLDERS' EQUITY
(DEFICIT)
Beginning of period $ 20,076 $ 18,512 $ 13,684 $ (43,553) $ (46,545)
End of period 11,686 20,076 18,512 13,684 (43,553)
Average $ 15,881 $ 19,294 $ 16,098 $ (14,935) $ (45,049)
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
RATIO OF NET INCOME (LOSS) TO
AVERAGE STOCKHOLDERS'
EQUITY (DEFICIT) (38.1)% 19.2% 39.1% NM NM
</TABLE>
NM - Not meaningful
-61-
<PAGE>
EXHIBIT 12.4
WTD INDUSTRIES, INC. AND SUBSIDIARIES
COMPUTATION OF REGISTRANT'S AVERAGE STOCKHOLDERS'
EQUITY (DEFICIT) TO AVERAGE TOTAL ASSETS
(In Thousands, Except Ratios)
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30,
-----------------------------------------------------------
1996 1995 1994 1993 1992
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
AVERAGE STOCKHOLDERS' EQUITY
(DEFICIT)
Beginning of period $ 20,076 $ 18,512 $ 13,684 $ (43,553) $ (46,545)
End of period 11,686 20,076 18,512 13,684 (43,553)
Average $ 15,881 $ 19,294 $ 16,098 $ (14,935) $ (45,049)
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
AVERAGE TOTAL ASSETS
Beginning of period $ 88,944 $ 97,100 $ 100,039 $ 113,561 $ 106,038
End of period 77,396 88,944 97,100 100,039 113,561
Average $ 83,170 $ 93,022 $ 98,570 $ 106,800 $ 109,800
---------- ---------- ---------- ---------- ----------
RATIO OF AVERAGE STOCKHOLDERS'
EQUITY (DEFICIT) TO AVERAGE
TOTAL ASSETS 19.1 % 20.7 % 16.3 % NM NM
</TABLE>
NM - Not meaningful
-62-
<PAGE>
EXHIBIT 21
WTD Industries, Inc.
Subsidiaries of the Registrant
As of June 28, 1996
Grouped by State/Country of Incorporation
OREGON
- ------
Alturas Lumber Co.
Burke Lumber Co.
Central Point Lumber Co.
Cottage Grove Lumber Co.
Crater Lake Lumber Co.
Custer Lumber Co.
Eugene Wood Products Co.
Glide Lumber Products Co.
Goshen Veneer Co.
Halsey Veneer Co.
Judith Gap Lumber Co.
Junction City Lumber Co.
Midway Forest Products Co.
North American Enterprises, Inc.
North Powder Lumber Co.
Pacific Softwoods Co.
Philomath Forest Products Co.
Port Westward Pulp Co.
Riverside Lumber Co.
Silverton Forest Products Co.
Trask River Lumber Co.
TreeSource, Inc.
Union Forest Products Co.
Union Rail Enterprises, Inc.
Western Timber Co.
Whitehall Plywood, Inc.
WASHINGTON
- ----------
Cle Elum Lake Veneer Co.
Graham Plywood Co.
Morton Forest Products Co.
Olympia Forest Products Co.
Orient Lumber Co.
Pacific Hardwoods-Aberdeen Co.
Pacific Hardwoods-South Bend Co.
Sedro-Woolley Lumber Co.
Spanaway Lumber Co.
Tumwater Lumber Co.
Valley Wood Products Co.
MONTANA
- -------
Columbia Falls Forest Products, Inc.
GUAM
- ----
TreeSource International, Inc.
-63-
<PAGE>
EXHIBIT 23
[MOSS ADAMS LETTERHEAD]
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We consent to the incorporation by reference in the Registration Statement on
Form S-8 and Form S-3 pertaining to the WTD Industries, Inc. Amended and
Restated 1986 Stock Option Plan with respect to the financial statements of WTD
Industries, Inc., which appear in the WTD Industries, Inc. Annual Report on Form
10-K for the year ended April 30, 1996, filed with the Securities and Exchange
Commission.
/s/ Moss Adams LLP
-----------------------------------
MOSS ADAMS LLP
Beaverton, Oregon
June 7, 1996
-64-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM REGISTRANT'S
REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED APRIL 30, 1996 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> APR-30-1996
<PERIOD-START> MAY-01-1995
<PERIOD-END> APR-30-1996
<CASH> 4,576
<SECURITIES> 0
<RECEIVABLES> 10,190
<ALLOWANCES> 0
<INVENTORY> 13,891
<CURRENT-ASSETS> 40,452
<PP&E> 82,680
<DEPRECIATION> 51,391
<TOTAL-ASSETS> 77,396
<CURRENT-LIABILITIES> 15,400
<BONDS> 50,310
0
21,021
<COMMON> 28,641
<OTHER-SE> (37,976)
<TOTAL-LIABILITY-AND-EQUITY> 77,396
<SALES> 191,964
<TOTAL-REVENUES> 191,964
<CGS> 186,514
<TOTAL-COSTS> 186,514
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,318
<INCOME-PRETAX> (8,498)
<INCOME-TAX> (2,454)
<INCOME-CONTINUING> (6,044)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (6,044)
<EPS-PRIMARY> (.76)
<EPS-DILUTED> (.76)
</TABLE>
