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, 1997 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. X
---
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 30, 1997: $26,624,241.
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 30, 1997: Common Stock, no par
value: 11,083,474.
<PAGE>
FORM 10-K TABLE OF CONTENTS
Item No. Page No.
- -------- --------
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 26
13. Certain Relationships and Related Transactions 27
Part IV
14. Exhibits, Financial Statement Schedules, and Reports
on Form 8-K
(a)(1) Financial Statements 28
(a)(2) Financial Statement Schedules 28
(a)(3) Exhibit Index 28
(b) Reports on Form 8-K 32
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<PAGE>
PART I
Item 1. BUSINESS
WTD Industries, Inc. is a forest products company organized in Oregon
in 1983, which, through its subsidiaries, manufactures 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.
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 89% of net sales in fiscal 1997, 79% in fiscal 1996, and 84% in
fiscal 1995.
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 6% of net sales in
fiscal 1997, 14% in fiscal 1996, and 12% in fiscal 1995.
During fiscal 1997, the Company announced its intention to construct a
fingerjointing plant. Completion of construction and commencement of operations
is expected during the first quarter of fiscal 1998. Fingerjointing is the
process of joining, by applying adhesive to interlocking fingerjoints, shorter
segments of wood to make a longer piece of lumber suitable for use in
construction. The products initially will be sold only for vertical use
applications, such as studs. The Company intends to seek approval from lumber
grading agencies for horizontal or general construction use of the Company's
fingerjointed products.
During fiscal 1997, the Company also announced its intention to license
and use, in North America, a patented technology called GREENWELD(TM) that
enables the gluing of
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<PAGE>
green or unseasoned lumber. The Company expects to
complete a definitive agreement with the owner of this technology and to
commence this new business activity during fiscal 1998. The Company intends to
use the GREENWELD(TM) process in its fingerjointing operation.
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, 1997 was $10 million compared to $12.4 million at
April 30, 1996. 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.
No single customer accounted for as much as 10% of the Company's net
sales during fiscal 1997. 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.
Timber and logs comprise the majority of the cost of products sold by
the Company. 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, 1997, 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:
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<PAGE>
Public
Year Ended Open Timber Fee Log
April 30, Market Contracts Timber Requirements
- ---------- ------ --------- ------ ------------
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
1997 94% 5% 1% 320,507 MBF
MBF - Thousand Board Feet
During fiscal years 1993 through 1997, 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 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 "Factors Affecting Forward-Looking Statements."
Employees
- ---------
The Company and its subsidiaries had approximately 1,150 employees at
June 30, 1997. Since September of 1996, the Company has been negotiating with
the local woodworkers union, which represents hourly workers at the Company's
South Bend facility. The parties have reached impasse in contract negotiations
and the union has threatened to strike. In the event of a strike, the Company
intends to operate its South Bend facility using supervisory personnel and
replacement workers. None of the Company's other employees are represented by
this union. See "Factors Affecting Forward-Looking Statements." 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 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 1997, the Company incurred expenditures of
approximately $135,000 for environmental protection. Such expenditures are
projected to be approximately $500,000 for each of fiscal years 1998 and 1999 if
certain capital projects are required. Various regulations regarding air and
water emissions and log yard management 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. Although sales traditionally increase in the spring
and summer months and decline during the fall and winter months in response to
seasonal building construction
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cycles, such seasonal patterns are sometimes
absent. During fiscal 1995, lumber market 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. Operating conditions improved dramatically during fiscal year 1997, with
generally strong lumber prices and relatively stable log prices during most of
the year.
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 and
during fiscal 1997, reduced demand for pulp and paper products and the related
pulp and paper production curtailments had driven chip prices to recent lows.
Low demand for chips at the end of fiscal year 1996 and during fiscal 1997 may
have constrained lumber production and, with increased lumber demand, may have
contributed to lumber price increases. See "Factors Affecting Forward-Looking
Statements" 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 log costs, 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 which have
significantly greater financial, production and marketing resources than the
Company. Some of these competitors have a significant base of low-cost fee
timberlands and timber contracts which protects them from fluctuations in log
prices and may, under certain operating conditions, give them an advantage over
the Company, which relies on the open log market to supply the bulk of its raw
materials requirements.
The competition includes lumber manufacturers located in Canada who
benefit from advantageous exchange rates when exporting lumber into the United
States. As a result of U.S. government-initiated trade talks, Canada has agreed
that as of April 1, 1996, for a period of five years, 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. During the
first year of its implementation this trade agreement has not had the desired
effect, however, Canadian lumber producers paid approximately $82 million
(Canadian $) in export taxes for exceeding the pre-established levels of
exports.
See the sections entitled "Timber Supply" and "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and "Factors
Affecting Forward-Looking Statements."
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<PAGE>
Item 2. PROPERTIES
<TABLE>
<CAPTION>
MANUFACTURING FACILITIES(1) Thousand Board Feet
--------------------------
Fiscal Est. Annual
1997 Production
Softwood Lumber Production Capacity(2)
- --------------- ---------- -----------
<S> <C> <C>
Burke Lumber Co., West Burke, Vermont 40,000 50,000
Central Point Lumber Co., Central Point, Oregon 54,000 110,000
Glide Lumber Products Co., Glide, Oregon 92,000 125,000
Morton Forest Products Co., Morton, Washington 36,000 100,000
North Powder Lumber Co., North Powder, Oregon 62,000 90,000
Pacific Softwoods Co., Philomath, Oregon 62,000 80,000
Philomath Forest Products Co., Philomath, Oregon 122,000 245,000
Sedro-Woolley Lumber Co., Sedro-Woolley, Washington 52,000 140,000
Spanaway Lumber Co., Spanaway, Washington(3) 55,000 85,000
Trask River Lumber Co., Tillamook, Oregon(3) 51,000 120,000
Tumwater Lumber Co., Tumwater, Washington(3) 55,000 70,000
Hardwood Lumber
- ---------------
Pacific Hardwoods-South Bend Co., South Bend, Washington(3) 20,000 24,000
</TABLE>
(1) The machinery and equipment of all facilities are subject to the security
interests of certain lenders.
(2) Capacity is generally computed using a two shift-per-day, five
day-per-week operating schedule.
(3) 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. During 1996
and 1997, orders were entered in the Bankruptcy Court closing the Chapter 11
cases of WTD Industries, Inc. and all its subsidiaries.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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<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 30, 1997 was 638. The Company estimates that the total
number of its direct and beneficial shareholders is approximately 4,150.
Stock Price and Dividend Information
- ------------------------------------
The following tables show the stock price range for the two years ended
April 30, 1997:
Stock Price Range
Fiscal Year Ended --------------------
April 30, 1997 Low High
----------------- -------- --------
First Quarter $ 5/8 $1-9/16
Second Quarter $1-5/16 $2-1/16
Third Quarter $1-11/16 $2-3/4
Fourth Quarter $1-3/8 $2-1/4
Stock Price Range
Fiscal Year Ended --------------------
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
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
<TABLE>
<CAPTION>
WTD INDUSTRIES, INC. AND SUBSIDIARIES
FIVE-YEAR SELECTED FINANCIAL DATA
(In Thousands, Except Per-Share Amounts and Ratios)
YEAR ENDED APRIL 30,
---------------------------------------------------------------------------
1997 1996 1995 1994 1993
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
NET SALES $284,086 $191,964 $274,966 $278,115 $246,887
COST OF SALES 255,068 186,514 262,334 253,732 227,040
----------- ----------- ----------- ----------- -----------
GROSS PROFIT 29,018 5,450 12,632 24,383 19,847
GENERAL, SELLING AND
ADMINISTRATIVE EXPENSES 12,529 9,685 10,366 12,423 12,615
REORGANIZATION CHARGES (CREDITS) -- (409) (532) (2,487) 563
----------- ----------- ----------- ----------- -----------
OPERATING INCOME (LOSS) 16,489 (3,826) 2,798 14,447 6,669
INTEREST EXPENSE (5,029) (5,318) (5,972) (6,541) (2,864)
OTHER INCOME 630 646 1,228 418 151
----------- ----------- ----------- ----------- -----------
INCOME (L0SS) BEFORE INCOME TAXES 12,090 (8,498) (1,946) 8,324 3,956
PROVISION FOR INCOME TAXES (BENEFIT) 3,120 (2,454) (5,646) 2,024 1,543
----------- ----------- ----------- ----------- -----------
INCOME (LOSS) BEFORE
EXTRAORDINARY ITEMS 8,970 (6,044) 3,700 6,300 2,413
EXTRAORDINARY ITEMS -- -- -- -- 21,345
----------- ----------- ----------- ----------- -----------
NET INCOME (LOSS) 8,970 (6,044) 3,700 6,300 23,758
PREFERRED DIVIDENDS 2,228 2,364 2,126 1,616 647
----------- ----------- ----------- ----------- -----------
NET INCOME (LOSS) APPLICABLE TO
COMMON SHAREHOLDERS $6,742 ($8,408) $1,574 $4,684 $23,111
=========== =========== =========== =========== ===========
NET INCOME (LOSS) PER
COMMON SHARE, PRIMARY
- before extraordinary items $0.59 ($0.76) $0.14 $0.41 $0.29
- extraordinary items -- -- -- -- $3.46
- net income (loss) $0.59 ($0.76) $0.14 $0.41 $3.75
Average shares outstanding 11,385 11,077 11,492 11,433 6,166
NET INCOME (LOSS) PER
COMMON SHARE, FULLY DILUTED
- before extraordinary items $0.59 ($0.76) $0.14 $0.41 $0.28
- extraordinary items -- -- -- -- $3.43
- net income (loss) $0.59 ($0.76) $0.14 $0.41 $3.71
Average shares outstanding 11,464 11,077 11,510 11,519 6,231
CASH DIVIDENDS PER COMMON SHARE -- -- -- -- --
PERIOD END BALANCES
Working capital $29,475 $25,052 $33,740 $44,796 $39,255
Total assets $86,486 $77,396 $88,944 $97,100 $100,039
Long-term debt, excl. current maturities $46,086 $50,310 $51,421 $60,587 $64,184
Stockholders' equity $18,434 $11,686 $20,076 $18,512 $13,684
SELECTED FINANCIAL RATIOS
Net income (loss) to average:
Total assets 10.9 % (7.3)% 4.0 % 6.4 % 22.2
Stockholders' equity 59.6 % (38.1)% 19.2 % 39.1 % NM
Average stockholders' equity to average
total assets 18.4 % 19.1 % 20.7 % 16.3 % NM
</TABLE>
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.
After approximately 12 months of poor lumber market conditions,
improvement began during the first quarter of the Company's 1997 fiscal year and
operating conditions continued to improve during the second quarter. There was
some seasonal adjustment downward in prices during the third quarter as a result
of slackened demand through most market areas. During the third quarter, the
stud lumber market lagged behind the dimension lumber market with prices
comparable to the previous year, offsetting profits from dimension lumber sales.
During the fourth quarter of fiscal year 1997, lumber prices and demand
generally improved over the third quarter. Log costs were relatively stable
throughout the year. There can be no assurance that the margins experienced
during any period of fiscal year 1997 will continue or improve.
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)
--------------------------------------- -------------------------
1997 1996
Year Ended April 30, vs vs
---------------------------------------
1997 1996 1995 1996 1995
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net sales 100.0 % 100.0 % 100.0 % 48.0 % (30.2)%
Cost of sales 89.8 97.2 95.4 36.8 (28.9)
--------- --------- ---------
Gross profit 10.2 2.8 4.6 432.4 (56.9)
Selling, general and
administrative expense 4.4 5.0 3.8 29.4 (6.6)
Reorganization credits 0.0 (0.2) (0.2) (100.0) (23.1)
--------- --------- ---------
Operating income (loss) 5.8 (2.0) 1.0 NM NM
Interest expense (1.8) (2.8) (2.2) (5.4) (11.0)
Miscellaneous 0.2 0.3 0.4 (2.5) (47.4)
--------- --------- ---------
Income (loss) before Income taxes 4.3 (4.4) (0.7) NM NM
Provision for income taxes (benefit) 1.1 (1.3) (2.1) NM NM
--------- --------- ---------
Net income (loss) 3.2 % (3.1)% 1.3 % NM NM
========= ========= =========
</TABLE>
Note: Percentages may not add precisely due to rounding.
NM: Not meaningful.
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<PAGE>
Comparison of 1997 to 1996
- --------------------------
Net sales for the year ended April 30, 1997 increased $92.1 million (48
percent) from the year ended April 30, 1996. This increase was caused
principally by a 40 percent increase in lumber shipments, a 36 percent increase
in chip deliveries and a 17 percent increase in lumber prices, partially offset
by a 57 percent decrease in chip prices. The increased lumber and chip
deliveries reflect the Company's increased production resulting from a stronger
lumber market during most of fiscal 1997.
Gross profit for the year ended April 30, 1997 was 10.2 percent of net
sales, compared to 2.8 percent of net sales for the year ended April 30, 1996.
Lumber prices increased by 17 percent from the year ended April 30, 1996, while
the Company's log costs decreased by 6 percent. The higher lumber prices and
shipments were sufficient to more than offset the effect of lower chip prices.
Unit manufacturing costs in fiscal year 1997 increased by 3 percent from costs
in fiscal year 1996. This increase was in part a result of a general increase in
wages in September 1996.
Selling, general and administrative expenses in the year ended April
30, 1997 increased by $2.8 million (29 percent) from the year ended April 30,
1996. This increase primarily reflects higher profit-sharing bonus payments
which were the result of higher pretax profits.
Interest expense in the year ended April 30, 1997 was $0.3 million
below that incurred in the year ended April 30, 1996. This decrease was the
result of a reduction in the amount of the Company's outstanding debt.
In the year ended April 30, 1997, the Company recorded a tax provision
equal to 26 percent of its pretax profit. See Note 5 to Consolidated Financial
Statements.
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 reflected 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 costs was
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.
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 reflected reduced profit-sharing bonus payments stemming
from lower pretax profits, as well as the Company's continued focus on cost
control.
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<PAGE>
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 allowed the Company to utilize net operating loss
carryforwards without annual limitation. See Note 5 to Consolidated Financial
Statements.
LIQUIDITY AND CAPITAL RESOURCES
At April 30, 1997, the Company had net working capital of $29.5
million, $4.4 million more than at April 30, 1996. The working capital increase
was primarily the result of profitable operations, partially offset by capital
spending, principal payments on debt and dividends paid on the Company's Series
A preferred stock.
Cash and cash equivalents increased by $3.6 million during the year
ended April 30, 1997, to $8.2 million at year-end. Approximately $15.8 million
of cash was provided by operations. About $3.3 million was used to repay various
debt obligations. The Company also paid $2.2 million in dividends to holders of
its Series A preferred stock.
During fiscal 1997, the Company spent $7.5 million for capital
improvements to its facilities. Capital spending for the year ending April 30,
1998 is currently projected to be approximately $8 million. The Company had
commitments of $3.9 million for capital spending at April 30, 1997.
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 can be 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 its primary debt obligation.
The Company's Credit and Security Agreement dated as of November 30,
1992 (the "Credit Agreement") contains certain covenants, including the
maintenance of prescribed levels of tangible net worth, working capital,
adjusted cumulative operating income (as defined) and collateral coverage (as
defined). The Credit 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, 1997 the Company's tangible net worth was $18.1 million
compared to $9 million required by the covenant. At that same date, the
Company's working capital was $29.5 million, compared to $22.5 million required
by the covenant. Also, at April 30, 1997, the Company's adjusted cumulative
operating income was $36.8 million, compared to $25 million required. The
collateral coverage ratio at April 30,1997 was 85.1 percent, compared to a 60
percent minimum required level. 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 at July 1, 1997. The required level of adjusted cumulative operating
income increases to $27.5 million at July 1, 1997, $40 million at May 1, 1998,
$52.5 million at May 1, 1999 and to $67.5 million at May 1, 2000. The minimum
required collateral coverage ratio increases to 65 percent at May 1, 1998.
During the year ended April 30, 1997, the Company's
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<PAGE>
adjusted cumulative operating income increased by $15.7 million while reporting
income before taxes of $12.1 million. The Company continues to be in compliance
with all covenants contained in this Agreement.
In accordance with the Company's Credit 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, 1997. In connection with the May 1, 1996 amendment to the Credit
Agreement, the Company agreed to an additional prepayment computed at 30% of
quarterly net income. Payments made during the year ended April 30, 1997
pursuant to this provision totaled $1.7 million, and an additional $1.0 million
was paid on or before June 16, 1997 based on net income for the quarter ended
April 30, 1997.
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 30, 1997, annual preferred dividends would increase by about $0.1 million
from the amount incurred in the year ended April 30, 1997.
FACTORS AFFECTING FORWARD-LOOKING STATEMENTS
The statements contained in this report that are not statements of
historical fact may include forward-looking statements (as defined in Section
27A of the Securities Act of 1933, as amended) that involve a number of risks
and uncertainties. Moreover, from time to time the Company may issue other
forward-looking statements. The following factors are among the factors that
could cause actual results to differ materially from the forward-looking
statements and should be considered in evaluating any forward-looking
statements.
Fluctuations in Quarterly Results
- ---------------------------------
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 both the availability of, and the demand for, logs and the
demand for 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.
The demand for lumber and wood products is primarily affected by the level of
new residential construction activity which is subject to fluctuations due to
changes in economic conditions, real estate prices, interest rates, credit
availability, property taxes, energy costs, population growth, weather
conditions and general economic conditions, all of which are beyond the control
of the Company. Demand for the Company's products is generally lower in the fall
and winter quarters when activity in the construction, industrial and repair and
remodeling markets is slower and demand is generally higher in the spring and
summer quarters when these markets are more active. Fire danger and excessively
dry or wet conditions temporarily reduce logging activity and may increase open
market log prices. The industry is also affected by timber management policies
which change from time to time and may cause actual or feared shortages in some
areas. These policies change because of environmental concerns, public agency
budget issues and a variety of other reasons. 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 exports from
competing countries, such as Canada. Therefore, past results for any given year
or quarter are not necessarily indicative of future results. The
-13-
<PAGE>
Company believes that period to period comparisons of its financial results may
not be meaningful and should not be relied upon as indications of future
performance.
Availability of Logs
- --------------------
Raw materials comprise the majority of the cost of products sold by the
Company. The Company depends primarily on open market log purchases for its raw
material needs. The Company generally purchases logs in sufficient quantities to
match the current operating requirements for its mills. The availability and
cost of logs are influenced by a variety of factors, including demands by
competitors and exporters, the environmental and harvest policies of federal and
state agencies and, in the long term, the level of reforestation. Various
factors, including environmental and endangered species concerns, particularly
regulations relating to the northern spotted owl and the marbled murrelet have
limited, and are likely to continue to limit, the amount of timber offered for
sale by certain United States government agencies, which historically have been
major suppliers of timber to the United States forest products industry. State
and private timber supplies may be inadequate to fill the shortfall. Although
the Company does not rely on purchases of federal timber, uncertainty associated
with timber supply issues combined with continued lack of significant public
timber sales activity may contribute to log price volatility. The availability
of logs may also be affected by other factors, including damage by fire, insect
infestation, disease, prolonged drought and natural disasters. 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. There can be no assurance that
sales of logs from the Company's current sources may not be reduced or that the
Company will be able to procure sufficient logs at favorable prices in order to
continue operation of its manufacturing facilities in the future. The inability
of the Company to obtain logs in sufficient quantities could have a material
adverse effect on the Company's business, financial condition and results of
operations.
Federal and State Regulations
- -----------------------------
Laws and regulations dealing with the Company's operations are subject
to change and new laws and regulations are frequently introduced concerning the
timber industry. From time to time, bills are introduced in the state
legislatures and the U.S. Congress which relate to the business of the Company,
including the protection and acquisition of old growth and other timberlands,
endangered species, environmental protection and the restriction, regulation and
administration of timber harvesting practices. The forest products industry
remains subject to potential state or local ballot initiatives and evolving
federal and state case law which could affect timber harvesting practices. It is
impossible to assess the affect of such matters on the future operating results
or financial position of the Company. The Company is also subject to various
federal, state and local regulations regarding waste disposal and pollution
control, including air, water and noise pollution. 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.
Such regulations could have a material adverse impact on the Company.
Manufacturing Risks
- -------------------
The Company manufactures softwood and hardwood lumber and by-products.
As a manufacturer, the Company continually faces risks regarding the
availability and cost of raw materials and labor, the potential need for
additional capital equipment, increases in
-14-
<PAGE>
maintenance costs, plant and equipment obsolescence, quality control and excess
capacity. The Company curtails 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. Labor disturbances, including a possible strike at the Company's South
Bend facility, may also curtail or shut down production. See section entitled
"Employees." The Company may permanently close facilities that are determined to
lack future potential for profit under expected operating conditions. A
disruption in the Company's production or distribution could have a material
adverse effect on the Company's financial results.
Liquidity and Capital Resources
- -------------------------------
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. The Company's cash flow is affected by numerous factors, including sales
of its products, cost of raw materials and seasonality of its business. There
can be no assurance that cash provided by operations will be sufficient to fund
the Company's future operating and capital needs. Substantially all of the
Company's assets are pledged as security for its primary debt obligation.
Fingerjointing Plant
- --------------------
During fiscal 1997, the Company announced its intention to construct a
fingerjointing plant. Completion of construction and commencement of operations
is expected in the first quarter of fiscal 1998. Operating and production
problems associated with commencing operations at a new plant may arise. The
Company does not have a stable baseload of demand for its anticipated
fingerjointed products and cannot estimate the potential market for such
products. In addition, the Company may not be able to obtain all approvals
necessary to sell its fingerjointed products. The success of the fingerjointed
products will depend on a variety of factors, including cost effective
implementation of manufacturing and assembly processes and effective sales and
marketing efforts.
Licensing of New Technology
- ---------------------------
The Company intends to use a patented technology known as GREENWELD(TM)
which allows the gluing of green or unseasoned lumber in its fingerjointing
operation and to license the technology to other lumber producers in North
America. There can be no assurance that the Company will be successful in
licensing this technology to other manufacturers.
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 28.
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
------ ----- ----------
Larry G. Black ................ 51 Director
Scott Christie ................ 48 Director
Richard W. Detweiler .......... 55 Director
Bruce L. Engel ............... 56 Director and President
David J. Loftus ............... 55 Treasurer
K. Stanley Martin ............ 55 Director, Vice President-Finance and
Chief Financial Officer
Robert J. Riecke .............. 47 Director, Vice President-Administration,
General Counsel and Secretary
John C. Stembridge ............. 38 Vice President-Sales and Marketing
James R. Wilson ................ 47 Vice President-Timber
William H. Wright .............. 62 Director
Pursuant to Article XII of the Company's Second Amended Joint Plan of
Reorganization, commencing with the 1997 Annual Meeting of Shareholders, the
election of the Board of Directors will be in accordance with the Company's
Articles of Incorporation and Bylaws. Seven Board seats will be filled at the
1997 Annual Meeting of Shareholders. Pursuant to the Company's Articles, in the
event that there are six or more directors on the Board, the Board will be
divided into three classes with each class to be as nearly equal in number as
possible. At the 1997 Annual Meeting of Shareholders, the directors of class I
will be elected for a term expiring at the 1998 Annual Meeting of Shareholders,
the directors of class II will be elected for a term expiring at the 1999 Annual
Meeting of Shareholders and the directors of class III will be elected for a
term expiring at the 2000 Annual Meeting of Shareholders. Commencing in 1998,
and at each annual meeting of shareholders thereafter, the successors to the
class of directors whose terms expired at that meeting will be elected to hold
office for a term of three years. Messrs. Wright and Detweiler have been
nominated as class I directors, Messrs. Black and Christie have been nominated
as class II directors, and Messrs. Engel, Martin and Riecke have been nominated
as class III directors.
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.
Larry G. Black was appointed to the Company's Board of Directors on
June 10, 1997 to fill a vacancy created by the resignation of H. Raymond Bingham
in March 1996. Mr. Black is president of Quinault Corporation ("Quinault"),
owner of approximately 26% of the Company's common stock. Since its formation in
1985, Mr. Black has been president of Quinault Logging Company, which is in the
business of buying timber and selling logs. Mr. Black has been involved in the
timber industry for more than thirty years. In connection with Mr. Black joining
the Board, the Company, Quinault, Mr. Black and Mr. Engel have entered into an
agreement dated effective June 10, 1997, also pursuant to which the Company
agreed to nominate Mr. Black as a director for election at
-16-
<PAGE>
the Company's 1997 Annual Meeting of Shareholders to serve a two year term. See
"Certain Transactions."
Scott Christie has been a director of the Company since March 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 has been a director of the Company since December
1995. Mr. Detweiler is currently a partner of Carlisle Enterprises, an
investment partnership. From 1990 to 1996 Mr. Detweiler was chief executive
officer of Precision Aerotech, a diversified manufacturing company. Mr.
Detweiler has 20 years of manufacturing management experience. Mr. Detweiler is
a director of Haskel International, Inc., a manufacturing company.
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.
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
he has 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 resource 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.
-17-
<PAGE>
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 has served as its vice president and general
manager 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 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.
Section 16(a) Beneficial Ownership Reporting Compliance
- -------------------------------------------------------
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires that the Company's officers, directors and persons who
own more than 10 percent of the common stock file with the Securities and
Exchange Commission ("SEC") initial reports of beneficial ownership on Form 3
and reports of changes in beneficial ownership of common stock and other equity
securities of the Company on Form 4. Officers, directors, and greater than 10
percent shareholders of the Company are required by SEC regulations to furnish
to the Company copies of all Section 16(a) reports that they file. To the
Company's knowledge, based solely on reviews of such reports furnished to the
Company and written representations that no other reports are required, all
Section 16(a) filing requirements applicable to its officers, directors and
greater than 10 percent beneficial owners were complied with during the fiscal
year ended April 30, 1997.
-18-
<PAGE>
Item 11. EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table shows the cash and non-cash compensation paid by
the Company for each of the last three fiscal years to the chief executive
officer and the four other most highly compensated executive officers (the
"Named Executive Officers").
<TABLE>
<CAPTION>
Long Term Compensation
Awards
-------------------
Annual Compensation(1) Number of Securities
--------------------------
Name and Principal Position Year Salary($) Bonus($) Underlying Options
----------------------------- ------ ---------- ---------- -------------------
<S> <C> <C> <C> <C>
Bruce L. Engel 1997 $ 300,000 $ 171,122 35,000
President 1996 $ 300,000 $ 23,142 --
1995 $ 300,000 $ 48,200 --
K. Stanley Martin 1997 $ 120,000 $ 68,447 35,000
Vice President-Finance and 1996 $ 120,000 $ 9,256 --
Chief Financial Officer 1995 $ 120,000 $ 19,280 --
Robert J. Riecke 1997 $ 132,000 $ 75,295 35,000
Vice President- 1996 $ 132,000 $ 10,183 --
Administration, General 1995 $ 132,000 $ 21,209 --
Counsel and Secretary
John C. Stembridge 1997 $ 100,000 $ 80,238 35,000
Vice President-Sales and 1996 $ 100,000 $ 12,197 --
Marketing 1995 $ 86,667 $ 15,539 --
James R. Wilson 1997 $ 100,000 $ 57,040 35,000
Vice President-Timber 1996 $ 100,000 $ 7,714 --
1995 $ 85,833 $ 12,853 --
</TABLE>
(1) Personal benefits for each executive officer named in the table did not
exceed $50,000 or 10% of such executive officers' total annual salary and
bonus for the fiscal years ended April 30, 1997, 1996 and 1995,
respectively.
-19-
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
The following table provides information on option grants for the last
fiscal year to the Named Executive Officers:
<TABLE>
<CAPTION>
Potential
Individual Grants Realizable Value at
---------------------------------------------------------- Assumed Annual Rates
# of % of of Stock Price
Securities Total Options Exercise Appreciation for
Underlying Granted to or Base Option Term(2)
Options Employees in Price Expiration --------------------------------
Name Granted(1) Fiscal Year ($/Share) Date 0%($) 5%($) 10%($)
------------------ ------------- ------------- ---------- ---------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Bruce L. Engel 35,000 7.7% $1.515 10/21/2006 $9,319 $48,528 $108,679
K. Stanley Martin 35,000 7.7% $1.515 10/21/2006 $9,319 $48,528 $108,679
Robert J. Riecke 35,000 7.7% $1.515 10/21/2006 $9,319 $48,528 $108,679
John C. Stembridge 35,000 7.7% $1.515 10/21/2006 $9,319 $48,528 $108,679
James R. Wilson 35,000 7.7% $1.515 10/21/2006 $9,319 $48,528 $108,679
</TABLE>
(1) Vesting Schedule: 10/21/96 - 30%; 10/21/97 - 47.5%; 10/21/98 - 65%;
10/21/99 - 82.5%; 10/21/00 - 100%.
(2) These assumed appreciation rates are not derived from the historical or
projected prices of the Company's Common Stock or results of operations or
financial condition and they should not be viewed as a prediction of
possible prices or value for the Company's Common Stock in the future.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
The following table provides information on option exercises for the
last fiscal year by the named executive officers and the value of such officers'
unexercised options as of April 30, 1997:
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options
Shares Options at April 30, 1997 (#) at April 30, 1997 ($)(1)
Acquired on ------------------------------ -------------------------------
Name Exercise (#) Exercisable Unexercisable Exercisable Unexercisable
------ ------------ ------------- --------------- ------------- ---------------
<S> <C> <C> <C> <C> <C>
Bruce L. Engel -- 394,500 24,500 $ 98,233 $ 7,289
K. Stanley Martin -- 42,300 24,500 $ 20,021 $ 7,289
Robert J. Riecke -- 45,500 24,500 $ 22,761 $ 7,289
John C. Stembridge -- 20,500 24,500 $ 3,124 $ 7,289
James R. Wilson -- 20,500 24,500 $ 3,124 $ 7,289
(1) Based on the fair market value of the Common Stock at April 30, 1997 of $1.8125 per share.
</TABLE>
-20-
<PAGE>
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
Board meeting or committee meeting attended and $225 for each telephone
conference meeting attended or written consent executed. Directors who are also
employees of the Company do not receive additional compensation for their
services as directors. In fiscal 1997, three outside directors each received
option grants for 25,000 shares of Common Stock under the 1996 Stock Option
Plan.
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, 1997 are included in the amounts shown in the "Summary Compensation
Table."
Stock Option Plan
- -----------------
In October 1996 the Company, after receiving shareholder approval,
implemented a Stock Option Plan ("1996 Option Plan") to supersede the 1986
Option Plan, which terminated in July 1996.
The purpose of the 1996 Option Plan is to enhance the long-term value
of the Company by offering opportunities to those employees, directors,
officers, consultants, agents, advisors and independent contractors of the
Company and its subsidiaries who are key to the Company's growth and success,
and to encourage them to remain in the service of the Company and its
subsidiaries and to acquire and maintain stock ownership in the Company.
Subject to adjustment from time to time as provided in the 1996 Option
Plan, a maximum of 525,000 shares of Common Stock are available for issuance
under the 1996 Option Plan. Not more than 50,000 shares of Common Stock, in the
aggregate, may be granted under the 1996 Option Plan to any participant during
any fiscal year of the Company, except for one-time grants of options for up to
100,000 shares may be made to newly hired participants.
Any shares of Common Stock that cease to be subject to an option (other
than by reason of exercise), including, without limitation, in connection with
the cancellation of an award will be available for issuance in connection with
future grants of awards under the 1996 Option Plan.
-21-
<PAGE>
Options granted under the 1996 Option Plan will be "nonqualified stock
options" (that is, options that are not designed to qualify as "incentive stock
options," as defined in Section 422 IRC). The option price for each option
granted under the 1996 Option Plan will be determined by the plan administrator,
but will be not less than 85% of the Common Stock's fair market value on the
date of grant. For purposes of the 1996 Option Plan, "fair market value" means
the last reported sales price for the Common Stock as reported by the Nasdaq
National Market for a single trading day.
The option term will be fixed by the plan administrator, but if not so
specified will be ten years. Each option will be exercisable pursuant to a
vesting schedule determined by the plan administrator. If not so established,
the option will vest over four years from the date of grant with 20% of the
shares of underlying Common Stock vesting on the six-month anniversary of the
grant date and an additional 20% of the shares vesting after every successive
year of the optionee's continuous employment or relationship with the Company.
The plan administrator will also determine the circumstances under which an
option will be exercisable in the event the optionee ceases to provide services
to the Company or one of its subsidiaries. If not so established, options
generally will be exercisable for one year after termination of services as a
result of disability or death and for one month after all other terminations. An
option will not be exercisable if the optionee's services are terminated for
cause, as defined in the 1996 Option Plan.
The 1996 Option Plan is administered by the Company's Board of
Directors. The Board may delegate the responsibility for administering the 1996
Option Plan to a committee or committees consisting of two or more members of
the Board of Directors, subject to such limitations as the Board deems
appropriate. Committee members will serve for such term as the Board may
determine, subject to removal by the Board at any time.
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.
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.
The Company's executive officer compensation policies are designed to
attract, motivate and retain senior management by providing an opportunity for
overall competitive
-22-
<PAGE>
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.
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 1997, with respect to base
salary, cash bonus and total cash compensation, was below the median levels
published in the 1996/1997 Milliman & Robertson compensation survey of all
industries.
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 1996
Option Plan provides for the grant of stock options to employees of the Company.
Stock option awards are determined on a discretionary basis by the Board of
Directors. Executive officers who serve on the Company's Board of Directors do
not participate in any deliberations or decisions regarding option awards to
them.
Each executive officer was granted options for 35,000 shares of Common
Stock during the 1997 fiscal year.
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.
-23-
<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 was granted options for 35,000 shares during the 1997 fiscal
year.
Mr. Engel's base salary for fiscal year 1997 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 $400,000.
Mr. Engel received a cash bonus of $171,122 during fiscal year 1997
under the profit sharing plan described above, reflecting profitable operations
during the fiscal year. Mr. Engel's cash bonus and total cash compensation
amounts were below the published median levels; the published median levels were
$300,000 and $630,210, respectively.
Compensation Committee Members
Scott Christie
William H. Wright
-24-
<PAGE>
Stock Performance Graph
- -----------------------
[GRAPH]
<TABLE>
<CAPTION>
Base
Period Return Return Return Return Return
Company/Index Name April 1992 April 1993 April 1994 April 1995 April 1996 April 1997
- ----------------------------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
WTD Industries, Inc. 100 81.82 89.09 50.92 19.99 52.72
S&P 500 Index 100 109.24 115.05 135.14 175.97 220.20
Paper & Forest Products Index 100 102.58 103.01 123.86 139.31 138.89
</TABLE>
-25-
<PAGE>
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table shows beneficial ownership as of June 30, 1997 of
the Company's Common Stock by (i) each director, (ii) each beneficial owner of
more than 5 percent of the Common Stock, (iii) the Named Executive Officers, and
(iv) 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 2,879,000 26.0%
Aberdeen, WA 98570
Amount and Nature
Name of Directors and Executive Officers of Beneficial Ownership(2)(3) Percent
---------------------------------------- ----------------------------- -------
Larry G. Black(4) 2,879,000 26.0%
Scott Christie 75,000 .7%
Richard W. Detweiler 27,500 .3%
Bruce L. Engel 394,500 3.4%
K. Stanley Martin 52,300 .5%
Robert J. Riecke 45,500 .4%
John C. Stembridge 21,800 .2%
James R. Wilson(5) 20,600 .2%
William H. Wright 75,000 .7%
All directors and executive officers as a group (10
persons) 3,605,700 30.6%
</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 30, 1997.
(3) Includes shares reserved for issuance under options exercisable within 60
days of June 30, 1997 as follows: Mr. Christie 75,000; Mr. Detweiler
27,500; Mr. Engel 394,500; Mr. Martin 42,300; Mr. Riecke 45,500; Mr.
Stembridge 20,500; Mr. Wilson 20,500; and Mr. Wright 75,000.
(4) Mr. Black, by virtue of being president and sole director of Quinault, may
be deemed to beneficially own the shares owned by Quinault.
(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.
-26-
<PAGE>
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During fiscal 1997, five of the Company's subsidiaries purchased logs
from Quinault Logging Company in the amount of $1,667,000. Mr. Larry G. Black, a
director of the Company, is president and a director of Quinault Logging Company
and is president and sole director of Quinault, owner of 26% of the Company's
common stock.
The Company, Bruce L. Engel, Quinault and Larry G. Black entered into
an agreement dated as of June 10, 1997 (the "Agreement"). Pursuant to the terms
of the Agreement, the Company and Mr. Engel will have the right of first refusal
with respect to any shares of the Company's Common Stock sold by Quinault prior
to June 15, 1999. In addition, Quinault granted Mr. Engel an option to purchase
shares of the Company's Common Stock such that the amount of the Company's
Common Stock owned by Mr. Engel and his affiliates will equal the number of
shares owned by Quinault, Mr. Black and their affiliates. Pursuant to the
Agreement, Quinault, Mr. Black and their affiliates may not, without the prior
written consent of the Company's Board, act in a manner that would (i) remove
Mr. Engel as an officer or director of the Company or (ii) result in the
liquidation, sale, merger or other combination of the Company. The Agreement
obligates the Company to nominate Mr. Black for election as a director at the
Company's 1997 Annual Meeting of Shareholders to serve a two-year term and also
sets forth certain conditions with respect to the election of the Company's
other directors. The Agreement restricts the Company from taking certain actions
to dilute Quinault's holdings. Under the Agreement, the Company has also agreed
to remove certain voting restrictions placed on Quinault pursuant to ORS
60.801--816 (the "Control Share Restrictions") by: (i) an affirmative vote of
the Company's shareholders at the 1997 Annual Meeting of Shareholders, or in the
alternative, (ii) amending its bylaws to eliminate the Control Share
Restrictions.
-27-
<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 34
Consolidated Statements of Operations for the Years
Ended April 30, 1997, 1996 and 1995 35
Consolidated Balance Sheets at April 30, 1997 and 1996 36
Consolidated Statements of Cash Flows for the Years
Ended April 30, 1997, 1996 and 1995 38
Consolidated Statement of Changes in Stockholders'
Equity for the Years Ended April 30, 1997,
1996 and 1995 39
Notes to Consolidated Financial Statements 40
(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. (8)
-28-
<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. (9)
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. (11)
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. (11)
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. (12)
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. (13)
4.2.6 Amendment dated as of December 17, 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. (14)
-29-
<PAGE>
Page
------
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)
10.1.2 Form of Stock Option Agreement for directors of
Registrant.* (8)
10.1.3 Form of Stock Option Agreement for executive
officers of the Registrant.* (8)
10.1.4 1996 Stock Option Plan dated October 21, 1996.* (16)
10.1.5 Form of Stock Option Agreement for directors and officers
of the Registrant.* 58
10.3 Form of Indemnification Agreement for directors,
officers and certain employees effective January
30, 1991.* (8)
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.* (6)
10.62 Amendment No. 1 to WTD Industries, Inc. Retirement
Savings Plan and Trust Effective May 1, 1989.* (7)
10.63 Amendment No. 2 to WTD Industries, Inc. Retirement
Savings Plan and Trust adopted May 30, 1991.* (7)
10.64 Amendment No. 3 to WTD Industries, Inc. Retirement
Savings Plan and Trust adopted June 26, 1992.* (7)
10.65 Amendment No. 4 to WTD Industries, Inc. Retirement
Savings Plan and Trust adopted April 30, 1993.* (8)
10.66 Amendment No. 5 to WTD Industries, Inc. Retirement
Savings Plan and Trust adopted December 28, 1994.* (10)
10.67 Amendment No. 6 to WTD Industries, Inc. Retirement
Savings Plan and Trust adopted June 10, 1997. 63
10.7 Agreement dated effective as of June 10, 1997 among the
Company, Engel, Quinault and Black. (15)
-30-
<PAGE>
Page
------
12.1 Computation of Registrant's Net Income (Loss) to
Average Total Assets. 65
12.2 Computation of Registrant's Net Income (Loss) to
Average Stockholders' Equity (Deficit). 66
12.3 Computation of Registrant's Average Stockholders'
Equity (Deficit) to Average Total Assets. 67
21.1 Subsidiaries of the Registrant (list updated as
of June 30, 1997). 68
23.1 Consent of Independent Certified Public
Accountants. 69
27.1 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 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 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 annual report on Form 10-K for the year ended April 30, 1989,
previously filed with the Commission.
(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, 1992,
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, 1993,
previously filed with the Commission.
-31-
<PAGE>
(9) 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.
(10) 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.
(11) 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.
(12) 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.
(13) 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, 1996,
previously filed with the Commission.
(14) Incorporated by reference to exhibit 4.2.4 to the Registrant's
quarterly report on Form 10-Q for the quarter ended January 31, 1997, previously
filed with the Commission.
(15) Incorporated by reference to the exhibit of like number to the
Registrant's current report on Form 8-K filed with the Commission on June 12,
1997.
(16) Incorporated by reference to exhibit 99.1 to the Registrant's
Registration Statement on Form S-8 (No. 333-15461) filed with the Commission on
November 4, 1996.
* 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.
(b) Reports on Form 8-K
------------------------
No reports on Form 8-K were filed during the quarter ended April 30,
1997.
-32-
<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 21, 1997
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 indicated as of July 21, 1997.
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/ Larry G. Black s/ Scott Christie
- ------------------------------- ---------------------------------
Larry G. Black, Director Scott Christie, Director
s/ Richard W. Detweiler s/ Robert J. Riecke
- ------------------------------- ---------------------------------
Richard W. Detweiler, Director Robert J. Riecke
Vice President-Administration
and Director
s/ William H. Wright
- -------------------------------
William H. Wright, Director
-33-
<PAGE>
[MOSS ADAMS LETTERHEAD]
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Stockholders
WTD Industries, Inc.
We have audited the accompanying consolidated balance sheets of WTD Industries,
Inc. and subsidiaries (the "Company") as of April 30, 1997 and 1996, 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, 1997. 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, 1997 and 1996, and the results of their
operations and their cash flows for each of the years in the three-year period
ended April 30, 1997, in conformity with generally accepted accounting
principles.
/s/ Moss Adams LLP
---------------------
MOSS ADAMS LLP
Beaverton, Oregon
June 6, 1997
-34-
<PAGE>
<TABLE>
<CAPTION>
WTD INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in Thousands, Except Per-Share Amounts)
YEAR ENDED APRIL 30,
---------------------------------------------
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
NET SALES $ 284,086 $ 191,964 $ 274,966
COST OF SALES 255,068 186,514 262,334
----------- ----------- -----------
GROSS PROFIT 29,018 5,450 12,632
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 12,529 9,685 10,366
REORGANIZATION CREDITS -- (409) (532)
----------- ----------- -----------
OPERATING INCOME (LOSS) 16,489 (3,826) 2,798
OTHER INCOME (EXPENSE)
Interest expense (5,029) (5,318) (5,972)
Miscellaneous 630 646 1,228
----------- ----------- -----------
(4,399) (4,672) (4,744)
----------- ----------- -----------
INCOME (LOSS) BEFORE INCOME TAXES 12,090 (8,498) (1,946)
PROVISION FOR INCOME TAXES (BENEFIT) 3,120 (2,454) (5,646)
----------- ----------- -----------
NET INCOME (LOSS) 8,970 (6,044) 3,700
PREFERRED DIVIDENDS 2,228 2,364 2,126
----------- ----------- -----------
NET INCOME (LOSS) APPLICABLE
TO COMMON STOCKHOLDERS $ 6,742 $ (8,408) $ 1,574
=========== ========== ===========
NET INCOME (LOSS) PER COMMON SHARE
- PRIMARY $0.59 ($0.76) $0.14
====== ======= ======
- FULLY DILUTED $0.59 ($0.76) $0.14
====== ======= ======
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
-35-
<PAGE>
<TABLE>
<CAPTION>
WTD INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
(In Thousands)
APRIL 30,
-----------------------------------------
1997 1996
------------ ------------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 8,209 $ 4,576
Accounts receivable, net 16,830 10,190
Inventories 17,760 13,891
Prepaid expenses 1,817 1,568
Income tax refund receivable 1,145 2,135
Deferred tax asset 1,383 1,112
Assets held for sale 361 737
Timber, timberlands and
timber-related assets 3,936 6,243
------------ -------------
Total current assets 51,441 40,452
NOTES AND ACCOUNTS RECEIVABLE 124 164
TIMBER AND TIMBERLANDS 629 679
PROPERTY, PLANT AND EQUIPMENT, at cost
Land 3,343 2,943
Buildings and improvements 11,194 11,085
Machinery and equipment 70,391 68,313
------------ ------------
84,928 82,341
Less accumulated depreciation 56,557 51,391
------------ ------------
28,371 30,950
Construction in progress 4,365 339
----------- -----------
32,736 31,289
DEFERRED TAX ASSET 280 3,388
OTHER ASSETS 1,276 1,424
------------ ------------
$ 86,486 $ 77,396
============ ============
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
-36-
<PAGE>
<TABLE>
<CAPTION>
WTD INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
(In Thousands, Except Share Information)
APRIL 30,
-----------------------------------------
1997 1996
------------ ------------
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable $ 9,709 $ 5,791
Accrued expenses 9,644 6,198
Timber contracts payable 246 2,252
Current maturities of long-term debt 2,367 1,159
------------ ------------
Total current liabilities 21,966 15,400
LONG-TERM DEBT, less current maturities 46,086 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,
11,083,474 issued and outstanding (11,077,074 in 1996) 28,647 28,641
Additional paid-in capital 15 15
Retained deficit (31,249) (37,991)
------------ ------------
18,434 11,686
------------ ------------
$ 86,486 $ 77,396
============ ============
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
-37-
<PAGE>
<TABLE>
<CAPTION>
WTD INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
YEAR ENDED APRIL 30,
-----------------------------------------------------
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
CASH PROVIDED BY (USED FOR) OPERATING ACTIVITIES:
Net income (loss) $ 8,970 $ (6,044) $ 3,700
Adjustments to reconcile net income (loss) to
cash provided by operating activities:
Depreciation, depletion and amortization 6,353 4,903 7,058
Deferred income tax 2,837 (222) (4,262)
Reorganization credits -- (409) (532)
Accounts receivable (6,640) 1,214 (2,770)
Inventories (3,869) 4,213 8,692
Prepaid expenses (249) 2,456 (879)
Timber, timberlands and
timber-related assets - current 2,031 3,198 2,132
Payables and accruals 5,399 (587) 1,974
Income taxes 990 (1,632) (786)
----------- ----------- -----------
Cash provided by operating activities 15,822 7,090 14,327
----------- ----------- -----------
CASH PROVIDED BY (USED FOR) INVESTING ACTIVITIES:
Notes and accounts receivables 40 (75) 75
Net reductions of timber and timberlands 50 26 140
Acquisition of property, plant and equipment (7,450) (3,904) (6,467)
Net book value of disposed idle assets 376 145 --
Other investing activities 142 102 220
----------- ----------- -----------
Cash used for investing activities (6,842) (3,706) (6,032)
----------- ----------- -----------
CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES:
Proceeds from long-term borrowings 265 -- --
Principal payments on long-term debt (3,321) (2,379) (8,952)
Other assets (69) (106) 749
Dividends paid on preferred stock (2,228) (2,346) (2,194)
Issuance of common stock 6 -- 24
----------- ----------- -----------
Cash used for financing activities (5,347) (4,831) (10,373)
----------- ----------- -----------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 3,633 (1,447) (2,078)
CASH BALANCE AT BEGINNING OF YEAR 4,576 6,023 8,101
----------- ----------- -----------
CASH BALANCE AT END OF YEAR $ 8,209 $ 4,576 $ 6,023
=========== =========== ===========
CASH PAID (REFUNDED) DURING THE YEAR FOR:
Interest $4,940 $3,095 $6,989
Income taxes ($711) ($598) ($613)
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
-38-
<PAGE>
<TABLE>
<CAPTION>
WTD INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(In Thousands)
SERIES A SERIES B RETAINED STOCK
PREFERRED STOCK PREFERRED STOCK COMMON STOCK PAID-IN EARNINGS HOLDERS'
----------------- ----------------- -----------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL (DEFICIT) EQUITY
------- ------- ------- ------- ------- ------- ------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at April 30, 1994 270 $20,654 6 $333 11,061 $28,617 $15 ($31,107) $18,512
Shares issued pursuant
to reorganization plan -- 34 -- -- -- -- -- -- 34
Stock options exercised -- -- -- -- 16 24 -- -- 24
Dividends paid -- -- -- -- -- -- -- (2,194) (2,194)
Net income -- -- -- -- -- -- -- 3,700 3,700
------- ------- ------- ------- ------- ------- ------- --------- --------
Balance at April 30, 1995 270 20,688 6 333 11,077 28,641 15 (29,601) 20,076
Dividends paid -- -- -- -- -- -- -- (2,346) (2,346)
Net loss -- -- -- -- -- -- -- (6,044) (6,044)
------- ------- ------- ------- ------- ------- ------- --------- --------
Balance at April 30, 1996 270 20,688 6 333 11,077 28,641 15 (37,991) 11,686
Stock options exercised -- -- -- -- 6 6 -- -- 6
Dividends paid -- -- -- -- -- -- -- (2,228) (2,228)
Net income -- -- -- -- -- -- -- 8,970 8,970
------- ------- ------- ------- ------- ------- ------- --------- --------
Balance at April 30, 1997 270 $20,688 6 $333 11,083 $28,647 $15 ($31,249) $18,434
======= ======= ======= ======= ======= ======= ======= ========= ========
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
-39-
<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 distributors, wholesalers or directly to large
retailers. The Company's products are used in many applications, including
residential and commercial construction, packaging and industrial uses.
The Company's sales are predominantly in the United States; export
sales are not material. During the year ended April 30, 1997, the Company had no
customers that accounted for 10% or more of net sales. 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. 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 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 reduce 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, 1997.
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 $195,000 and $112,000 at April
30, 1997 and 1996, respectively.
-40-
<PAGE>
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (Continued)
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,
-------------------------------
1997 1996
--------------- ---------------
Logs $ 9,054 $ 5,899
Lumber 7,379 6,786
Supplies 1,327 1,206
--------------- ---------------
$ 17,760 $ 13,891
=============== ===============
At April 30, 1997 and 1996, $179,000 and $502,000, respectively, of log
inventory was valued at market, which approximated cost. At April 30, 1997,
$2,667,000 of lumber inventory was valued at market, which represented a
$297,000 reduction from cost. At April 30,1996, lumber inventory was generally
valued at market, which represented a reduction of $873,000 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 economic lives. The carrying costs of timber, timberlands
and timber-related assets are expensed as incurred. The Company classifies
timber and timber-related assets as current or long-term 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.
-41-
<PAGE>
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (Continued)
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. See Note 5
to Consolidated Financial Statements.
Accrued expenses - The following is a summary of the components of
accrued expenses (in thousands):
APRIL 30,
--------------------------------
1997 1996
--------------- ---------------
Payroll and related items $ 5,226 $ 4,129
Freight payable 1,622 834
Other 2,796 1,235
--------------- ---------------
$ 9,644 $ 6,198
=============== ===============
Reserves for self-insurance - workers' compensation - Under its
self-insurance plan, the Company accrues the estimated cost of workers'
compensation claims based on prior years' open claims. An accrual of $2.3
million and $2.1 million is included in the accompanying fiscal year 1997 and
1996 financial statements, respectively. Payments based on actual fiscal year
1997 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.
-42-
<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, 1997, 1996 and 1995 are summarized below (in thousands, except
per-share data):
<TABLE>
<CAPTION>
Year Ended April 30,
-------------------------------------------
1997 1996 1995
------------- ------------- -------------
<S> <C> <C> <C>
Net income (loss) $ 8,970 $ (6,044) $ 3,700
Preferred dividends 2,228 2,364 2,126
------------- ------------- -------------
Net income (loss) applicable to
common stockholders $ 6,742 $ (8,408) $ 1,574
============= ============= =============
Weighted average shares outstanding 11,078 11,077 11,075
Additional shares assumed from:
- Conversion of Series B preferred stock 213 -- 213
- Exercise of stock options 94 -- 204
------------- ------------- -------------
Average number of shares and equivalents outstanding
- Primary basis 11,385 11,077 11,492
Additional shares assumed from exercise of stock
options 79 -- 18
------------- ------------- -------------
Average number of shares and equivalents outstanding
- Assuming full dilution 11,464 11,077 11,510
============= ============= =============
Net income (loss) per common share
- Primary
Before extraordinary items $ 0.59 $ (0.76) $ 0.14
Extraordinary items -- -- --
------------- ------------- -------------
$ 0.59 $ (0.76) $ 0.14
============= ============= =============
Net income (loss) per common share
- Assuming full dilution
Before extraordinary items $ 0.59 $ (0.76) $ 0.14
Extraordinary items -- -- --
------------- ------------- -------------
$ 0.59 $ (0.76) $ 0.14
============= ============= =============
</TABLE>
Statement of Financial Accounting Standard Number 128, "Earnings per
Share" (SFAS 128) was released in February 1997 and adoption is required for all
interim periods and years ending after December 15, 1997. Early adoption of this
standard is not permitted. The Company believes that, had they been required to
use the methodology of SFAS 128 in calculating earnings per share, there would
be no material changes in the net income (loss) per share reflected in the
financial statements.
-43-
<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,
-------------------------------
1997 1996
------------- -------------
Timber held under contract $ 1,164 $ 4,029
Timber, timberlands and timber deposits 2,531 1,892
Logging roads (at amortized cost) 241 322
------------- -------------
$ 3,936 $ 6,243
============== =============
Timber and timberlands, long-term $ 629 $ 679
============== ============
Timber held under contract is comprised of various public and private
timber contracts representing approximately 10.9 million board feet (MMBF) at
April 30, 1997 and 19.5 MMBF at April 30, 1996. Outstanding obligations relating
to these contracts at April 30, 1997 and 1996, were $246,000 and $2,252,000,
respectively.
-44-
<PAGE>
NOTE 4 - LONG-TERM DEBT
<TABLE>
<CAPTION>
Long-term debt consists of the following (in thousands):
APRIL 30,
------------------------------
1997 1996
-------------- --------------
<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. $ 46,630 $ 49,544
Secured notes, interest at 9% and 10%; payable on various dates;
secured by various assets. 388 130
Priority notes, balance payable in fiscal 1998, plus interest at
8.3%; senior to all other unsecured obligations. 17 48
Unsecured senior subordinated notes, net of discount of
$329 ($407 at April 30, 1996); 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. 943 1,070
Other unsecured debt, net of discount of $66 ($134 at April 30,
1996); payable in equal annual installments of $270;
non-interest bearing; effective interest rate of 12.3%. 475 677
-------------- --------------
48,453 51,469
Less current maturities (2,367) (1,159)
-------------- --------------
$ 46,086 $ 50,310
============== ==============
</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, stockholders 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, 1997 the Company's tangible net worth was $18.1 million,
compared to $9 million required by the covenant. At that same date, the
Company's working capital was $29.5 million, compared to $22.5 million required
by the covenant. Also, at April 30, 1997, the Company's adjusted cumulative
operating income was $36.8 million, compared to $25 million required. The
collateral coverage ratio at April 30, 1997 was 85.1%, compared to a 60% minimum
required level. The required level of working capital increases to $25 million
on July 1, 1997. The required level of tangible net worth increases to $10
million at July 1, 1997, $12 million at May 1, 1998 and to $14.5 million at
-45-
<PAGE>
NOTE 4 - LONG-TERM DEBT - (Continued)
May 1, 1999. The required level of adjusted cumulative operating income
increases to $27.5 million at July 1, 1997, $40 million at May 1, 1998, $52.5
million at May 1, 1999 and to $67.5 million at May 1, 2000. The minimum required
collateral coverage ratio increases to 65% at May 1, 1998. During the year ended
April 30, 1997, the Company's adjusted cumulative operating income increased by
$15.7 million while reporting income before taxes of $12.1 million. The Company
continues to be in compliance with all covenants contained in this Agreement.
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, 1997. In connection with the May 1, 1996 amendment, the Company
agreed to an additional prepayment computed at 30% of quarterly net income.
Payments made during the year ended April 30, 1997 pursuant to this provision
totaled $1.7 million, and an additional $1.0 million will be paid on or before
July 29, 1997 based on net income for the quarter ended April 30, 1997.
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, 1998 $ 2,367
Fiscal year ending April 30, 1999 2,454
Fiscal year ending April 30, 2000 4,017
Fiscal year ending April 30, 2001 4,018
Fiscal year ending April 30, 2002 4,229
Thereafter 31,368
--------------
$ 48,453
==============
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.
The Company accounts for income taxes under Statement of Financial
Accounting Standard Number 109, "Accounting for Income Taxes" (SFAS 109). 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.
-46-
<PAGE>
NOTE 5 - PROVISION FOR INCOME TAXES - (Continued)
The federal and state income tax provision consists of the following
(in thousands):
<TABLE>
<CAPTION>
Year Ended April 30,
-----------------------------------------------------------
1997 1996 1995
----------------- ----------------- -----------------
<S> <C> <C> <C>
Income (loss) before income taxes $ 12,090 $ (8,498) $ (1,946)
================= ================= =================
Provision for income taxes (benefit):
Federal $ 2,636 $ (2,114) $ (5,052)
State 484 (340) (594)
----------------- ----------------- ----------------
$ 3,120 $ (2,454) $ (5,646)
================= ================= =================
Current $ 283 $ (2,232) $ (1,384)
Deferred 2,837 (222) (4,262)
----------------- ----------------- -----------------
$ 3,120 $ (2,454) $ (5,646)
================= ================= =================
</TABLE>
The difference between the actual income tax provision (benefit) and
the tax provision (benefit) computed by applying the statutory federal rate to
income (loss) before taxes is attributable to the following (in thousands):
<TABLE>
<CAPTION>
Year Ended April 30,
-------------------------------------------------------------
1997 1996 1995
------------------ ------------------ -------------------
Amount % Amount % Amount %
---------- ----- ---------- ----- ----------- -----
<S> <C> <C> <C> <C> <C> <C>
Federal income tax provision (benefit) $ 4,111 34% $ (2,889) (34%) $ (662) (34%)
State income tax provision (benefit) 484 4 (340) (4) (78) (4)
Change in valuation allowance for net
operating loss benefit (414) (3) (32) -- (8,082) (415)
Reduction in net operating loss
amounts as a result of tax elections -- -- -- -- 3,176 163
Carryback of net operating loss to years
with rates different than statutory rates -- -- 807 9 -- --
Increase in usable net operating losses (1,061) (9) -- -- -- --
---------- ----- ---------- ----- ----------- -----
Actual income tax provision (benefit) $ 3,120 26% $ (2,454) (29%) $ (5,646) (290%)
========== ===== ========== ===== =========== =====
</TABLE>
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
-47-
<PAGE>
NOTE 5 - PROVISION FOR INCOME TAXES - (Continued)
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 April 30, 1997, the Company had received $1.1
million of this tax refund receivable. 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 ultimately
received and the amount of NOL carryforwards available to offset future tax
liabilities. Management does not believe these examinations would have a
material adverse impact on the Company's financial position or results of
operations. The net operating loss carryforwards available to continuing
operations increased by approximately $3 million in fiscal year 1997. This
increase was generated from the application of losses from subsidiaries closed
in prior years, whose losses were previously considered not available to offset
income from continuing operations. The Company's remaining NOL at April 30, 1997
is approximately $10 million for federal income tax and $14 million for state
income tax purposes. These carryforwards expire in 2006 and 2011.
SFAS 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.
-48-
<PAGE>
NOTE 5 - PROVISION FOR INCOME TAXES - (Continued)
At April 30, 1997 and 1996, deferred tax assets and liabilities were
comprised of the following (in thousands):
Year Ended April 30,
-------------------------
1997 1996
Current deferred tax assets: ----------- -----------
Vacation accrruals $ 265 $ 238
Insurance accruals 901 724
Professional fee amortization and accruals 114 89
Bad debts and discounts and other 103 61
----------- -----------
Net current deferred tax assets $ 1,383 $ 1,112
=========== ===========
Non-current deferred tax assets:
Tax benefit of net operating loss carryforward
and ITC carryforward $ 5,032 $ 8,702
Valuation allowance (2,500) (2,914)
----------- -----------
2,532 5,788
----------- -----------
Non-current deferred tax liabilities:
Depreciation and capitalization differences
between financial and tax accounting (3,020) (3,235)
Professional fee amortization and accruals 812 906
Other (44) (71)
----------- -----------
(2,252) (2,400)
----------- -----------
Net long-term deferred tax assets $ 280 $ 3,388
=========== ===========
Total net deferred tax asset $ 1,663 $ 4,500
=========== ===========
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 $2.5 million is appropriate. Management periodically
reviews the above factors and may change the amount of valuation allowance as
facts and circumstances dictate.
-49-
<PAGE>
NOTE 6 - STOCKHOLDERS' EQUITY
Stockholders' equity at April 30, 1997 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; 11,083,474
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 11,296,167 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 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.
In fiscal year 1997, no reorganization credits or charges were recognized.
-50-
<PAGE>
NOTE 8 - STOCK OPTIONS AND EMPLOYEE BENEFIT PLANS
Effective December 30, 1992, the Company's 1986 Stock Option Plan
("Option Plan") was amended and restated, and new options were granted. This
Option Plan terminated on July 11, 1996. At the Company's Annual Meeting of
Shareholders held on October 21, 1996, the stockholders approved a 1996 Stock
Option Plan ("1996 Option Plan"). Non-qualified stock options may be granted to
directors, independent contractors, consultants and employees to acquire up to
525,000 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 1996 Option Plan provides for incremental vesting based upon
the optionee's period of service with the Company, and is administered by the
Board of Directors. Stock options outstanding at April 30, 1997, 1996 and 1995
related only to employees and directors.
Stock Options
-----------------------------
Weighted
Number Average
of Exercise
Shares Price
------------- --------
Shares under option at April 30, 1995 856,400 $1.88
Options granted 65,000 2.19
Options cancelled (179,800) 2.02
-------------
Shares under option at April 30, 1996 741,600 1.92
Options granted 453,000 1.51
Options exercised (6,400) 0.96
Options cancelled (23,600) 3.00
-------------
Shares under option at April 30, 1997 1,164,600 $1.74
=============
Shares exercisable at April 30, 1997 816,700 $1.83
=============
-51-
<PAGE>
NOTE 8 - STOCK OPTIONS AND EMPLOYEE BENEFIT PLANS (Continued)
Exercise prices for options outstanding as of April 30, 1997 ranged
from $.95625 to $3.00. The weighted average remaining contractual life of those
options is 7.4 years.
<TABLE>
<CAPTION>
Employee Options Outstanding Options Exercisable
- ---------------------------------------------------------------- -------------------------------
<S> <C> <C> <C> <C> <C>
Weighted-Avg
Number Remaining Number
Range of Outstanding at Contractual Weighted-Avg Exercisable at Weighted-Avg
Exercise Prices 4/30/97 Life Exercise Price 4/30/97 Exercise Price
- --------------- -------------- ------------ -------------- -------------- --------------
$0.95625 58,600 5.7 $0.95625 58,600 $0.95625
1.50000 447,350 5.9 1.50000 429,850 1.50000
1.51500 453,000 6.4 1.51500 126,600 1.51500
3.00000 205,650 9.5 3.00000 201,650 3.00000
-------------- --------------
$.95625 - $3.00 1,164,600 7.4 1.74335 816,700 $1.83367
============== ==============
</TABLE>
Options for 72,000 shares remain available for grant. These options
will have an exercise price of an amount per share determined by the Company's
Board of Directors, but not less than 85 percent of the fair market value of the
Company's Common Stock on the date of grant.
The Company granted stock options for shares of common stock to certain
officers, directors and employees of the Company. The options generally vest
over a four year period from the date of grant. The table below recaps data
relative to stock options issued after January 1, 1995:
Grant Vested Contract Exercise Market Price
Date Shares Forfeited 4/30/97 Years Price at Grant Date
- ---------- ------- --------- ------- -------- -------- -------------
10/02/95 30,000 10,000 20,000 10 $3.000 $1.125
12/14/95 35,000 -- 17,500 10 $1.500 $0.625
10/21/96 453,000 -- 126,600 10 $1.515 $1.781
The Company accounts for the stock options under APB Opinion No. 25.
Under this method, the Company does not recognize compensation expense
associated with the grant of stock options. Statement of Financial Accounting
Standards, "Accounting for Stock Based Compensation," (SFAS 123) requires the
use of option valuation models to provide supplemental information regarding the
options granted. Pro forma information regarding net income and earnings per
share is required by SFAS 123 and has been determined as if the Company had
accounted for its employee stock options under the fair value method of that
statement.
-52-
<PAGE>
NOTE 8 - STOCK OPTIONS AND EMPLOYEE BENEFIT PLANS (Continued)
The fair value of the options was estimated at the date of the grant
using a Black-Scholes option pricing model with the following weighted-average
assumptions:
Computed
Option Computed
Grant Risk Free Volatility Expected Fair Value Total
Date Interest Rate of Stock Option Life at Grant Date Fair Value
- ---------- ------------- ---------- ----------- ------------- ----------
10/02/95 6.48% 50.6% 6 years $0.35 $ 7,000
12/14/95 6.13% 51.6% 6 years $0.21 $ 7,350
10/21/96 6.50% 66.9% 6 years $1.23 $ 557,190
Using the Black-Scholes methodology, the total value of options granted
after January 1, 1995 was $571,540, which would be amortized, net of estimated
future forfeitures, on a pro forma basis over the vesting period of the options.
The Company's pro forma information is as follows (in thousands, except
per share amounts):
<TABLE>
<CAPTION>
Year Ended April 30,
-------------------------------------------
1997 1996
-------------------- --------------------
Reported Pro Forma Reported Pro Forma
-------- --------- -------- ---------
<S> <C> <C> <C> <C>
Net income (loss) attributable to
common shareholders $6,742 $6,700 ($8,408) ($8,416)
Net income (loss) per common share
-Primary $0.59 $0.59 ($0.76) ($0.76)
-Fully Diluted $0.59 $0.58 ($0.76) ($0.76)
</TABLE>
The effects of applying SFAS 123 in this pro forma disclosure are not
indicative of future performance. SFAS 123 does not apply to grants prior to
January 1, 1995.
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. This bonus program is open-ended but designed to attract
good production workers by giving them the reasonable opportunity to reach
high-end pay levels for similar work in the industry when average bonuses are
added to base wages. It is also designed so that manufacturing labor costs, per
unit of lumber produced, go down as the average bonus level goes up.
The Company also has a monthly profit sharing discretionary bonus plan
for all levels of salaried employees, based upon pre-tax profits at each
operating unit. This bonus program, which automatically moves the Company's
total general and administrative expense up or down in cyclical earnings
periods, is vital to the Company's ability to attract desirable salaried
employees at lower than industry average rates and to retain such employees
through cyclical down earnings periods.
-53-
<PAGE>
NOTE 8 - STOCK OPTIONS AND EMPLOYEE BENEFIT PLANS (Continued)
The following summarizes the amounts paid pursuant to the Company's
bonus programs (in thousands):
Year Ended April 30,
------------------------------------
1997 1996 1995
---------- ---------- ----------
Hourly employee bonus $ 4,700 $ 3,800 $ 5,700
Salaried employee bonus 3,600 700 1,100
---------- ---------- ----------
$ 8,300 $ 4,500 $ 6,800
========== ========== ==========
The Company maintains a 401(k) Retirement Savings Plan. Under the plan,
eligible participants may contribute 2 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, 1997, 1996 and 1995, the Company incurred expenses for matching
contributions and plan administration of $235,000; $214,000; and $377,000;
respectively. Company contributions to this plan are funded on a current basis.
NOTE 9 - COMMITMENTS AND CONTINGENCIES
(a) Timber commitments - At April 30, 1997, the Company had contracts
to purchase approximately 19.9 MMBF of timber from the U.S. Forest Service and
others for an estimated stumpage cost of $5,151,000. 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, 1997. The expiration dates of the contracts are as
follows:
Footage Stumpage
Year Ending April 30, MMBF Cost
--------------------- ------- -------------------
1998 4.5 $ 2,037,000
1999 9.9 1,430,000
2000 5.5 1,684,000
---- -------------------
19.9 $ 5,151,000
==== ===================
(b) Leases - At April 30, 1997, the Company had future minimum rental
commitments for new or assumed operating leases as follows: 1998 - $1,115,000;
1999 - $954,000; 2000 - $756,000; 2001 - $609,000; 2002 - $193,000; thereafter -
$53,000.
-54-
<PAGE>
NOTE 9 - COMMITMENTS AND CONTINGENCIES - (Continued)
Total rental expense for all leases was $1,136,000, $1,124,000 and
$1,196,000 for the years ended April 30, 1997, 1996 and 1995, 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.
-55-
<PAGE>
NOTE 10 - UNAUDITED QUARTERLY FINANCIAL INFORMATION
The following quarterly information for the years ended April 30, 1997
and 1996 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, 1997
----------------------------------------------------------
QUARTER
--------------------------------------------
FIRST SECOND THIRD FOURTH TOTAL
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Net sales $ 66,973 $ 79,206 $ 64,469 $ 73,438 $ 284,086
Gross profit $ 7,662 $ 9,454 $ 4,487 $ 7,415 $ 29,018
Net income $ 2,094 $ 3,001 $ 449 $ 3,426 $ 8,970
Net income (loss) per common share $ 0.14 $ 0.21 $ (0.01) $ 0.25 $ 0.59
YEAR ENDED APRIL 30, 1996
----------------------------------------------------------
QUARTER
----------------------------------------------
FIRST SECOND THIRD FOURTH TOTAL
---------- ---------- ---------- ---------- ----------
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>
-56-
<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, 1997, 1996 and 1995 (in thousands):
<TABLE>
<CAPTION>
Allowance for doubtful accounts -
deducted from accounts receivable in the
balance sheet
Year Ended April 30,
----------------------------------------
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Balance at beginning of year $ 24 $ 115 $ 584
Charged (credited) to costs and expenses 29 (82) (10)
Deductions (1) (4) (9) (459)
----------- ----------- ------------
Balance at end of year $ 49 $ 24 $ 115
=========== =========== ===========
Allowance for discounts -
deducted from accounts receivable in the
balance sheet
Year Ended April 30,
----------------------------------------
1997 1996 1995
------------ ------------ ------------
Balance at beginning of year $ 88 $ 84 $ 74
Charged to costs and expenses 2,696 1,688 2,482
Deductions (2) (2,638) (1,684) (2,472)
----------- ------------ ------------
Balance at end of year $ 146 $ 88 $ 84
=========== =========== ===========
</TABLE>
(1) Uncollected receivables written off, net of recoveries.
(2) Discounts taken by customers.
-57-
<PAGE>
Exhibit 10.1.5
NON QUALIFIED STOCK
OPTION AGREEMENT
THIS AGREEMENT, ("Agreement"), made as of October 21, 1996, by and
between WTD INDUSTRIES, INC., hereinafter referred to as the "Company" and
, hereinafter referred to as the "Employee,"
W I T N E S S E T H :
WHEREAS, the Company has adopted the 1996 Stock Option Plan ("Plan")
for the purpose of encouraging the acquisition of its common stock, no par value
("Stock"), by key employees and thereby motivate special achievement on their
part, and the Company desires to grant the Employee an Option (as defined below)
pursuant to the Plan, and
WHEREAS, the Employee desires to obtain the Option,
NOW, THEREFORE, in consideration of services rendered and to be
rendered by the Employee and of the mutual covenants and agreements hereinafter
set forth, the parties hereto agree as follows:
1. Grant of Option.
The Company hereby, on the date of this Agreement, grants the Employee
the option ("Option") to purchase shares of Stock on the terms and
conditions hereinafter set forth and subject to the provisions of the Plan. The
Option price per share shall be $ .
2. Exercise of Option.
(a) Except as otherwise provided in paragraph 3, the Option shall
become exercisable according to the following schedule; provided, however, that
notwithstanding anything in this Agreement to the contrary, neither the Option
nor any portion thereof is exercisable after the expiration of ten years from
the date the Option is granted:
-58-
<PAGE>
Period of Holder's
Continuous Employment or Service
With the Company or Its
Subsidiaries From Percent of Total Option
the Option Grant Date That Is Exercisable
- --------------------------------- -------------------------
(b) The Employee shall, in the event he elects to exercise the Option,
give the Company written notice of exercise. The notice shall specify the number
of shares to be purchased and be paid for as follows:
(1) by the tender of cash or check of the Option exercise price and
amounts required under federal and state withholding tax laws or regulations; or
(2) if and so long as the Common Stock is registered under Section
12(b) or 12(g) of the Securities Exchange Act of 1934 ("Exchange Act"), by
delivery of a properly executed exercise notice, together with irrevocable
instructions, to a brokerage firm designated by the Company to deliver promptly
to the Company the aggregate amount of sale proceeds to pay the Option exercise
price and amounts required under federal and state withholding tax laws or
regulations, and to the Company to deliver the certificates for such purchased
shares directly to such brokerage firm, all in accordance with the regulations
of the Federal Reserve Board.
(c) The Option may be exercised by the Employee in whole or in part or
parts; provided, however, that no less than 100 shares shall be purchased under
any exercise unless the number purchased is the total number then purchasable
under the Option. All partial exercises shall be noted on the Company's and on
the Employee's copy of this Agreement. The Option shall not be exercisable with
respect to a fractional share.
3. Limitations on Exercise.
The Option shall be subject to the following limitations on exercise:
(a) Upon the termination of employment for any reason other than death
or total disability the Option may be exercised, but only to the extent
exercisable as of the date of termination of employment, and only to the extent
it has not previously been exercised, but not after the first to occur of the
expiration of the Option period or the expiration of one month from the date of
termination of employment.
-59-
<PAGE>
(b) Upon the termination of employment by reason of total disability,
the Option may be exercised, but only to the extent exercisable as of the date
of termination, and only to the extent it has not previously been exercised, but
not after the first to occur of the expiration of the Option period or the
expiration of a twelve month period from the date of termination of employment.
For the purposes of this Agreement, the occurrence or nonoccurrence of total
disability shall be determined by the Plan Administrator consistent with the
terms of the Plan.
(c) Upon the termination of employment by reason of death, or upon
death within the one month period from termination of employment, the Option may
be exercised, but only to the extent exercisable as of the date of termination,
and only to the extent it has not previously been exercised, by the estate of
the decedent or by a person who acquired the right to exercise the Option by
will or by applicable laws of descent and distribution, but not after the first
to occur of the expiration of the Option period or the expiration of a twelve
month period from the date of the decedent's death.
(d) In case of termination of the Employee's employment or services for
Cause, as defined in the Plan, the Option shall automatically terminate upon
first notification to the Employee of such termination, unless the Plan
Administrator determines otherwise. If an Employee's employment or services with
the Company are suspended pending an investigation of whether the Employee shall
be terminated for Cause, the Employee's rights under any Option likewise shall
be suspended during the period of investigation.
(e) If the Company at any time determines that registration or
qualification of the Stock covered by the Option under state or federal law or
the consent or approval of any governmental regulatory body is necessary or
desirable, the Option may not be exercised in whole or in part until such
registration, qualification, consent or approval shall have been effected or
obtained free of any conditions not acceptable to the Company.
4. Holding Periods.
Shares of Stock obtained upon the exercise of the Option may not be
sold by a person in violation of any applicable provisions of Section 16 of the
Exchange Act or any other law or applicable regulation.
5. Non transferability of Options.
Options granted under this Plan and the rights and privileges conferred
hereby may not be transferred, assigned, pledged or hypothecated in any manner
(whether by operation of law or otherwise) other than by will or by the
applicable laws of descent and distribution or, with respect to non qualified
stock options, pursuant to the terms of a qualified domestic relations order as
defined in the Internal Revenue Code ("Code"), and shall not be subject to
execution, attachment or similar process. Any attempt to transfer, assign,
pledge, hypothecate or otherwise dispose of any Option or of any right or
privilege
-60-
<PAGE>
conferred hereby, contrary to the Code or to the provisions of the Plan, or the
sale or levy or any attachment or similar process upon the rights and privileges
conferred hereby shall be null and void.
6. Adjustments Upon Changes in Capitalization.
The number of shares covered by each outstanding Option and the
exercise price per share thereof (but not the total price), shall be
proportionately adjusted for any increase or decrease in the number of issued
shares of Stock of the Company resulting from a split-up or consolidation of
shares or any like capital adjustment, or the payment of any stock dividend.
7. Effect of Liquidation or Reorganization.
(a) Cash, Stock or Other Property for Stock.
Except as provided in Subsection (b) below, upon a merger (other than a
merger of the Company in which the holders of shares of Common Stock immediately
prior to the merger have the same proportionate ownership of shares of Common
Stock in the surviving corporation immediately after the merger), consolidation,
acquisition of property or stock, separation, reorganization (other than a mere
reincorporation or the creation of a holding company) or liquidation of the
Company, as a result of which the shareholders of the Company receive cash,
stock or other property in exchange for or in connection with their shares of
Common Stock, any Option granted hereunder shall terminate, but the Participant
shall have the right immediately prior to any such merger, consolidation,
acquisition of property or stock, separation, reorganization or liquidation to
exercise such Participant's Option in whole or in part whether or not the
vesting requirements set forth in the option agreement have been satisfied.
(b) Conversion of Options on Stock for Stock Exchange.
If the shareholders of the Company receive capital stock of another
corporation ("Exchange Stock") in exchange for their shares of Common Stock in
any transaction involving a merger, consolidation, acquisition of property or
stock, separation or reorganization, all Options granted hereunder shall be
converted into options to purchase shares of Exchange Stock, unless the Company
and the corporation issuing the Exchange Stock, in their sole discretion,
determine that any or all such Options granted hereunder shall not be converted
into options to purchase shares of Exchange Stock but instead shall terminate in
accordance with the provisions of Subsection (a) above. The amount and price of
converted options shall be determined by adjusting the amount and price of the
options granted hereunder in the same proportion as used for determining the
number of shares of Exchange Stock the holders of the shares of Common Stock
receive in such merger, consolidation, acquisition of property or stock,
separation or reorganization. In any such transaction, other than a merger of
the Company in which the holders of Common Stock immediately prior to the merger
have the same proportionate ownership of Common Stock in the surviving
corporation immediately after the merger or a mere reincorporation or the
creation of a holding company, the converted options shall be
-61-
<PAGE>
fully vested whether or not the vesting requirements set forth in the option
agreement have been satisfied; provided that such acceleration will not occur
if, in the opinion of the Company's outside accountants, such acceleration would
render unavailable "pooling of interests" accounting treatment for any
reorganization, merger or consolidation of the Company for which pooling of
interests accounting treatment is sought by the Company.
8. Employment.
Nothing contained in this Agreement shall confer upon the Employee any
right with respect to the continuation of employment with the Company or any
subsidiary thereof or interfere in any way with the right of the Company or such
subsidiary to terminate the Employee's employment at any time.
9. Relation to the Plan.
This agreement is subject to the Plan, and in the event of any
inconsistency between this Agreement and the Plan, the Plan shall control.
IN WITNESS WHEREOF, the Company has caused this Agreement to be
executed, said execution being duly authorized, and the Employee has set his
hand hereby, on the date first hereinabove written.
WTD INDUSTRIES, INC. EMPLOYEE
By:_____________________ _________________________
-62-
<PAGE>
Exhibit 10.67
AMENDMENT NO. 6
TO
WTD INDUSTRIES, INC.
RETIREMENT SAVINGS PLAN AND TRUST
This Amendment No. 6 is made to the WTD Industries, Inc. Retirement
Savings Plan and Trust, as amended (the "Plan"), which was originally effective
May 1, 1989 and previously amended January 31, 1990, May 30, 1991, June 26,
1992, April 30, 1993 and December 28, 1994. All terms defined in the Plan shall
have the same meaning when used herein. All provisions of the Plan not amended
by this Amendment No. 6 shall remain in full force and effect.
1. Effective October 10, 1995, all references in the Plan to the
Trustee, Pacific Northwest Trust Co., are changed to refer to Copper Mountain
Trust Corporation.
2. Effective July 1, 1997, Sections 3.01.2 and 3.01.3 are amended to
read as follows:
3.01.2 A qualified employee who is not covered under 3.01.1 or
who is covered but who declines to start Elective Contributions on the
initial Entry Date shall be eligible to participate on any Entry Date
coinciding with or after the earlier of the qualified employee's
completion of (a) 6 consecutive Months of Service or (b) a Year of
Service; provided that qualified employees who were employed by an
Employer on January 1, 1993 and who do not complete a Year of Service
in their Employment Year shall be eligible to participate on the first
Entry Date after completing 1,000 Hours of Service, whether or not
completed within a 12-consecutive month period.
3.01.3 "Qualified employee" means any employee of Employer
except the following:
(a) An employee under age 18.
(b) An employee subject to collective bargaining unless
arrangements for coverage are made.
3. Effective July 1, 1997, Section 3.02 is amended
by adding new subparagraph 3.02.3A to read as follows:
3.02.3A "Month of Service" means a calendar month in
which an employee completes at least one Hour of Service.
4. Effective as of the date hereof, Section 11.07.2 is amended to
read as follows:
-63-
<PAGE>
11.07.2 Benefits may be paid in accordance with a
qualified domestic relations order under section 414(p) of the Internal
Revenue Code pursuant to procedures established by the Committee, even
if such distribution would occur prior to the participant's attainment
of his or her "earliest retirement age" (as defined in Section 414(p)
of the Internal Revenue Code. This plan specifically permits
distribution to be made from the plan to an alternate payee under a
qualified domestic relations prior to the participant's attainment of
his or her earliest retirement age (as defined under section 414(p) of
the Internal Revenue Code), provided that (1) such distribution is not
inconsistent with the qualified domestic relations order, and (2) if
the present value of the alternate payee's benefits under the plan
exceeds $3,500, and the order so requires, the alternate payee consents
to any distribution to the extent required by law.
Date Signed: June 18, 1997
COMPANY: WTD INDUSTRIES, INC.
By s/Bruce L. Engel
------------------------
Its Chief Executive Officer
TRUSTEE: COPPER MOUNTAIN TRUST
CORPORATION
By s/Sallie Olson
------------------------
-64-
<PAGE>
Exhibit 12.1
<TABLE>
<CAPTION>
WTD INDUSTRIES, INC. AND SUBSIDIARIES
COMPUTATION OF REGISTRANT'S NET INCOME (LOSS)
TO AVERAGE TOTAL ASSETS
(In Thousands, Except Ratios)
YEAR ENDED APRIL 30,
-------------------------------------------------------------------
1997 1996 1995 1994 1993
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
NET INCOME (LOSS) $ 8,970 $ (6,044) $ 3,700 $ 6,300 $ 23,758
=========== =========== =========== =========== ===========
AVERAGE TOTAL ASSETS
Beginning of period $ 77,396 $ 88,944 $ 97,100 $ 100,039 $ 113,561
End of period 86,486 77,396 88,944 97,100 100,039
Average $ 81,941 $ 83,170 $ 93,022 $ 98,570 $ 106,800
=========== =========== =========== =========== ===========
RATIO OF NET INCOME (LOSS) TO
AVERAGE TOTAL ASSETS 10.9 % (7.3) % 4.0 % 6.4 % 22.2 %
</TABLE>
-65-
<PAGE>
Exhibit 12.2
<TABLE>
<CAPTION>
WTD INDUSTRIES, INC. AND SUBSIDIARIES
COMPUTATION OF REGISTRANT'S NET INCOME (LOSS)
TO AVERAGE STOCKHOLDERS' EQUITY (DEFICIT)
(In Thousands, Except Ratios)
YEAR ENDED APRIL 30,
-------------------------------------------------------------------
1997 1996 1995 1994 1993
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
NET INCOME (LOSS) $ 8,970 $ (6,044) $ 3,700 $ 6,300 $ 23,758
=========== =========== =========== =========== ===========
AVERAGE STOCKHOLDERS' EQUITY
(DEFICIT)
Beginning of period $ 11,686 $ 20,076 $ 18,512 $ 13,684 $ (43,553)
End of period 18,434 11,686 20,076 18,512 13,684
Average $ 15,060 $ 15,881 $ 19,294 $ 16,098 $ (14,935)
=========== =========== =========== =========== ===========
RATIO OF NET INCOME (LOSS) TO
AVERAGE STOCKHOLDERS'
EQUITY (DEFICIT) 59.6 % (38.1) % 19.2 % 39.1 % NM
NM - Not meaningful
</TABLE>
-66-
<PAGE>
Exhibit 12.3
<TABLE>
<CAPTION>
WTD INDUSTRIES, INC. AND SUBSIDIARIES
COMPUTATION OF REGISTRANT'S AVERAGE STOCKHOLDERS'
EQUITY (DEFICIT) TO AVERAGE TOTAL ASSETS
(In Thousands, Except Ratios)
YEAR ENDED APRIL 30,
-------------------------------------------------------------------
1997 1996 1995 1994 1993
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
AVERAGE STOCKHOLDERS' EQUITY
(DEFICIT)
Beginning of period $ 11,686 $ 20,076 $ 18,512 $ 13,684 $ (43,553)
End of period 18,434 11,686 20,076 18,512 13,684
Average $ 15,060 $ 15,881 $ 19,294 $ 16,098 $ (14,935)
=========== =========== =========== ========== ===========
AVERAGE TOTAL ASSETS
Beginning of period $ 77,396 $ 88,944 $ 97,100 $ 100,039 $ 113,561
End of period 86,486 77,396 88,944 97,100 100,039
Average $ 81,941 $ 83,170 $ 93,022 $ 98,570 $ 106,800
=========== =========== =========== ========== ===========
RATIO OF AVERAGE STOCKHOLDERS'
EQUITY (DEFICIT) TO AVERAGE
TOTAL ASSETS 18.4 % 19.1 % 20.7 % 16.3 % NM
NM - Not meaningful
</TABLE>
-67-
<PAGE>
Exhibit 21.1
WTD Industries, Inc.
Subsidiaries of the Registrant
As of June 30, 1997
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.
Greenweld North America Co.
Halsey Veneer Co.
Judith Gap Lumber Co.
Junction City Lumber Co.
Midway Engineered Wood Products, 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.
-68-
<PAGE>
Exhibit 23.1
[MOSS ADAMS LETTERHEAD]
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We consent to the incorporation by reference in the Registration
Statement on Form S-8 pertaining to the WTD Industries, Inc. 1996 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, 1997, filed with the Securities and Exchange Commission.
/s/ Moss Adams LLP
-----------------------------------
MOSS ADAMS LLP
Beaverton, Oregon
June 6, 1997
-69-
<TABLE> <S> <C>
<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, 1997 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-30-1997
<PERIOD-START> MAY-01-1996
<PERIOD-END> APR-30-1997
<CASH> 8,209
<SECURITIES> 0
<RECEIVABLES> 16,830
<ALLOWANCES> 0
<INVENTORY> 17,760
<CURRENT-ASSETS> 51,441
<PP&E> 89,293
<DEPRECIATION> 56,557
<TOTAL-ASSETS> 86,486
<CURRENT-LIABILITIES> 21,966
<BONDS> 46,086
0
21,021
<COMMON> 28,647
<OTHER-SE> (31,234)
<TOTAL-LIABILITY-AND-EQUITY> 86,486
<SALES> 284,086
<TOTAL-REVENUES> 284,086
<CGS> 255,068
<TOTAL-COSTS> 255,068
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,029
<INCOME-PRETAX> 12,090
<INCOME-TAX> 3,120
<INCOME-CONTINUING> 8,970
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,970
<EPS-PRIMARY> .59
<EPS-DILUTED> .59
</TABLE>
