SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended October 31, 1996
------------------------
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition from to
-------------------- -------------------
Commission file number 0-16158
WTD Industries, Inc.
(Exact name of Registrant as specified in its charter)
Oregon 93-0832150
- ------------------------------- -------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
10260 S.W. Greenburg Road, Suite 900, Portland, Oregon 97223
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(Registrant's telephone number, including area code) (503) 246-3440
--------------------
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
Indicate by check mark whether the Registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities and
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes X No
--- ---
The number of shares outstanding of Registrant's Common Stock, no par
value, at November 30, 1996 was 11,077,074.
<PAGE>
WTD INDUSTRIES, INC.
--------------------
INDEX
Page
Number
------
PART I. Financial Information (Unaudited)
Item 1. Financial Statements
Consolidated Statements of Operations -
Three Months and Six Months Ended October 31, 1996 and 1995 3
Consolidated Balance Sheets -
October 31, 1996 and April 30, 1996 4
Consolidated Statements of Cash Flows -
Six Months Ended October 31, 1996 and 1995 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of
Operations 11
PART II. Other Information
Item 4. Submission of Matters to a Vote of Security Holders 15
Item 6. Exhibits and Reports on Form 8-K 15
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
WTD INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, Except Per-Share Amounts)
(Unaudited)
THREE MONTHS ENDED SIX MONTHS ENDED
OCTOBER 31, OCTOBER 31,
----------------------------- ------------------------------
1996 1995 1996 1995
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
NET SALES $ 79,206 $ 64,161 $ 146,179 $ 102,959
COST OF SALES 69,752 61,057 129,063 99,258
------------ ------------ ------------ ------------
GROSS PROFIT 9,454 3,104 17,116 3,701
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 3,404 2,711 6,487 5,149
------------ ------------ ------------ ------------
OPERATING INCOME (LOSS) 6,050 393 10,629 (1,448)
OTHER INCOME (EXPENSE)
Interest Expense (1,281) (1,350) (2,578) (2,714)
Miscellaneous 72 94 167 202
------------ ------------ ------------ ------------
(1,209) (1,256) (2,411) (2,512)
------------ ------------ ------------ ------------
INCOME (LOSS) BEFORE INCOME TAXES 4,841 (863) 8,218 (3,960)
PROVISION FOR INCOME TAXES (BENEFIT) 1,840 (328) 3,123 (1,505)
------------ ------------ ------------ ------------
NET INCOME (LOSS) 3,001 (535) 5,095 (2,455)
PREFERRED DIVIDENDS 557 595 1,114 1,203
------------ ------------ ------------ ------------
NET INCOME (LOSS) APPLICABLE
TO COMMON SHAREHOLDERS $ 2,444 $ (1,130) $ 3,981 $ (3,658)
============ ============ ============ ============
NET INCOME (LOSS) PER COMMON SHARE
PRIMARY $0.21 ($0.10) $0.35 ($0.33)
----- ------- ----- -------
FULLY DILUTED $0.21 ($0.10) $0.35 ($0.33)
----- ------- ----- -------
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
WTD INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
(In Thousands)
OCTOBER 31, APRIL 30,
1996 1996
-------------- --------------
<S> <C> <C>
CURRENT ASSETS (Unaudited)
Cash and cash equivalents $ 3,502 $ 4,576
Accounts receivable, net 14,180 10,190
Inventories 23,686 13,891
Prepaid expenses 1,753 1,568
Income tax refund receivable 1,230 2,135
Deferred tax asset 1,105 1,112
Assets held for sale 736 737
Timber, timberlands and timber-related assets 4,371 6,243
-------------- --------------
Total current assets 50,563 40,452
NOTES AND ACCOUNTS RECEIVABLE 136 164
TIMBER AND TIMBERLANDS 629 679
PROPERTY, PLANT AND EQUIPMENT, at cost
Land 2,943 2,943
Buildings and improvements 11,189 11,085
Machinery and equipment 69,065 68,313
-------------- --------------
83,197 82,341
Less accumulated depreciation 54,288 51,391
-------------- --------------
28,909 30,950
Construction in progress 560 339
-------------- --------------
29,469 31,289
DEFERRED TAX ASSET 506 3,388
OTHER ASSETS 1,331 1,424
-------------- --------------
$ 82,634 $ 77,396
============== ==============
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
WTD INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
(In Thousands, Except Share Information)
OCTOBER 31, APRIL 30,
1996 1996
-------------- --------------
<S> <C> <C>
CURRENT LIABILITIES (Unaudited)
Accounts payable $ 9,593 $ 5,791
Accrued expenses 7,039 6,198
Timber contracts payable 54 2,252
Current maturities of long-term debt 2,112 1,159
-------------- --------------
Total current liabilities 18,798 15,400
LONG-TERM DEBT, less current maturities 48,169 50,310
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 (34,010) (37,991)
-------------- --------------
15,667 11,686
-------------- --------------
$ 82,634 $ 77,396
============== ==============
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
WTD INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
SIX MONTHS ENDED OCTOBER 31,
------------------------------------
1996 1995
-------------- --------------
<S> <C> <C>
CASH PROVIDED BY (USED FOR) OPERATING ACTIVITIES:
Net income (loss) $ 5,095 $ (2,455)
Adjustments to reconcile net income (loss) to
cash provided by operating activities:
Depreciation, depletion and amortization 3,315 2,823
Deferred income tax 2,889 (1,477)
Accounts receivable (3,990) 146
Inventories (9,795) (939)
Prepaid expenses (185) 1,871
Timber, timberlands and timber-related assets - current 1,788 1,137
Payables and accruals 2,498 664
Income taxes 905 503
-------------- --------------
Cash provided by operating activities 2,520 2,273
-------------- --------------
CASH PROVIDED BY (USED FOR) INVESTING ACTIVITIES:
Net reductions of timber and timberlands 50 7
Acquisition of property, plant and equipment (1,313) (2,089)
Other investing activities 57 51
-------------- --------------
Cash used for investing activities (1,206) (2,031)
-------------- --------------
CASH USED FOR FINANCING ACTIVITIES:
Principal payments on long-term debt (1,240) (878)
Other assets (34) (1)
Dividends paid on preferred stock (1,114) (1,198)
-------------- --------------
Cash used for financing activities (2,388) (2,077)
-------------- --------------
DECREASE IN CASH AND CASH EQUIVALENTS (1,074) (1,835)
CASH BALANCE AT BEGINNING OF PERIOD 4,576 6,023
-------------- --------------
CASH BALANCE AT END OF PERIOD $ 3,502 $ 4,188
============== ==============
CASH PAID (REFUNDED) DURING THE PERIOD FOR:
Interest $2,523 $523
Income taxes ($706) ($530)
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
6
<PAGE>
WTD INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - SUMMARY OF FINANCIAL STATEMENT PRESENTATION
In the opinion of management, the consolidated financial statements of WTD
Industries, Inc. and subsidiaries ("WTD" or "the Company") presented herein
include all adjustments, which are solely of a normal recurring nature,
necessary for a fair presentation of the financial position, results of
operations and cash flows for the interim periods presented. Certain
reclassifications have been made to the prior period results and balances to
conform to the current period classifications. The financial statements should
be read with reference to "Management's Discussion and Analysis of Financial
Condition and Results of Operations" contained in this report, and the "Notes to
Consolidated Financial Statements" set forth in the Company's Annual Report on
Form 10-K for the year ended April 30, 1996, filed with the Securities and
Exchange Commission. The results of operations for the current interim periods
are not necessarily indicative of the results to be expected for the current
year.
NOTE 2 - INVENTORIES
Inventories are valued at the lower of cost or market. The amounts included
in inventories at October 31, 1996 and April 30, 1996 are as follows (in
thousands):
October 31, April 30,
1996 1996
----------- -----------
Logs $ 14,696 $ 5,899
Lumber 7,664 6,786
Supplies 1,326 1,206
----------- -----------
$ 23,686 $ 13,891
=========== ===========
NOTE 3 - LONG-TERM DEBT
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, collateral coverage (as defined)
and total liabilities ratio (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
and payment terms.
7
<PAGE>
NOTE 3 - LONG-TERM DEBT (Continued)
At October 31, 1996 the Company's tangible net worth was $15.3 million,
compared to $9 million required by the covenant. At that same date, the
Company's working capital was $31.8 million, compared to $22.5 million required
by the covenant. Also, at October 31, 1996, the Company's adjusted cumulative
operating income was $33.9 million, compared to $22.5 million required. The
collateral coverage ratio at October 31, 1996 was 80.8%, compared to a 60%
minimum required level. The total liabilities ratio was 81% at October 31, 1996,
compared to a maximum allowed of 87%. The required level of tangible net worth
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 working capital increases to $25
million on July 1, 1997. The required level of adjusted cumulative operating
income increases to $25 million at January 1, 1997, $27.5 million at July 1,
1997, $40 million at May 1, 1998, $52.5 million at May 1, 1999 and $67.5 million
at May 1, 2000. The minimum required collateral coverage ratio increases to 65%
at May 1, 1998. The maximum allowed total liabilities ratio increases to 89% at
November 1, 1996, drops to 87% at July 1, 1997 and drops to 85% at May 1, 1998.
During the quarter ended October 31, 1996, the Company's adjusted cumulative
operating income increased by $7.1 million while showing income before taxes of
$4.8 million.
In addition, this agreement requires prepayments if the Company's
cumulative operating income exceeds certain specified amounts. No such
prepayment was 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. The next prepayment under this
provision will be approximately $902,000 due in December 1996.
NOTE 4 - STOCKHOLDERS' EQUITY AND COMMON SHARES OUTSTANDING
Stockholder's equity at October 31, 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 accrued dividends at the
option of the Board of Directors, in the form of cash or in exchange
for senior unsecured debt with a 12% coupon. The holders of the Series
A preferred stock will be granted voting control of the Company's Board
of Directors in the event the Company misses three consecutive
quarterly dividend payments, four quarterly dividend payments within
twenty-four months or a total of eight quarterly dividend payments.
Series B preferred stock, $100 per share liquidation preference;
500,000 shares authorized; 6,111 shares issued and outstanding; limited
voting rights; convertible into 212,693 shares of common stock;
dividends payable only if paid on the Company's common stock;
redeemable at original issue price plus accrued dividends at the option
of the Board of Directors after all Series A preferred stock has been
redeemed.
8
<PAGE>
NOTE 4 - STOCKHOLDERS' EQUITY AND COMMON SHARES OUTSTANDING
(Continued)
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 exercise of any stock options or
conversion of any Series A preferred stock, the total number of common
shares would increase to 11,289,767 shares if remaining Series B
preferred stock outstanding at October 31, 1996 is converted to common
stock.
NOTE 5 - NET INCOME (LOSS) PER SHARE
The calculations of net income (loss) per share for the three-month and
six-month periods ended October 31, 1996 and 1995 are summarized below (in
thousands, except per-share data):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
October 31, October 31,
----------------------------------------------------
1996 1995 1996 1995
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
NET INCOME (LOSS) APPLICABLE TO
COMMON SHAREHOLDERS $ 2,444 $ (1,130) $ 3,981 $ (3,658)
========== ========== ========== ==========
WEIGHTED AVERAGE SHARES OUTSTANDING 11,077 11,077 11,077 11,077
ADDITIONAL SHARES ASSUMED FROM:
Conversion of Series B
preferred stock 213 -- 213 --
Exercise of stock options 103 -- 20 --
---------- ---------- ---------- ----------
AVERAGE NUMBER OF SHARES AND
EQUIVALENTS OUTSTANDING
- PRIMARY BASIS 11,393 11,077 11,310 11,077
ADDITIONAL SHARES ASSUMED FROM
EXERCISE OF STOCK OPTIONS 38 -- 108 --
---------- ---------- ---------- ----------
AVERAGE NUMBER OF SHARES AND
EQUIVALENTS OUTSTANDING
- FULLY DILUTED 11,431 11,077 11,418 11,077
========== ========== ========== ==========
NET INCOME (LOSS) PER COMMON SHARE
- PRIMARY BASIS $0.21 ($0.10) $0.35 ($0.33)
====== ======= ====== =======
- FULLY DILUTED $0.21 ($0.10) $0.35 ($0.33)
====== ======= ====== =======
</TABLE>
NOTE 6 - INCOME TAXES
The income tax provision (benefit) is based on the estimated effective
annual tax rate for each fiscal year. The provision (benefit) includes
anticipated current income taxes payable or refundable, the tax effect of
anticipated differences between the financial reporting and tax basis of assets
and liabilities, and the expected utilization of net operating loss (NOL)
carryforwards.
9
<PAGE>
NOTE 6 - INCOME TAXES (Continued)
The federal and state income tax provision (benefit) consists of the
following (in thousands):
<TABLE>
<CAPTION>
Three months ended Six months ended
October 31, October 31,
------------------------ ------------------------
1996 1995 1996 1995
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Income (loss) before income taxes $ 4,841 $ (863) $ 8,218 $ (3,960)
========== ========== ========== ==========
Income tax provision (benefit):
Federal $ 1,646 $ (293) $ 2,794 $ (1,347)
State 194 (35) 329 (158)
---------- ---------- ---------- ----------
$ 1,840 $ (328) $ 3,123 $ (1,505)
========== ========== ========== ==========
Current $ 139 $ 115 $ 234 $ (28)
Deferred 1,701 (443) 2,889 (1,477)
---------- ---------- ---------- ----------
$ 1,840 $ (328) $ 3,123 $ (1,505)
========== ========== ========== ==========
</TABLE>
Deferred tax assets reduced during the quarter ended October 31, 1996,
principally the result of recording utilization of the tax benefit from NOL
carryforwards.
Management has assessed the likelihood of utilizing the recorded deferred
tax asset related to its NOL carryforwards, including its operating history, the
cyclical nature of the industry in which the Company operates, current economic
conditions and the potential outcome of any I.R.S. audits. Based upon the above
factors, management believes that a valuation allowance of approximately $2.9
million is necessary. No change to this reserve was considered necessary during
the quarter ended October 31, 1996.
NOTE 7 - COMMITMENTS AND CONTINGENCIES
The Company is involved in various litigation primarily arising in the
normal course of its business. In the opinion of management, the Company's
liability, if any, under such pending litigation would not have a material
adverse impact upon the Company's consolidated financial condition or results of
operations.
The Company is subject to various federal, state and local regulations
regarding waste disposal and pollution control. 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.
10
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations
- ---------------------
On a quarter-to-quarter basis, the Company's financial results have varied
widely, and will continue to vary, due to seasonal fluctuations and market
factors affecting the demand for logs, lumber and other wood products. The
industry is subject to fluctuations in sales and earnings due to such factors as
industry production in relation to product demand and variations in interest
rates and housing starts. Currency fluctuations affect the industry when
exchange rates spur log exports and drive up domestic log prices, and when a
relatively strong U.S. dollar encourages lumber imports from competing
countries. Trade policies and agreements between the United States and other
countries, such as Canada, can also significantly affect log and lumber prices
in the Company's markets.
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 governmental agencies change from time to time,
causing actual or feared shortages in some areas periodically. These policies
change because of environmental concerns, public agency budget issues, and a
variety of other reasons. Therefore, past results for any given year or quarter
are not necessarily indicative of future results.
It is generally the Company's practice to curtail production at facilities
from time to time due to conditions which temporarily impair log flow, or when
imbalances between log costs and product prices cause the cost of operation to
exceed the cost of shutdown. Management believes its labor practices and
compensation systems, as well as a relatively low capital cost in relation to
production capacity, give it the flexibility to efficiently curtail operations
and resume production as conditions warrant.
Raw materials comprise the majority of the cost of products sold by the
Company. The Company depends principally on open market log purchases for its
raw materials needs. WTD's log inventory policy is to maintain, where possible,
a supply equal to three to four weeks of production.
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, and through the first
quarter ended July 31, 1996. Operating conditions continued to improve during
the quarter ended October 31, 1996. Although chip and other by-product prices
continued to be weak, lumber demand continued strong and lumber prices improved
during much of the quarter. Log prices were relatively stable during the
quarter, allowing the Company to enjoy favorable margin conditions. The Company
worked additional hours at many of its mills. There can be no assurance that the
margins recently experienced by the Company will continue.
11
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
The following table sets forth the percentages which certain expenses and
income (loss) items bear to net sales, and the period-to-period percentage
change in each item.
<TABLE>
<CAPTION>
Income and Expense Items as Percentage
a Percentage of Net Sales Increase (Decrease)
---------------------------------------- -----------------------
Three Months Six Months
Three Months Ended Six Months Ended Ended Ended
October 31, October 31, 10/31/96 10/31/96
to to
1996 1995 1996 1995 10/31/95 10/31/95
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0% 23.4% 42.0%
Cost of sales 88.1 95.2 88.3 96.4 14.2 30.0
-------- -------- -------- --------
Gross profit 11.9 4.8 11.7 3.6 204.6 362.5
Selling, general and
administrative expense 4.3 4.2 4.4 5.0 25.6 26.0
-------- -------- -------- --------
Operating income (loss) 7.6 0.6 7.3 (1.4) NM NM
Interest expense (1.6) (2.1) (1.8) (2.6) (5.1) (5.0)
Miscellaneous 0.1 0.1 0.1 0.2 (23.4) (17.3)
-------- -------- -------- --------
Income (loss)
before income taxes 6.1 (1.3) 5.6 (3.8) NM NM
Provision (benefit)
for income taxes 2.3 (0.5) 2.1 (1.5) NM NM
-------- -------- -------- --------
Net income (loss) 3.8% (0.8)% 3.5% (2.4)% NM NM
======== ======== ======== ========
Note: Percentages may not add precisely due to rounding.
NM: Not Meaningful
</TABLE>
Comparison of Three Months Ended October 31, 1996 and 1995
- ----------------------------------------------------------
Net sales for the three months ended October 31, 1996 increased $15 million
(23.4%) from the three months ended October 31, 1995. This was principally
caused by a 21% increase in lumber shipments, a 19% increase in chip deliveries
and a 15% increase in lumber prices, partially offset by a 65% decrease in chip
prices. The increased lumber shipments and chip deliveries reflect increased
production resulting from a strong lumber market in the current quarter and a
weak market in the second quarter of fiscal 1996.
Gross profit for the quarter ended October 31, 1996 was 11.9% of net sales,
compared to 4.8% of net sales for the quarter ended October 31, 1995. Lumber
prices increased by 15% from the quarter ended October 31, 1995, while the
Company's log costs declined by 10%. The Company increased production during the
second quarter of fiscal 1997 in response to stronger lumber prices and demand.
Unit manufacturing costs increased by 7% from the quarter ended October 31,
1995, in part as a result of adding shifts at some mills and overtime operating
hours at most mills during the quarter.
12
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
Selling, general and administrative (S, G & A) expenses in the three months
ended October 31, 1996 increased by $0.7 million (25.6%) from the three months
ended October 31, 1995. This increase reflects higher profit-sharing bonus
payments stemming from higher pretax profits.
In the quarter ended October 31, 1996, the Company's tax provision equaled
38% of its pretax profit. In the quarter ended October 31, 1995, the Company's
tax benefit equaled 38% of its pretax loss. See Note 6 to Consolidated Financial
Statements.
Comparison of Six Months Ended October 31, 1996 and 1995
- --------------------------------------------------------
Net sales for the six months ended October 31, 1996 increased $43.2 million
(42%) from the six months ended October 31, 1995. This was principally caused by
a 39% increase in lumber shipments, a 38% increase in chip deliveries, and a 17%
increase in lumber prices, partially offset by a 65% decrease in chip prices.
The increased lumber shipments and chip deliveries reflect increased production
resulting from a strong lumber market in the first half of fiscal 1997.
Gross profit for the six months ended October 31, 1996 was 11.7% of net
sales, compared to 3.6% of net sales for the six months ended October 31, 1995.
Lumber prices increased by 17% from the six months ended October 31, 1995, while
the Company's log costs declined by 8%. The Company increased production during
the first half of fiscal 1997 in response to the stronger lumber prices and
demand. Unit manufacturing costs were essentially unchanged from the first half
of fiscal 1996.
Selling, general and administrative (S, G & A) expenses in the six months
ended October 31, 1996 increased by $1.3 million (26%) from the six months ended
October 31, 1995. This increase reflects higher profit-sharing bonus payments
stemming from higher pre-tax profits.
In the six months ended October 31, 1996, the Company recorded a tax
provision equal to 38% of its pretax profit. The Company recorded a tax benefit
equal to 38% of its pretax loss for the six months ended October 31, 1995. See
Note 6 to Consolidated Financial Statements.
Liquidity and Capital Resources
- -------------------------------
The Company relies on cash provided by its operations to fund its working
capital needs. There can be no assurance that such cash will be sufficient to
fund the Company's future operations. Substantially all of the Company's assets
are pledged as security for its primary debt obligation.
During the six months ended October 31, 1996, the Company's cash and cash
equivalents decreased by $1.1 million, to $3.5 million at October 31. The
decrease was principally caused by increases in log and lumber inventory and
accounts receivable, capital spending, principal repayments and dividend
payments on the Company's Series A preferred stock, partially offset by
operating profits and income tax refunds.
13
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
Working capital increased by $6.7 million during the first six months of
fiscal 1997, to $31.8 million at October 31, 1996. This was principally the
result of profitable operations, partially offset by capital spending, principal
payments on long-term debt and dividend payments.
Capital spending in the first six months of fiscal 1997 was $1.3 million.
Capital spending for the balance of the fiscal year is currently forecast to be
approximately $3.2 million. The Company had no material commitments for capital
spending at October 31, 1996.
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, adjusted
cumulative operating income (as defined) and total liabilities ratio (as
defined). This debt agreement was most recently amended as of May 1, 1996, with
respect to certain affirmative financial performance covenants and payment
terms. See Note 3 to Consolidated Financial Statements.
Management's Discussion and Analysis of Financial Condition and Results of
Operations contain "forward-looking" information (as defined in Section 27A of
the Securities Act of 1933, as amended) that involve risks and uncertainties,
including, but not limited to, the impact of general economic conditions,
increased interest rates, the impact of competitive products and pricing,
availability and cost of raw materials, inadequate cash reserves, labor strikes,
changes in environmental and other regulations, changes in the Company's ability
to use its net operating loss carryforward and the risk factors listed from time
to time in the Company's SEC reports, including, but not limited to, the report
on Form 10-K for the fiscal year ended April 30, 1996 (Part II, Item 7,
Management's Discussion and Analysis of Financial Condition and Results of
Operations).
14
<PAGE>
WTD INDUSTRIES, INC.
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
On October 21, 1996, the Company held its Annual Meeting of
Shareholders. Directors Richard W. Detweiler, Bruce L. Engel, K.
Stanley Martin and Robert J. Riecke were re-elected to one-year terms.
The number of votes cast for each nominated Director was as follows:
Against or
For Withheld
--------- ---------
Detweiler 9,911,810 110,169
Engel 9,929,334 92,645
Martin 9,937,600 84,379
Riecke 9,922,400 99,579
Scott Christie and William H. Wright continued as Directors after the
meeting. The firm of Moss Adams LLP was re-appointed as the Company's
auditors. The vote for re-appointment of Moss Adams LLP was 9,865,397
for, 96,559 against or withheld, and 60,023 abstentions.
The shareholders also approved the 1996 Stock Option Plan at the Annual
Meeting. The vote was 9,254,879 for, 398,347 against or withheld, and
368,753 abstentions.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
The Index to Exhibits is located on page 17.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended
October 31, 1996.
15
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
WTD INDUSTRIES, INC.
-----------------------
(Registrant)
By: /s/ Bruce L. Engel
-----------------------
Bruce L. Engel
President
By: /s/ K. Stanley Martin
-----------------------
K. Stanley Martin
Vice President-Finance
December 12, 1996
16
<PAGE>
WTD INDUSTRIES, INC.
INDEX TO EXHIBITS
Sequential
Number
System
Page
Number
3.1 Fourth Restated Articles of Incorporation of Registrant adopted
effective November 27, 1992 (1)
3.2 Second Restated Bylaws of the Registrant adopted effective
November 27, 1992 (2)
19 Other reports furnished to securities holders with respect 18
to the quarter ended October 31, 1996: President's letter
excerpted from Interim Report to Shareholders for the second
quarter of fiscal 1997
27 Financial Data Schedule (3)
- ----------
(1) Incorporated by reference to the exhibit of like number to
the Registrant's report of Form 8-K dated November 23, 1992, previously filed
with the Commission.
(2) Incorporated by reference to the exhibit of like number to
the Registrant's annual report on Form 10-K for the year ended April 30, 1993,
previously filed with the Commission.
(3) This schedule has been submitted in the electronic form prescribed
by EDGAR.
All other required Exhibits are listed in the Company's Annual Report
of Form 10-K for the year ended April 30, 1996.
17
<PAGE>
Exhibit 19
Report from The President
Dear WTD Shareholders:
We are happy to report that for our second quarter of fiscal 1997, WTD
Industries generated net income of $3,001,000 or $.21 per share. This is our
best quarterly operating performance since the third quarter of fiscal 1994 and
a turnaround from the net loss of $535,000 or $.10 per share for the second
quarter last year.
Second quarter net sales were $79.2 million, up 23 percent from the $64.2
million in the comparable period last year.
For the six months ended October 31, 1996, we have produced net income of
$5,095,000 or $.35 per share, compared to a net loss of $2,455,000 or $.33 per
share for the same period last year, an improvement in excess of $7,500,000.
This is our best first half-year performance since fiscal 1990.
Sales were $146.2 million for the six months compared to $103 million in
the prior year, up 42 percent.
We improved profits in our second quarter despite an erosion in lumber
prices in October as we benefited from favorable log cost and availability. We
expect that wood chip demand and prices will continue to be weak and may see a
further decline in wood chip prices.
It appears that the Pacific Northwest region is once again competitive in
the forest products marketplace, as a result of basic shifts in log export
markets, Canadian share of the U.S. lumber market and sufficient reduction of
lumber production in the Northwest over recent years.
Since the end of our second quarter, lumber prices have been volatile due
to speculation that the recently issued Canadian export quotas will reduce the
volume of Canadian-produced lumber available for sale in the United States and
due to a seasonal slow-down in lumber demand.
In my last President's letter I reported that we were expecting to
complete the sale of our Vermont facility during the second quarter. We failed
to reach agreement on the final details of the transfer, and we do not
anticipate a future sale. Our mill in Vermont is a good facility and has
potential for even better performance. We are about to launch a capital
improvement project designed to make that mill more efficient and competitive.
We continue to improve the balance sheet by generating profit and
reducing indebtedness. Our senior secured debt was reduced by $856,000 during
the second quarter with further senior debt reduction in the amount $1,127,000
scheduled to take place in the third quarter.
We held our Annual Meeting of Shareholders on October 21, 1996. The
election of directors, ratification of auditor selection, and approval of the
1996 Stock Option Plan were all accomplished. We appreciate your continued
confidence.
Bruce L. Engel
President
18
<PAGE>
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THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
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