UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended January 2, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from ________ to ________
Commission File Number 0-7469
TJ INTERNATIONAL, INC.
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(Exact name of registrant as specified in its charter)
DELAWARE 82-0250992
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(State of incorporation) (IRS employer
identification number)
200 East Mallard Drive, Boise, Idaho 83706
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(Address of principal executive offices) (Zip code)
Registrant's telephone number,
including area code (208) 364-3300
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Securities registered pursuant to Section 12(b)
of the Act: None.
Securities registered pursuant to Section 12(g) of the Act:
Common Stock ($1.00 par value)
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(Title of Class)
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 if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to best of registrant's knowledge, in
definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of the voting stock held by
non-affiliates of the registrant, computed by reference to the
price at which the stock was sold, or the average bid and asked
prices of such stock, as of the close of business on March 30,
1999 was $333,506,000.
The number of outstanding shares of the registrant's common stock
($1.00 par value), as of March 30, 1999 was 18,131,991, excluding
2,626,905 shares held as treasury stock.
Documents incorporated by reference: Listed hereunder the
following documents if incorporated by reference, and the Parts
of this Form 10-K into which the document is incorporated:
The registrant's definitive proxy statement to be dated on or
after April 8, 1999, for use in connection with the annual
meeting of stockholders to be held on May 26, 1999, portions of
which are incorporated by reference into Part III of this Form
10-K.
EXHIBIT INDEX ON PAGE 20
1
PART I
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ITEM 1. BUSINESS
ITEM 1(a). GENERAL DEVELOPMENT OF BUSINESS
RECENT DEVELOPMENTS
1998 FINANCIAL RESULTS AND MARKET DEVELOPMENTS
The fundamentals for our business were quite strong through
all of 1998. North American housing starts for 1998 grew 8% over
1997 levels. Interest rates remained at low levels, consumer
confidence continued at high levels, and the trend away from
lumber to engineered lumber products continued.
Sales for the year reached a record $778 million, an
increase of 10 percent from the sales level reached in 1997. The
growth in 1998 came from unit volume growth, as average prices
were essentially flat from 1997 to 1998. We also achieved market
penetration gains for residential products for the 16th
consecutive year and increased sales per North American housing
start from $344 last year to $355 in 1998. These sales and
market penetration gains were achieved in an environment where
the prices for the primary competing product, solid sawn lumber,
fell dramatically during the year.
Lumber prices fell most dramatically in the East. Southern
Yellow Pine 2 x 10 prices, which early in the year ranged between
$570 to $630 per thousand, fell steadily to the $420 to $430 per
thousand range by the end of the year. A decline of over 25
percent. The steep lumber price decline in the West happened in
1997 with prices declining to the lowest levels in the last 5
years. For most of 1998, 2 x 10 Douglas Fir prices ranged
between $300 to $350 a thousand. We believe our 1998 penetration
growth demonstrates that we continue to convert new builders to
engineered lumber products even when the lumber markets are in
steep declines or are at historic lows.
Our commercial products demonstrated a good, solid growth
year. Sales increased to $85 million from the $76 million
achieved last year. This is also a product line where we were
able to raise our prices and increase our margins in 1998.
Sales for products outside North American experienced two
opposing trends. Like most other exporters to the Pacific Rim,
our sales into that geography declined significantly. However,
strong growth from our European group almost completely offset
the Pacific Rim declines. Our international sales ended 1998 at
$26 million, down from the $30 million in 1997.
Gross margins as a percent of sales declined this year. We
achieved 26.5 margin points in 1998, compared to 27.3 margin
points last year. The most significant factor pressuring our
margins was higher costs for OSB. We use a proprietary OSB as a
purchased raw material component for our TJI-Registered
Trademark- joists. Prices for commodity OSB began to increase in
August of 1998 and by October had increased over 100%. The price
spike cost us $11 to $12 million or 20 cents to 22 cents per
diluted share in the second half of the year. In such a soft
lumber market, we could not raise our prices to cover this cost
increase.
Also in 1998 we experienced significant improvement in our
new technologies. In both our TimberStrand-Registered Trademark-
LSL and Parallam-Registered Trademark- PSL technologies, we were
able to raise our prices, lower our manufacturing costs, increase
our production rates, and move our mix to higher-value products.
We continue to be very pleased with our Deerwood, Minnesota
TimberStrand-Registered Trademark- LSL plant. Each month the
plant increases its throughput and is now running at above pro
forma rates. The East Kentucky TimberStrand-Registered
Trademark-LSL plant is moving toward and, in 1999, should
approach the pro forma rates that we anticipated when we built
that mill. The new TJI-Registered Trademark- joist plant in East
Kentucky which uses TimberStrand-Registered Trademark- LSL as a
flange material is running very close to pro forma rates on one
shift. We
2
anticipate going to an expanded shift schedule there this spring,
which will help the utilization of the capacity at that mill.
Our selling expenses, as a percent of sales were essentially
flat. Last year we spent 10 percent of our sales on selling
expenses, and this year we spent 10.1 percent.
General and administrative expenses for the year were
essentially flat. We spent approximately $36 million in both
years; 5.2 percent of sales last year, 4.7 percent this year.
Earnings per share improved from a $1.44 per diluted share in
1997 to $1.57 per share in 1998, and in the fourth quarter we
improved our earnings per share from 31 cents to 34 cents per
diluted share.
We completed our stock buyback announced in May and
repurchased over $38 million of stock in 1998. Our buyback will
begin to affect our earnings per share more significantly in
1999, reducing outstanding shares by approximately 8 percent.
Our site selection process for the next significant plant in
North America continues. We plan to have an announcement on the
technology and site later this year. In the interim, we're going
to make investments in capacity expansions at our existing
facilities in Vancouver, British Columbia, and Deerwood,
Minnesota. These capacity projects are a very effective use of
capital and also allow us to push out the construction start time
for a new mill a bit longer. We've also begun to evaluate
manufacturing opportunities in Europe, believing that within the
next several years we'll need some capacity in that region to
service these markets.
Looking forward, we expect the strong fundamentals for our
business to continue. Most economic forecasts project housing
starts for 1999 will be about the same, perhaps just a bit weaker
than in 1998. Our current order files are at all-time record
levels, indicating a very high level of confidence with builders
and among our distribution and retail partners. OSB prices are
down significantly from their peak, which improves our cost
structure. We are very encouraged by the success we're seeing
outside of North American markets, particularly in Europe where
we are looking for good, solid growth again in 1999.
COMPANY STRATEGY
Our primary objective remains increasing market penetration
for the engineered lumber products we make and market. We
believe the fundamentals, that have driven our growth over the
past several years remain in place, including the declining
availability of high-quality, large diameter timber, the superior
performance of engineered lumber products, and our continuing
transition to proprietary, lower-cost technologies. In addition,
we continue to enjoy strong brand name recognition, supported by
an extensive North American distribution network. Most
importantly, we believe there continues to be growth in market
acceptance of engineered lumber products as superior alternatives
to traditional solid sawn lumber.
Our strategy, which is composed of two key elements, is
focused on continuing our historic dominance in the engineered
lumber industry.
1. LOW-COST PROPRIETARY TECHNOLOGIES AND DOMINANT PRODUCTION
CAPACITY. We intend to pursue the advantages of our
technological leadership. We believe our technologies in
engineered lumber enable us to use smaller logs and to make more
efficient use of wood fiber than the current sawmill production
of sawn structural lumber. We also intend to capitalize on our
proprietary technologies -- Parallam-Registered Trademark- PSL
and TimberStrand-Registered Trademark- LSL which allow the
Company to manufacture engineered lumber from non-traditional
lumber species such as aspen and poplar. These species are lower
in cost, more abundant and less environmentally sensitive than
traditional fir and pine species.
In 1995, we completed an aggressive program to construct two
large manufacturing facilities. This new capacity included a
TimberStrand-Registered Trademark- LSL plant in Eastern Kentucky
and a combination Microllam-Registered Trademark- LVL and
Parallam-Registered Trademark- PSL plant in Buckhannon,
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West Virginia. During 1996 and 1997 these facilities were in the
start-up phase and were ramping up their production capacity. In
1997 TJI-joist manufacturing capability was added to East
Kentucky. In addition, we are currently in the process of
expanding capacity at the Vancouver, British Columbia Parallam
PSL plant and Deerwood Minnesota TimberStrand LSL plant. Through
the expansion of existing plants and the addition new production
facilities, we believe we will maintain our dominant share of
engineered lumber industry capacity.
We believe our system of proprietary technology plants will
give us a significant cost, wood source, product breadth and
flexibility advantages over competitors who are limited to older
generation technologies. Our continuing investment in our
proprietary technologies is aimed at further strengthening our
market leading position.
We have financed our capital expansion program through
several sources, including a portion of the proceeds from the
sale of TJ International, Inc. common stock in 1993, equity
contributions from our limited partner, the proceeds of tax
exempt bond offerings and internally generated funds. See
"Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources". We
are currently examining potential sites for an additional
combination LVL and PSL plant or a third TimberStrand-Registered
Trademark- LSL plant. Commitment to this new capacity is
contingent upon continued market demand and acceptance of
engineered lumber products.
2. A SYSTEM OF INTEGRATED COMPONENTS AND SERVICES AND VALUE
ADDED MARKETING. We believe the construction industry is
undergoing a transition toward increased use of engineered lumber
as a structural building material, as wide-dimension commodity
lumber generally increases in price and decreases in quality. We
intend to focus our marketing efforts on a system of integrated
components, rather than individual products. We are in the
process of developing the FrameWorks-Registered Trademark-
Building System, which represents a complete system in engineered
lumber to build the entire structural frame of a home. The
FrameWorks-Registered Trademark- Building System will include
roof, wall, stair, foundation and frame systems, enhancing the
overall performance of the home, which we believe will be a
benefit to architects, builders, dealers and home buyers.
We believe we have a competitive advantage over other
engineered lumber producers in that we offer a complete support
and service system for our products. This support and service
system includes, a system performance guarantee for the lifetime
of the home, the largest technical service force in the industry,
engineering assistance and performance recommendations and
computer-generated framing plans and materials specifications
from its TJ-Xpert-Trademark- software, which gives us the ability
to optimize design on a house-by-house basis.
We will continue our emphasis on a broad and aggressive
North American distribution network, focusing on product
availability and services. We believe our partnership with
MacMillan Bloedel Limited and strategic alliances with
Weyerhaeuser Company and other regional distributors and
retailers offer us the strongest distribution network in North
America for engineered lumber products.
Our extensive product lines, highly skilled,
service-oriented sales force, and extensive distribution network
provide an unparalleled opportunity to meet the modern demands of
the building community and the discriminating homeowner.
ITEM 1(b). FINANCIAL INFORMATION ABOUT THE COMPANY'S
INDUSTRY SEGMENTS.
As of January 2, 1999, we adopted SFAS No. 131, Disclosures
about Segments of an Enterprise and Related Information. This
statement requires public companies to disclose financial and
descriptive information about their reportable operating segments
as regularly evaluated by the chief operating decision-makers.
Our chief operating decision-makers consist of senior management
that work together to allocate resources to, and assess the
performance of, our engineered lumber business. We manufacture,
market and distribute various engineered lumber products that are
used for construction. We believe that we manage our business,
assess our
4
performance and allocate resources as a single operating segment
in the engineered lumber business.
ITEM 1(c). NARRATIVE DESCRIPTION OF BUSINESS.
BUSINESS
GENERAL
We are the leading manufacturer and marketer of engineered
lumber products in the world. Engineered lumber products are
high quality substitutes for solid sawn structural lumber
historically obtained from the logging of older, large diameter
trees. We utilize advanced technology to manufacture engineered
lumber at sixteen facilities located in the United States and
Canada.
STRATEGY. We are the leading manufacturer and marketer of
value-added engineered lumber products to the residential and
light commercial construction industry. We believe we are well
positioned to benefit from the increasing scarcity and associated
higher prices of the high quality, large diameter logs
historically utilized to make the sawn structural lumber products
with which our products compete. Our objective is to increase
the product acceptance of engineered lumber products and to
strengthen our market leadership in these products. To increase
product acceptance, our selling efforts highlight product
advantages including consistent quality, superior strength,
relatively light weight and ease of installation targeted at end
users such as architects and contractors. We seek to strengthen
our leading market position through (i) competitive pricing; (ii)
value-added marketing of technical support and services; (iii)
maintenance of industry production capacity dominance through the
construction of new engineered lumber manufacturing facilities,
the expansion of existing plants and the construction of other
facilities as market conditions warrant; (iv) the ongoing
development of proprietary technologies including processes
utilizing relatively low-cost wood fiber from tree species, such
as aspen and yellow poplar, (v) the promotion of a complete
system of structural frame components rather than individual
products; and (vi) reliance on an extensive North American
distribution network, including our partnership with MacMillan
Bloedel Limited and strategic alliances with the Weyerhaeuser
Company and other regional distributors and retailers.
TIMBER SUPPLY. In general, the supply of large diameter
logs suitable for wide dimension lumber has declined over the
past several years in the Pacific Northwest. In addition,
environmental pressures have greatly slowed the harvest of the
remaining timber supply. We believe the combined effect of
reduced supply and more restrictive environmental regulation on
federally owned timberlands will continue to reduce the volume of
high-grade timber available from this source.
Most of our technologies can use wood fiber from trees that
were previously not suitable for the manufacture of structural
lumber, and this allows us to access the current inventory of
wood fiber in North America. This wood fiber differs from that
in the past, primarily in the species and size of the trees
available for harvest. Much of today's potential wood fiber
supply consists of smaller second growth logs or is found in the
interior forests of Appalachia, the upper Midwest and the
Canadian interior forests. These forests include fast-growing,
abundant and competitively priced species of trees such as aspen
and yellow poplar. These trees are not regarded as sufficiently
large, straight, or strong enough to be sawn into structural
lumber. Our new technologies now allow the use of these species
for high-grade structural products. We will continue to use
substantial volumes of Douglas fir in the West and southern
yellow pine wood fiber in the South at our existing LVL plants
from the available supply of mature trees or smaller second
growth logs.
Unlike many of our principal competitors in engineered
lumber, we do not currently own any timberlands or significant
amounts of standing timber. We buy our raw materials on contract
both from small independent suppliers and larger integrated
forest products companies. In addition, a portion of our wood
raw
5
material is purchased on the spot market. The reduced supplies
could result in more volatile wood markets. We have experienced
and believe we may continue to experience volatility in our
quarter-to-quarter results due to raw material price volatility.
However, we believe we will be able to satisfy our needs for
raw materials and we are not currently aware of any potential
shortages for longer-term requirements. We are increasingly
purchasing standing timber tracts, to be processed at our
facilities in place of veneer purchased from other producers. We
believe we have significant competitive advantages over companies
marketing traditional sawn lumber products in an environment of
reduced timber supply because our engineered lumber technologies
are able to utilize non-traditional sources of wood fiber, which
are both more abundant and less expensive.
ENGINEERED LUMBER TECHNOLOGIES
OVERVIEW. We believe the construction industry is
undergoing a transition in its use of structural building
materials as sawn structural lumber decreases in quality.
Engineered lumber is enjoying increased market acceptance and is
displacing sawn structural lumber.
This transition is driven by the changing composition of the
North American timberlands, both in terms of regional log supply
restrictions and the type and size of logs currently available
for use as raw material. The availability of timber from
federally owned forests in the Pacific Northwest has been greatly
restricted, and the size of an average sawlog has decreased to
the point where it is often too small to produce significant
quantities of high grade, wide-dimension structural lumber.
TECHNOLOGY. We are the industry leader in developing and
commercializing proprietary technologies that enable the
manufacture of engineered lumber products from wood that has been
regarded as not sufficiently large, strong, straight, or free of
defects to be sawn into structural lumber.
The following table outlines the principal features of the
Company's technologies:
RAW MAXIMUM PRODUCTION
TECHNOLOGY MATERIAL SIZE FACILITIES
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Microllam-Registered Rectangular 80 feet long by Buckhannon,
Trademark- LVL high-grade 4 feet wide by West Virginia
veneer 3-1/2 inches Eugene, Oregon
thick Junction City,
Oregon
Natchitoches,
Louisiana
Valdosta, Georgia
Evergreen, Alabama
Parallam-Registered Irregular 66 feet long by Buckhannon,
Trademark- PSL veneer from 20 inches wide West Virginia
first and by 11 inches Colbert, Georgia
last peels of thick Vancouver, British
the log Columbia
TimberStrand- Strands of 48 feet long by Deerwood,
Registered Trademark- pulpwood up to 8 feet wide by Minnesota
LSL 13 inches long 5-1/2 inches Hazard, Kentucky
thick
Our three engineered lumber technologies are: laminated
veneer lumber, or LVL, the oldest and most commercialized of the
technologies; parallel strand lumber, or PSL, first introduced in
the mid-1980's in Canada; and laminated strand lumber, or LSL, a
new technology introduced in the fall of 1991. Both PSL and LSL
are our proprietary technologies, while equipment to produce LVL
is now available from several machinery manufacturers and is
utilized by an increasing number of forest products
manufacturers. We believe our LVL manufacturing process,
however, enjoys
6
several advantages which make this process cost-competitive
compared to the commercially available alternatives.
Although we have been issued and have applied for a number
of patents on our current processes, we believe our technological
competitiveness also comes from our continued innovation and
technical expertise in this industry. We will, however, continue
to assert our legal rights wherever appropriate.
LAMINATED VENEER LUMBER (LVL): LVL uses thin sheets of
veneer peeled from a log. Each sheet is carefully dried and
individually graded using ultrasonic measurements to determine
its strength characteristics. Sheets are then placed in specific
sequence and location within the product to maximize the stronger
veneer grades and randomize wood defects, such as knots. This
engineered configuration of veneers is then laminated with
adhesives under heat and pressure to form a piece of wood in
widths of 24 inches or 48 inches, thicknesses from 3/4 inches to
3-1/2 inches, and up to 80 feet in length.
PARALLEL STRAND LUMBER (PSL): This technology, which is
proprietary, starts with sheets of thin veneer peeled from a log.
These are then clipped into strands, which are up to eight feet
long and 5/8 inches wide. The ability to use this very narrow
strand allows a significantly higher percentage of the log to be
manufactured into a value-added product. The strand is then
coated with adhesive. The next step in the process employs a
pressing system in which microwaves are used to cure the
adhesives and form a large block, or billet, of engineered lumber
measuring up to 11 inches by 20 inches and 66 feet long. The
Company's PSL process is protected in the U.S. and in 15 other
countries. These patents provide protection through 2008.
We believe that the combination of the PSL and LVL
technologies in a single manufacturing facility, such as our
Buckhannon, West Virginia plant, will allow us to be among the
most efficient converters of wood fiber to a high value product.
LAMINATED STRAND LUMBER (LSL): Our other proprietary
engineered lumber technology, LSL, begins with small-diameter,
8-foot-long logs such as aspen and yellow poplar. These are
species traditionally used in lower value applications such as
pulp logs, and are therefore substantially less expensive than
traditional sources of sawn lumber. These logs are flaked into
strands 12 inches long, which are then treated with an adhesive.
The strands are put into a steam-injection press that
significantly densifies the wood and creates boards up to 48 feet
long, up to 5-1/2 inches thick, and 8 feet wide. The
TimberStrand LSL process is protected in the U.S. and in 24 other
countries. These patents provide protection through 2010.
We produce the broadest line of structural engineered lumber
building products in the industry, possess certain exclusive
product technologies, and believe we enjoys a reputation for
superior quality and service. Our largest product line is for the
new construction residential housing market, which includes
single-family detached homes, apartments, condominiums,
townhouses, and manufactured housing. Industrial uses constitute
our second product line and include core components for the
millwork and furniture industry, scaffold plank, and concrete
forming and shoring products. The third product line is
light-commercial construction, which includes structures such as
warehouses, schools, gymnasiums, shopping centers, and low-rise
office buildings. The table on the following page lists our
products, the technology utilized, product size, and end use of
such products.
TJ INTERNATIONAL ENGINEERED LUMBER PRODUCTS
RESIDENTIAL ENGINEERED LUMBER
PRODUCTS TECHNOLOGY SIZE END USE
- ------------------------------------------------------------------------------
TJI-Registered Microllam-Registered 9-1/2" to Residential
Trademark- Trademark- LVL 16" deep construction
I-joists or Timberstrand- Width from floor and roof
Registered Trademark- 1-1/2" to joists.
LSL on the top and 3-1/2" Substitutes for
bottom with enhanced Up to 80' traditional 2x10
composite panel webs long and 2x12 sawn
in the middle lumber systems.
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Rim joists TimberStrand-Registered 1-1/4" thick Residential
Trademark- LSL 9-1/2" to 16" construction
deep frames in
17' to 48' perimeter of
long floor.
Substitutes for
laterally ripped
plywood and/or
2x10 and 2x12 sawn
lumber.
Headers, beams, Microllam-Registered 1-3/4" to Residential
and columns Trademark- LVL 7-1/4" thick construction.
Parallam-Registered 9-1/2" to 18" Ranges from main
Trademark- PSL deep carrying beam in
TimberStrand-Registered Up to 80' long home to support
Trademark- LSL structures above a
window or door
(header).
Substitutes for
traditional 2x10
and 2x12 sawn
lumber, glulam and
steel beams.
COMMERCIAL PRODUCTS
- -------------------
Open-web truss Microllam-Registered 14" to 114" Roof support
Trademark- or strength- deep structure in
rated lumber on the Spans lengths light commercial
top and bottom with up to 120' buildings.
tubular steel webs long
in the middle
TJI-Registered Microllam-Registered 2.3" to 4.65" Roof structure
Trademark- roof Trademark- LVL thick for smaller
truss series 4-1/2" to commercial
37.1" deep buildings.
Up to 80' long
INDUSTRIAL PRODUCTS
- -------------------
Window and door TimberStrand-Registered Various Substitutes for
core material Trademark- LSL finger jointed
Ponderosa pine
lumber in the
manufacture of
wood windows and
doors.
Concrete forming Microllam-Registered 1-1/2" to Support members in
and shoring Trademark- LVL 5-1/4" thick the structure into
support members Parallam-Registered 6-1/2" to 20" which wet concrete
Trademark- PSL deep is poured in both
Up to 80' long residential and
commercial
buildings.
Substitutes for
2x10, 2x12, 4x4
and larger sawn
lumber and for
aluminum form
support systems.
Scaffold plank Microllam-Registered 1-1/2" to Decking material
Trademark- LVL 2-1/2" thick in scaffold
9" to 11-3/4" frames.
wide Substitutes for
Up to 80' long high strength
rated 2x6 and 2x8
sawn lumber.
We continue to explore the development of new and
improved-engineered lumber products, which have superior
performance and quality characteristics relative to traditional
sawn lumber. We currently have a focused effort to develop
further TimberStrand-Registered Trademark- LSL products including
its use as a roof framing material and developing coating
applications that produce a high quality paintable surface.
We own a number of registered and non-registered trademarks
for its promotional literature and engineered lumber products.
We believe our engineered lumber trademarks, and in particular,
our Silent Floor-Registered Trademark- brand of residential
structural products, have achieved significant name recognition
in the engineered lumber industry.
SALES, MARKETING, AND DISTRIBUTION. Our engineered lumber
products are sold through our network of wholesale lumber
distributors, including MacMillan Bloedel Building Materials
Distribution Centers, the Weyerhaeuser Building Materials
Customer Service Centers, and a number of other distributors. In
addition, we sell directly to stocking retail lumber dealers in
the United States and Canada. This
8
distribution network broadens our market to include an extensive
range of smaller lumber dealers and outlets. We believe this
distribution network gives us the broadest and deepest reach into
the market of any engineered lumber producer.
Since July 1993, we have operated under an arrangement with
the Weyerhaeuser Building Material Distribution Division,
pursuant to which the Weyerhaeuser customer service centers in
the United States and Canada distribute our engineered lumber
products exclusively. In addition, Weyerhaeuser has assumed an
expanded role as a supplier of veneer and oriented strand board
to certain of our manufacturing facilities. We believe this
arrangement has enhanced the visibility and sales of our
products.
We employ the engineered lumber industry's largest sales
force consisting of approximately 203 technical sales
representatives who market our products directly to architects,
project engineers, contractors, developers, independent lumber
dealers, national wholesale building material suppliers, and
industrial users. This enables us to better educate and assist
customers in the use of engineered lumber and simultaneously
helps create demand, further enabling us to differentiate our
products from those of our competitors.
Our products are supported by numerous advanced
computer-assisted software packages. For residential
construction, our proprietary TJ-Xpert-Trademark- software, which
is receiving increasing acceptance by builders, translates a
builder's blueprints into a complete framing plan for a
structural system using engineered lumber products.
We also have sales offices and representatives in Japan,
France, the United Kingdom, Germany, Belgium, and the Middle
East. We believe the markets outside of North America present
future growth opportunities for our products.
COMPETITION. Sawn lumber products produced in traditional
sawmills remain the primary competition for our engineered lumber
products.
Our competition for look-a-like engineered lumber products
include large competitors producing LVL and I-joists in several
plants across North America, and others that are manufacturing
wood I-joists only. Competition is expected to continue to
increase as a number of our competitors, including
Louisiana-Pacific Corporation, Boise Cascade Corporation, and
Georgia Pacific Corporation have undertaken capacity expansion
plans in their LVL and I-joist facilities. In particular,
competition may emerge or increase from established wood products
companies that now sell primarily traditional wood products. A
number of existing competitors such as Louisiana-Pacific
Corporation, Boise Cascade Corporation, Willamette Industries,
Inc., and Georgia-Pacific Corporation, own a significant portion
of their own raw materials and generally have greater financial
resources.
We believe the principal competitive factors in the market
for engineered lumber are product quality, customer support,
distribution capabilities, and price. We believe our broader
product line, based in part on our proprietary technologies PSL
and LSL lumber, provide an important competitive advantage over
our competition. In addition, we believe we enjoy a leadership
position in terms of brand name recognition, value-added services
to builders, an aggressive and broad distribution network and a
wide selection of products which have received building code
approval in substantially all markets.
Other building materials, including steel, plastic, brick,
and cement, are alternative basic materials for construction.
However, these materials may not readily lend themselves to
traditional residential framing methods or tools and have certain
inherent manufacturing and performance deficiencies.
BACKLOG
Our order backlog at January 2, 1999 was approximately $75
million compared to approximately $41 million at January 3, 1998.
Some portion of the current order
9
backlog will probably not be filled due to extended deliveries or
cancellations. In addition, lead times of orders can vary
significantly from quarter to quarter and year to year.
Accordingly, the backlog on a particular date may not be
representative of the level of future sales.
EMPLOYEES
As of January 2, 1999, the Company employed a total of
approximately 3,735 employees in its engineered lumber
operations.
ENVIRONMENTAL MATTERS
We are subject to various federal, state, provincial, and
local environmental laws and regulations, particularly relating
to air and water quality and the storage, handling, and disposal
of various materials and substances used in the Company's plants
and processes. Permits are required for certain of our
operations, and these permits are subject to revocation,
modification, and renewal by issuing authorities. Governmental
authorities have the power to enforce compliance with their
regulations, and violations may result in the payment of fines or
the entry of injunctions, or both.
We believe we are in material compliance with existing
environmental laws and regulations, and that our expenditures in
future years for environmental compliance will not have a
material adverse effect on our operations.
FORWARD LOOKING STATEMENTS
Forward-looking statements include, without limitation,
statements regarding expectations for raw material costs, sales
growth in international markets, and expectations of future
increases in product acceptance and penetration. Investors are
cautioned that forward-looking statements are subject to an
inherent risk that actual results may vary materially from those
described, projected, or implied herein. Factors that may result
in such variance include changes in interest rates, commodity
prices, and other economic conditions; actions by competitors;
changing weather conditions and other natural phenomena; actions
by government authorities; technological developments; future
decisions by management in response to changing conditions; and
misjudgments in the course of preparing forward-looking
statements.
ITEM 1(d) FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC
OPERATIONS AND EXPORT SALES.
We operate manufacturing facilities in two countries, the
United States and Canada; and the majority of all sales are made
domestically in those countries. Financial information relating
to foreign and domestic operations is presented in Note 9 to the
consolidated financial statements, page 37 of this Report.
10
ITEM 2. PROPERTIES
Set forth below are the locations of our manufacturing
facilities and the technology and/or products produced at such
facilities.
Engineered Lumber
Technology
-----------------
STRUCTURAL PRODUCTS OPEN WEB
MANUFACTURING LVL PSL LSL I-JOISTS TRUSSES
- ------------------- --- --- --- -------- ---------
Buckhannon, West Virginia X X
Chino, California X
Claresholm, Alberta X X
Colbert, Georgia X
Deerwood, Minnesota X
Delaware, Ohio X
Eugene, Oregon X X
Evergreen, Alabama X X
Hazard, Kentucky X X
Hillsboro, Oregon X
Junction City, Oregon X
Natchitoches, Louisiana X X
Stayton, Oregon X X
Valdosta, Georgia X X
Vancouver, British Columbia X
Elma, Washington * *
<FN>
* Produces veneer for Microllam LVL and Parallam PSL
</FN>
Our headquarters staff is located in Boise, Idaho.
The properties at Stayton, Oregon and Natchitoches,
Louisiana are subject to mortgages aggregating $16.4 million.
Because the costs of these latter properties are financed
partially or wholly by Industrial Development Revenue Bonds,
record title to a significant portion of the land, buildings, and
equipment is being held by the bond-issuing authorities until the
bonds are retired.
All properties in use or held for future use are considered
suitable for our present and future needs.
ITEM 3. LEGAL PROCEEDINGS.
No material legal proceedings or claims are pending or known
other than several claims and suits for damages arising in the
ordinary conduct of business, resulting primarily from
construction accidents and often involving contractors and others
as joint defendants.
Based on current facts and knowledge, all material
liabilities under any of the pending claims and suits would be
covered under liability insurance policies or are otherwise
provided for in the financial statements.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS.
None.
11
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS.
The approximate number of record holders of the Company's
$1.00 par value common stock at March 18, 1999, is set forth
below:
(1) (2)
Title of Class Number of Record Holders
-------------- ------------------------
Common Stock, $1 par value 1,794
There are approximately 1,794 beneficial shareholders. The
remainder of this Item 5 is contained in the following sections
of the Report at the pages indicated below:
"Market and Dividend Information", on page 39 of this
Report, to the extent that said section discusses the principal
market or markets on which the common stock is being traded; the
range of high and low quoted sales prices (closing) for each
quarterly period during the past two years; the source of such
quotations; and the frequency and amount of any dividends paid
during the past two years with respect to such common stock.
"Note 2 to the consolidated financial statements", page 30
of this Report, to the extent that said Note describes any
restriction on the Company's present or future ability to pay
such dividends.
ITEMS 6, 7, AND 8.
- ------------------
The information called by Items 6, 7 and 8, inclusive of Part II
of this form, is contained in the following sections of this
Report at the pages indicated below:
Captions and Pages of this Report
-----------------------------------
ITEM 6 SELECTED FINANCIAL DATA "Selected Financial Data" ......22
ITEM 7 MANAGEMENT'S DISCUSSION "Management's Discussion
AND ANALYSIS OF FINANCIAL and Analysis" ..................40
CONDITIONS AND RESULTS OF
OPERATIONS
ITEM 8 FINANCIAL STATEMENTS AND "Consolidated Financial
SUPPLEMENTARY DATA Statements".....................24
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
12
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE
REGISTRANT.
Following is a schedule of names and certain information
regarding all of the executive officers, as of January 2, 1999,
each of whose term of office is one year.
Name and Age Office
- ------------- -------
Harold E. Thomas, age 72 Chairman of the Board
Thomas H. Denig, age 52 President and Chief Executive
Officer
Robert J. Dingman, age 57 Senior Vice President, Custom Group
Randy W. Goruk, age 46 Senior Vice President, North
American Residential Group
Patrick D. Smith, age 52 Senior Vice President, Manufacturing
Group
Valerie A. Heusinkveld, age 40 Vice President, Finance and
Chief Financial Officer
Richard B. Drury, age 49 Secretary and Treasurer
Jody B. Olson, age 51 Vice President, Corporate
Development
Floyd J. Juday, age 55 Vice President, Marketing Services
James H. Ware, age 55 Vice President, Technology and
Engineering
Harold E. Thomas holds a Bachelor of Science Degree in
Forestry from the University of Idaho, and worked in sales for
lumber mills prior to 1960, when Mr. Thomas and Arthur L.
Troutner founded the Company. Mr. Thomas was first elected to
the Board of Directors in 1960 and was President of the Company
from 1960 to 1971. Mr. Thomas has been Chairman since 1960 and
served as Chief Executive Officer from 1971 to 1975 and from 1979
to 1986.
Thomas H. Denig was elected President and Chief Executive
Officer of TJ International, Inc. in 1995. Mr. Denig was elected
Senior Vice President, Structural Operations in 1990. Mr. Denig
was also elected President and Chief Executive Officer of Trus
Joist MacMillan in 1991, after having served as President of Trus
Joist Corporation since 1990. Mr. Denig joined the Company in
1974 as a salesperson and has subsequently served as California
South Sales Manager, Microllam-Registered Trademark- Lumber
Industrial Sales Manager, National Sales Manager, Western
Division Manager, Eastern Division Manager and had been elected
Vice President, Eastern Operations in 1985. Mr. Denig is a
graduate of Valparaiso University and served as a lieutenant in
the U.S. Marine Corp. before joining the Company.
Robert J. Dingman was appointed Sr. Vice President, Custom
Operations Group for Trus Joist MacMillan, in 1995. Mr. Dingman
joined the Company in 1983 as the Southwest Division Manager and
has subsequently served as Division Manager, Microllam-Registered
Trademark- Lumber Operations and Sr. Vice President, Western
Operations. Before joining the Company, Mr. Dingman, a graduate
of St. Lawrence University, was Vice President and General
Manager of the Architectural Building Products Division of
Koppers Company, Inc.
13
Randy W. Goruk was appointed Sr. Vice President, North
American Residential Operations Group for Trus Joist MacMillan,
in 1995. Mr. Goruk joined the Company in 1974 as a draftsperson
and has subsequently served as a salesperson, British Columbia
Regional Sales Manager, Canadian Division Sales Manager and
Canadian Division Manager, Vice President, Canadian Operations,
Vice President, Eastern Operations, and Sr. Vice President,
Canadian and Industrial Operations. Mr. Goruk is a graduate of
the Northern Alberta Institute of Technology and the University
of British Columbia.
Patrick D. Smith was appointed Senior Vice President,
Manufacturing Operations Group for Trus Joist MacMillan in 1994.
Mr. Smith joined the Company in 1984 as the Plant Manager at the
Natchitoches, Louisiana, plant and has subsequently served as
Plant Manager at the Colbert, Georgia, Plant, General Manager of
the Atlantic Coastal Division, and Vice President of
Construction. Before joining the Company, Mr. Smith, a graduate
at Edinboro University, began a 15-year career with the Koppers
Company in their Forest Products Division. He managed three
different manufacturing plants and worked in the industrial
relations department.
Valerie A. Heusinkveld was elected Vice President of Finance
and Chief Financial Officer of TJ International, Inc., in 1992.
Ms. Heusinkveld is an honors graduate of the University of Idaho
and a Certified Public Accountant. Before being named CFO, Ms.
Heusinkveld served as Vice President of Finance and Treasurer for
Trus Joist MacMillan. Ms. Heusinkveld has also served as
controller of Norco Windows Western Operations group and as a
corporate accountant and assistant to the Vice President of
Finance. Ms. Heusinkveld joined TJ International in 1989 after
working for Arthur Andersen & Co.
Richard B. Drury was elected Secretary in 1985 and was
elected to the additional position of Treasurer in 1991. Mr.
Drury is a graduate of Boise State University and a Certified
Public Accountant. Prior to joining the Company in 1979, Mr.
Drury gained audit and tax experience with Arthur Andersen & Co.
Jody B. Olson was elected Vice President, Corporate
Development in 1987. In 1991, Mr. Olson was also elected
Secretary of the Board of Trus Joist MacMillan. Previous
positions held by Mr. Olson were Microllam-Registered Trademark-
Lumber Division Controller; Microllam-Registered Trademark-
Lumber Industrial Salesperson and Sales Manager; General Manager
of the Company's former trucking subsidiary; Manager, Energy
Systems; Assistant to the President, Mergers and Acquisitions;
and Manager, Corporate Development. Mr. Olson, who joined the
Company in 1979, is a graduate of the University of Idaho and the
Lewis and Clark Law School.
Floyd J. Juday was appointed Vice President, Markets for
Trus Joist MacMillan in February of 1996, upon joining the
Company. Mr. Juday received his undergraduate degree from
Western Michigan University, and graduate degree from Indiana
University. Before joining the company, Mr. Juday spent 25 years
in the forest products industry with Georgia Pacific and
MacMillan Bloedel in various management positions.
James H. Ware was appointed Vice President, Engineering and
Technology in October of 1995. Dr. Ware joined the company as
Vice President, Research and Development, in February of 1995,
after 17 years at Scott Paper Company where his most recent
positions were Worldwide Business Applications Leader and
Technology Manager for Worldwide Operations. Prior to his career
with Scott, Dr. Ware was a Research Scientist at Union Camp
Corporation's Princeton Research Center and a faculty member in
the School of Engineering at North Carolina State University.
Dr. Ware holds BS, MS and Ph.D. degrees in Engineering Mechanics
from North Carolina State University.
The balance of this Item 10 is included in the definitive
proxy statement, under the caption "Election of Directors"; and
is incorporated herein by reference.
14
ITEM 11. EXECUTIVE COMPENSATION.
Item 11 is included in the definitive proxy statement, under
the caption "Compensation of Executive Officers", including the
sub-caption "Executive Compensation Tables", and is incorporated
herein by reference. The subcaptions "Executive Compensation
Committee Report on Executive Compensation", and "Performance
Graphs", under the caption "Compensation of Executive Officers"
in the Company's definitive proxy statement are not incorporated
herein.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT.
Item 12 is included in the definitive proxy statement under
the caption "Stock Ownership"; and is incorporated herein by
reference.
For purposes of calculating the aggregate market value of
the voting stock held by non-affiliates as set forth on the cover
page of this Form 10-K, we have assumed that affiliates are those
persons identified in the portion of the definitive proxy
statement identified above.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Item 13 is included in Note 8 to the consolidated financial
statements, pages 36 of this Report.
-Registered Trademark- - Microllam, Parallam, TimberStrand,
TJI, The Silent Floor, FrameWorks are registered trademarks
of the Company.
-Trademark- - TJ-Xpert is a trademark of the Company
15
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND
REPORTS ON FORM 8-K.
(a) Financial Statements
A list of the financial statements included herein
is set forth in the Index to Financial Statements, Schedules and
Exhibits submitted as a separate section of this Report.
(b) Reports on Form 8-K.
There have been no Form 8-K filings during the
fourth quarter of 1998.
(c) Exhibits. The following documents are filed as
Exhibits to this Form 10-K:
(3) Limited Partnership Agreement between TJ
International, Inc. and MacMillan Bloedel of America, Inc.
whereby the Partnership was formed. This document was filed as
an exhibit to the Company's Form 8-K dated September 30, 1991 and
is incorporated herein by reference.
Bylaws of Trus Joist Corporation (a Delaware
corporation). This document was filed as an exhibit to the
Company's Form 10-K for the fiscal year ended December 28, 1991
and is incorporated herein by reference.
Amendment to Limited Partnership Agreement
effective the beginning of the Company's fiscal year 1993. This
document was filed as an exhibit to the Company's Form 10-Q for
the quarter ended September 26, 1992 and is incorporated herein
by reference.
Certificate of Ownership and Merger of TJ Merger
Corporation with and into Trus Joist Corporation, whereby the
Company changed its name from Trus Joist Corporation to TJ
International, Inc. effective September 16, 1988. This document
was filed as an exhibit to the Company's Form 10-K for the fiscal
year ended January 2, 1993 and is incorporated herein by
reference.
Amended Certificate of Incorporation of TJ
International Inc. This document was filed as an exhibit to the
Company's Form 10-Q for the quarter ended July 2, 1994 and is
incorporated herein by reference.
(4) Second Amendment to Credit Agreement, dated as
of November 15, 1996. This document is filed as an exhibit to
this Form 10-K for the fiscal year ended December 28, 1996.
Amended and Restated Credit Agreement, dated as of
May 31, 1995. This document was filed as an exhibit to the
Company's Form 10-Q for the quarter ended July 1, 1995 and is
incorporate herein by reference.
1992 Stock Option Plan. This document was filed
as an exhibit to the Company's Form 10-K for the fiscal year
ended January 2, 1993 and is incorporated herein by reference.
1993 Stock Option Plan. This document was filed
as an exhibit to the Company's Form 10-Q for the quarter ended
July 3, 1993 and is incorporated herein by reference.
16
Amended and Restated Restricted Stock Plan for
Non-Employee Directors. This document was filed as an exhibit to
the Company's Form 10-Q for the quarter ended July 3, 1993 and is
incorporated herein by reference.
Rights Agreement, dated as of August 24, 1989,
between TJ International, Inc. and West One Bank. These
documents were filed as an exhibit to the Company's Form 10-K for
the fiscal year ended December 31, 1994.
1982 Incentive Stock Option Plan, as amended.
These documents were filed as an exhibit to the Company's Form
10-K for the fiscal year ended December 31, 1994.
1985 Incentive Stock Option Plan, as amended.
These documents were filed as an exhibit to the Company's Form
10-K for the fiscal year ended December 31, 1994.
1988 Stock Option Plan, as amended. These
documents were filed as an exhibit to the Company's Form 10-K for
the fiscal year ended December 31, 1994.
1997 Non-Employee Director filed as an exhibit to
the Company's form 10-Q for the quarter end June 28, 1997 and is
incorporated herein by reference.
1996 Stock Option Plan. This document was filed
as an exhibit to the Company's form 10-Q for the quarter ended
June 28, 1997 and is incorporated herein by reference.
(10) Certificate of Designation, Preferences and
Rights of ESOP Convertible Preferred Stock; Stock Purchase
Agreement; and ESOP Term Note. These documents were filed as an
exhibit to the Company's Form 10-Q for the quarter ended
September 29, 1990 and are incorporated herein by reference.
Mortgage, Security Interest and Indenture of
Trust; Lease Agreement; Guaranty Agreement; Reimbursement
Agreement; Remarketing and Interest Services Agreement;
pertaining to Stayton, Oregon, plant. These documents were filed
as Exhibits to the Company's Form 10-K for the fiscal year ended
December 28, 1991 and are incorporated herein by reference.
Trust Indenture; Refunding Agreement; Remarketing
Agreement; Reimbursement Agreement; Pledge and Security
Agreement; pertaining to the Natchitoches, Louisiana, plant.
These documents were filed as Exhibits to the Company's Form 10-K
for the fiscal year ended January 2, 1993 and are incorporated by
reference.
Amendment to Reimbursement Agreement; Pledge and
Security Agreement; pertaining to the Natchitoches, Louisiana
plant. These documents were filed as exhibit to the Company's
Form 10-K for the fiscal year ended January 1, 1994 and are
incorporated herein by reference.
Stock Purchase and Resale Agreement. These
documents were filed as an exhibit to the Company's Form 10-K for
the fiscal year ended January 1, 1994 and are incorporated herein
by reference.
Loan Agreement, Trust Indenture and Guaranty
pertaining to Hazard, Kentucky, plant. These documents were
filed as an exhibit to
17
the Company's Form 10-Q for the quarter ended July 2, 1994 and
are incorporated herein by reference.
Loan Agreement, Trust Indenture and Guaranty
pertaining to the Solid Waste Disposal Revenue bonds, Series 1995
is available to the Commission upon request.
Loan Agreement, Loan Agreement, Note, and
Guarantee Agreement dated September 30, 1997 pertaining to the
$42,600,000 taxable notes. These documents were filed as an
exhibit to the Company's Form 10-Q for the quarter ended
September 28, 1997 and are incorporated herein by reference.
First Supplemental Trust Indenture, First
Supplemental Refunding Agreement, and Reimbursement and Security
Agreement, all dated November 1, 1998, pertaining to the
Natchitoches, Louisiana, plant.
(11) Statement regarding computation of per share
earnings. The information required by Exhibit (11) is included
under the caption "Net Income Per Share" in Note 1 to the
consolidated financial statements, page 30 of this Report.
(22) Subsidiaries of the registrant.
(24) Consent of independent public accountants to
the incorporation of their report dated February 2, 1999,
included in this Form 10-K for the year ended January 2, 1999,
into TJ International, Inc.'s previously filed Form S-8
Registration Statements as follows: (registration numbers in
parentheses). Trus Joist Corporation Employee Stock Ownership
Plan (2-96065), Trus Joist Corporation Associates' Stock Purchase
Plan (2-96821), Trus Joist Corporation Key Employees' 1982
Incentive Stock Option Plan with Nonstatutory feature (2-96964),
Trus Joist Corporation Employee Stock Ownership Plan (33-4704),
Trus Joist Corporation Profit Sharing Plan (33-21870), Trus Joist
Corporation Key Employees' 1985 Incentive Stock Option Plan with
Nonstatutory Feature, as amended (33-22186), TJ International,
Inc. Key Employees 1998 and 1992 Stock Option Plans (33-54582),
TJ International, Inc. Key Employees' 1993 Stock Option Plan
(333-04713), Associates' Stock Purchase Plan (333-18425),
Leveraged Stock Purchase Plan (333-18427), Key Employees' 1996
Stock Option Plan (333-32659), and Non-Employee Directors 1997
Stock Plan (333-32665).
(25) Powers of Attorney.
(27) Financial Data Schedule.
(d) Financial Statement Schedules
A list of financial schedules included herein is
contained in the Accompanying Index to Financial Statements,
Schedules, and Exhibits submitted as a separate section of this
report.
All other Exhibits are omitted since they are not
applicable or not required.
18
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
TJ INTERNATIONAL, INC., Registrant
By /s/ Thomas H. Denig
----------------------------------------
Thomas H. Denig - President, Chief Executive Officer,
Director and Attorney-in-Fact for Directors listed
below.
By /s/ Valerie A. Heusinkveld
----------------------------------------
Valerie A. Heusinkveld - Vice President, Finance
And Chief Financial Officer
Each of the above signatures is affixed as of March 31,
1999. Those Directors of TJ International, Inc. listed below
executed powers of attorney appointing Thomas H. Denig their
attorney-in-fact, empowering him to sign this report on their
behalf.
J. L. Scott
Jerre L. Stead
Harold E. Thomas
Steven C. Wheelwright
William J. White
Joyce A. Godwin
Richard L. King
19
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
EXHIBITS TO FORM 10-K
Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the fiscal year Commission File
ended January 2, 1999 Number 0-7469
TJ INTERNATIONAL, INC.
INDEX TO FINANCIAL STATEMENTS, SCHEDULES AND EXHIBITS
The following documents are filed as part of this Report:
Pages in
this Report
-----------
(1) Financial Statements:
---------------------
Selected Financial Data...................................22
Quarterly Financial Data (Unaudited)......................23
Consolidated Balance Sheets at January 2, 1999,
January 3, 1998 and December 28, 1996...................24
Consolidated Statements of Income for the three
years ended January 2, 1999.............................25
Consolidated Statements of Stockholders' Equity for the
three years ended January 2, 1999.......................26
Consolidated Statements of Cash Flow for the three years
ended January 2, 1999...................................27
Notes to Consolidated Financial Statements................28
Report of Independent Public Accountants..................38
Market and Dividend Information...........................39
Management's Discussion and Analysis......................40
(2) Financial Statement Schedules
Report of Independent Public Accountants .................45
I. Condensed Financial Information of Registrant
for the years ended January 2, 1999,
January 3, 1998, and December 28, 1996..............46
The following documents are filed as part of this Report:
Pages in
this Report
-----------
(3) Exhibits
(10) First Supplemental Trust Indenture, First
Supplemental Refunding Agreement, and
Reimbursement and Security Agreement, all
dated November 1, 1998, pertaining to the
Natchitoches, Louisiana plant. This
20
document is filed as an Exhibit to this
form 10-K for the fiscal year
ended January 2, 1999...................Document 2
(21) Subsidiaries of the Registrant..........Document 3
(24) Consent of Independent Public
Accountants.............................Document 4
(25) Powers of Attorney......................Document 5
(27) Financial Data Schedule for the year ended
January 2, 1999 ........................Document 6
All other schedules are omitted because they are not applicable
or the required information is shown in the Consolidated
Financial Statements or Notes thereto.
21
SELECTED FINANCIAL DATA
AMOUNTS IN THOUSANDS EXCEPT PER SHARE FIGURES AND PERCENTAGES
The following table summarizes selected financial data for the five fiscal
years ended January 2, 1999, and should be read in conjunction with the more
detailed Consolidated Financial Statements included herein.
1998 1997 1996
- ------------------------------------------------------------------------------
Sales $778,063 $706,316 $577,166
Income from continuing operations 28,842 27,525 16,175
Net income (loss) 28,842 27,525 16,175
Net income from continuing operations
per share
Basic 1.69 1.55 0.88
Diluted 1.57 1.44 0.82
Weighted average number of shares
outstanding
Basic 16,464 17,156 17,277
Diluted 17,927 18,663 18,853
Cash dividends declared per common share $ 0.22 $ 0.22 $ 0.22
Working capital, excluding discontinued
operations 241,843 219,205 116,862
Total assets 730,939 712,104 599,815
Long-term debt, excluding current portion 142,390 142,390 88,140
Stockholders' equity 232,805 241,412 228,070
Net book value per share 14.78 14.16 13.03
Return from continuing operations
on average stockholders' equity 12.2% 11.7% 7.4%
1995 1994
- ------------------------------------------------------------------------------
Sales $484,845 $496,060
Income from continuing operations 8,720 16,762
Net income (loss) (30,932) 9,360
Net income from continuing operations
per share
Basic 0.46 0.94
Diluted 0.42 0.86
Weighted average number of shares
outstanding
Basic 17,132 16,848
Diluted 17,132 18,608
Cash dividends declared per common share $ 0.22 $ 0.22
Working capital, excluding discontinued
operations 54,940 102,257
Total assets 548,289 590,171
Long-term debt, excluding current portion 89,440 102,280
Stockholders' equity 210,760 242,195
Net book value per share 12.30 14.32
Return from continuing operations
on average stockholders' equity 3.9% 7.0%
- ------------------------------------------------------------------------------
In 1995, net income (loss) includes ($36,191) for the loss on disposal of
discontinued operations. All prior periods have been restated for
discontinued operations. The 1995 and 1994 net income (loss) has been
restated for the change from the LIFO method of inventory valuation to the
FIFO method. There was no impact from this change to 1998, 1997, or 1996.
22
UNAUDITED RESULTS OF QUARTERLY OPERATIONS
QUARTER
DOLLAR AMOUNTS IN THOUSANDS -----------------------------------------------
EXCEPT PER SHARE FIGURES FIRST SECOND THIRD FOURTH
- -----------------------------------------------------------------------------
1998
Sales $185,829 $193,361 $222,423 $176,450
Gross profit 50,306 54,297 55,642 45,624
Net income 6,823 8,084 7,931 6,004
Net income per share
Basic 0.39 0.46 0.46 0.37
Diluted 0.36 0.43 0.43 0.34
------------------------------------------------
1997
Sales $161,263 $185,730 $185,576 $173,747
Gross profit 43,340 51,132 52,046 46,766
Net income 5,477 7,491 8,542 6,015
Net income per share
Basic 0.30 0.42 0.48 0.34
Diluted 0.28 0.39 0.45 0.31
------------------------------------------------
1996
Sales $111,157 $155,050 $179,571 $131,388
Gross profit 21,438 39,585 46,933 34,358
Net income (loss) (17) 4,468 7,635 4,089
Net income (loss) per share
Basic (0.01) 0.25 0.43 0.22
Diluted (0.01) 0.23 0.40 0.21
------------------------------------------------
- ------------------------------------------------------------------------------
Per share calculations are based on the average common shares outstanding for
each period presented. Accordingly, the total of the per share figures for
the quarters may not equal the per share figures reported for the year.
23
CONSOLIDATED BALANCE SHEETS
DOLLAR AMOUNTS IN THOUSANDS 1/2/99 1/3/98 12/28/96
-----------------------------------
ASSETS
Current assets
Cash and cash equivalents $140,060 $119,087 $ 36,801
Marketable securities 9,091 40,751 ---
Receivables, less allowances of
$374, $397 and $451, respectively 69,990 55,369 73,893
Inventories 78,827 68,954 51,549
Deferred income taxes 5,214 3,382 4,985
Other 9,227 7,541 4,756
-----------------------------------
312,409 295,084 171,984
Property
Land 13,324 11,696 11,698
Buildings and leasehold improvements 120,800 114,496 104,203
Machinery, equipment, and other 508,566 477,501 450,702
Accumulated depreciation (260,123) (223,207) (184,504)
-----------------------------------
382,567 380,486 382,099
Goodwill 18,460 19,500 20,540
Deferred income taxes ---- ---- 8,846
Other assets 17,503 17,034 16,346
-----------------------------------
$730,939 $712,104 $599,815
-----------------------------------
-----------------------------------
- ------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $ 19,639 $ 25,238 $ 23,113
Accrued liabilities 50,927 50,641 32,009
-----------------------------------
70,566 75,879 55,122
Long-term debt 142,390 142,390 88,140
Deferred income taxes 18,283 4,363 ---
Other long-term liabilities 13,636 13,973 11,327
Reserve for discontinued operations 13,687 17,482 21,970
Minority interest in Partnership 239,572 216,605 195,186
Stockholders' equity
ESOP Convertible Preferred Stock, issued
1,124,848, 1,147,219, and 1,162,914
shares, respectively 13,271 13,535 13,721
Guaranteed ESOP Benefit (7,288) (8,188) (9,204)
Common stock, issued 18,069,077,
17,807,142, and 17,500,896 shares,
respectively 18,069 17,807 17,501
Paid-in capital 160,863 153,936 145,583
Retained earnings 110,411 86,116 63,249
Accumulated other comprehensive
income (loss) (6,228) (3,805) (2,780)
Other (1,949) (1,730) ---
Treasury stock, 2,321,605, and
761,152 shares, at cost (54,344) (16,259) ---
-----------------------------------
232,805 241,412 228,070
-----------------------------------
$730,939 $712,104 $599,815
-----------------------------------
-----------------------------------
- ------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
24
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE YEARS ENDED JANUARY 2, 1999.
DOLLAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE FIGURES
1998 1997 1996
-----------------------------------
Sales $778,063 $706,316 $577,166
-----------------------------------
Costs and expenses
Cost of sales 572,194 513,032 434,852
Selling expenses 78,587 70,957 61,270
Administrative expenses 36,417 36,871 26,595
-----------------------------------
687,198 620,860 522,717
-----------------------------------
Income from operations 90,865 85,456 54,449
Investment income, net 7,739 5,213 1,593
Interest expense (8,846) (6,933) (6,328)
Minority interest in Partnership (43,914) (39,696) (23,956)
-----------------------------------
Income before income taxes 45,844 44,040 25,758
Income taxes 17,002 16,515 9,583
-----------------------------------
Net Income $ 28,842 $ 27,525 $ 16,175
-----------------------------------
-----------------------------------
Net income per share
Basic $ 1.69 $ 1.55 $ 0.88
Diluted $ 1.57 $ 1.44 $ 0.82
Weighted average number of common shares
outstanding during the periods
Basic 16,464 17,156 17,277
Diluted 17,927 18,663 18,853
- ------------------------------------------------------------------------------
The accompany notes are an integral part of these financial statements
25
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE THREE YEARS ENDED JANUARY 2, 1999
DOLLAR AMOUNTS IN THOUSANDS
Guaranteed
Preferred ESOP Common
Stock Benefit Stock
- ------------------------------------------------------------------------------
Balance, December 30, 1995 $ 13,992 $(10,382) $ 17,132
Comprehensive income:
Net income --- --- ---
Other comprehensive income --- --- ---
Comprehensive income
Cash dividends declared:
Common stock --- --- ---
Preferred stock, net of tax --- --- ---
Stock options exercised, net of tax --- --- 230
Stock Company Match, 401(k) Contributions --- --- 125
Other (271) 1,178 14
-----------------------------------
Balance, December 28, 1996 13,721 (9,204) 17,501
Comprehensive income:
Net Income --- --- ---
Other comprehensive income (loss) --- --- ---
Comprehensive income
Cash dividends declared:
Common stock --- --- ---
Preferred stock, net of tax --- --- ---
Stock options exercised, net of tax --- --- 148
Stock Company Match, 401(k) Contributions --- --- 160
Treasury stock purchased --- --- ---
Other (186) 1,016 (2)
------------------------------------
Balance, January 3, 1998 13,535 (8,188) 17,807
Comprehensive income:
Net Income --- --- ---
Other comprehensive income (loss) --- --- ---
Comprehensive Income
Cash dividends declared:
Common stock --- --- ---
Preferred stock, net of tax --- --- ---
Stock options exercised, net of tax --- --- 102
Stock Company Match, 401(k) Contributions --- --- 156
Treasury stock purchased --- --- ---
Other (264) 900 4
-----------------------------------
Balance, January 2, 1999 $ 13,271 $ (7,288) $ 18,069
-----------------------------------
-----------------------------------
- ------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements
Accumulated
Other
Paid-In Retained Comprehensive
Capital Earnings Income (Loss)
-----------------------------------
Balance, December 30, 1995 $140,384 $ 51,808 $ (2,790)
Comprehensive income:
Net income --- 16,175 ---
Other comprehensive income --- --- 10
Comprehensive income
Cash dividends declared:
Common stock --- (3,811) ---
Preferred stock, net of tax --- (923) ---
Stock options exercised, net of tax 2,968 --- ---
Stock Company Match, 401(k) Contributions 2,165 --- ---
Other 66 --- ---
-----------------------------------
Balance, December 28, 1996 145,583 63,249 (2,780)
Comprehensive income:
Net Income --- 27,525 ---
Other comprehensive income (loss) --- --- (1,025)
Comprehensive income
Cash dividends declared
Common stock --- (3,759) ---
Preferred stock, net of tax --- (899) ---
Stock options exercised, net of tax 2,881 --- ---
Stock Company Match, 401(k) Contributions 3,460 --- ---
Treasury stock purchased --- --- ---
Other 2,012 --- ---
-----------------------------------
Balance, January 3, 1998 153,936 86,116 (3,805)
Comprehensive income:
Net Income --- 28,842 ---
Other comprehensive income (loss) --- --- (2,423)
Comprehensive Income
Cash dividends declared:
Common stock --- (3,595) ---
Preferred stock, net of tax --- (952) ---
Stock options exercised, net of tax 1,845 --- ---
Stock Company Match, 401(k) Contributions 3,840 --- ---
Treasury stock purchased --- --- ---
Other 1,242 --- ---
------------------------------------
Balance, January 2, 1999 $160,863 $110,411 $ (6,228)
------------------------------------
------------------------------------
- ------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements
Common
Stock in
Treasury Other Total
-----------------------------------
Balance, December 30, 1995 $ --- $ --- $210,144
Comprehensive income:
Net income --- --- 16,175
Other comprehensive income --- --- 10
--------
$ 16,185
Comprehensive income
Cash dividends declared:
Common stock --- --- (3,811)
Preferred stock, net of tax --- --- (923)
Stock options exercised, net of tax --- --- 3,198
Stock Company Match, 401(k) Contributions --- --- 2,290
Other --- --- 987
-----------------------------------
Balance, December 28, 1996 --- --- 228,070
Comprehensive income:
Net Income --- --- 27,525
Other comprehensive income (loss) --- --- (1,025)
--------
Comprehensive income 26,500
Cash dividends declared
Common stock --- --- (3,759)
Preferred stock, net of tax --- --- (899)
Stock options exercised, net of tax --- --- 3,029
Stock Company Match, 401(k) Contributions --- --- 3,620
Treasury stock purchased (16,259) --- (16,259)
Other --- (1,730) 1,110
-----------------------------------
Balance, January 3, 1998 (16,259) (1,730) 241,412
Comprehensive income:
Net Income --- --- 28,842
Other comprehensive income (loss) --- --- (2,423)
--------
Comprehensive Income 26,419
Cash dividends declared:
Common stock --- --- (3,595)
Preferred stock, net of tax --- --- (952)
Stock options exercised, net of tax --- --- 1,947
Stock Company Match, 401(k) Contributions --- --- 3,996
Treasury stock purchased (38,085) --- (30,085)
Other --- (219) 1,663
-----------------------------------
Balance, January 2, 1999 $(54,344) $ (1,949) $232,805
------------------------------------
------------------------------------
The accompanying notes are an integral part of these financial statements
26
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE YEARS ENDED JANUARY 2, 1999.
DOLLAR AMOUNTS IN THOUSANDS
1998 1997 1996
-------- -------- --------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 28,842 $ 27,525 $ 16,175
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 44,507 42,945 39,591
Minority interest in Partnership 43,914 39,696 23,956
Deferred income taxes 7,660 14,317 9,583
Other, net 3,997 3,620 2,290
Change in working capital items:
Receivables (14,621) 18,524 (45,139)
Inventories (9,873) (17,405) (12,989)
Other current assets (1,686) (2,785) 1,280
Accounts payable and accrued liabilities (5,313) 20,757 3,805
Other net 792 185 (1,847)
-----------------------------------
Net cash provided by operating activities$ 98,219 $147,379 $ 36,705
-----------------------------------
-----------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures $(47,383) $(42,627) $(19,056)
Proceeds from the sale of discontinued
operations --- --- 24,035
Payments of discontinued operations
liabilities (2,776) (2,460) (10,733)
Sales (purchases) or marketable
securities, net 31,660 (40,751) ---
Other, net 1,385 1,969 2,474
-----------------------------------
Net cash used in investing activities $(17,114) $(83,869) $ (3,280)
-----------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Cash dividends paid on common stock $ (3,666) $ (3,823) $ (3,791)
Cash dividends paid on preferred stock (1,208) (2,473) ---
Minority partners tax distributions (17,535) (13,435) (7,960)
Net repayments under lines-of-credit --- --- (2,994)
Proceeds from the issuance of long-
term debt 6,710 54,250 5,740
Principal payments of long-term debt (6,710) --- (7,380)
Purchase of treasury stock (38,085) (16,259) ---
Other, net 362 516 46
-----------------------------------
Net cash provided by (used in) financing
activities $(60,132) $ 18,776 $(16,339)
-----------------------------------
-----------------------------------
NET CHANGE IN CASH AND CASH EQUIVALENTS
Net increase in cash and cash
equivalents $ 20,973 $ 82,286 $ 17,086
Cash and cash equivalents at
beginning of year 119,087 36,801 19,715
-----------------------------------
Cash and cash equivalents at end of year $140,060 $119,087 $ 36,801
-----------------------------------
-----------------------------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest, net of amounts capitalized $ 9,482 $ 6,230 $ 6,084
Income taxes (refunds), net $ 10,445 $ (2,961) $ ---
- ------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements
27
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
GENERAL
Our consolidated financial statements include the accounts of TJ
International, Inc., our engineered lumber business, Trus Joist
MacMillan, a Limited Partnership, and their subsidiaries.
Significant intercompany balances and transactions were
eliminated. Management was required to make estimates for
portions of our consolidated balance sheets and income
statements. Actual financial results may differ from those
estimates.
PARTNERSHIP
On September 29, 1991 we entered into a partnership with
MacMillan Bloedel of America, Inc., a wholly owned subsidiary of
MacMillan Bloedel Limited, to form Trus Joist MacMillan, a
Limited Partnership (the Partnership). We contributed all of our
North American engineered lumber technology, manufacturing
facilities, and our sales and marketing organization for a 51%
interest in the Partnership. MacMillan Bloedel of America and
MacMillan Bloedel Limited contributed all of their North American
engineered lumber technology and manufacturing facilities for a
49% interest in the Partnership. In addition, each partner
contributed all the patents and trademarks related to their
engineered lumber business.
We amortize goodwill recorded as a result of forming the
Partnership ratably over a 25-year period. A total of $7,540,000
has been amortized as of January 2, 1999. Goodwill expense was
$1,040,000 each year for 1998, 1997, and 1996.
MINORITY INTEREST IN PARTNERSHIP
Income or losses of the Partnership are allocated between the
partners in accordance with the partnership agreement. MacMillan
Bloedel of America was allocated $43,914,000 of income in 1998,
$39,696,000 of income in 1997, and $23,956,000 of income in 1996.
This income allocation is reflected as Minority Interest in
Partnership in the Consolidated Statements of Income. MacMillan
Bloedel of America's accumulated equity in the Partnership is
reflected as Minority Interest in Partnership in the Consolidated
Balance Sheets.
FISCAL YEAR
Our 52/53-week fiscal year ends on the Saturday closest to
December 31 of each year. The comparability of our operations
from year to year is not significantly affected by the additional
fiscal week, which occurs approximately once every five years.
FOREIGN TRANSLATION
Our Canadian subsidiary's functional currency is the Canadian
dollar. We translate our Canadian subsidiary's financial
statements into U.S. dollars using the exchange rate at the end
of the year for assets and liabilities. We use an average monthly
exchange rate to translate the results of operations throughout
the year. Cumulative foreign currency translation is reflected as
Accumulated Other Comprehensive Income (Loss) in the Consolidated
Statements of Stockholders' Equity and is the only component of
other comprehensive income (loss) we have.
CASH, CASH EQUIVALENTS, AND MARKETABLE SECURITIES
We consider cash equivalents to be cash and highly liquid
investments with maturities of three months or less. We record
these assets at cost, which approximates their fair market value.
These assets totaled $140,060,000 on January 2, 1999,
$119,087,000 on January 3, 1998, and $36,801,000 on December 28,
1996. Marketable securities is our investment in commercial
paper. We record marketable securities at our cost, which
approximates their fair value based on quoted market prices.
28
All of our operating assets are owned by our engineered lumber
partnership, Trus Joist MacMillan, a Limited Partnership, and it
also earns almost all of our company's cash provided by operating
activities. At year-end 1998, cash and marketable securities
totaling $3,261,000 were held by TJ International, Inc. and the
remaining balance of $145,890,000 was held by Trus Joist
MacMillan, a Limited Partnership. The Partnership distributes
cash to the partners for payment of the partners' income tax
liabilities created by the partnership. No other cash
distributions from the Partnership may be made without approval
from the authorized representatives of MacMillan Bloedel of
America, the minority partner. There is no assurance that cash
distributions from the Partnership will be approved and thereby
be available for us to pay dividends or for us to fund other of
our cash requirements, including the expenses associated with
being a public company and paying any liabilities remaining from
the sale of our window business.
INVENTORIES
We value our inventory at the lower of cost or market. Material,
labor, and production overhead costs are included in our
inventory valuation.
AMOUNTS IN THOUSANDS 1/2/99 1/3/99 12/28/96
- -----------------------------------------------------------------------------
Finished goods $ 59,740 $ 51,737 $ 38,278
Raw materials 19,087 17,217 13,271
-----------------------------------
$ 78,827 $ 68,954 $ 51,549
-----------------------------------
-----------------------------------
- ------------------------------------------------------------------------------
Effective January 4, 1998, we changed our inventory costing
method for lumber, veneer, Microllam-Registered Trademark- LVL,
TJI-Registered Trademark- joists, and open web trusses from LIFO
to FIFO. We are executing a strategy to increase the sales of our
new technology Parallam-Registered Trademark- PSL,
TimberStrand-Registered Trademark- LSL, and TimberStrand-
Registered Trademark- flange I-joist products, which are valued
using FIFO methodology. We believe using the FIFO inventory
costing methodology for all of our product lines is a more
appropriate and consistent matching of cost against revenues.
This change in accounting had no material impact on previously
reported results for 1997 and 1996.
PROPERTY
We record property and equipment at the cost we paid to purchase
or construct the assets. Costs for additions and improvements are
added to the original purchase cost. Replacement of property is
capitalized at its cost. We expense costs related to maintenance,
repairs, and minor replacements, and these expenses were
$32,841,000 in 1998, $29,978,000 in 1997, and $26,607,000 in
1996. As property is sold or retired, we remove the value of the
property from our asset and depreciation accounts and any gain or
loss is reflected in income.
The depreciation expense on Microllam-Registered Trademark- LVL,
Parallam-Registered Trademark- PSL, and TimberStrand-Registered
Trademark- LSL manufacturing equipment is computed using the
units-of-production method. The straight-line depreciation method
is used to calculate the depreciation expense for all other
property and equipment. The estimated useful lives of our major
property and equipment range from three to thirty years.
CAPITALIZED INTEREST
We capitalize interest on qualifying assets. Interest expense
capitalized into property and equipment was $838,000 in 1998 and
$487,000 in 1997. No amounts were capitalized in 1996.
RESERVE FOR DISCONTINUED OPERATIONS
We completed our plan to divest of the Company's window segment
in 1996. We retained certain contingent liabilities of this
segment. The most significant of these are obligations under the
warranty provisions of the window product sales. We believe that
existing reserves are adequate to satisfy the remaining
liabilities.
RESEARCH AND DEVELOPMENT
We expense research and development costs as we incur them.
Research and development costs expensed were $5,686,000 in 1998,
$5,152,000 in 1997, and $4,421,000 in 1996.
29
DERIVATIVE FINANCIAL INSTRUMENTS
We occasionally use foreign currency forward exchange contracts
to limit our exposure to foreign currency fluctuations on the
purchase of machinery and equipment from companies located
outside of the United States. As of January 2, 1999, we had no
material derivative financial instruments outstanding.
NET INCOME PER SHARE
Basic net income per share is based on net income adjusted for
any preferred stock dividends, net of related tax benefits,
divided by the weighted average number of common shares
outstanding. Diluted net income per share assumes conversion of
our retirement plans convertible preferred stock into shares of
common stock at the beginning of our fiscal year. Additionally,
it reflects the impact on weighted average number of common
shares assuming the exercise of outstanding stock options under
the treasury stock method.
AMOUNTS IN THOUSANDS 1998 1997 1996
- -----------------------------------------------------------------------------
Net income as reported $ 28,842 $ 27,525 $ 16,175
Preferred stock dividends, net of
related tax benefits (997) (985) (949)
-----------------------------------
Basic net income $ 27,845 $ 26,540 $ 15,226
-----------------------------------
-----------------------------------
Net income as reported $ 28,842 $ 27,525 $ 16,175
Additional ESOP contribution payable upon
assumed conversion of ESOP preferred
stock, net of related tax benefits (728) (696) (711)
-----------------------------------
Diluted net income $ 28,114 $ 26,829 $ 15,464
-----------------------------------
-----------------------------------
Weighted average shares outstanding used
to determine basic net income per share 16,464 17,156 17,277
Conversion of ESOP preferred stock 1,137 1,156 1,174
Exercise of stock options using
the Treasury Stock Method 326 351 402
-----------------------------------
Weighted average shares used to determine
diluted net income per share 17,927 18,663 18,853
-----------------------------------
-----------------------------------
- -----------------------------------------------------------------------------
2. DEBT
At year-end, we have available unsecured, committed lines of
credit totaling $13,267,000 with foreign and domestic banks. The
interest rate on any loan, determined at the time of the
borrowing, would not exceed the lending bank's prevailing prime
rate. We pay a commitment fee of .25% to the domestic banks. At
the end of each of the last three years, we had no borrowings
under these agreements.
We have a $150 million revolving credit facility provided by a
group of banks. This facility provides several interest rate
options, none of which exceed prime, and matures on November 15,
2001. At the end of each of the last three years, we had no
borrowings under this facility.
In the third quarter of 1998, we issued $6,710,000 of tax-exempt
variable rate industrial revenue demand bonds related to the East
Kentucky TimberStrand-Registered Trademark- LSL plant. The
interest rate on these bonds is established weekly, and the
interest is paid monthly. The bonds are unsecured, with the
principal due in a single maturity in 2028. We used the proceeds
from these bonds to prepay, without penalty, $6,710,000 of the
taxable industrial revenue bonds described below. In the fourth
quarter of 1998, we extended for five years the due date of the
$10,000,000 industrial revenue variable rate demand bonds that
otherwise would have matured in the year 2000.
In 1997, we issued $42,600,000 of taxable industrial revenue
bonds to preserve our ability in the future to issue additional
industrial revenue bonds to help finance the East Kentucky plant.
These bonds have a variable interest rate, which is either LIBOR
based or prime. The bonds are unsecured, with the principal due
in a single maturity in 2001. We can prepay at any time the
outstanding principal without penalty. In 1997, we also issued
$11,650,000 of industrial revenue bonds related to the East
Kentucky plant. The interest rate on these bonds is fixed at
6.55%, and the interest is paid semi-annually. The bonds are
unsecured, with the principal due in a single maturity in 2027.
30
During 1996, we issued $5,740,000 of industrial revenue bonds to
finance portions of the construction of the East Kentucky plant.
The interest rate on these bonds is fixed at 6.8%, and the
interest is paid semi-annually. The bonds are unsecured, with the
principal due in a single maturity in 2026.
Our industrial revenue variable rate demand bonds issued before
1996 are secured by the property and equipment that was acquired
with the bond proceeds. All of the variable rate demand bonds are
supported by irrevocable letters of credit. These letters of
credit, together with our revolving credit facility described
above, allow us to borrow for periods greater than one year, if
drawn upon to repay bondholders.
The debt agreements contain various customary financial
covenants. We are in compliance with all of the covenants at
January 2, 1999. Under the most restrictive of these covenants,
retained earnings available for cash dividends at January 2, 1999
was $94,475,000. We record debt at cost, net of any discount or
premium, which is approximately the same as fair market value
based on borrowing rates currently available to us if we were to
borrow today on similar terms and maturities.
AMOUNTS IN THOUSANDS 1/2/99 1/3/98 12/28/96
-----------------------------------
Borrowings under the revolving
credit facility $ --- $ --- $ ---
Industrial revenue bonds, 6.92% weighted
average interest rate during 1998,
payable in varying amounts from
2024 through 2027 83,390 83,390 71,740
Taxable industrial revenue variable rate
bonds, interest rates established at the
beginning of each interest period, 6.12%
weighted average during 1998, payable
in 2001 35,890 42,600 ---
Industrial revenue variable rate demand
bonds, interest rates established weekly,
3.82% weighted average during 1998,
$10,000,000 payable in 2005, $6,400,000
payable in 2009, and $6,710,000 payable
in 2028 23,110 16,400 16,400
-----------------------------------
$142,390 $142,390 $ 88,140
-----------------------------------
-----------------------------------
- ------------------------------------------------------------------------------
3. ACCRUED LIABILITIES
AMOUNTS IN THOUSANDS 1/2/99 1/3/98 12/28/96
-----------------------------------
Salaries, wages, and commissions $ 6,220 $ 6,353 $ 4,328
Retirement and profit sharing
plan contributions 8,227 7,443 4,934
Other associate benefits 12,614 10,411 8,816
Marketing incentives 16,992 17,346 8,216
Other 6,874 9,088 5,715
-----------------------------------
$ 50,927 $ 50,641 $ 32,009
-----------------------------------
-----------------------------------
- ------------------------------------------------------------------------------
31
4. INCOME TAXES
AMOUNTS IN THOUSANDS 1998 1997 1996
-----------------------------------
INCOME BEFORE INCOME TAXES
U.S. $ 43,666 $ 36,420 $ 23,194
Canada 2,178 7,620 2,564
-----------------------------------
$ 45,844 $ 44,040 $ 25,758
-----------------------------------
-----------------------------------
INCOME TAXES
Current income taxes
U.S. federal $ 7,944 $ 2,027 $ ---
U.S. state 1,398 171 ---
-----------------------------------
$ 9,342 $ 2,198 $ ---
Deferred income taxes
U.S. federal $ 6,262 $ 10,156 $ 7,073
U.S. state 518 1,113 1,484
Canada 880 3,048 1,026
-----------------------------------
$ 7,660 $ 14,317 $ 9,583
-----------------------------------
$ 17,002 $ 16,515 $ 9,583
-----------------------------------
- ------------------------------------------------------------------------------
Our effective income tax rate varied from the U.S. federal statutory income
tax rate for the following reasons:
AMOUNTS IN THOUSANDS 1998 1997 1996
-----------------------------------------
U.S. federal statutory income
tax rate $ 16,045 35.0% 35.0% 35.0%
Foreign income at different rates 76 0.2% 0.9% 1.2%
State income taxes, net of
federal effect 1,916 4.2% 3.6% 4.2%
Other items (1,035) (2.3%) (2.0%) (3.2%)
-----------------------------------------
Effective income tax rate $ 17,002 37.1% 37.5% 37.2%
-----------------------------------------
-----------------------------------------
32
The deferred tax liabilities and assets included in the
Consolidated Balance Sheets are comprised of the following:
AMOUNTS IN THOUSANDS 1/2/99 1/3/98 12/28/96
-----------------------------------
Tax in excess of book depreciation $(28,966) $(28,555) $(27,101)
Other (9,107) (5,972) (7,330)
-----------------------------------
Total deferred tax liabilities $(38,073) $(34,527) $(34,431)
Reserves not yet deductible
for tax purposes 4,882 3,360 2,370
Net operating loss carryforwards 1,510 7,252 13,062
Alternative minimum tax credit
carryforward 8,615 9,126 4,279
Reserves and operating losses related
to discontinued operations 2,657 9,777 19,740
Other 7,340 4,031 8,811
-----------------------------------
Total deferred tax assets 25,004 33,546 48,262
-----------------------------------
$(13,069) $ (981) $ 13,831
-----------------------------------
-----------------------------------
Classified as
Deferred income taxes - current assets $ 5,214 $ 3,382 $ 4,985
Deferred income taxes - long-term
assets (liabilities) (18,283) (4,363) 8,846
-----------------------------------
$(13,069) $ (981) $ 13,831
-----------------------------------
-----------------------------------
- ------------------------------------------------------------------------------
Our alternative minimum tax credits of $8,615,000 at January
2,1999, are available indefinitely. Net operating loss
carryforwards are expected to be fully realized based on
forecasted operating results and various tax planning strategies.
5. RETIREMENT PLANS AND INCENTIVE BONUS PROGRAMS
Our associates are eligible to participate in defined
contribution retirement plans after a waiting period of up to six
months. The retirement benefits in these plans are limited to
each associate's account balance at the time of their retirement
or termination.
The retirement plans receive contributions from our associates
and us. Our contributions include matching of associate
contributions up to a total of 4% of salaries and wages. In
addition, we make a profit sharing contribution to associate
accounts.
The amounts contributed to the retirement plans for the past
three years are as follows:
CONTRIBUTION SOURCES 1998 1997 1996
-----------------------------------
Associate Contributions $ 9,376,000 $ 7,816,000 $ 6,555,000
Company Contributions 10,373,000 9,086,000 6,890,000
-----------------------------------
Total Contributions $19,749,000 $16,902,000 $13,445,000
-----------------------------------
-----------------------------------
- ------------------------------------------------------------------------------
In September 1990, the U.S. retirement plan borrowed $15 million
at 9% interest from us. The loan matures on March 31, 2011 and
has no prepayment penalties. The proceeds from the loan were used
by the retirement plan to purchase 1,269,842 shares of newly
issued preferred stock in TJ International, Inc. The preferred
stock is described in more detail in note 6.
33
We have guaranteed that over the term of the loan we will make
sufficient contributions to the retirement plan to repay the
loan. This guarantee has been recorded in the Stockholders'
Equity section of the balance sheet as "Guaranteed ESOP Benefit."
The retirement plan uses contributions from us and dividends on
the preferred shares to make the required loan payments. With
each principal and interest payment, a portion of the preferred
stock is allocated to our associates' accounts in the retirement
plan. The "Guaranteed ESOP Benefit" is amortized based on the
percentage of preferred shares allocated to the associates'
accounts. The annual amortized expense was approximately $542,000
in 1998, $783,000 in 1997, and $1,022,000 in 1996.
Our key associates participate in incentive bonus programs. The
incentive bonus programs are designed to motivate key associates,
improve company performance, and reward associates for improving
our return on invested capital. The incentive bonus program
expenses were approximately $2,396,000 in 1998, $4,006,000 in
1997, and $2,787,000 in 1996.
6. STOCKHOLDERS' EQUITY
GENERAL
Our stockholders have approved issuing up to 200,000,000 shares
of common stock and 10,000,000 shares of preferred stock. Both
the common stock and preferred stock have a $1.00 per share par
value.
Effective April 1996, our Board of Directors approved using
shares of our common stock to fund our matching contributions to
the retirement plans. Before that date, these contributions were
made in cash.
PREFERRED STOCK
In September 1990, we issued 1,269,842 shares of $1.00 par value
preferred stock at $11.8125 per share to our associate retirement
plan. Each share of preferred stock has one vote and receives a
preferential dividend of $1.065 each year. We may redeem the
preferred stock under certain circumstances. When any person
receives a payout from the retirement plans, we first convert
each share of this preferred stock into one share of our common
stock. If the current stock price is below $11.81, the preferred
shares are valued at $11.81 per share. We then have the choice to
pay the participant in common stock, cash, or any combination of
common stock and cash.
COMMON STOCK PURCHASE RIGHTS
In 1989, we issued common stock purchase rights to each
stockholder. The rights are not currently exercisable. They
become exercisable if certain events happen, such as a person or
group acquiring or trying to acquire 20% or more of the
outstanding shares of our common stock. With certain exceptions,
if we are thereafter involved in a merger or other business
combination, the rights permit each holder, other than the person
or group that triggered the rights, to purchase common stock of
the surviving company at 50% of its market value. The rights
expire in September 1999 and are non-voting. We may redeem them
at any time for $.005 per right. Our Board has reserved for
issuance the same number of common shares as are outstanding at
any time in case the rights are triggered.
STOCK BUY BACKS
In December 1998, our Board of Directors authorized us to buy
$25,000,000 of our common stock at market price. We started this
program in 1999. The Board had previously authorized us to buy
our common stock at market price in both 1998 and 1997. In 1998,
we bought a total of 1,560,453 shares for $38,085,000. In 1997,
we bought a total of 761,152 shares for $16,259,000.
STOCK OPTIONS
In 1997, our stockholders approved a new stock option plan for
officers and key associates. This plan allows us to issue both
incentive stock options (ISOs) and nonstatutory options (NSOs).
The exercise price for either ISOs or NSOs cannot be less than
the fair market value of our common stock on the date the option
is granted. The ISOs become exercisable three years after they
are granted and the NSOs in 33.3% annual installments starting
one year after they are granted.
We have four other stock option plans for officers and key
associates, which were approved by our stockholders before 1997.
These plans also allow us to issue both ISOs and NSOs. The
exercise price for ISOs cannot be less than the fair market value
of our common stock on the date the option is granted. The
exercise price for NSOs may be $1.00 per share. The ISOs become
exercisable three years after they are granted. The Board of
Directors decides when the NSOs are granted whether they become
exercisable three years after they are granted or in 20% annual
installments commencing five years after they are granted.
34
At January 2, 1999, a total of 28,800 ISOs and 1,462,784 NSOs
were outstanding, and 2,222,000 shares were reserved for issuance
under all our stock option plans. We adjust outstanding options
and exercise prices for any stock splits and stock dividends. All
unexercised options expire 10 years after they are granted. For
NSOs, we accrue ratably as compensation expense from the date of
grant to the exercisable date, the excess of the fair market
value over the exercise price on the date of grant. For ISOs, we
do not make any accounting entries until they are exercised.
In 1998, we recorded total compensation expenses for our stock
option plans of $1,527,000. In 1997, we recorded $1,682,000, and,
in 1996, we recorded $1,535,000. Stock option transactions are
summarized as follows:
1998 1997 1996
------------------------------------------------------
Wtd. Wtd. Wtd.
Avg. Avg. Avg.
Option Option Option
Shares Price Shares Price Shares Price
------------------------------------------------------
Number of Option Shares
Granted 324,000 $27.52 49,500 $21.13 867,700 $16.85
Exercised (106,445) 7.7 (75,758) 1.63 (230,470) 1.45
Cancelled (20,270) 18.90 (14,288) 6.15 (57,947) 0.83
Outstanding at end
of year 1,491,584 16.01 1,294,299 12.49 1,334,845 11.49
Exercisable at end
of year 564,078 17.08 351,237 14.77 132,778 3.62
Weighted average fair
value of options
granted (Black-Scholes) $12.78 $ 8.96 $10.31
------------------------------------------------------
The following table summarizes certain information about stock
options outstanding at January 2, 1991:
Wtd. Avg. Wtd. Wtd.
Remaining Avg. Avg.
Outstanding Contractual Option Exercisable Option
at 1/2/99 Life Price at 1/2/99 Price
------------------------------------------------------
RANGE OF OPTION PRICES
$ .50 - $1.00 471,612 5.6 0.82 101,980 0.65
$ 9.38 28,800 2.0 9.38 28,800 9.38
$19.00 - $24.125 991,172 8.4 23.43 433,298 21.46
------------------------------------------------------
1,491,584 7.4 16.01 564,078 17.08
------------------------------------------------------
------------------------------------------------------
Effective at the beginning of 1996, we adopted SFAS No. 123,
which prescribes the accounting for stock-based compensation. We
elected to continue to account for stock options in accordance
with APB No. 25. Under the terms of these rules, we have
estimated the fair value of each option on the date of grant
using the Black-Scholes option-pricing model. The following table
summarizes the assumptions we used for each year. It also shows
how much of our net income and net income per basic and diluted
share would have been reduced if we had determined compensation
expense for each year using the Black-Scholes option-pricing
model.
1998 1997 1996
-----------------------------------
Assumptions
Risk-free interest rate 6.5% 6.5% 6.5%
Vesting discounts 94% 94% 93%
Annual stock price volatility 0.32 0.26 0.27
Proforma Reduction in Reported Amounts
Net income $(1,006,000) $(1,182,000) $ (49,000)
Net income per basic and diluted share $ (0.06) $ (0.06) $ ---
35
7. LEASES
Basic or minimum rental expenses for operating and month-to-month
leases amounted to $5,472,000 in 1998, $5,002,000 in 1997, and
$3,985,000 in 1996.
We have operating leases with initial or remaining terms longer
than one year. Minimum payment requirements on these leases are
$3,399,000 in 1999, $2,509,000 in 2000, $1,871,000 in 2001,
$1,313,000 in 2002, and $910,000 in 2003. Some lease agreements
allow usage charges and cost-of-living increases. In addition,
lease agreements involving real property have fixed payment terms
based upon the lapse of time.
We have the option, in certain lease agreements, to purchase
leased property at the end of the lease at fair market value. In
addition, we can renew some lease agreements for up to three
years with similar terms.
8. RELATED PARTY TRANSACTIONS
We sell engineered lumber products to MacMillan Bloedel Building
Materials (MBBM), a division of MacMillan Bloedel Limited, on
terms comparable to other distributors. Sales to MBBM were
$216,600,000 in 1998, $205,500,000 in 1997, and $168,500,000 in
1996. Accounts receivable from MBBM were $16,238,000 at January
2, 1999, $17,357,000 at January 3, 1998, and $16,658,000 at
December 28, 1996, and are included in receivables in the
accompanying Consolidated Balance Sheets.
MacMillan Bloedel Limited has provided certain technological and
research services to us. We paid them $1,087,000 in 1998,
$1,922,000 in 1997, and $1,741,000 in 1996 for these services.
During 1998, MacMillan Bloedel Limited, closed its research
facility and we do not anticipate any future payment for these
services. Several individuals who were conducting research and
providing services to us accepted an offer of employment from us
and continue their work on our behalf.
Quarterly cash distributions are made to the Partners for payment
of state and federal income taxes. Payments of $17,535,000 in
1998, $13,435,000 in 1997, and $7,960,000 in 1996 were made to
MacMillan Bloedel of America.
Certain employees who perform services for us at former MacMillan
Bloedel Limited facilities remain on their payroll. The
Partnership Agreement provides that we reimburse MacMillan
Bloedel Limited for its actual payroll and related benefit costs
relating to these employees. Payroll reimbursements were
$5,939,000 for 1998, $5,890,000 for 1997, and $5,756,000 for
1996. Total payables to MacMillan Bloedel Limited and MacMillan
Bloedel of America for such services and tax distributions were
$3,776,000 at January 2, 1999, $4,590,000 at January 3, 1998, and
$2,745,000 at December 28, 1996. These amounts are included in
accounts payable in the accompanying Consolidated Balance Sheets.
36
9. SEGMENT REPORTING
As of January 2, 1999, we adopted SFAS No. 131, Disclosures about
Segments of an Enterprise and Related Information. This statement
requires public companies to disclose financial and descriptive
information about their reportable operating segments as
regularly evaluated by the chief operating decision makers. Our
chief operating decision makers consist of senior management that
work together to allocate resources to, and assess the
performance of, our engineered lumber business. We manufacture,
market, and distribute various engineered lumber products that
are used for construction. We believe that we manage our
business, assess its performance, and allocate resources as a
single operating segment in the engineered lumber business.
Sales of engineered lumber products:
EXPRESSED IN THOUSANDS 1/2/99 1/3/98 12/28/96
-----------------------------------
Residential $645,776 $584,860 $479,934
Commercial 84,866 76,010 56,552
Industrial 47,421 45,446 40,680
-----------------------------------
Net sales $778,063 $706,316 $577,166
-----------------------------------
-----------------------------------
Geographic information consists of the following:
EXPRESSED IN THOUSANDS United States Foreign Consolidated
------------------------------------------
1998
Net sales $687,755 $ 90,308 $778,063
Long-lived assets 366,855 15,712 382,567
------------------------------------------
1997
Net sales $608,445 $ 97,871 $706,316
Long-lived assets 362,813 17,673 380,486
------------------------------------------
1996
Net sales $507,522 $ 69,644 $577,166
Long-lived assets 362,530 19,569 382,099
------------------------------------------
Revenues are attributed to geographic area based on the location
of the customer.
We have a strategic alliance with Weyerhaeuser's Building
Materials Distribution Division. The arrangement allows us to
expand our distribution network through the Weyerhaeuser customer
service centers. Additionally, there are certain supply
agreements, where we purchase raw materials such as oriented
strand board from Weyerhaeuser. Total sales to Weyerhaeuser were
$249,000,000 in 1998, $218,400,000 in 1997, and $188,000,000 in
1996. Our other significant customer is MacMillan Bloedel
Building Materials. See note 8 for information related to sales
to them.
37
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders of TJ International, Inc.:
We have audited the accompanying consolidated balance sheets of
TJ International, Inc. (a Delaware corporation) and subsidiaries
as of January 2, 1999, January 3, 1998, and December 28, 1996,
and the related consolidated statements of income, stockholders'
equity, and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position
of TJ_International, Inc. and subsidiaries as of January 2, 1999,
January 3, 1998, and December 28, 1996, and the results of their
operations and their cash flows for the years then ended in
conformity with generally accepted accounting principles.
/s/ Arthur Andersen LLP
------------------------------
February 2, 1999
Boise, Idaho
38
MARKET AND DIVIDEND INFORMATION
TJ International, Inc. stock is traded on the over-the-counter
market and is listed with the National Association of Security
Dealers Automated Quotations (NASDAQ) under the symbol TJCO.
The high and low quoted sales prices (closing) and dividends paid
per common share for each quarterly period during 1998 and 1997
were as follows:
1998 SALES PRICE
---------------------
HIGH LOW DIVIDENDS PAID
-----------------------------------------
First $ 33 7/8 $ 22 7/8 $ 0.05 1/2
Second 33 1/2 27 15/32 0.05 1/2
Third 29 3/8 17 9/16 0.05 1/2
Fourth 25 13/16 16 3/4 0.05 1/2
-----------------------------------------
1997 SALES PRICE
---------------------
HIGH LOW DIVIDENDS PAID
-----------------------------------------
First $ 23 1/4 $ 18 1/2 $ 0.05 1/2
Second 24 3/8 18 7/8 0.05 1/2
Third 26 3/4 22 3/8 0.05 1/2
Fourth 27 3/16 22 1/4 0.05 1/2
-----------------------------------------
39
MANAGEMENT'S DISCUSSION AND ANALYSIS
1998 COMPARED TO 1997
We achieved record sales levels in 1998. Sales for the year grew
to $778 million, or 10% from the $706 million reported a year
ago. Sales per North American housing start for 1998 were $355,
which is an increase of 3% from the levels reached in 1997 and
was our 16th consecutive year of growth in this key benchmark.
The increase in sales resulted from growing acceptance of
engineered lumber in construction due to the higher quality and
better value that engineered lumber products provide. This growth
has been achieved despite the challenging market conditions of
declining prices for commodity solid sawn lumber products, which
remain the primary competitor for our engineered lumber products.
Price declines for lumber were most significant in the East Coast
species, as prices for 2x10 southern yellow pine were down on
average 25%. Although prices for competing commodity products
were much lower, we have maintained and increased our base of
builders who have used our products over the years. However, the
low prices for competing commodity solid sawn lumber made it more
difficult during the year to convert builders who have not used
our products in the past.
Unit volume growth accounted for virtually all of the sales
increase for 1998. Our average prices across our technologies
were essentially flat in 1998 compared to 1997. Volume gains were
strong for all of our technologies with TJI-Registered Trademark-
Joists showing the strongest gain followed closely by
TimberStrand-Registered Trademark- LSL, Microllam-Registered
Trademark- LVL, Parallam-Registered Trademark- PSL, and Open Web
joists.
Gross margins for the year were 26.5% compared with 27.4% in
1997. The most significant factor in the margin decline was the
cost of oriented strand board (OSB), which is used as the raw
material component for the web in the Company's TJI-Registered
Trademark- Joist. Commodity OSB prices spiked in the third
quarter for an average increase of 96% for the third quarter of
1998 as compared to 1997's third quarter. OSB prices declined
significantly at the end of the third quarter; however, the
higher costs continued to affect margins in the fourth quarter,
as we used material held in inventory at the end of the price
spike.
In comparing the second half of 1998 to 1997, the higher OSB
prices negatively affected operating income by approximately $11
to $12 million or 20 to 22 cents per diluted share. High OSB
costs were partially offset by improved operating efficiencies at
many of our manufacturing plants. We experienced improved
productivity and throughput, lower unit costs, and higher product
prices for both TimberStrand-Registered Trademark- LSL and
Parallam-Registered Trademark- PSL. We also continue to execute
our plan to transition our new technologies to higher value
products. These include TimberStrand-Registered Trademark- LSL
headers, wall framing and door components, as well as our
TJI-Registered Trademark- Pro 120 TS, which uses
TimberStrand-Registered Trademark- LSL as a flange material in
the joist.
Selling expenses as a percentage of sales were essentially flat
from 1998 to 1997. Spending in dollars increased $7.6 million,
from $71.0 million in 1997 to $78.6 million in 1998. We continue
to execute our strategy of providing value-added services to the
market. In addition, our selling expenses include the costs to
develop our international markets.
General and administrative expenses were essentially flat from
1998 to 1997 with spending of $36 million in both years. However,
as a percentage of sales, general and administrative expenses
declined in of 1998 to 4.7% compared to 5.2% for 1997.
1997 COMPARED TO 1996
We achieved record sales levels in 1997. Sales increased by $129
million from the prior year. This increase stems primarily from
greater acceptance of our engineered lumber products as a
substitute for commodity solid sawn lumber in North American
residential construction markets. We also experienced very strong
growth in commercial construction markets and international
markets.
In 1997, our sales of products in commercial construction markets
increased 35% to $76 million. The growth was primarily a result
of intensified sales efforts in established West Coast markets,
increased success of marketing to national commercial accounts,
and the introduction of new products. Sales outside of North
America grew 44% to $30.4 million in 1997. The largest growth
came from sales of TimberStrand-Registered Trademark- lumber in
Japan.
40
Sales per North American housing start rose 19% to $344 per start
from the $289 per start of 1996. This was the 15th consecutive
year we have achieved market penetration growth in the key
residential construction market. Nearly every geographic region
of the continent showed gains in sales per housing start, with
exceptionally strong improvements registered in eastern Canada,
the Southwest, and the southern United States. It should be noted
that this strong improvement in market penetration occurred in a
highly competitive North American housing environment where
starts were essentially flat comparing 1997 to 1996.
Prices for commodity solid sawn lumber products, which remain the
principal competition for our engineered lumber products, began
1997 at near two-year high levels, but declined in the second
half of the year. The declines were particularly sharp in the
West Coast species such as Douglas fir. Sales growth resulted
primarily from increased unit-volume sales, as prices for our
products were on average flat for 1997 compared to 1996. Volume
gains were strongest for our new technology
TimberStrand-Registered Trademark- LSL and Parallam-Registered
Trademark- PSL.
Gross margins for 1997, were 27.4% compared to 24.7% for 1996.
Margin gains resulted from lower costs for raw materials such as
OSB and veneer; increased prices for TimberStrand-Registered
Trademark- LSL stemming from a product mix shift to higher value
products; and increased operating efficiencies at many of our
manufacturing facilities.
Our newest facility, which manufactures TimberStrand-Registered
Trademark- LSL in East Kentucky, continued to improve its
performance in 1997. The plant transitioned from losses in the
first quarter to profitability in the third quarter of the year.
Additionally, in 1997 our new plant, located in Buckhannon, West
Virginia, successfully improved in 1997 to become the lowest-cost
producer of Parallam-Registered Trademark- PSL and
Microllam-Registered Trademark- LVL.
Selling expenses for 1997 increased $9.7 million to $71.0
million, from $61.3 million in 1996. In 1997, however, they
declined as a percentage of sales to 10% from 10.6% in 1996.
Total selling expenses rose because of variable selling expenses
and sales commissions resulting from sales growth. Additionally,
we continue to invest in developing international markets,
aggressively bringing innovative products to market and
supporting efforts related to product mix optimization such as
literature and training.
General and administrative expenses for 1997 increased $10.3
million, from $26.6 million and 4.6% as a percentage of sales in
1996, to $36.9 million and 5.2% as a percentage of sales in 1997.
The largest component of this increase is spending for business
support software, which will provide infrastructure for future
growth. Additionally, we increased research and development
expenses to further improve the TimberStrand-Registered
Trademark- LSL technology and other costs necessary to support
our growth.
LIQUIDITY AND CAPITAL RESOURCES
Working capital increased $22.6 million from the prior year, to
$241.8 million. The increase was due to strong cash flow from
operations combined with a modest capital program. Inventory
levels were increased to improve service levels and reduce lead
times to customers. Receivables have also increased as more
customers purchase and ship via rail, which have 60-day terms.
At our December 1998 Board of Directors meeting, the Board of
Directors approved a cash distribution of $70 million from Trus
Joist MacMillan, a limited partnership, to its partners,
MacMillan Bloedel of America and TJ International, Inc. The
distribution was made in January 1999, and appropriated to the
relative ownership interests of the two partners.
In 1997, we began construction of a Microllam-Registered
Trademark- LVL and TJI-Registered Trademark- Joist plant located
in Evergreen, Alabama and completed the facility in 1998.
Production began late in the fourth quarter of 1998. This new
facility will produce traditional Microllam-Registered Trademark-
LVL and TJI-Registered Trademark- Joist products. The plant
construction required a capital investment of approximately $45
million.
We also completed construction in late 1997 of a TJI-Registered
Trademark- Joist facility at our East Kentucky location, which
uses TimberStrand-Registered Trademark- LSL as the flange
material. Market introduction of this product began in the first
quarter 1998. The additional I-line required a capital investment
of approximately $16.5 million in 1997.
We are evaluating potential sites for a third
TimberStrand-Registered Trademark- LSL plant, but we have not
determined whether or when to proceed with construction. We
believe that current cash balances, cash generated from
operations, and borrowing under a $150 million Revolving Credit
Facility will be sufficient to meet our ongoing operating and
capital expansion needs. We also believe that additional or
expanded lines of credit or appropriate long-term capital can be
obtained to fund other major capital requirements as they arise,
or to fund an acquisition.
In the first quarter of 1998, the Board of Directors authorized
us to purchase $3.1 million of treasury stock. In addition, at
the Board of Directors meeting held on May 27, 1998, the Board
authorized us to purchase $35 million of treasury stock. We
purchased $4.4 million in the second quarter of 1998 and $30.6
million in the third quarter 1998 completing that stock purchase
plan.
41
For 1997, the Board of Directors authorized the purchase of up to
$15 million of common stock at market prices. We purchased $8.3
million of treasury stock during the first quarter of 1997 and
$6.7 million of stock during the second quarter of 1997
completing that stock purchase plan. In addition, the Board of
Directors authorized the purchase of an additional $1.3 million
of stock during the third quarter of 1997.
In the third quarter of 1998, we issued $6.7 million of
tax-exempt industrial revenue variable rate demand bonds related
to the East Kentucky plant. In 1998, the weighted average
interest rate on these bonds was 3.82%. These bonds are
unsecured, with the principal due in a single maturity in 2028.
We used the proceeds from these bonds to prepay, without penalty,
$6.7 million of the taxable industrial revenue bonds described
below.
In the fourth quarter of 1998, we extended for five years the due
date of our $10 million tax-exempt industrial revenue variable
rate demand bonds, which otherwise would have matured in the year
2000. These bonds had a weighted average interest rate of 3.82%
in 1998.
In the fourth quarter of 1997, we issued $42.6 million of taxable
industrial revenue bonds. We issued these bonds to preserve our
ability to issue additional tax-exempt industrial revenue bonds
in the future to help finance the East Kentucky
TimberStrand-Registered Trademark- LSL plant. The weighted
average interest rate on these bonds during 1998 was 6.12%. These
bonds are payable in 2001.
Additionally, we have fixed rate debt of $83.4 million
outstanding. This debt has a weighted average interest rate of
6.92% and is payable in varying amounts from 2024 through 2027.
We also have $6.4 million of tax-exempt industrial revenue
variable rate demand bonds payable in 2009. These bonds had a
weighted average interest rate of 3.82% in 1998.
We completed the sale of our window operations in 1996; however,
we retained certain liabilities related to these operations. We
believe that existing reserves are adequate to meet all
liabilities that may arise related to the discontinued
operations.
Substantially all of the operating assets are held, and revenue
generated, by Trus Joist MacMillan a Limited Partnership. The
Partnership regularly distributes cash to the partners to fund
the tax liabilities generated by the Partnership at the corporate
level. All other distributions of cash by the Partnership are
dependent on the affirmative votes of the representatives of the
minority partner. Accordingly, there can be no assurance that
such distributions will be approved and thereby be available for
the payment of dividends or to fund other cash expenses.
INDUSTRY, COMPETITION, AND CYCLICALITY
Our engineered lumber products continue to gain market acceptance
as high-quality alternatives to traditional solid sawn lumber
products. Through intensive marketing efforts, builders and other
wood users are increasingly recognizing the consistent quality,
superior strength, lighter weight, and ease of installation of
engineered lumber products. We believe that this trend will
continue well into the future.
No other company possesses the range of engineered lumber
products, the levels of service and technical support, or the
second-generation technologies of TimberStrand-Registered
Trademark- LSL or Parallam-Registered Trademark- PSL. There are,
however, a number of companies, including several large forest
products companies, which now produce look-alike wood I-joist and
laminated veneer lumber products. Several of these companies have
announced capacity expansions. These look-alike products are
manufactured using processes similar to our oldest-generation
technologies.
We believe our network of manufacturing plants and multiple
technologies position us as the low-cost producer of engineered
lumber. While competition helps expand the market for engineered
wood products, including those manufactured by us, it may also
make the existing markets more price competitive. Traditional
wide-dimension lumber, however, remains the predominant
structural framing material used in residential construction and
is the primary competitor for our products. Commodity lumber
prices historically have been subject to high volatility, and
during prolonged periods of significant lumber price movements,
our prices have trended in the same direction.
Our operations are strongly influenced by the cyclicality and
seasonality of residential housing construction. This industry
experiences fluctuations resulting from a number of factors,
including the state of the economy, consumer confidence, credit
availability, interest rates, and weather patterns. Consistent
with the seasonal pattern of the construction industry as a
whole, our sales have historically tended to be lowest in the
first and fourth quarters and highest in the second and third
quarters of each year.
42
RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting standards No. 133, Accounting
for Derivative Instruments and Hedging Activities. The Statement
establishes accounting and reporting standards requiring that
every derivative instrument (including certain derivative
instruments embedded in other contracts) be recorded in the
balance sheet as either an asset or liability measured at its
fair value. The Statement requires that changes in the
derivative's fair value be recognized currently in earnings
unless specific hedge accounting criteria are met. As of January
2, 1999, we had no material derivative financial instruments
outstanding. We plan to adopt this statement in the first quarter
of 2000.
YEAR 2000 ISSUE
We are working to resolve the effects of the Year 2000 problem on
our information systems, including the financial and transaction
systems, production and process control systems, and compliance
status of suppliers' systems. The Year 2000 problem, which is
common to most businesses, concerns the inability of such systems
to properly recognize the process dates and date-sensitive
information on and beyond January 1, 2000.
In 1997, we formally began a series of assessments, company-wide
tracking, and awareness programs. These programs ensured
company-wide awareness of the Year 2000 issues, standardized the
inventory and assessment methods, and tracked the results of the
assessments.
We have successfully educated key personnel on the issues,
completed our inventory and assessments of the Year 2000 risks
for financial and transaction systems and production and process
control systems. A number of applications in the financial and
transaction processing systems are compliant due to recent
implementations and upgrades. We have been configuring and
installing Year 2000 compliant systems as part of our program to
provide significantly improved functionality in our business
support software. This program is intended to provide the
infrastructure for future growth. Our core financial and
reporting systems are not yet fully compliant but are scheduled
to be complete by late fall 1999. To date, no significant issues
have been identified in connection with our assessment of our
primary production and process control systems. We expect to
complete replacement of the identified non-compliant equipment or
software by the third quarter of 1999.
We are also in the process of surveying vendors, principal
customers and business partners regarding their Year 2000
compliance. Contingency plans have been identified or are
currently being developed in the event either our systems or key
third-party systems are not compliant.
While we currently believe that we will be able to modify or
replace our affected systems in time to reduce any detrimental
effects on our operations, failure to do so, or the failure of
our major customers and suppliers to modify or replace their
affected systems, could have a material adverse impact on our
results of operations, liquidity, or consolidated financial
position in the future. The most reasonably likely, worst-case
scenario of our failure or our customers or suppliers, to resolve
the Year 2000 problem would be a temporary slowdown or cessation
of manufacturing operations at one or more of our facilities and
a temporary inability on our part to process orders and billings
on a timely basis and to timely deliver finished products to
customers. We are currently identifying and considering various
contingency operations, including identification of alternate
suppliers, vendors and service providers, and manual alternatives
to systems operations, which will allow us to minimize the risk
of any unresolved Year 2000 problems in our operations and to
minimize the effect of any unforeseen Year 2000 failures.
We currently estimate the cost to complete compliance should not
exceed $3,000,000. These costs will be expensed as incurred,
unless new software, equipment, or hardware is purchased that
should be capitalized in accordance with accounting policy.
43
FORWARD-LOOKING STATEMENTS
This management's discussion and analysis includes a number of
"forward-looking statements" as defined by the Private Securities
Litigation Act of 1995. Forward-looking statements include,
without limitation, statements regarding the adequacy of our
reserves for discontinued operations and other statements
regarding our beliefs. Investors are cautioned that
forward-looking statements are subject to an inherent risk that
actual results may vary materially from those described,
projected, or implied herein. Factors that may result in such
variance include, among others: changes in interest rates,
commodity prices, and other economic conditions; actions by
competitors; changing weather conditions and other natural
phenomena; actions by government authorities; technological
developments; future decisions by management in response to
changing conditions; and misjudgments in the course of preparing
forward-looking statements. Other factors are discussed in our
filings with the Securities and Exchange Commission.
Microllam-Registered Trademark-, Parallam-Registered Trademark-,
TJI-Registered Trademark- joist, and TimberStrand-Registered
Trademark- are registered trademarks of Trus Joist MacMillan a
Limited Partnership, Boise, Idaho.
44
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
We have audited in accordance with generally accepted auditing
standards, the financial statements included in TJ International,
Inc.'s annual report to shareholders included in this Form 10-K,
and have issued our report thereon dated February 2, 1999. Our
audit was made for the purpose of forming an opinion on those
statements taken as a whole. The schedules listed in Part IV,
Item 14(a)(2) are the responsibility of the Company's management
and are presented for purposes of complying with the Securities
and Exchange Commissions rules and are not part of the basic
financial statements. These schedules have been subjected to the
auditing procedures applied in the audit of the basic financial
statements and, in our opinion, fairly state in all material
respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
/s/ Arthur Andersen LLP
------------------------------
Boise, Idaho
February 2, 1999
45
SCHEDULE I
----------
TJ INTERNATIONAL, INC.
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
FOR THE YEARS ENDED JANUARY 2, 1999, JANUARY 3, 1998 AND DECEMBER 28,
1996
CONDENSED BALANCE SHEETS (in thousands)
1/2/99 1/3/98 12/28/96
------ ------ --------
ASSETS
Current assets
Cash and cash equivalents $ 3,261 $ 29,276 $ 25,998
Receivables 3,901 5,099 8,422
Intercompany receivables 4,957 5,280 250
Deferred income taxes 3,610 3,382 4,985
Other 265 236 97
-------- -------- --------
15,994 43,273 39,752
Property
Property, plant & equipment 4,002 4,004 4,004
Accumulated depreciation (587) (361) (128)
-------- -------- --------
3,415 3,643 3,876
Deferred income taxes --- --- 6,049
Investment in subsidiaries 251,598 225,318 202,005
Intercompany notes receivable 132,990 132,990 78,740
Other assets 1,007 2,062 4,122
-------- -------- --------
$405,004 $407,286 $334,544
-------- -------- --------
-------- -------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable $ 893 $ 3,125 $ 2,239
Accrued liabilities 2,091 1,541 698
-------- -------- --------
2,984 4,666 2,937
Long-term debt 125,990 125,990 71,740
Deferred income taxes 17,403 5,263 ---
Other long-term liabilities 12,135 12,473 9,827
Reserve for discontinued operations 13,687 17,482 21,970
Stockholders' equity
ESOP Convertible Preferred Stock 13,271 13,535 13,721
Guaranteed ESOP Benefit (7,288) (8,188) (9,204)
Common stock 18,069 17,807 17,501
Paid-in capital 160,863 153,936 145,583
Retained earnings 104,183 82,311 60,469
Other (1,949) (1,730) ---
Treasury stock (54,344) (16,259) ---
-------- -------- --------
232,805 241,412 228,070
-------- -------- --------
$405,004 $407,286 $334,544
-------- -------- --------
-------- -------- --------
SCHEDULE I
----------
TJ INTERNATIONAL, INC.
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
FOR THE YEARS ENDED JANUARY 2, 1999, JANUARY 3, 1998 AND DECEMBER 28,
1996
CONDENSED STATEMENTS OF INCOME (in thousands, except per share information)
1998 1997 1996
---- ---- ----
Equity in earnings of subsidiaries $ 45,705 $ 41,316 $ 24,934
Administrative expenses (2,028) (1,912) (1,264)
Interest income, net 1,289 1,586 1,062
-------- -------- --------
Income before income taxes 44,966 40,990 24,732
Income taxes 16,124 13,465 8,557
-------- -------- --------
Net Income $ 28,842 $ 27,525 $ 16,175
-------- -------- --------
-------- -------- --------
Net income per share
Basic $ 1.69 $ 1.55 $ 0.88
-------- -------- --------
-------- -------- --------
Diluted $ 1.57 $ 1.44 $ 0.82
-------- -------- --------
-------- -------- --------
SCHEDULE I
----------
TJ INTERNATIONAL, INC.
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
FOR THE YEARS ENDED JANUARY 2, 1999, JANUARY 3, 1998 AND DECEMBER 28,
1996
CONDENSED STATEMENTS OF CASH FLOWS (in thousands)
1998 1997 1996
---- ---- ----
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES $ (2,249) $ 16,048 $ (6,205)
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from the sale of
discontinued operations $ --- $ --- $ 24,035
Payments of discontinued operations
liabilities (2,776) (2,460) (10,733)
Other, net --- --- 134
Net cash provided by (used in) -------- -------- --------
investing activities $ (2,776) $ (2,460) $ 13,436
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Cash dividends paid on common stock $ (3,666) $ (3,823) $ (3,791)
Cash dividends paid on preferred stock (1,208) (2,473) ---
Cash distributions received from
consolidated subsidiaries 21,285 16,759 8,285
Net intercompany borrowings 323 (5,030) 2,530
Intercompany long-term debt borrowings --- (54,250) (5,740)
Proceeds from the issuance of
long-term debt 6,710 54,250 5,740
Principal payments of long-term debt (6,710) --- (7,040)
Purchase of treasury stock (38,085) (16,259) ---
Other, net 361 516 552
-------- -------- --------
Net cash used in financing activities $(20,990) $(10,310) $ 536
-------- -------- --------
NET CHANGE IN CASH AND CASH
EQUIVALENTS
Net increase (decrease) in cash and
cash equivalents $(26,015) $ 3,278 $ 7,767
Cash and cash equivalents at beginning
of year 29,276 25,998 18,231
-------- -------- --------
Cash and cash equivalents at
end of year $ 3,261 $ 29,276 $ 25,998
-------- -------- --------
-------- -------- --------