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, 1994
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition from __________________ to ___________________
Commission file number 0-16158
WTD Industries, Inc.
(Exact name of Registrant as specified in its charter)
Oregon 93-0832150
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
10260 S.W. Greenburg Road, Suite 900, Portland, Oregon 97223
(Address of principal executive offices) (Zip Code)
(Registrant's telephone number, including area code) (503) 246-3440
Indicate by check mark whether the Registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the Registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days. Yes __X__ No _____
Indicate by check mark whether the Registrant has filed all
documents and reports required to be filed by Sections 12, 13 or
15(d) of the Securities Exchange Act of 1934 subsequent to the
distribution of securities under a plan confirmed by a court.
Yes__X__ No_____
The number of shares outstanding of Registrant's Common Stock,
no par value, at August 26, 1994 was 11,077,074.
WTD INDUSTRIES, INC.
INDEX
Page
Number
PART I. Financial Information (Unaudited)
Item 1. Financial Statements
Consolidated Statements of Operations -
Three Months Ended July 31, 1994 and 1993 3
Consolidated Balance Sheets -
July 31, 1994 and April 30, 1994 4
Consolidated Statements of Cash Flows -
Three Months Ended July 31, 1994 and 1993 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of
Operations 10
PART II. Other Information
Item 6. Exhibits and Reports on Form 8-K 13
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
WTD INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, Except Per-Share Amounts)
(Unaudited)
THREE MONTHS ENDED JULY 31,
------------------------------------------------
1994 1993
---------- ----------
NET SALES $ 76,466 $ 53,859
COST OF SALES 70,927 52,562
---------- ----------
GROSS PROFIT 5,539 1,297
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 2,708 2,466
REORGANIZATION CHARGES (CREDITS) (39) (1,079)
---------- ----------
OPERATING INCOME (LOSS) 2,870 (90)
OTHER INCOME (EXPENSE)
Interest Expense (1,612) (1,688)
Miscellaneous 187 159
---------- ----------
(1,425) (1,529)
---------- ----------
INCOME (LOSS) BEFORE INCOME TAXES 1,445 (1,619)
PROVISION FOR INCOME TAXES 405 --
---------- ----------
NET INCOME (LOSS) 1,040 (1,619)
PREFERRED DIVIDENDS 460 403
---------- ----------
NET INCOME (LOSS) APPLICABLE
TO COMMON SHAREHOLDERS $ 580 $ (2,022)
========== ==========
NET INCOME (LOSS) PER COMMON SHARE
Primary $0.05 ($0.23)
===== ======
Fully diluted $0.05 ($0.23)
===== ======
<FN>
The accompanying notes are an integral part of these consolidated financial statements.
WTD INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
(In Thousands)
JULY 31, APRIL 30,
1994 1994
---------- ----------
(Unaudited)
CURRENT ASSETS
Cash and cash equivalents $ 8,497 $ 8,101
Accounts receivable, net 15,343 8,634
Inventories 24,001 26,796
Prepaid expenses 3,625 3,145
Deferred tax benefit 2,197 2,197
Timber, timberlands and
timber-related assets 11,588 11,743
---------- ----------
Total current assets 65,251 60,616
NOTES AND ACCOUNTS RECEIVABLE 101 121
TIMBER AND TIMBERLANDS 856 845
PROPERTY, PLANT AND EQUIPMENT,
at cost
Land 2,733 2,602
Buildings and improvements 10,122 10,067
Machinery and equipment 61,327 60,148
---------- ----------
74,182 72,817
Less accumulated depreciation 43,533 42,001
---------- ----------
30,649 30,816
Construction in progress 1,377 1,361
---------- ----------
32,026 32,177
IDLE ASSETS 350 350
Less costs of disposal 81 82
---------- ----------
269 268
OTHER ASSETS 2,609 3,073
---------- ----------
$ 101,112 $ 97,100
========== ==========
<FN>
The accompanying notes are an integral part of these consolidated financial statements.
WTD INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
(In Thousands, Except Share Information)
JULY 31, APRIL 30,
1994 1994
---------- ----------
(Unaudited)
CURRENT LIABILITIES
Accounts payable $ 5,996 $ 3,361
Accrued expenses 8,936 7,656
Reserve for disputed and unallowed
prepetition claims 150 290
Income taxes payable 678 283
Timber contracts payable 2,104 2,292
Current maturities of long-term debt 2,154 1,938
---------- ----------
Total current liabilities 20,018 15,820
DEFERRED INCOME TAXES PAYABLE 2,181 2,181
LONG-TERM DEBT, less current maturities 59,792 60,587
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Preferred stock, 10,000,000 shares authorized
Series A 20,688 20,654
Series B 333 333
Common stock, no par value 28,641 28,617
Additional paid-in capital 15 15
Retained deficit (30,556) (31,107)
---------- ----------
19,121 18,512
---------- ----------
$ 101,112 $ 97,100
========== ==========
<FN>
The accompanying notes are an integral part of these consolidated financial statements.
WTD INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
THREE MONTHS ENDED JULY 31,
------------------------------------------------
1994 1993
---------- ----------
CASH PROVIDED BY (USED FOR) OPERATING ACTIVITIES
Net income (loss) $ 1,040 $ (1,619)
Adjustments to reconcile net income (loss) to
cash provided by (used for) operations:
Depreciation, depletion and amortization 1,991 2,291
Reorganization charges (credits) -- (1,079)
Accounts receivable (6,709) 9,863
Inventories 2,795 4,150
Prepaid expenses (480) (165)
Timber, timberlands and
timber-related assets - current (15) 3,926
Payables and accruals 3,656 (4,810)
Income taxes 395 --
---------- ----------
Cash provided by operating activities 2,673 12,557
---------- ----------
CASH PROVIDED BY (USED FOR) INVESTING ACTIVITIES:
Notes and accounts receivable 20 (14)
Net reductions of (additions to) timber
and timberlands (11) 13
Acquisition of property, plant and equipment (1,626) (999)
Cost of holding idle assets (1) (57)
Proceeds from sale of idle assets -- 1,547
Other investing activities 20 69
---------- ----------
Cash provided by (used for) investing activities (1,598) 559
---------- ----------
CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES:
Principal payments on long-term debt (615) (1,798)
Other assets 401 (847)
Dividends paid on preferred stock (489) (403)
Issuance of common stock 24 6
---------- ----------
Cash used for financing activities (679) (3,042)
---------- ----------
INCREASE IN CASH AND CASH EQUIVALENTS 396 10,074
BALANCE AT BEGINNING OF PERIOD 8,101 2,124
---------- ----------
BALANCE AT END OF PERIOD $ 8,497 $ 12,198
========== ==========
CASH PAID DURING THE PERIOD FOR:
Interest $1,601 $1,682
Income taxes $1 $0
<FN>
The accompanying notes are an integral part of these consolidated financial statements.
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. 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, 1994, filed
with the Securities and Exchange Commission.
NOTE 2 - INVENTORIES
Inventories are valued at the lower of cost or market. The
amounts included in inventories at July 31, 1994 and April 30, 1994
are as follows (in thousands):
July 31, April 30,
1994 1994
--------- ---------
Logs $ 10,172 $ 11,777
Lumber 12,611 13,818
Supplies 1,218 1,201
--------- ---------
$ 24,001 $ 26,796
========= =========
NOTE 3 - REORGANIZATION CHARGES (CREDITS)
Reorganization credits principally reflect the disposal of
idle assets at amounts in excess of their carrying values.
NOTE 4 - STOCKHOLDERS' EQUITY AND COMMON SHARES OUTSTANDING
Stockholders' equity at July 31, 1994 consists of the following:
Series A preferred stock, $100 per share liquidation preference;
500,000 shares authorized; 270,079 shares issued and outstanding;
limited voting rights; cumulative dividends payable quarterly in
advance at the prime rate, with a minimum rate of 6% and a maximum
rate of 9%; convertible into common stock at $7.50 per share after
April 30, 1999; redeemable at original issue price plus accrued
dividends at the option of the Board of Directors, in the form of
cash or in exchange for senior unsecured debt with 12% coupon. The
holders of the Series A preferred stock will be granted voting
control of the Company's Board of Directors in the event the
Company misses three consecutive quarterly dividend payments, four
quarterly dividend payments within twenty-four months or a total of
eight quarterly dividend payments. The Company has paid all
scheduled dividends.
Series B preferred stock, $100 per share liquidation preference;
500,000 shares authorized; 6,111 shares issued and outstanding;
limited voting rights; convertible into 212,693 shares of common
stock; dividends payable only if paid on the Company's common
stock; redeemable at original issue price plus accrued dividends at
the option of the Board of Directors after all Series A preferred
stock has been redeemed.
Common stock, no par value; 40,000,000 shares authorized;
11,077,074 shares issued and outstanding. Before giving effect to
any shares that might be issued pursuant to the management
incentive stock option plan or conversion of any Series A preferred
stock, the total number of common shares would increase to
11,289,767 shares if the remaining Series B preferred stock
outstanding at July 31, 1994 is converted to common stock.
NOTE 5 - NET INCOME (LOSS) PER SHARE
The computations of net income or loss per share are based
upon the weighted average number of common shares and, to the
extent they are dilutive, common share equivalents outstanding
during the interim periods presented. For the quarter ended July
31, 1994, 11,485,000 shares were used in the computation of primary
earnings per share, and 11,501,000 shares were used in the
computation of fully diluted earnings per share. For the quarter
ended July 31, 1993, weighted average shares of 8,734,000 were used
in the computations of both primary and fully diluted earnings per
share.
NOTE 6 - PROVISION FOR INCOME TAXES
The income tax provision for each interim period is based on
the estimated annual effective tax rate for each fiscal year. The
tax provision for the quarter ended July 31, 1994 reflects a
reduction from statutory rates as a result of utilizing NOL
carryforwards.
Effective May 1, 1993, the Company adopted Statement of
Financial Accounting Standards 109, "Accounting for Income Taxes".
This statement mandates the asset and liability approach to
determining 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. Such
deferred tax benefits and liabilities are grouped as short-term
and long-term, depending on the classification of the related asset
or liability for financial reporting. Deferred tax amounts
unrelated to an asset or liability are classified as current or
non-current depending on the expected period of utilization.
As a result of this pronouncement, the Company has recorded
current deferred tax assets which are principally related to
expenses recognized for financial reporting purposes in advance of
their deductibility for income tax purposes. In addition, the
Company has recorded long-term deferred tax liabilities which are
principally related to differences in methods used to capitalize
and depreciate assets for financial reporting and tax purposes.
While management believes that some or all of the NOL
carryforwards will be utilized in future periods, the volatility of
the Company's operating environment and a desire to be conservative
in the adoption of SFAS Number 109 has resulted in the recognition
of a valuation allowance for the full amount of the future benefit
associated with NOL carryforwards.
NOTE 7 - COMMITMENTS AND CONTINGENCIES
The Company is involved in various litigation primarily
arising in the normal course of its business. In the opinion of
management, the Company's liability, if any, under such pending
litigation would not have a material adverse impact upon the
Company's consolidated financial condition or results of
operations.
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 forest
products industry when exchange rates spur log exports and drive
up domestic log prices, and when a relatively strong U.S. Dollar
encourages lumber imports from competing countries.
The industry is also affected by weather conditions and
changing timber management policies. Fire danger and excessively
dry or wet conditions temporarily reduce logging activity and may
increase open market log prices. Timber management policies of
various governmental agencies change from time to time, causing
actual or feared shortages in some areas periodically. These
policies change because of environmental concerns, public agency
budget issues, and a variety of other reasons. Therefore, past
results for any given year or quarter are not necessarily
indicative of future results.
It is generally the Company's practice to curtail production
at facilities from time to time due to conditions which temporarily
impair log flow, or when imbalances between log costs and product
prices cause the cost of operation to exceed the cost of shutdown.
Management believes its labor practices and compensation systems,
as well as a relatively low capital cost in relation to production
capacity, give it the flexibility to efficiently curtail operations
and resume production as conditions warrant.
Raw materials comprise the majority of the cost of products
sold by the Company. The Company depends principally on open
market log purchases for its raw materials needs. WTD's log
inventory policy is to maintain, where possible, a supply equal to
three to four weeks of production.
In the last three years, lumber prices rose sharply during the
winter and spring months in anticipation of the coming building
season. However, prices then fell as the building season actually
commenced. During the first half of calendar 1994, prices declined
steadily from peaks reached in December 1993. Log prices did not
decline as quickly as lumber prices during this period, resulting
in lower gross margins.
The margin between product prices and log costs has since improved.
Log supply is currently adequate. Log prices, while very high by
historical standards, generally allow a profit margin at current
lumber prices. Although there are indications of a sustainable
recovery in housing demand, there can be no assurance that the
margins recently experienced by the Company will continue or
improve.
The following table sets forth the percentages which certain
expenses and income (loss) items bear to net sales, and the period-
to-period percentage change in each item.
Income and Expense Items Percen
as a Percentage of Net Sales Increase (
-------------------------------------------------- ----------
Three Months ended July 31, Three M
-------------------------------------------------- Ende
7/31/
to
1994 1993 7/31/
---------- ----------- --------
Net sales 100.0 % 100.0 % 42.0
Cost of sales 92.8 97.6 34.9
---------- ----------
Gross profit (loss) 7.2 2.4 327.1
Selling, general and
administrative expense 3.5 4.6 9.8
Reorganization charges (credits) (0.1) (2.0) (96.4)
---------- ----------
Operating income (loss) 3.8 (0.2) NM
Interest expense (2.1) (3.1) (4.5)
Miscellaneous 0.2 0.3 17.6
---------- ----------
Income (loss) before income taxes 1.9 (3.0) NM
Provision (benefit) for income taxes 0.5 0.0 NM
---------- ----------
Net income (loss) 1.4 % (3.0)% NM
============ ============
Comparison of Three Months Ended July 31, 1994 and 1993
- - -------------------------------------------------------
Net sales for the quarter ended July 31, 1994 increased $22.6
million (42%) from the quarter ended July 31, 1993. This increase
was principally caused by a 41% increase in lumber shipments, a 32%
increase in chip deliveries, and a 7% increase in lumber prices.
Lumber shipments and chip deliveries in the quarter ended July 31,
1993 reflect curtailments caused by adverse relationships between
product prices and raw material costs.
Gross profit for the quarter ended July 31, 1994 was 7.2% of
sales, compared to 2.4% of sales for the quarter ended July 31,
1993. Lumber prices in the first quarter of fiscal 1995 were 7%
higher than those of the first quarter of fiscal 1994, while
average log costs in the current first quarter were about 5% above
those of the same period last year. The Company was able to offset
a portion of the log price increase by increasing its raw materials
utilization by 2%. In addition, unit manufacturing costs were
12.5% lower in the quarter ended July 31, 1994, due to production
curtailments in the first quarter of last year.
Selling, general and administrative (S, G & A) expenses in the
three months ended July 31, 1994 increased by $0.2 million (10%)
from the three months ended July 31, 1993. This increase reflects
higher profit-sharing bonus payments in the current quarter,
resulting from higher pre-tax profits. S, G & A expenses were 3.5%
of sales in the quarter ended July 31, 1994 compared to 4.6% of
sales in the quarter ended July 31, 1993.
Reorganization credits principally reflect the disposal of
certain idle assets at amounts in excess of their carrying values.
The Company's effective tax rate for the quarter ended July
31, 1994 was 28% of pre-tax income. The Company recorded no tax
provision in the quarter ended July 31, 1993 because it did not
have pretax profits.
Liquidity and Capital Resources
- - -------------------------------
The Company relies on cash provided by its operations to fund
its working capital needs. There can be no assurance that such
cash will be sufficient to fund the Company's future operations.
Substantially all of the Company's assets are pledged as security
for its various debt obligations. The Company's Credit and
Security Agreement (CSA) requires mandatory prepayments each July
29 to the holders of the Company's senior secured debt if the
Company's cumulative operating income exceeds certain specified
amounts. No such payment was required during the quarter ended
July 31, 1994. Further, the CSA requires that some or all of the
proceeds from the sale of certain assets be paid over to holders of
the Company's senior secured debt.
During the three months ended July 31, 1994, the Company's
cash and cash equivalents increased by $0.4 million, to $8.5
million at July 31. This small increase was provided by profitable
operations, offset by capital spending, principal payments on debt,
and dividend payments on the Company's Series A preferred stock.
Capital spending in the first three months of fiscal 1995 was
$1.6 million. Capital spending for the balance of the fiscal year
is currently forecast to be approximately $4.4 million. The
Company had commitments of approximately $700,000 for capital
spending at July 31, 1994.
Working capital increased by $0.4 million during the first
three months of fiscal 1995, to $45.2 million at July 31. This was
the result of profitable operations, offset by capital spending,
principal payments on long-term debt and dividend payments.
WTD INDUSTRIES, INC.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
The Index to Exhibits is located on page 15.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the three months
ended July 31, 1994.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
WTD INDUSTRIES, INC.
--------------------
(Registrant)
By: s/Bruce L. Engel
--------------------
Bruce L. Engel
President
By: s/K. Stanley Martin
--------------------
K. Stanley Martin
Vice President-Finance
Dated: August 29, 1994
INDEX TO EXHIBITS
Sequential
Number
System
Page
Number
19 Other reports furnished to securities 16
holders with respect to the quarter ended
July 31, 1994: President's letter excerpted
from Interim Report to Shareholders for the
first quarter of fiscal 1995.
- - -----------------------------------------------------------------
All other required Exhibits are listed in the Company's Annual
Report on Form 10-K for the year ended April 30, 1994.