SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended July 31, 1998
-------------------------
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition from to
---------------------- --------------------
Commission file number 0-16158
WTD Industries, Inc.
- --------------------------------------------------------------------------------
(Exact name of Registrant as specified in its charter)
Oregon 93-0832150
- ------------------------------- -------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
10260 S.W. Greenburg Road, Suite 900, Portland, Oregon 97223
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(Registrant's telephone number, including area code) (503) 246-3440
----------------------
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
The number of shares outstanding of Registrant's Common Stock, no par
value, at August 31, 1998 was 11,162,874.
<PAGE>
WTD INDUSTRIES, INC.
--------------------
INDEX
Page
Number
PART I. Financial Information (Unaudited)
Item 1. Financial Statements
Consolidated Statements of Operations -
Three Months Ended July 31, 1998 and 1997 3
Consolidated Balance Sheets -
July 31, 1998 and April 30, 1998 4
Consolidated Statements of Cash Flows -
Three Months Ended July 31, 1998 and 1997 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of
Operations 11
PART II. Other Information
Item 1. Legal Proceedings 15
Item 6. Exhibits and Reports on Form 8-K 15
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
WTD INDUSTRIES, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, Except Per-Share Amounts)
(Unaudited)
THREE MONTHS ENDED JULY 31,
=============================================================
1998 1997
================= =================
<S> <C> <C>
NET SALES $ 47,661 $ 68,881
COST OF SALES 44,175 61,841
----------------- -----------------
GROSS PROFIT 3,486 7,040
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 2,764 3,230
----------------- -----------------
OPERATING INCOME 722 3,810
OTHER INCOME (EXPENSE)
Interest Expense (1,160) (1,211)
Miscellaneous (181) 101
----------------- -----------------
(1,341) (1,110)
----------------- -----------------
INCOME (LOSS) BEFORE INCOME TAXES (619) 2,700
PROVISION FOR INCOME TAXES -- 756
----------------- -----------------
NET INCOME (LOSS) (619) 1,944
PREFERRED DIVIDENDS 574 569
----------------- -----------------
NET INCOME (LOSS) APPLICABLE
TO COMMON STOCKHOLDERS $ (1,193) $ 1,375
================= =================
NET INCOME (LOSS) PER COMMON SHARE
BASIC ($0.11) $0.12
======= =====
DILUTED ($0.11) $0.12
======= =====
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
3
<PAGE>
WTD INDUSTRIES, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS
ASSETS
(In Thousands)
JULY 31, APRIL 30,
1998 1998
============== ==============
<S> <C> <C>
CURRENT ASSETS (Unaudited)
Cash and cash equivalents $ 5,337 $ 2,157
Accounts receivable, net 8,203 10,464
Inventories 12,445 14,005
Prepaid expenses 1,660 1,195
Deferred tax asset 750 750
Assets held for sale 6,267 6,685
Timber, timberlands and timber-related assets 2,256 4,252
-------------- --------------
Total current assets 36,918 39,508
NOTES AND ACCOUNTS RECEIVABLE 48 103
PROPERTY, PLANT AND EQUIPMENT, at cost
Land 2,848 2,849
Buildings and improvements 11,133 11,123
Machinery and equipment 62,352 62,623
-------------- --------------
76,333 76,595
Less accumulated depreciation 52,957 52,378
-------------- --------------
23,376 24,217
Construction in progress 321 225
-------------- --------------
23,697 24,442
OTHER ASSETS 1,250 1,258
-------------- --------------
$ 61,913 $ 65,311
============== ==============
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
4
<PAGE>
WTD INDUSTRIES, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
(In Thousands, Except Share Information)
JULY 31, APRIL 30,
1998 1998
============== ==============
<S> <C> <C>
CURRENT LIABILITIES (Unaudited)
Accounts payable $ 7,503 $ 8,992
Accrued expenses 6,255 6,568
Income taxes payable 74 --
Timber contracts payable 301 323
Current maturities of long-term debt 9,076 8,467
-------------- --------------
Total current liabilities 23,209 24,350
LONG-TERM DEBT, less current maturities 35,795 36,868
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, 11,162,874 issued and outstanding
(11,154,374 at April 30, 1998) 28,761 28,752
Additional paid-in capital 15 15
Retained deficit (46,888) (45,695)
-------------- --------------
2,909 4,093
-------------- --------------
$ 61,913 $ 65,311
============== ==============
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
5
<PAGE>
WTD INDUSTRIES, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
THREE MONTHS ENDED JULY 31,
==========================================
1998 1997
============== ==============
<S> <C> <C>
CASH PROVIDED BY (USED FOR) OPERATING ACTIVITIES:
Net income (loss) $ (619) $ 1,944
Adjustments to reconcile net income (loss) to
cash provided by operating activities:
Depreciation, depletion and amortization 1,132 1,427
Deferred income tax -- 693
Accounts receivable 2,261 3,725
Inventories 1,560 (5,040)
Prepaid expenses (465) (833)
Timber, timberlands and timber-related assets - current 1,996 667
Payables and accruals (1,809) (1,670)
Income taxes 74 --
-------------- --------------
Cash provided by operating activities 4,130 913
-------------- --------------
CASH PROVIDED BY (USED FOR) INVESTING ACTIVITIES:
Notes and other receivables 55 6
Acquisition of property, plant and equipment (313) (1,703)
Net book value of retirements 195 1
Net book value of disposed idle assets 177 --
Other investing activities -- (2)
-------------- --------------
Cash provided by (used for) investing activities 114 (1,698)
-------------- --------------
CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES:
Principal payments on long-term debt (479) (1,461)
Other assets (20) (19)
Dividends paid on preferred stock (574) (574)
Issuance of common stock 9 --
-------------- --------------
Cash used for financing activities (1,064) (2,054)
-------------- --------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 3,180 (2,839)
CASH BALANCE AT BEGINNING OF PERIOD 2,157 8,209
-------------- --------------
CASH BALANCE AT END OF PERIOD $ 5,337 $ 5,370
============== ==============
CASH PAID (REFUNDED) DURING THE PERIOD FOR:
Interest $1,327 $1,215
Income taxes ($74) $62
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
6
<PAGE>
WTD INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - SUMMARY OF FINANCIAL STATEMENT PRESENTATION
In the opinion of management, the consolidated financial statements of WTD
Industries, Inc. and subsidiaries ("WTD" or "the Company") presented herein
include all adjustments, which are solely of a normal recurring nature,
necessary for a fair presentation of the financial position, results of
operations and cash flows for the interim periods presented. Certain
reclassifications may have been made to the prior period results and balances to
conform to the current period classifications. The financial statements should
be read with reference to "Management's Discussion and Analysis of Financial
Condition and Results of Operations" contained in this report, and the "Notes to
Consolidated Financial Statements" set forth in the Company's Annual Report on
Form 10-K for the year ended April 30, 1998, filed with the Securities and
Exchange Commission. The results of operations for the current interim periods
are not necessarily indicative of the results to be expected for the current
year.
NOTE 2 - INVENTORIES
Inventories are valued at the lower of cost or market. The amounts included
in inventories at July 31, 1998 and April 30, 1998 are as follows (in
thousands):
July 31, April 30,
1998 1998
----------- -----------
Logs $ 5,364 $ 3,791
Lumber 5,563 8,635
Supplies and other 1,518 1,579
----------- -----------
$ 12,445 $ 14,005
=========== ===========
NOTE 3 - LONG-TERM DEBT
The Company's primary debt agreement includes certain covenants, including
the maintenance of specified levels of adjusted cumulative operating income (as
defined), tangible net worth, working capital, collateral coverage (as defined)
and total liabilities ratio (as defined). This agreement also imposes certain
restrictions and limitations on capital expenditures, investments, dividend
payments, new indebtedness, and transactions with officers, directors,
shareholders and affiliates. This debt agreement was most recently amended as of
April 1, 1998, with respect to certain affirmative financial performance
covenants.
7
<PAGE>
NOTE 3 - LONG-TERM DEBT (Continued)
At July 31, 1998 the Company's tangible net worth was $2.7 million,
compared to a minimum of negative $1.0 million required by the covenant. At that
same date, the Company's working capital was $13.7 million, compared to $9.0
million required by the covenant. Also, at July 31, 1998, the Company's adjusted
cumulative operating income was $35.7 million, compared to $27.5 million
required. The collateral coverage ratio at July 31, 1998 was 63.4%, compared to
a 50% minimum required level. The total liabilities ratio was 95.3% at July 31,
1998, compared to a maximum allowed of 105%. The minimum level of tangible net
worth increases to $0 at January 1, 1999, $2.0 million at July 1, 1999, and $4.0
million at July 1, 2000. The minimum level of working capital increases to $11.5
million at July 1, 1999, $14.0 million at July 1, 2000 and $16.5 million at July
1, 2002. The minimum level of adjusted cumulative operating income increases to
$30.0 million at August 1, 1998, $34.0 million at November 1, 1998, $37.5
million at July 1, 1999, $42.5 million at July 1, 2000, and $47.5 million at
July 1, 2001. The minimum required collateral coverage ratio increases to 63% at
July 1, 1999. The maximum allowed total liabilities ratio drops to 100% at
August 1, 1998, 95% at July 1, 1999, and 85% at July 1, 2000. During the quarter
ended July 31, 1998, the Company's adjusted cumulative operating income
increased by $1.6 million while showing a loss before taxes of $0.6 million. The
Company continues to be in compliance with all covenants contained in this
agreement.
The debt agreement requires prepayments if the Company's cumulative
operating income exceeds certain specified amounts. No such prepayment was
required for the year ended April 30, 1998. In connection with the May 1, 1996
amendment, the Company agreed to additional prepayments computed at 30% of
quarterly net income. No such prepayment is required for the quarter ended July
31, 1998.
NOTE 4 - STOCKHOLDERS' EQUITY AND COMMON SHARES OUTSTANDING
Stockholder's equity at July 31, 1998 consists of the following:
Series A preferred stock, $100 per share liquidation preference;
500,000 shares authorized; 270,079 shares issued and outstanding;
limited voting rights; cumulative dividends payable quarterly in
advance at the prime rate, with a minimum rate of 6% and a maximum rate
of 9%; convertible into common stock at $7.50 per share after April 30,
1999; redeemable at original issue price plus accrued dividends at the
option of the Board of Directors, in the form of cash or in exchange
for senior unsecured debt with a 12% coupon. The holders of the Series
A preferred stock will be granted voting control of the Company's Board
of Directors in the event the Company misses three consecutive
quarterly dividend payments, four quarterly dividend payments within
twenty-four months or a total of eight quarterly dividend payments. 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.
8
<PAGE>
NOTE 4 - STOCKHOLDERS' EQUITY AND COMMON SHARES OUTSTANDING
(Continued)
Series C junior participating preferred stock, $100 per share
liquidation preference; 400,000 shares authorized; no shares issued or
outstanding; each share has 100 votes, voting together with Common
Stock; dividends payable only if paid on the Company's Common Stock at
100 times the Common Stock dividend rate. This class of preferred stock
was authorized in connection with the shareholder rights plan adopted
by the Company on March 4, 1998.
Common stock, no par value; 40,000,000 shares authorized; 11,162,874
shares issued and outstanding. Before giving effect to any shares that
might be issued pursuant to the exercise of any stock options or
conversion of any Series A preferred stock, the total number of common
shares would increase to 11,375,567 shares if remaining Series B
preferred stock outstanding at July 31, 1998 is converted to common
stock.
NOTE 5 - NET INCOME (LOSS) PER SHARE
The calculations of net income (loss) per share for the three-month periods
ended July 31, 1998 and 1997 are summarized below (in thousands, except
per-share data):
Three Months Ended
July 31,
-----------------------
1998 1997
--------- ---------
Net income (loss) applicable to common shareholders $ (1,193) $ 1,375
========= =========
Weighted average shares outstanding
- Basic 11,155 11,083
Additional shares assumed from:
- Conversion of Series B preferred stock - - 213
- Exercise of stock options - - 431
--------- ---------
Average number of shares and equivalents outstanding
- Diluted 11,155 11,727
========= =========
Net income (loss) per common share
- Basic ($0.11) $0.12
======= =======
- Diluted ($0.11) $0.12
======= =======
Earnings (loss) per share have been recomputed and restated for the effects
of implementing Statement of Financial Accounting Standard Number 128, "Earnings
per Share," as of December 31, 1997.
9
<PAGE>
NOTE 6 - INCOME TAXES
The income tax provision is based on the estimated effective annual tax
rate for each fiscal year. The provision includes anticipated current income
taxes payable, the tax effect of anticipated differences between the financial
reporting and tax basis of assets and liabilities, and the expected utilization
of net operating loss (NOL) carryforwards.
The federal and state income tax provision consists of the following (in
thousands):
Three months ended
July 31,
------------------------
1998 1997
--------- ---------
Income (loss) before income taxes $ (619) $ 2,700
========= =========
Income tax provision:
Federal $ - - $ 648
State - - 108
--------- ---------
$ - - $ 756
========= =========
Current $ - - $ 63
Deferred - - 693
--------- ---------
$ - - $ 756
========= =========
The Company has substantial NOL carryforwards available to reduce the tax
paid on future income. Because of the difficult operating environment and the
likely delayed or decreased use of the Company's NOL carryforwards, the Company
has provided for a valuation reserve against any benefits created from the
current period operating loss. Management periodically reviews the above factors
and may change the amount of valuation allowance as facts and circumstances
dictate.
In the quarter ended July 31, 1998, the Company did not record any tax
provision or benefit.
NOTE 7 - COMMITMENTS AND CONTINGENCIES
The Company is involved in various litigation primarily arising in the
normal course of its business. Additionally, the Company has received notices in
connection with potential environmental litigation. See "Legal Proceedings."
The Company is subject to various federal, state and local regulations
regarding waste disposal and pollution control. Various regulations regarding
air and water emissions, log yard management, and disposal or landfill of log
yard debris may require material expenditures in the future. Management believes
that the Company will be able to comply with any such regulations without a
material adverse impact on its consolidated financial condition or results of
operations.
10
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations
- ---------------------
On a quarter-to-quarter basis, the Company's financial results have varied
widely, and will continue to vary, due to seasonal fluctuations and market
factors affecting the demand for logs, lumber and other wood products. The
industry is subject to fluctuations in sales and earnings due to such factors as
industry production in relation to product demand and variations in interest
rates and housing starts. Currency fluctuations affect the industry when
exchange rates spur log exports and drive up domestic log prices, and when a
relatively strong U.S. dollar encourages lumber imports from competing
countries. Trade policies and agreements between the United States and other
countries, such as Canada, can also significantly affect log and lumber prices
in the Company's markets.
The industry is also affected by weather conditions and changing timber
management policies. Fire danger and excessively dry or wet conditions
temporarily reduce logging activity and may increase open market log prices.
Timber management policies of governmental agencies change from time to time,
causing actual or feared shortages in some areas periodically. These policies
change because of environmental concerns, public agency budget issues, and a
variety of other reasons. Therefore, past results for any given year or quarter
are not necessarily indicative of future results.
It is generally the Company's practice to curtail production at facilities
from time to time due to conditions which temporarily impair log flow, or when
imbalances between log costs and product prices cause the cost of operation to
exceed the cost of shutdown. Management believes that the Company's labor
practices and compensation systems, as well as a relatively low capital cost in
relation to production capacity, give it the flexibility to efficiently curtail
operations and resume production as conditions warrant.
Raw materials comprise the majority of the cost of products sold by the
Company. The Company depends principally on open market log purchases for its
raw materials needs. WTD's log inventory policy is to maintain, where possible,
a supply equal to three to four weeks of production.
Lumber market conditions started off weak during the first quarter of
fiscal year 1999. By mid-June, lumber prices started to recover and by July
lumber prices had recovered enough to allow profitable operations at the end of
the quarter. The Company has taken advantage of the improved market conditions
by adding hours of production at its most profitable locations. There can be no
assurance that the margins recently experienced by the Company will continue or
improve. During much of fiscal year 1998 and into the first quarter of fiscal
year 1999, there was an oversupply of lumber in the U.S. market. This oversupply
was principally the result of traditional export producers manufacturing for the
U.S. lumber market as exports weakened. Chip prices are up substantially from a
year ago, while lumber prices and log costs have declined.
11
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (Continued)
The following table sets forth the percentages which certain expenses and
income items bear to net sales, and the period-to-period percentage change in
each item:
<TABLE>
<CAPTION>
Percentage
Increase (Decrease)
Income and Expense Items as Three Months
a Percentage of Net Sales Ended
Three Months ended July 31, 7/31/98
--------------------------- to
1998 1997 7/31/97
------ ------ -------
<S> <C> <C> <C>
Net Sales 100.0% 100.0% (30.8)%
Cost of sales 92.7 89.8 (28.6)
------ ------
Gross profit 7.3 10.2 (50.5)
Selling, general and
administrative expenses 5.8 4.7 (14.4)
------ ------
Operating income 1.5 5.5 (81.0)
Interest expense (2.4) (1.8) (4.2)
Miscellaneous (0.4) 0.1 NM
------ ------
Income (loss) before income taxes (1.3) 3.9 NM
Provision for income taxes - - 1.1 NM
------ ------
Net income (loss) (1.3)% 2.8% NM
====== ======
Note: Percentages may not add precisely due to rounding.
NM: Not meaningful.
</TABLE>
Comparison of Three Months Ended July 31, 1998 and 1997
- -------------------------------------------------------
Net sales for the three months ended July 31, 1998 decreased $21.2
million (31%) from the three months ended July 31, 1997. This was principally
caused by a 17% decrease in lumber shipments, a 24% decrease in chip deliveries,
and a 21% decrease in lumber prices; partially offset by a 49% increase in chip
prices. The reduced lumber shipments reflect reduced production resulting from a
weak market in the current quarter compared to a relatively strong market in the
first quarter of fiscal 1998. The reduced chip deliveries reflect not only
reduced lumber production but also improved lumber recovery resulting in fewer
chips per thousand board feet of lumber produced.
Gross profit for the quarter ended July 31, 1998 was 7.3% of net sales,
compared to 10.2% of sales for the quarter ended July 31, 1997. Lumber prices
declined by 21% from the first quarter of fiscal 1998, while the Company's log
costs declined by 18%. Unit manufacturing costs increased by 4% from the quarter
ended July 31, 1997, principally due to production curtailments in the July 1998
quarter, in response to poor lumber prices.
12
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (Continued)
Selling, general and administrative expenses in the three months ended
July 31, 1998 decreased by $0.5 million (14%) from the three months ended July
31, 1997. This decrease reflects reduced profit-sharing bonus payments stemming
from lower pre-tax profits and the operation of fewer facilities in the recent
quarter.
Miscellaneous expenses were up for the first quarter of fiscal 1999, as
compared to the first quarter of fiscal 1998, reflecting payments made to Bruce
L. Engel in connection with his retirement on July 1, 1998. The Company had net
miscellaneous income in the first quarter of fiscal 1998.
In the quarter ended July 31, 1998, the Company did not record a tax
provision or benefit. In the quarter ended July 31, 1997, the Company recorded a
tax provision equal to 28% of its pre-tax profit. See Note 6 to Consolidated
Financial Statements.
Liquidity and Capital Resources
- -------------------------------
The Company relies on cash provided by its operations to fund its working
capital needs. There can be no assurance that such cash will be sufficient to
fund the Company's future operations. Substantially all of the Company's assets
are pledged as security for its primary debt obligation.
At July 31, 1998, the Company had net working capital of $13.7 million,
$1.5 million less than at April 30, 1998. The working capital decrease was
primarily the result of operating losses and capital spending, along with
principal payments on debt and dividends paid on the Company's Series A
preferred stock.
Cash and cash equivalents increased by $3.2 million during the first
quarter of fiscal 1999, to $5.3 million at July 31. Approximately $4.1 million
of cash was provided by operations. About $0.5 million was used to repay various
debt obligations and $0.3 million for acquisition of property, plant and
equipment. The Company also paid $0.6 million in dividends to holders of its
Series A preferred stock.
During the three months ended July 31, 1998, the Company spent $0.3 million
for capital improvements to its facilities. Capital spending for the balance of
the fiscal year is currently forecast to be approximately $2.2 million,
including a project to improve the boiler at the Company's South Bend facility.
See "Legal Proceedings." The Company had no material commitments for capital
spending at July 31, 1998.
The Company's Credit and Security Agreement dated as of November 30, 1992
contains certain covenants, including the maintenance of prescribed levels of
collateral coverage (as defined), tangible net worth, working capital, adjusted
cumulative operating income (as defined) and total liabilities ratio (as
defined). This debt agreement was most recently amended as of April 1, 1998,
with respect to certain affirmative financial performance covenants. See Note 3
to Consolidated Financial Statements.
Forward - Looking Information
- -----------------------------
Certain statements in this Form 10-Q contain "forward-looking" information
(as defined in Section 27A of the Securities Act of 1933, as amended) that
involve risks and uncertainties, including, but not limited to, the impact of
general economic conditions, increased interest rates, the impact of competitive
products and pricing, availability and cost of raw materials, inadequate cash
reserves, changes in environmental and other regulations, additional
expenditures being necessary to
13
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (Continued)
comply with environmental regulations (see "Legal Proceedings"), changes in the
Company's ability to use its net operating loss carryforward and the risk
factors listed from time to time in the Company's SEC reports, including, but
not limited to, the report on Form 10-K for the fiscal year ended April 30, 1998
(Part II, Item 7, "Management's Discussion and Analysis of Financial Condition
and Results of Operations").
14
<PAGE>
WTD INDUSTRIES, INC.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The Company's South Bend facility has received a Notice of
Noncompliance with effluent permit terms from the Washington Department of
Ecology. The Company has received a Notice of Intent to sue under the Clean
Water Act from a citizen's group based on the Notice of Noncompliance.
The Company is making modifications to the plant's boiler system to
address the alleged noncompliance and is entering into settlement discussions.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
The Index to Exhibits is located on page 17.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended
July 31, 1998.
15
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
WTD INDUSTRIES, INC.
------------------------------
(Registrant)
By: /s/ Robert J. Riecke
------------------------------
Robert J. Riecke
Vice President-Administration
By: /s/ K. Stanley Martin
------------------------------
K. Stanley Martin
Vice President-Finance
September 14, 1998
16
<PAGE>
WTD INDUSTRIES, INC.
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Sequential
Number
System
Page
Number
<S> <C>
3.1 Fourth Restated Articles of Incorporation of Registrant
adopted effective November 27, 1992, as amended on March 4,
1998(1)
3.2 Second Restated Bylaws of the Registrant adopted effective
November 27, 1992(2)
10.10 Settlement Agreement dated May 15, 1998, between 18
Bruce L. Engel and Registrant
19 Other reports furnished to securities holders with respect to the 25
quarter ended July 31, 1998: Management's letter excerpted from
Interim Report to Shareholders for the first quarter of fiscal 1999
27 Financial Data Schedule(3)
</TABLE>
- --------------------------------------------------------------------------------
(1)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, 1998,
previously filed with the Commission.
(2)Incorporated by reference to the exhibit of like number to the
Registrant's annual report on Form 10-K for the year ended April 30, 1993,
previously filed with the Commission.
(3)This schedule has been submitted in the electronic form prescribed by
EDGAR.
- --------------------------------------------------------------------------------
All other required Exhibits are listed in the Company's Annual Report
on Form 10-K for the year ended April 30, 1998.
17
Exhibit 10.10
SETTLEMENT AGREEMENT
This SETTLEMENT AGREEMENT ("Agreement"), dated as of May [15],
1998, is made and entered into between WTD Industries, Inc., an Oregon
corporation (the "Company"), and Bruce L. Engel ("Engel").
RECITALS:
--------
A. Engel serves as a director and as President of the
Company.
B. Engel and the Company are involved in a number of
disputes, including without limitation claims by Engel against the Company for
breach of contract, breach of fiduciary duty and interference with contract.
C. Engel has agreed to resign as a director of the Company
and to resign from all positions with the Company and its subsidiaries and
affiliates.
D. The Board of Directors of the Company has resolved to
accept Engel's resignation as provided in this Agreement and has offered Engel
certain incentives in connection with the resolution of the disputes between the
parties.
E. Engel has elected to accept such incentives on the terms
and conditions set forth in this Agreement.
THEREFORE, in consideration of the foregoing and the mutual
covenants set forth herein, the parties hereto agree as follows:
AGREEMENT:
---------
1. Resignation. Engel shall resign as a director of the
Company and all committees of the Board of Directors, and shall resign from all
positions with the Company, its subsidiaries and affiliates, and from all
positions in which Engel was serving as director, officer, employee or agent at
the request of the Company, including service with respect to employee benefit
plans. Such resignations shall be voluntary resignations and shall be submitted
to the Board of Directors by Engel in a writing of even date herewith in the
form of Exhibit A to this Agreement. Such resignations shall be effective upon
acceptance by the Board of Directors of the
18
<PAGE>
Company subsequent to the date of this Agreement and on or before July 15, 1998
(the date of such acceptance being the "Termination Date"). The Board of
Directors shall notify Engel in writing of the acceptance of his resignation.
2. Duties of Engel Pending Acceptance of Resignation. From
and after the date of this Agreement and continuing until the Termination Date,
Engel shall devote all of his business time, attention, skill and efforts
exclusively to the business and affairs of the Company in his capacity as
President and shall receive his current salary and his current benefits as in
effect on the date of this Agreement to and including July 15, 1998. During such
time, Engel shall assist in the transition of the duties of the President and of
operations to successor management and shall devote particular attention to
resolution of creditor and auditor matters. The Company and Engel agree to
cooperate in the preparation of a mutually acceptable press release announcing
Engel's departure from the Company.
3. Effect of Resignation.
(a) On the Termination Date, Engel shall repay to
the Company all amounts borrowed from the Company, if any, and
Engel shall be reimbursed by the Company for all travel and
other expenses upon presentation of appropriate receipts
therefor and be paid for all vacation time accrued but not taken
as of the Termination Date in accordance with the Company's
standard policies for salaried corporate officers.
(b) On the Termination Date, Engel shall surrender
to the Company all Company property in Engel's possession or
under Engel's custody or control, including but not limited to
all keys, electronic access cards, business records, memoranda,
letters, books, papers, reports, accountings and data, whether
in written or electronic form, all automobiles and all other
personal property, all of which shall remain the property of the
Company (other than Engel's laptop computer and printer, office
furniture, and one secretarial desk and computer) and Engel
shall thereafter not enter upon any Company premises other than
as an invitee. All life insurance, disability insurance, club
memberships, or other perquisites or benefits of whatever kind
or nature, other than as provided in
19
<PAGE>
Sections 4(c) and 4(d) below, shall cease to be provided at
Company expense on the Termination Date, but Engel may enjoy the
benefit thereof through the next succeeding renewal date to the
extent such benefits have been prepaid by the Company.
4. Settlement Payment. In consideration of the
covenants and releases contained herein, the Company agrees to pay Engel as
follows:
(a) The Company shall pay Engel $300,000 in cash
upon the execution of this Agreement by Engel;
(b) The Company shall pay Engel $100,000 in cash on
the Termination Date;
(c) The Board of Directors shall authorize and
direct the appropriate officer of the Company to enter into
amendments to the stock option agreements between the Company
and Engel to extend the exercise period of all stock options
held by Engel on the Termination Date under the Company's
Amended and Restated 1986 Stock Option Plan and 1996 Stock
Option Plan to and including the second anniversary of the
Termination Date; and
(d) The Company shall continue to furnish to Engel
all group health care benefits as are provided by the Company to
Engel on the date of this Agreement (or such group health care
benefits as are provided by any successor plan adopted by the
Company) by paying Engel's COBRA premiums for the period from
the Termination Date to and including the first anniversary of
the Termination Date.
The Company shall withhold all taxes on all salary payments through the
Termination Date in accordance with all applicable federal, state and local
laws. Engel shall be responsible for all taxes, if any, on all settlement
payments set forth in Sections 4(a) and 4(b) above. Attached as Exhibit B to
this Agreement and incorporated by reference is a copy of a letter from Engel's
accountant representing that, because of Engel's present tax circumstances,
Engel's receipt of
20
<PAGE>
these payments from the Company will not result in Engel's having to pay any
taxes to any federal or state taxing authorities. Engel agrees that he will
defend, indemnify and hold harmless all the persons and entities released in
Section 6 below from any claims relating to any tax liability arising out of any
payments made under Section 4 of this Agreement.
5. Certain Agreements of the Company and Engel.
(a) Confidential Information. Engel acknowledges
that all information pertaining to affairs, business, or
customers of the Company or any of its subsidiaries or
affiliates, as such information may exist on the Termination
Date, is confidential information and is a unique and valuable
asset of the Company. Engel shall not, until such information
becomes public by lawful means, divulge to any person, firm,
association, corporation or governmental agency, any information
concerning the affairs, business, or customers of the Company
(except such information as is required by law to be divulged to
a government agency or pursuant to lawful process), or make use
of any such information for his own purposes or for the benefit
of any person, firm, association or corporation. All records,
memoranda, letters, books, papers, reports, accountings,
experience or other data, and other records and documents
relating to the Company, whether made by Engel or otherwise
coming into his possession, are confidential information and
are, shall be, and shall remain the property of the Company. No
copies thereof shall be made which are not retained by the
Company, and Engel agrees on demand of the Company to deliver
the same to the Company.
(b) Non-Solicitation. Engel shall not, until the
first anniversary of the Termination Date, induce or solicit,
directly or indirectly, any employee of the Company, its
subsidiaries or affiliates to leave his/her employment, nor
shall Engel at any time interfere with the relationship between
the Company, its subsidiaries or affiliates and its or their
employees.
(c) Non-Disparagement. The Company and Engel shall
not make any malicious, disparaging or false statements or
remarks about each other and shall refrain from making any
negative statements to third parties regarding each other
21
<PAGE>
or any statements which could be construed as having or causing
a diminishing effect on the Company's or Engel's respective
reputations, goodwill or business.
6. Release. Engel and the Company hereby mutually release
each other and their respective subsidiaries, affiliates, officers, directors,
shareholders, employees, insurers, attorneys, agents, heirs, successors and
assigns, from any and all liability, damages, suits, demands, claims and causes
of action of any kind whatsoever, whether known or unknown, liquidated or
unliquidated, contingent or fixed, direct or indirect, whether in tort, contract
or based on statute, which they now have, ever had or may hereafter have or
claim to have, which are or may be based in whole or in part upon, or may be due
to or arise out of, or are or may be related to any action, transaction,
agreement, occurrence or event on or prior to the date of this Agreement,
including, but not limited to, claims relating to Engel's employment or
association with the Company or the termination thereof, except that the Company
does not release Engel from any claims arising out of any criminal act, if any,
committed by Engel during his employment with the Company (the parties know of
no such criminal act at this time). This release specifically includes, but is
not limited to, all claims for relief or remedy under any state or federal laws,
including, but not limited to, Title VII of the Civil Rights Act of 1964, the
Civil Rights Act of 1991, the Post-Civil War Civil Rights Act (42 U.S.C. ss.ss.
1981 - 1988), the Equal Pay Act, the Age Discrimination in Employment Act
("ADEA"), the Rehabilitation Act of 1973, the Vietnam Era Veteran's Readjustment
Act, the Fair Labor Standards Act, the Americans with Disabilities Act, the
Family and Medical Leave Act of 1993, Executive Order 11246, all as amended, the
civil rights, employment and labor laws of the State of Oregon, and the law of
any other state. This release does not apply to claims under the ADEA that may
arise after the date of this Agreement. Similarly, it does not apply to Engel's
stock options, any existing officer or director indemnification agreement with
the Company, his rights under any applicable officers and directors liability
insurance, or the obligations of Larry Black and Quinault Corporation contained
in the agreement among Engel, the Company, Larry Black and Quinault Coporation
dated June 10, 1997 (except for the obligation under Section 3 thereof, which
Engel does release), or to the obligations to be performed under this Agreement.
In accordance with the Older Workers' Benefit Protection Act
("Act"), Engel acknowledges that he has been advised to consult and has in fact
consulted an attorney prior to executing this Agreement, that he is aware of,
and waives, all rights and claims he may be entitled
22
<PAGE>
to under the ADEA (other than those rights or claims that may arise after this
Agreement is executed) and the Act and that he will receive additional
compensation to which he would not otherwise be entitled as consideration for
executing this Agreement. Engel acknowledges that he has been given a period of
at least 21 days to consider the offer contained in this Agreement. Engel
further acknowledges that he has a period of seven days immediately following
the execution of this Agreement in which he may revoke it by giving written
notice to the Company and by returning to the Company any payments made under
this Agreement either by returning the unnegotiated check(s) or, in the
alternative, by delivering a cashier's check or money order in a sum equal to
the total dollar amount of such check(s). In the event Engel does not revoke
this Agreement, it shall become effective on the eighth day following execution
by Engel.
7. Covenant Not to Sue. Engel and the Company agree that
they will not, for themselves or on behalf of any other person or entity, bring,
commence, institute, maintain, prosecute or voluntarily aid any action at law or
in equity or otherwise prosecute or sue any of the parties released by this
Agreement, either affirmatively or by way of cross-complaint, defense or
counterclaim, or in any other manner with respect to the claims released herein.
8. Governing Law. This Agreement shall be construed in
accordance with and governed by the laws of the State of Oregon.
9. Entire Agreement. This Agreement is an integrated
agreement which constitutes the entire agreement between the parties with
respect to its subject matter and supersedes all prior agreements,
representations, or understandings, written or oral, with respect to the subject
matter. The parties further acknowledge that the terms of this Agreement are
contractual and not mere recitals.
10. Severability. In the event any provisions of this
Agreement is found to be unenforceable, the parties intend that the remainder of
the Agreement be given full force and effect.
11. Fees and Expenses. In any action to enforce or for
breach of any of the terms of this Agreement, the prevailing party shall be
entitled to an award of all reasonable attorney fees and costs, including fees
and costs at trial or on appeal of any such action.
23
<PAGE>
12. Section Headings. The section headings contained herein
are for reference purposes only and will not affect in any way the meaning or
interpretation of this Agreement.
WTD Industries, Inc.
/s/ Robert J. Riecke
------------------------------------
Robert J. Riecke
Vice President-Administration,
General Counsel, and Secretary
Dated: May 22, 1998
------------------------------
/s/ Bruce L. Engel
------------------------------------
Bruce L. Engel
Dated: May 22, 1998
------------------------------
24
Exhibit 19
Dear WTD Shareholders:
For the first quarter of our new fiscal year, WTD incurred a net loss
of $619,000 or $.11 per share, compared with net income of $1,944,000 or $.12
per share for the same period in 1997. First quarter net sales were $47.7
million, compared to $68.9 million for the first quarter last year.
The fiscal quarter started off with weak lumber prices that continued
to decline during May. By mid-June, lumber prices started to recover and by the
end of the quarter lumber prices had recovered enough to allow profitable
operations at the end of the quarter. However, the more positive operating
conditions existing at the end of the quarter were not enough to overcome the
loss generated during the first part of the quarter.
Lumber prices are stronger as we start our second quarter. We have
taken advantage of the improved lumber market conditions by adding hours of
production at our most profitable locations.
At July 31, 1998, the Company's cash position was strong and our
working capital exceeded $13.7 million.
You will receive, shortly, material concerning our 1998 Annual Meeting
of Shareholders. We look forward to discussing the many changes over the past
several months and our plans for the future.
WTD Management Team
25
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM REGISTRANT'S
REPORT ON FORM 10-Q FOR THE PERIOD ENDED JULY 31, 1998 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> APR-30-1999
<PERIOD-END> JUL-31-1998
<CASH> 5,337
<SECURITIES> 0
<RECEIVABLES> 8,203
<ALLOWANCES> 0
<INVENTORY> 12,445
<CURRENT-ASSETS> 36,918
<PP&E> 76,654
<DEPRECIATION> 52,957
<TOTAL-ASSETS> 61,913
<CURRENT-LIABILITIES> 23,209
<BONDS> 35,795
0
21,021
<COMMON> 28,761
<OTHER-SE> (46,873)
<TOTAL-LIABILITY-AND-EQUITY> 61,913
<SALES> 47,661
<TOTAL-REVENUES> 47,661
<CGS> 44,175
<TOTAL-COSTS> 44,175
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,160
<INCOME-PRETAX> (619)
<INCOME-TAX> 0
<INCOME-CONTINUING> (619)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (619)
<EPS-PRIMARY> (.11)
<EPS-DILUTED> (.11)
</TABLE>
