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 January 31, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition from to
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Commission file number 0-16158
WTD Industries, Inc.
- --------------------------------------------------------------------------------
(Exact name of Registrant as specified in its charter)
Oregon 93-0832150
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
10260 S.W. Greenburg Road, Suite 900, Portland, Oregon 97223
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(Registrant's telephone number, including area code) (503) 246-3440
--------------------
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
Indicate by check mark whether the Registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities and
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes X No
--- ---
The number of shares outstanding of Registrant's Common Stock, no par
value, at February 28, 1997 was 11,077,074.
WTD INDUSTRIES, INC.
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INDEX
Page
Number
------
PART I. Financial Information (Unaudited)
Item 1. Financial Statements
Consolidated Statements of Operations -
Three Months and Nine Months Ended January 31, 1997 and 1996 3
Consolidated Balance Sheets -
January 31, 1997 and April 30, 1996 4
Consolidated Statements of Cash Flows -
Nine Months Ended January 31, 1997 and 1996 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 6. Exhibits and Reports on Form 8-K 15
2
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 NINE MONTHS ENDED
JANUARY 31, JANUARY 31,
------------------------ ------------------------
1997 1996 1997 1996
--------- --------- --------- ---------
NET SALES $ 64,469 $ 37,852 $ 210,648 $ 140,811
COST OF SALES 59,982 38,662 189,045 137,920
--------- --------- --------- ---------
GROSS PROFIT (LOSS) 4,487 (810) 21,603 2,891
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 2,767 2,296 9,254 7,445
REORGANIZATION CREDITS 0 (409) 0 (409)
--------- --------- --------- ---------
OPERATING INCOME (LOSS) 1,720 (2,697) 12,349 (4,145)
OTHER INCOME (EXPENSE)
Interest Expense (1,250) (1,327) (3,828) (4,041)
Miscellaneous 248 255 415 457
--------- --------- --------- ---------
(1,002) (1,072) (3,413) (3,584)
--------- --------- --------- ---------
INCOME (LOSS) BEFORE INCOME TAXES 718 (3,769) 8,936 (7,729)
PROVISION FOR INCOME TAXES (BENEFIT) 269 (1,432) 3,392 (2,937)
--------- --------- --------- ---------
NET INCOME (LOSS) 449 (2,337) 5,544 (4,792)
PREFERRED DIVIDENDS 557 592 1,671 1,795
--------- --------- --------- ---------
NET INCOME (LOSS) APPLICABLE
TO COMMON SHAREHOLDERS $ (108) $ (2,929) $ 3,873 $ (6,587)
========= ========= ========= =========
NET INCOME (LOSS) PER COMMON SHARE
PRIMARY ($0.01) ($0.26) $0.34 ($0.59)
--------- --------- --------- ---------
FULLY DILUTED ($0.01) ($0.26) $0.34 ($0.59)
--------- --------- --------- ---------
The accompanying notes are an integral part of these consolidated financial statements.
3
WTD INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
(In Thousands)
JANUARY 31, APRIL 30,
1997 1996
----------- -----------
CURRENT ASSETS (Unaudited)
Cash and cash equivalents $ 9,230 $ 4,576
Accounts receivable, net 12,871 10,190
Inventories 19,477 13,891
Prepaid expenses 1,514 1,568
Income tax refund receivable 1,145 2,135
Deferred tax asset 1,105 1,112
Assets held for sale 736 737
Timber, timberlands and timber-related assets 4,092 6,243
----------- -----------
Total current assets 50,170 40,452
NOTES AND ACCOUNTS RECEIVABLE 130 164
TIMBER AND TIMBERLANDS 629 679
PROPERTY, PLANT AND EQUIPMENT, at cost
Land 2,943 2,943
Buildings and improvements 11,228 11,085
Machinery and equipment 69,389 68,313
----------- -----------
83,560 82,341
Less accumulated depreciation 55,505 51,391
----------- -----------
28,055 30,950
Construction in progress 958 339
----------- -----------
29,013 31,289
DEFERRED TAX ASSET 246 3,388
OTHER ASSETS 1,286 1,424
----------- -----------
$ 81,474 $ 77,396
=========== ===========
The accompanying notes are an integral part of these consolidated financial
statements.
4
WTD INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
(In Thousands, Except Share Information)
JANUARY 31, APRIL 30,
1997 1996
----------- -----------
CURRENT LIABILITIES (Unaudited)
Accounts payable $ 10,217 $ 5,791
Accrued expenses 6,879 6,198
Timber contracts payable -- 2,252
Current maturities of long-term debt 1,280 1,159
----------- -----------
Total current liabilities 18,376 15,400
LONG-TERM DEBT, less current maturities 47,539 50,310
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Preferred stock, 10,000,000 shares authorized
Series A, 270,079 shares outstanding 20,688 20,688
Series B, 6,111 shares outstanding 333 333
Common stock, no par value, 40,000,000 shares
authorized, 11,077,074 issued and outstanding 28,641 28,641
Additional paid-in capital 15 15
Retained deficit (34,118) (37,991)
----------- -----------
15,559 11,686
----------- -----------
$ 81,474 $ 77,396
=========== ===========
The accompanying notes are an integral part of these consolidated financial
statements.
5
WTD INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
NINE MONTHS ENDED JANUARY 31,
-----------------------------
1997 1996
----------- -----------
CASH PROVIDED BY (USED FOR) OPERATING ACTIVITIES:
Net income (loss) $ 5,544 $ (4,792)
Adjustments to reconcile net income (loss) to
cash provided by operating activities:
Depreciation, depletion and amortization 4,896 3,746
Deferred income tax 3,149 (2,910)
Reorganization credits -- (409)
Accounts receivable (2,681) 3,715
Inventories (5,586) 2,185
Prepaid expenses 54 1,762
Timber, timberlands and timber-related assets - current 1,912 1,516
Payables and accruals 2,926 (1,522)
Income taxes 990 503
----------- -----------
Cash provided by operating activities 11,204 3,794
----------- -----------
CASH PROVIDED BY (USED FOR) INVESTING ACTIVITIES:
Net reductions of timber and timberlands 50 7
Acquisition of property, plant and equipment (2,282) (3,630)
Other investing activities 126 159
----------- -----------
Cash used for investing activities (2,106) (3,464)
----------- -----------
CASH USED FOR FINANCING ACTIVITIES:
Principal payments on long-term debt (2,721) (1,948)
Other assets (52) --
Dividends paid on preferred stock (1,671) (1,789)
----------- -----------
Cash used for financing activities (4,444) (3,737)
----------- -----------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 4,654 (3,407)
CASH BALANCE AT BEGINNING OF PERIOD 4,576 6,023
----------- -----------
CASH BALANCE AT END OF PERIOD $ 9,230 $ 2,616
=========== ===========
CASH PAID (REFUNDED) DURING THE PERIOD FOR:
Interest $3,781 $1,870
Income taxes ($751) ($530)
The accompanying notes are an integral part of these consolidated financial statements.
6
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, 1996, filed with the Securities and
Exchange Commission. The results of operations for the current interim periods
are not necessarily indicative of the results to be expected for the current
year.
NOTE 2 - INVENTORIES
Inventories are valued at the lower of cost or market. The amounts included
in inventories at January 31, 1997 and April 30, 1996 are as follows (in
thousands):
January 31, April 30,
1997 1996
----------- -----------
Logs $ 10,625 $ 5,899
Lumber 7,569 6,786
Supplies 1,283 1,206
----------- -----------
$ 19,477 $ 13,891
=========== ===========
NOTE 3 - LONG-TERM DEBT
The Company's primary debt agreement includes certain covenants, including
the maintenance of specified levels of adjusted cumulative operating income (as
defined), tangible net worth, working capital, collateral coverage (as defined)
and total liabilities ratio (as defined). This agreement also imposes certain
restrictions and limitations on capital expenditures, investments, dividend
payments, new indebtedness, and transactions with officers, directors,
shareholders and affiliates. This debt agreement was most recently amended as of
May 1, 1996, with respect to certain affirmative financial performance covenants
and payment terms.
7
NOTE 3 - LONG-TERM DEBT (Continued)
At January 31, 1997 the Company's tangible net worth was $15.2 million,
compared to $9 million required by the corresponding covenant. At that same
date, the Company's working capital was $31.8 million, compared to $22.5 million
required by the corresponding covenant. Also, at January 31, 1997, the Company's
adjusted cumulative operating income was $36.3 million, compared to $25 million
required. The collateral coverage ratio at January 31, 1997 was 81.3%, compared
to a 60% minimum required level. The total liabilities ratio was 80.9% at
January 31, 1997, compared to a maximum allowed of 89%. The required level of
tangible net worth increases to $10 million at July 1, 1997, $12 million at May
1, 1998 and $14.5 million at May 1, 1999. The required level of working capital
increases to $25 million on July 1, 1997. The required level of adjusted
cumulative operating income increases to $27.5 million at July 1, 1997, $40
million at May 1, 1998, $52.5 million at May 1, 1999 and $67.5 million at May 1,
2000. The minimum required collateral coverage ratio increases to 65% at May 1,
1998. The maximum allowed total liabilities ratio drops to 87% at July 1, 1997
and drops further to 85% at May 1, 1998. During the quarter ended January 31,
1997, the Company's adjusted cumulative operating income increased by $2.4
million while showing income before taxes of $0.7 million.
In addition, 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, 1996. In connection with
the May 1, 1996 amendment, the Company agreed to an additional prepayment
computed at 30% of quarterly net income. The next prepayment under this
provision will be approximately $136,000 due April 1, 1997.
NOTE 4 - STOCKHOLDERS' EQUITY AND COMMON SHARES OUTSTANDING
Stockholder's equity at January 31, 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 accrued dividends at the
option of the Board of Directors, in the form of cash or in exchange
for senior unsecured debt with a 12% coupon. The holders of the Series
A preferred stock will be granted voting control of the Company's Board
of Directors in the event the Company misses three consecutive
quarterly dividend payments, four quarterly dividend payments within
twenty-four months or a total of eight quarterly dividend payments.
Series B preferred stock, $100 per share liquidation preference;
500,000 shares authorized; 6,111 shares issued and outstanding; limited
voting rights; convertible into 212,693 shares of common stock;
dividends payable only if paid on the Company's common stock;
redeemable at original issue price plus accrued dividends at the option
of the Board of Directors after all Series A preferred stock has been
redeemed.
8
NOTE 4 - STOCKHOLDERS' EQUITY AND COMMON SHARES OUTSTANDING
(Continued)
Common stock, no par value; 40,000,000 shares authorized; 11,077,074
shares issued and outstanding. Before giving effect to any shares that
might be issued pursuant to the exercise of any stock options or
conversion of any Series A preferred stock, the total number of common
shares would increase to 11,289,767 shares if remaining Series B
preferred stock outstanding at January 31, 1997 is converted to common
stock.
NOTE 5 - NET INCOME (LOSS) PER SHARE
The calculations of net income (loss) per share for the three-month and
nine-month periods ended January 31, 1997 and 1996 are summarized below (in
thousands, except per-share data):
Three Months Ended Nine Months Ended
January 31, January 31,
------------------ ------------------
1997 1996 1997 1996
-------- -------- -------- --------
NET INCOME (LOSS) APPLICABLE TO
COMMON SHAREHOLDERS $ (108) $(2,929) $ 3,873 $(6,587)
======== ======== ======== ========
WEIGHTED AVERAGE SHARES OUTSTANDING 11,077 11,077 11,077 11,077
ADDITIONAL SHARES ASSUMED FROM:
Conversion of Series B
preferred stock -- -- 213 --
Exercise of stock options -- -- 72 --
-------- -------- -------- --------
AVERAGE NUMBER OF SHARES AND
EQUIVALENTS OUTSTANDING
- PRIMARY BASIS 11,077 11,077 11,362 11,077
ADDITIONAL SHARES ASSUMED FROM
EXERCISE OF STOCK OPTIONS -- -- 180 --
-------- -------- -------- --------
AVERAGE NUMBER OF SHARES AND
EQUIVALENTS OUTSTANDING
- FULLY DILUTED 11,077 11,077 11,542 11,077
======== ======== ======== ========
NET INCOME (LOSS) PER COMMON SHARE
- PRIMARY BASIS ($0.01) ($0.26) $0.34 ($0.59)
======== ======== ======== ========
- FULLY DILUTED ($0.01) ($0.26) $0.34 ($0.59)
======== ======== ======== ========
NOTE 6 - INCOME TAXES
The income tax provision (benefit) is based on the estimated effective
annual tax rate for each fiscal year. The provision (benefit) includes
anticipated current income taxes payable or refundable, the tax effect of
anticipated differences between the financial reporting and tax basis of assets
and liabilities, and the expected utilization of net operating loss (NOL)
carryforwards.
9
NOTE 6 - INCOME TAXES (Continued)
The federal and state income tax provision (benefit) consists of the
following (in thousands):
Three months ended Nine months ended
January 31, January 31,
------------------ ------------------
1997 1996 1997 1996
-------- -------- -------- --------
Income (loss) before income taxes $ 718 $(3,769) $ 8,936 $(7,729)
======== ======== ======== ========
Income tax provision (benefit):
Federal $ 244 $(1,281) $ 3,038 $(2,628)
State 25 (151) 354 (309)
-------- -------- -------- --------
$ 269 $(1,432) $ 3,392 $(2,937)
Current $ 9 $ -- $ 243 $ (27)
Deferred 260 (1,432) 3,149 (2,910)
-------- -------- -------- --------
$ 269 $(1,432) $ 3,392 $(2,937)
======== ======== ======== ========
Deferred tax assets reduced during the quarter ended January 31, 1997,
principally the result of recording utilization of the tax benefit from NOL
carryforwards.
Management has assessed the likelihood of utilizing the recorded deferred
tax asset related to its NOL carryforwards, including its operating history, the
cyclical nature of the industry in which the Company operates, current economic
conditions and the potential outcome of any I.R.S. audits. Based upon the above
factors, management believes that a valuation allowance of approximately $2.9
million is appropriate. No change to this reserve was considered necessary
during the quarter ended January 31, 1997.
NOTE 7 - COMMITMENTS AND CONTINGENCIES
The Company is involved in various litigation primarily arising in the
normal course of its business. In the opinion of management, the Company's
liability, if any, under such pending litigation would not have a material
adverse impact upon the Company's consolidated financial condition or results of
operations.
The Company is subject to various federal, state and local regulations
regarding waste disposal and pollution control. Various governmental agencies
have enacted, or are considering regulations, regarding log yard management and
disposal of log yard waste that may require material expenditures in the future.
Management believes that the Company will be able to comply with any final
regulations in this area without a material adverse impact on its consolidated
financial condition or results of operations.
10
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations
- ---------------------
On a quarter-to-quarter basis, the Company's financial results have varied
widely, and will continue to vary, due to seasonal fluctuations and market
factors affecting the demand for logs, lumber and other wood products. The
industry is subject to fluctuations in sales and earnings due to such factors as
industry production in relation to product demand and variations in interest
rates and housing starts. Currency fluctuations affect the industry when
exchange rates spur log exports and drive up domestic log prices, and when a
relatively strong U.S. dollar encourages lumber imports from competing
countries. Trade policies and agreements between the United States and other
countries, such as Canada, can also significantly affect log and lumber prices
in the Company's markets.
The industry is also affected by weather conditions and changing timber
management policies. Fire danger and excessively dry or wet conditions
temporarily reduce logging activity and may increase open market log prices.
Timber management policies of governmental agencies change from time to time,
causing actual or feared shortages in some areas periodically. These policies
change because of environmental concerns, public agency budget issues, and a
variety of other reasons. Therefore, past results for any given year or quarter
are not necessarily indicative of future results.
It is generally the Company's practice to curtail production at facilities
from time to time due to conditions which temporarily impair log flow, or when
imbalances between log costs and product prices cause the cost of operation to
exceed the cost of shutdown. Management believes its labor practices and
compensation systems, as well as a relatively low capital cost in relation to
production capacity, give it the flexibility to efficiently curtail operations
and resume production as conditions warrant.
Raw materials comprise the majority of the cost of products sold by the
Company. The Company depends principally on open market log purchases for its
raw materials needs. WTD's log inventory policy is to maintain, where possible,
a supply equal to three to four weeks of production.
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 ended January
31, 1997, 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. Log costs were relatively stable throughout the nine-month period.
There can be no assurance that the margins experienced during any period of
fiscal 1997 will continue or improve.
11
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
The following table sets forth the percentages which certain expenses and
income (loss) items bear to net sales, and the period-to-period percentage
change in each item.
Income and Expense Items as Percentage
a Percentage of Net Sales Increase (Decrease)
Three Months Nine Months
Three Months Ended Nine Months Ended Ended Ended
January 31, January 31, 1/31/97 1/31/97
to to
1997 1996 1997 1996 1/31/96 1/31/96
Net sales 100.0 % 100.0 % 100.0 % 100.0 % 70.3% 49.6%
Cost of sales 93.0 102.1 89.7 97.9 55.1 37.1
------ ------ ------ ------
Gross profit (loss) 7.0 (2.1) 10.3 2.1 NM 647.3
Selling, general and
administrative expense 4.3 6.1 4.4 5.3 20.5 24.3
Reorganization credits -- (1.1) -- (0.3) NM NM
------ ------ ------ ------
Operating income (loss) 2.7 (7.1) 5.9 (2.9) NM NM
Interest expense (1.9) (3.5) (1.8) (2.9) (5.8) (5.3)
Miscellaneous 0.4 0.7 0.2 0.3 (2.7) (9.2)
------ ------ ------ ------
Income (loss)
before income taxes 1.1 (10.0) 4.2 (5.5) NM NM
Provision (benefit)
for income taxes 0.4 (3.8) 1.6 (2.1) NM NM
------ ------ ------ ------
Net income (loss) 0.7 % (6.2) % 2.6 % (3.4) % NM NM
====== ====== ====== ======
Note: Percentages may not add precisely due to rounding.
NM: Not Meaningful
Comparison of Three Months Ended January 31, 1997 and 1996
- ----------------------------------------------------------
Net sales for the three months ended January 31, 1997 increased $26.6
million (70%) from the three months ended January 31, 1996. This was principally
caused by a 55% increase in lumber shipments, a 46% increase in chip volume, and
a 20% increase in lumber prices, partially offset by a 55% decrease in chip
prices. The higher lumber and chip deliveries reflect increased production
resulting from an improved lumber market.
For the quarter ended January 31, 1997, the Company had a gross profit of
7.0% of net sales, compared to gross loss of 2.1% of net sales for the quarter
ended January 31, 1996. Lumber prices increased by 20% from the quarter ended
January 31, 1996, while the Company's log costs decreased by 6% from the same
period. Unit manufacturing costs increased by 10% from the quarter ended January
31, 1996, despite the higher production levels. This was in part a result of a
general wage increase in September 1996.
12
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
January 31, 1997 increased by $0.5 million (20.5%) from the three months ended
January 31, 1996. This increase reflects higher profit-sharing bonus payments
stemming from higher pretax profits.
In the quarter ended January 31, 1997, the Company's tax provision equaled
37.5% of its pretax profit. In the quarter ended January 31, 1996, the Company's
tax benefit equaled 38% of its pretax loss. See Note 6 to Consolidated Financial
Statements.
Comparison of Nine Months Ended January 31, 1997 and 1996
- ---------------------------------------------------------
Net sales for the nine months ended January 31, 1997 increased $69.8
million (49.6%) from the nine months ended January 31, 1996. This was
principally caused by a 43% increase in lumber shipments, a 40% increase in chip
deliveries, and a 17% increase in lumber prices, partially offset by a 62%
decrease in chip prices. The increased lumber shipments and chip deliveries
reflect increased production resulting from a strong lumber market in the first
nine months of fiscal 1997.
Gross profit for the nine months ended January 31, 1997 was 10.3% of net
sales, compared to 2.1% of net sales for the nine months ended January 31, 1996.
Lumber prices increased by 17% from the nine months ended January 31, 1996,
while the Company's log costs declined by 7%. The Company increased production
during the first nine months of fiscal 1997 in response to the stronger lumber
prices and demand. Unit manufacturing costs in the nine months ended January 31,
1997 were 3.5% higher than in the nine months ended January 31, 1996. This
increase was in part a result of a general wage increase in September 1996.
Selling, general and administrative expenses in the nine months ended
January 31, 1997 increased by $1.8 million (24%) from the nine months ended
January 31, 1996. This increase primarily reflects higher profit-sharing bonus
payments stemming from higher pretax profits.
In the nine months ended January 31, 1997, the Company recorded a tax
provision equal to 38% of its pretax profit. The Company recorded a tax benefit
equal to 38% of its pretax loss for the nine months ended January 31, 1996. See
Note 6 to Consolidated Financial Statements.
Liquidity and Capital Resources
- -------------------------------
The Company relies on cash provided by its operations to fund its working
capital needs. There can be no assurance that such cash will be sufficient to
fund the Company's future operations. Substantially all of the Company's assets
are pledged as security for its primary debt obligation.
During the nine months ended January 31, 1997, the Company's cash and cash
equivalents increased by $4.7 million, to $9.2 million at January 31. This
increase was principally caused by operating profits and income tax refunds,
partially offset by increases in log and lumber inventories and accounts
receivable, capital spending, principal repayments and dividend payments on the
Company's Series A preferred stock.
13
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
Working capital increased by $6.7 million during the first nine months of
fiscal 1997, to $31.8 million at January 31, 1997. This was principally the
result of profitable operations, partially offset by capital spending, principal
payments on long-term debt and dividend payments.
Capital spending in the first nine months of fiscal 1997 was $2.3 million.
Capital spending for the balance of the fiscal year is currently forecast to be
approximately $4.2 million. The Company had no material commitments for capital
spending at January 31, 1997.
The Company's Credit and Security Agreement dated as of November 30, 1992
contains certain covenants, including the maintenance of prescribed levels of
collateral coverage (as defined), tangible net worth, working capital, adjusted
cumulative operating income (as defined) and total liabilities ratio (as
defined). This debt agreement was most recently amended as of May 1, 1996, with
respect to certain affirmative financial performance covenants and payment
terms. See Note 3 to Consolidated Financial Statements.
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" contains "forward-looking" information (as defined in Section 27A of
the Securities Act of 1933, as amended) that involve risks and uncertainties,
including, but not limited to, the impact of general economic conditions,
increased interest rates, the impact of competitive products and pricing,
availability and cost of raw materials, inadequate cash reserves, labor strikes,
changes in environmental and other regulations, changes in the Company's ability
to use its net operating loss carryforward and the risk factors listed from time
to time in the Company's SEC reports, including, but not limited to, the report
on Form 10-K for the fiscal year ended April 30, 1996 (Part II, Item 7,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations").
14
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 17.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the three months ended
January 31, 1997.
15
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
March 13, 1997
16
WTD INDUSTRIES, INC.
INDEX TO EXHIBITS
Sequential
Number
System
Page
Number
3.1 Fourth Restated Articles of Incorporation of Registrant adopted
effective November 27, 1992(1)
3.2 Second Restated Bylaws of the Registrant adopted effective
November 27, 1992(2)
4.2.4 Amendment dated as of December 17, 1996 to Credit and Security 18
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.
19 Other reports furnished to securities holders with respect to the 22
quarter ended January 31, 1997: President's letter excerpted from
Interim Report to Shareholders for the third quarter of fiscal 1997.
27 Financial Data Schedule(3)
- --------------------------------------------------------------------------------
(1)Incorporated by reference to the exhibit of like number to the
Registrant's report of Form 8-K dated November 23, 1992, previously filed with
the Commission.
(2)Incorporated by reference to the exhibit of like number to the
Registrant's annual report on Form 10-K for the year ended April 30, 1993,
previously filed with the Commission.
(3)This schedule has been submitted in the electronic form prescribed by
EDGAR.
- --------------------------------------------------------------------------------
All other required Exhibits are listed in the Company's Annual Report
on Form 10-K for the year ended April 30, 1996.
17
Exhibit 4.2.4
AMENDMENT
DATED AS OF DECEMBER 17, 1996
TO
CREDIT AND SECURITY AGREEMENT
DATED AS OF NOVEMBER 30, 1992
Reference is hereby made to that certain Credit and Security Agreement
("Credit Agreement") dated as of November 30, 1992 among Principal Mutual Life
Insurance Company, Aetna Life Insurance Company, The Northwestern Mutual Life
Insurance Company, Chemical Bank, Seattle-First National Bank and Bank of
America Oregon, and WTD Industries, Inc. and its Affiliates and the Term Notes
issued by the Borrowers in connection with the Credit Agreement. Capitalized
terms used herein shall have the same meaning ascribed thereto in the Credit
Agreement.
The Term Note originally issued to Aetna Life Insurance Company was
split into two Notes one of which was sold to Foothill Group, Inc.
Pursuant to that certain Offer to Purchase dated November 26, 1996,
Borrowers purchased $577,025.41 original face amount ($501,111.11 current
principal amount) of Foothill's Term Note. Borrowers thereupon issued to
Foothill a substitute Term Note reflecting the new principal amount owed after
the purchase. Pursuant to the terms of the Offer to Purchase, $577,025.41
aggregate original face amount ($501,111.11 aggregate current principal amount)
of Term Notes was cancelled. The purchase and cancellation has the effect of
reducing the proportionate share of future scheduled principal and interest
payments for Foothill and increasing the proportionate shares of each Lender who
did not participate in the Offer to Purchase. Accordingly, certain exhibits to
the Credit Agreement require amendment as follows:
1. Credit Agreement Exhibits 2.04(a) and 2.05(b) are hereby restated in
the form, respectively, of Exhibit 2.04(a) (Restated 12/17/96) and Exhibit
2.05(b) (Restated 12/17/96) attached hereto and incorporated herein.
2. In all other respects, the Credit Agreement shall remain unchanged
and in full force and effect.
18
Exhibit 4.2.4
EFFECTIVE DATE: December 17, 1996.
PRINCIPAL MUTUAL LIFE THE NORTHWESTERN MUTUAL LIFE
INSURANCE COMPANY INSURANCE COMPANY
By: By:
------------------------------ ------------------------------
Its: Its:
------------------------------ ------------------------------
By: FOOTHILL GROUP, INC.
------------------------------
Its:
------------------------------
By:
------------------------------
Its:
------------------------------
OPPENHEIMER & CO., INC. BANK OF AMERICA ILLINOIS
By: By:
------------------------------ ------------------------------
Its: Its:
------------------------------ ------------------------------
FIXED PLUS PARTNERS WTD INDUSTRIES, INC.
By: By:
------------------------------ ------------------------------
Its: Its:
------------------------------ ------------------------------
19
WTD INDUSTRIES, INC. EXHIBIT 2.04(a) (RESTATED 12/17/96)
ALLOCATION OF PRINCIPAL PAYMENTS to Credit and Security Agreement
FOR SECURED PROMISSORY NOTES Dated as of November 30, 1992
(RESTATED AS OF DEC 17, 1996)
100.000000% TOTAL 47.729056% PRINCIPAL 20.450484% NORTHWESTERN
---------------------------- ------------------------- ------------------------
PAYMENT BALANCE PAYMENT BALANCE PAYMENT BALANCE
------------- ------------- ---------- ------------ ----------- ------------
BALANCE AFTER
PRIN PURCH AND
NOTE TRANSFER
DEC 17, 1996 47,275,066.98 22,563,943.24 9,667,979.91
SCHEDULED PAYMENTS
MAR 15, 1997 225,000.00 47,050,066.98 107,390.37 22,456,552.87 46,013.59 9,621,966.32
JUN 15, 1997 225,000.00 46,825,066.98 107,390.37 22,349,162.50 46,013.59 9,575,952.73
SEP 15, 1997 225,000.00 46,600,066.98 107,390.37 22,241,772.13 46,013.59 9,529,939.14
DEC 15, 1997 225,000.00 46,375,066.98 107,390.37 22,134,381.76 46,013.59 9,483,925.55
MAR 15, 1998 400,000.00 45,975,066.98 190,916.22 21,943,465.54 81,801.94 9,402,123.61
JUN 15, 1998 400,000.00 45,575,066.98 190,916.22 21,752,549.32 81,801.94 9,320,321.67
SEP 15, 1998 400,000.00 45,175,066.98 190,916.22 21,561,633.10 81,801.94 9,238,519.73
DEC 15, 1998 400,000.00 44,775,066.98 190,916.22 21,370,716.88 81,801.94 9,156,717.79
MAR 15, 1999 1,000,000.00 43,775,066.98 477,290.56 20,893,426.32 204,504.84 8,952,212.95
JUN 15, 1999 1,000,000.00 42,775,066.98 477,290.56 20,416,135.76 204,504.84 8,747,708.11
SEP 15, 1999 1,000,000.00 41,775,066.98 477,290.56 19,938,845.20 204,504.84 8,543,203.27
DEC 15, 1999 1,000,000.00 40,775,066.98 477,290.56 19,461,554.64 204,504.84 8,338,698.43
MAR 15, 2000 1,000,000.00 39,775,066.98 477,290.56 18,984,264.08 204,504.84 8,134,193.59
JUN 15, 2000 1,000,000.00 38,775,066.98 477,290.56 18,506,973.52 204,504.84 7,929,688.75
SEP 15, 2000 1,000,000.00 37,775,066.98 477,290.56 18,029,682.96 204,504.84 7,725,183.91
DEC 15, 2000 1,000,000.00 36,775,066.98 477,290.56 17,552,392.40 204,504.84 7,520,679.07
MAR 15, 2001 1,000,000.00 35,775,066.98 477,290.56 17,075,101.84 204,504.84 7,316,174.23
JUN 15, 2001 1,000,000.00 34,775,066.98 477,290.56 16,597,811.28 204,504.84 7,111,669.39
SEP 15, 2001 1,000,000.00 33,775,066.98 477,290.56 16,120,520.72 204,504.84 6,907,164.55
DEC 15, 2001 1,000,000.00 32,775,066.98 477,290.56 15,643,230.16 204,504.84 6,702,659.71
MAR 15, 2002 1,000,000.00 31,775,066.98 477,290.56 15,165,939.60 204,504.84 6,498,154.87
JUN 15, 2002 1,000,000.00 30,775,066.98 477,290.56 14,688,649.04 204,504.84 6,293,650.03
SEP 15, 2002 1,000,000.00 29,775,066.98 477,290.56 14,211,358.48 204,504.84 6,089,145.19
DEC 15, 2002 1,000,000.00 28,775,066.98 477,290.56 13,734,067.92 204,504.84 5,884,640.35
MAR 15, 2003 1,000,000.00 27,775,066.98 477,290.56 13,256,777.36 204,504.84 5,680,135.51
JUN 15, 2003 1,000,000.00 26,775,066.98 477,290.56 12,779,486.80 204,504.84 5,475,630.67
SEP 15, 2003 1,000,000.00 25,775,066.98 477,290.56 12,302,196.24 204,504.84 5,271,125.83
DEC 15, 2003 1,000,000.00 24,775,066.98 477,290.56 11,824,905.68 204,504.84 5,066,620.99
MAR 15, 2004 1,000,000.00 23,775,066.98 477,290.56 11,347,615.12 204,504.84 4,862,116.15
JUN 15, 2004 1,000,000.00 22,775,066.98 477,290.56 10,870,324.56 204,504.84 4,657,611.31
SEP 15, 2004 1,000,000.00 21,775,066.98 477,290.56 10,393,034.00 204,504.84 4,453,106.47
DEC 15, 2004 BALANCE DUE BALANCE DUE BALANCE DUE
20a
WTD INDUSTRIES, INC. EXHIBIT 2.04(a) (RESTATED 12/17/96)
ALLOCATION OF PRINCIPAL PAYMENTS - Continued
FOR SECURED PROMISSORY NOTES
(RESTATED AS OF DEC 17, 1996)
6.911127% OPPENHEIMER 16.810776% FOOTHILL 6.104475% BK OF AMER ILL 1.994082% FIXED PLUS PART
------------------------ ------------------------- ------------------------ -------------------------
PAYMENT BALANCE PAYMENT BALANCE PAYMENT BALANCE PAYMENT BALANCE
--------- ------------ ---------- ------------ --------- ------------ --------- -------------
BALANCE AFTER
PRIN PURCH AND
NOTE TRANSFER
DEC 17, 1996 3,267,240.00 7,947,305.90 2,885,894.47 942,703.46
SCHEDULED PAYMENTS
MAR 15, 1997 15,550.04 3,251,689.96 37,824.25 7,909,481.65 13,735.07 2,872,159.40 4,486.68 938,216.78
JUN 15, 1997 15,550.04 3,236,139.92 37,824.25 7,871,657.40 13,735.07 2,858,424.33 4,486.68 933,730.10
SEP 15, 1997 15,550.04 3,220,589.88 37,824.25 7,833,833.15 13,735.07 2,844,689.26 4,486.68 929,243.42
DEC 15, 1997 15,550.04 3,205,039.84 37,824.25 7,796,008.90 13,735.07 2,830,954.19 4,486.68 924,756.74
MAR 15, 1998 27,644.51 3,177,395.33 67,243.10 7,728,765.80 24,417.90 2,806,536.29 7,976.33 916,780.41
JUN 15, 1998 27,644.51 3,149,750.82 67,243.10 7,661,522.70 24,417.90 2,782,118.39 7,976.33 908,804.08
SEP 15, 1998 27,644.51 3,122,106.31 67,243.10 7,594,279.60 24,417.90 2,757,700.49 7,976.33 900,827.75
DEC 15, 1998 27,644.51 3,094,461.80 67,243.10 7,527,036.50 24,417.90 2,733,282.59 7,976.33 892,851.42
MAR 15, 1999 69,111.27 3,025,350.53 168,107.76 7,358,928.74 61,044.75 2,672,237.84 19,940.82 872,910.60
JUN 15, 1999 69,111.27 2,956,239.26 168,107.76 7,190,820.98 61,044.75 2,611,193.09 19,940.82 852,969.78
SEP 15, 1999 69,111.27 2,887,127.99 168,107.76 7,022,713.22 61,044.75 2,550,148.34 19,940.82 833,028.96
DEC 15, 1999 69,111.27 2,818,016.72 168,107.76 6,854,605.46 61,044.75 2,489,103.59 19,940.82 813,088.14
MAR 15, 2000 69,111.27 2,748,905.45 168,107.76 6,686,497.70 61,044.75 2,428,058.84 19,940.82 793,147.32
JUN 15, 2000 69,111.27 2,679,794.18 168,107.76 6,518,389.94 61,044.75 2,367,014.09 19,940.82 773,206.50
SEP 15, 2000 69,111.27 2,610,682.91 168,107.76 6,350,282.18 61,044.75 2,305,969.34 19,940.82 753,265.68
DEC 15, 2000 69,111.27 2,541,571.64 168,107.76 6,182,174.42 61,044.75 2,244,924.59 19,940.82 733,324.86
MAR 15, 2001 69,111.27 2,472,460.37 168,107.76 6,014,066.66 61,044.75 2,183,879.84 19,940.82 713,384.04
JUN 15, 2001 69,111.27 2,403,349.10 168,107.76 5,845,958.90 61,044.75 2,122,835.09 19,940.82 693,443.22
SEP 15, 2001 69,111.27 2,334,237.83 168,107.76 5,677,851.14 61,044.75 2,061,790.34 19,940.82 673,502.40
DEC 15, 2001 69,111.27 2,265,126.56 168,107.76 5,509,743.38 61,044.75 2,000,745.59 19,940.82 653,561.58
MAR 15, 2002 69,111.27 2,196,015.29 168,107.76 5,341,635.62 61,044.75 1,939,700.84 19,940.82 633,620.76
JUN 15, 2002 69,111.27 2,126,904.02 168,107.76 5,173,527.86 61,044.75 1,878,656.09 19,940.82 613,679.94
SEP 15, 2002 69,111.27 2,057,792.75 168,107.76 5,005,420.10 61,044.75 1,817,611.34 19,940.82 593,739.12
DEC 15, 2002 69,111.27 1,988,681.48 168,107.76 4,837,312.34 61,044.75 1,756,566.59 19,940.82 573,798.30
MAR 15, 2003 69,111.27 1,919,570.21 168,107.76 4,669,204.58 61,044.75 1,695,521.84 19,940.82 553,857.48
JUN 15, 2003 69,111.27 1,850,458.94 168,107.76 4,501,096.82 61,044.75 1,634,477.09 19,940.82 533,916.66
SEP 15, 2003 69,111.27 1,781,347.67 168,107.76 4,332,989.06 61,044.75 1,573,432.34 19,940.82 513,975.84
DEC 15, 2003 69,111.27 1,712,236.40 168,107.76 4,164,881.30 61,044.75 1,512,387.59 19,940.82 494,035.02
MAR 15, 2004 69,111.27 1,643,125.13 168,107.76 3,996,773.54 61,044.75 1,451,342.84 19,940.82 474,094.20
JUN 15, 2004 69,111.27 1,574,013.86 168,107.76 3,828,665.78 61,044.75 1,390,298.09 19,940.82 454,153.38
SEP 15, 2004 69,111.27 1,504,902.59 168,107.76 3,660,558.02 61,044.75 1,329,253.34 19,940.82 434,212.56
DEC 15, 2004 BALANCE DUE BALANCE DUE BALANCE DUE BALANCE DUE
20b
EXHIBIT 2.05(b) (RESTATED 12/17/96)
Lenders' Percentages
(Restated as of December 17, 1996)
Principal 47.729056%
Northwestern 20.450484%
Oppenheimer 6.911127%
Foothill1 6.810776%
Bank of America Illinois 6.104475%
Fixed Plus Partners 1.994082%
21
Exhibit 19
Report from the President
Dear WTD Shareholders:
We are pleased to report that for our third quarter of fiscal 1997, WTD
significantly improved its operating results over the third quarter of fiscal
1996. WTD generated net income of $449,000 which, after accounting for dividends
on its Series A preferred stock, is a net loss of $.01 per share for the quarter
ended January 31, 1997. This compares to a net loss of $2,337,000 or $.26 per
share for the same period in 1996. Third quarter net sales were $64.5 million,
up 70 percent from the $37.9 million in the comparable period last year.
For the nine months ended January 31, 1997, WTD earned net income of
$5,544,000 or $.34 per share, compared to a net loss of $4,792,000 or $.59 per
share during the same period last year. Sales were $210.6 million for the nine
months, compared to $140.8 million in the comparable prior year period, an
increase of 50 percent.
The winter weather had some impact on the market and our operations. The
stud lumber market lagged behind the dimension market with prices comparable to
last year, offsetting profits from dimension lumber sales. The chip market
remains very weak which had a negative impact on profitability.
Dimension lumber prices and demand are up substantially over a year ago.
Building activity and interest rate levels remain helpful as we move into our
fourth quarter. Our current cash flow and cash reserves are strong.
Lumber market activity appears somewhat slower than it otherwise might be
in anticipation of the beginning of a new quota year on April 1 under the
U.S.-Canadian lumber agreement and the potential for increased imports of
Canadian produced lumber into the U.S.
We are excited about our recently announced decision to install a
fingerjointing operation at our Midway Forest Products site in Corvallis,
Oregon. The new operation, expected to do business as Midway Engineered Wood
Products, is WTD's entry into the engineered lumber business.
The fingerjointing operation is designed to further improve our dollar
return on raw material by using wood fiber that otherwise would be made into
chips and converting it into lumber. Our goal is to commence operations this
summer employing approximately 40 people, assuming necessary permits are
obtained.
Progress continues on additional lumber drying capacity at two of the
Company's dimension sawmills, Sedro-Woolley Lumber and Pacific Softwoods. The
ability to produce an increased volume of kiln-dried lumber gives access to
additional markets and increased flexibility in log species utilization.
We look forward to the opportunities ahead.
Bruce L. Engel
President
22