WTD Industries, Inc.

10260 SW Greenburg Road
Portland, Oregon 97223
U.S.A.
(503) 246-3440
Fax: (503) 245-4229

Public Company
Incorporated: 1983
Employees: 1,100
Sales: $284.1 million (1997)
Stock Exchanges: NASDAQ
SICs: 2411 Logging; 2499 Wood Products, Not Elsewhere Classified

WTD Industries, Inc. is one of the largest producers of lumber products in the United States, operating mills in Oregon, Washington, and Vermont. The company markets its lumber in the United States, Canada, and other countries under the Tree-Source brand name through a wholly owned subsidiary, Tree-Source, Inc. Its top three customers in the United States are Georgia-Pacific Corporation, the Weyerhaeuser Company and HomeBase Inc. The company is also a major producer of wood chips for pulp and paper manufacturers in the Northwest. In 1996, WTD Industries produced more than 485 million board feet of lumber and 194,000 BDU (bone dry units) of wood chips.

Founding

WTD Industries got its start during one of the timber industry’s cyclical downturns. In 1981, Bruce Engel, then a 41-year-old attorney in Portland, Oregon, purchased the bankrupt Little River Lumber Co. in Glide, Oregon, from one of his clients, the Johnson Lumber Co., for $3,000 and the assumption of $2 million in debt. Engel, who was raised on a farm in Oregon and graduated from the University of Chicago, had seldom seen the inside of a sawmill, but as he later told Forbes, ”There’s a fine line between legal and business advice that I think frustrates many lawyers.”

Engel and a partner, William G. Williamson, incorporated WTD Industries in 1983, after acquiring sawmills in Silverton and Philomath, Oregon. They also established TreeSource Inc. as the company’s lumber sales organization. Over the next few years, WTD Industries continued to buy bankrupt sawmills at favorable terms, a strategy that enabled the company to rid itself of burdensome union and long-term timber contracts. By one estimate, production costs at WTD Industries mills in the early 1980s were $65 per thousand board feet of lumber, compared to $100 for the Weyerhaeuser Company. Communities also offered Engel and Williamson substantial enticements to retain local timber jobs. For example, Sedro-Woolley, a small timber community north of Seattle, gave them a $500,000 economic development loan at 7 percent interest.

By 1986, when Engel announced that WTD Industries would become the first Pacific Northwest lumber company to go public since the 1960s, the company operated nine sawmills west of the Cascade Mountains, stretching from Bellingham, Washington, to Rosewood, Oregon. Sales had increased from less than $50 million in 1983 to nearly $100 million in 1986, and the company had become the 17th largest timber producer in the United States. Engel, who by then had bought out Williamson’s 23 percent stake in the business for $606,000, sold 42 percent of the company in an initial public offering for $24 million, making him one of the richest men in Oregon. At one point, Engel and his wife, Teri, were worth an estimated $90 million. They used their fortune to buy bowling alleys, a weekly newspaper, several small manufacturers, and ranches in Oregon, British Columbia, and New Zealand. They also attempted to buy the Seattle Mariners baseball team for $37 million, and they contributed freely to charitable organizations, including the Oregon Symphony, underwriting the cost of producing three recordings.

WTD Industries continued to soar into 1987, its stock price doubling less than four months after going public. According to industry estimates, nearly 100 Pacific Northwest sawmills and plywood and veneer plants had closed between 1980 and 1987, but Engel, and his strategy of buying timber on the spot market instead of bidding on long-term contracts, was successfully bucking that trend. He told Forbes, which dubbed Engel “Paul Bunyan in pinstripes,” “We represent something of a slap in the face to the established industry. In the midst of all their woe, here we come operating successfully.”

That fall, the U.S. stock market crashed and the value of WTD Industries shares fell by half, costing the Engels at least $40 million. But the company seemed unstoppable. In December, WTD Industries announced plans to acquire a plywood mill in Whitehall, New York, the company’s first expansion east of the Rocky Mountains. G. Alan Guggenheim, then vice president, told the Portland Business Journal that WTD Industries did not have “an East Coast strategy.” But, Guggenheim added, “We’ve never limited ourselves to the Northwest. The image of New York is that of an intensely urban state. But three-fifths of the state is forested. There are millions of acres of commercial forest land.”

Collapse

WTD Industries’ breakneck expansion slowed in 1988, and the company began investing more of its cash in the stock market instead of snatching up additional mills. After buying 16 small lumber companies in 1986-87, WTD Industries acquired just two more in 1988. Jerry Griffin, then vice president for corporate development, told the Portland Business Journal, ”The market has been so strong that people have been overvaluing their mills. Our strategy has been to buy capacity at below value. That opportunity hasn’t been available.” The company also reported that nearly 15 percent of its income for the last quarter of 1988 came from its investments in the stock market, rather than lumber sales, where its profit margin was beginning to shrink.

Nevertheless, by 1989 WTD Industries had become the fourth largest lumber producer in the United States, operating more than two dozen sawmills and veneer plants in seven states and restoring more than 3,000 jobs in depressed Northwest timber communities. The company was also planning to expand into the pulp and paper industry with a $300 million plant on the Columbia River near Clatskanie, Oregon, and there were rumors that WTD Industries was interested in acquiring the much larger Longview Fibre Company, in Longview, Washington. Long view Fibre then operated 14 mills in seven states, but more importantly for “timber poor” WTD Industries, it owned more than 500,000 acres of harvestable forest. WTD Industries acquired 4.8 percent of Longview Fibre’s stock in partnership with Mack Capital of New York. But Longview Fibre, with sales of $657.2 million in 1988, adopted several “poison-pill” anti-takeover measures, including changing the state of incorporation from New Jersey to Washington, which had more stringent shareholder rules. Richard P. Wollenberg, then chief executive at Longview Fibre, told the Oregonian, that WTD had “neither the capital nor the character” to take over Long-view Fibre.

Then, as quickly as WTD Industries rose to prominence, it all began to fall apart. Most of WTD Industries lumber was softwoods for the construction industry. As the country slipped into a recession in the late 1980s, housing starts fell, along with lumber prices. At the same time, environmentalists were raising concerns over the spotted owl. The federal government restricted logging in national forests to protect the owls environment, which forced up the cost of timber on the spot market. Since the beginning, WTD Industries’ business strategy had been predicated on the belief that the cost of timber and lumber would rise and fall in concert, but that was not happening. As Forbes had cautioned two years earlier, “Key to keeping WTD’s costs down is Engel’s policy of operating with timber inventories of only three weeks; industry convention used to require raw material supplies of three years. Buying spot is fine when, as now, tree owners are eager to sell. But timber prices could escalate again, especially if conservationists win a 20% reduction in the timber set for public auction-----”

In mid-1989, WTD Industries reported its first unprofitable quarter since 1982. Company officials also began talking about closing mills instead of expanding, which sent the stock plummeting to $3.50 a share. Engel told the Oregonian, ”I don’t believe the spotted owl will permanently reduce timber production in the Northwest (but) I don’t think we know what the (cost) will be.” Engel, who saw his personal wealth fall along with the price of WTD Industries’ stock, was also having financial problems. He had borrowed heavily to acquire his other businesses, personally guaranteeing more than $7 million in loans. In a precursor of what faced WTD Industries, Kimber of Oregon, a rifle manufacturer owned by Engel in Clackamas County, filed for protection from creditors in U.S. Bankruptcy Court. The Engels also sold their radio stations for $9 million and mortgaged their home in Portland for $500,000.

At first, WTD Industries tried to work out its problems through business as usual. The company bought five more lumber-products companies in early 1990, including the Cornett Lumber Co. sawmill in Central Point, Oregon; Cascade Lumber Co. sawmill in Cottage Grove, Oregon; Yoncalla Timber Products Inc. veneer mill in Yoncalla, Oregon; McDougal-Meyers Inc. sawmill in Judith Gap, Montana; and Mountain View Lumber Inc. sawmill in West Burke, Vermont. But in April, the company announced that it would close, or delay reopening, eight sawmills—one fourth of the company—including all of the newly acquired sawmills except the one in Vermont. The Oregonian reported succinctly: “WTD Industries, Inc., the nation’s fastest growing lumber manufacturer, has been sidetracked by the fight over the northern spotted owl.” The company was also forced to write off losses from its proposed pulp mill on the Columbia River when it failed to get a wastewater permit from the Oregon Environmental Quality Commission.

Engel announced that the writeoff and the cost of closing the sawmills would wipe out virtually all of the company’s earnings for fiscal 1990. Almost immediately, two stockholders filed suit in U.S. District Court in Portland, claiming that WTD Industries had misled them about the company’s financial condition. The suit also alleged that Engel and his wife, Teri, a WTD Industries director, unfairly profited by selling 360,000 shares of stock between 1989 and 1990 at up to $16 a share. Other shareholder suits followed soon afterwards. The suits were settled out of court in 1991.

In May 1990, the Dow Jones News Service reported that WTD Industries would seek protection from its creditors in federal bankruptcy court. Engel denied the report. In a prepared statement, he said, “WTD has not and does not intend to file for bankruptcy protection. WTD continues to operate conservatively in response to an unanticipated and unusually depressed lumber market relative to high log costs by reducing capital expenditures significantly and reducing overhead.” He told the Oregonian, ’ ’It is more than a little frustrating that, even though WTD continues to operate sensibly, rumors of our demise by short sellers and other self-interested parties contribute to volatility in our stock price.” Engel and his wife, who then owned 36 percent of WTD Industries compared to 43.8 percent a year earlier, also registered to sell another 200,000 shares of stock to hold off their mounting personal financial troubles.

In June, the company’s dismal financial predictions were confirmed. WTD Industries reported a loss of $10.1 million for the quarter ending April 30, more than wiping out $8.6 million in earnings for the first three quarters of the fiscal year. The $1.5 million loss was WTD’s first unprofitable year since 1982, despite record sales of $460 million. A month later, WTD Industries put into operation the $7 million Trask River sawmill near Tillamook, Oregon, the company’s first all-new sawmill. WTD Industries hoped the modern, high-efficiency sawmill would revive the company. But the sawmill was forced to compete for limited timber supplies with the Tillamook Lumber Co., then owned by John Hampton, who was also chairman of the Northwest Forest Council. Hampton predicted only one mill would survive. He told the Oregonian: ”He’s (Engel) looking right down the gun barrel, and I’m going to pull the trigger.” That summer, WTD Industries reported its second straight quarterly loss—of $11 million. The stock price fell as low as 75 cents a share.

In January 1991, WTD Industries, once the fastest-growing company in the lumber industry, filed for Chapter 11 protection from its creditors in U.S. Bankruptcy Court in Seattle. Half of the company’s mills had already been closed, and court records indicated WTD Industries owed more than $120 million, most of it to First Interstate Bank of Oregon and three of the nation’s largest insurers, the Aetna Life Insurance Co., Principal Life Insurance Co., and Northwestern Mutual Life Insurance Co.

Emerging from Bankruptcy, 1992

The company continued to operate under the court’s protection for the next two years, selling or liquidating 17 of its 31 sawmills and plywood and veneer plants. In November 1992, the bankruptcy court approved a plan of reorganization, and WTD Industries became the largest Oregon company to ever emerge from a Chapter 11 filing. Although considerably smaller, WTD Industries, which had entered bankruptcy proceedings as the fourth largest producer of lumber in the United States, was still the sixth largest. Engel told the Oregonian, ”We didn’t doubt the validity of our company to reorganize.”

In a show of faith, WTD Industries’ creditors allowed Engel to remain as chief executive officer under the plan of reorganization. Several of the largest creditors also accepted stock in the company, then worth about 20 cents a share with a four for 10 reverse split, in lieu of payment of nearly $60 million in debt. However, First Interstate Bank of Oregon, wanted nothing more to do with the company and agreed to take $2.4 million in cash to satisfy a debt of $9.2 million. Engel and his wife, who owned 34 percent of the company before filing Chapter 11, owned less than 5 percent after the reorganization.

By mid-1993, WTD Industries was again operating in the black, and recorded a net income of $23.8 million on sales of $246.9 million for its first full fiscal year following the reorganization. However, a volatile lumber market the next four years held down sales and cut into the company’s profit margins. By 1996, when sales slipped to $192 million, WTD Industries was again losing money, posting a net loss of $6 million. In the company’s annual report, Engel said the fiscal year ending April 30,1996 “was the apparent culmination of the longest and most unusual down period for solid wood manufacturing in the Pacific Northwest in recent history.” Although there were encouraging numbers during the company’s fourth quarter, Engel also noted that “for the first time in our history we were unable to generate a profitable quarter the entire year.”

As anticipated, WTD Industries rebounded the following year, posting a profit of nearly $9 million on sales of $284.1 million for fiscal 1997. In an interview with the Oregonian during the worst of the most recent industry slump, Engel had also voiced his optimism. “The Northwest is the largest wood basket in the U.S.,” Engel said. “There should be an industry in the Northwest because the raw material is not only here, but it regrows faster here than in any other part of the country.”

Principal Subsidiaries

TreeSource, Inc., Portland, Oregon.; Western Timber Co., Portland, Oregon; Burke Lumber Co., West Burke, Vermont; Central Point Lumber Co., Central Point, Oregon; Glide Lumber Products Co., Glide, Oregon; Morton Forest Products Co., Morton, Washington; North Powder Lumber Co., North Powder, Oregon; Pacific Hardwoods-South Bend Co., South Bend, Washington; Pacific Softwoods Co., Philomath, Oregon; Philomath Forest Products Co., Philomath, Oregon; Sedro-Woolley Lumber Co., Sedro-Woolley, Washington; Spanaway Lumber Co., Tacoma, Washington; Trask River Lumber Co., Tillamook, Oregon; Turn water Lumber Co., Turn water, Washington.

Further Reading

Colby, Richard, “President of WTD Denies Report,” Oregonian, May 14, 1990, p. D10.

Gauntt, Tom, “WTD’s Eastward Leap Illustrates a New Strategy,” (Portland) Business Journal, Dec. 14, 1987, p. 9.

____, “WTD Invests in Stocks Instead of Lumber Mills,” (Portland) Business Journal, March 27, 1989, p. 2.

Hamburg, Ken, “Company Puts Up Defenses,” Oregonian, January 24, 1990.

Jones, Steven D., “Bankruptcy Reshapes Big Lumber Producer WTD,” (Puget Sound) Business Journal, June 12, 1992, p. 12.

____, “Slimmer WTD Edging Out of Bankruptcy,” (Portland) Business Journal, June 15, 1992, p. 1.

Kadera, Jim, “WTD Exercising Caution in Slow Times, Chief Says,” Oregonian, May 29, 1990, p. D8.

____, “WTD Industries, Once Headed for Top of Timber Industry, Is Treading Water,” Oregonian, June 24, 1990, p. C1.

____, “Analysts Praise, Criticize Engel,” Oregonian, September 23, 1990, p. Dl.

____, “WTD Industries Inc. Files for Protection,” Oregonian, February 1, 1991, p. Al.

____, “WTD Seeks Damages, 10 Years to Pay Debts,” Oregonian, September 25, 1991, p. C1.

____, “WTD Hopes to Trim Mills Down to 14,” Oregonian, September 27, 1991, p. C2.

____, “WTD Reorganization Disclosed As Company Seeks Clean Slate,” Oregonian, October 6, 1992, p. C12.

____, “Court OK Lets WTD Emerge from Ch. 11,” Oregonian, November 24, 1992, p. D11.

____, “WTD Faces Difficult Path Back to Financial Health After Chapter 11,” Oregonian, December 6, 1992, p. K1.

____, “Stock Analyst Predicts Demise of Small Timber Companies,” Oregonian, July 7, 1993, p. E9.

Klahn, Jim, “WTD’s Engel Pleads Case in Bankruptcy Court,” Oregonian, March 7, 1991, p. C1.

Nordquist, John C., “Timber Shootout Looms in Tillamook,” Oregonian, July 12, 1990, p. E10.

Woodward, Steve, “Industrial Turn-Around Artist Faces Tough Time,” Oregonian, September 23, 1990, D1.

—Dean Boyer