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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 December 28, 1996.
|_| Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the transition period from _____________ to
_____________.
Commission file number 0-6169
______________________
WOLOHAN LUMBER CO.
(Exact name of registrant as specified in its charter)
MICHIGAN 38-1746752
(State or other (I.R.S. Employer
jurisdiction of Identification
incorporation or Number)
organization)
1740 Midland Road, Saginaw, Michigan 48603
(Address of principal executive offices)
(517) 793-4532
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Name of each
Title of each exchange on which
class registered
------------- -----------------
None None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $1.00 par value
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes |X| No |_|
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the 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|
As of March 13, 1997, 6,916,129 shares of Common Stock of the registrant were
outstanding and the aggregate market value of the shares of Common Stock held
by non-affiliates (including certain officers and non-officer directors) of
the registrant was approximately $80,721,000.
Documents Incorporated by Reference
Portions of the Annual Report of the registrant to its shareholders for the
year ended December 28, 1996 are incorporated by reference into Part II.
Portions of the definitive Proxy Statement of the registrant, dated March 27,
1997, filed pursuant to Regulation 14A are incorporated by reference into
Part III.
Form 8-K dated November 1, 1996 is incorporated by reference into Part II,
item 9.
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<PAGE>
PART I
Item 1. Business.
Wolohan Lumber Co. (the "registrant") is engaged in the retail sale
of a full-line of lumber and building materials and related items,
through a chain of 62 building supply stores located in Illinois,
Indiana, Kentucky, Michigan, Ohio and Wisconsin.
The registrant sells to contractor builders and remodelers and to the
"do-it-yourself" market consisting principally of homeowners. These
segments accounted for approximately 58% and 42%, respectively, of
the registrant's sales for 1996.
The registrant sells more than 49,000 different products which are
purchased from approximately 1,700 suppliers. No supplier accounts
for more than 6% of total purchases. The registrant purchases lumber
products primarily from lumber and plywood mills and more than half
of all other merchandise from original producers or manufacturers.
The business of the registrant is not dependent upon a single
customer or a few customers for any significant portion of sales.
The registrant believes that backlogs are not significant to its
business.
The registrant is engaged in only one line of business - retail sales
of lumber and building materials and related items. The classes of
products include dimension lumber; sheathing plywood; building
materials; building hardware; lawn and garden; millwork; plumbing,
heating and electrical; kitchen cabinets and vanities; home
decorations; trusses and components, including storage barns; and
other forest products, such as fencing and treated lumber.
The business of the registrant is highly competitive, and it
encounters competition from both nationwide and regional chains and
from local independent merchants, as well as integrated department
stores such as K mart, WAL-MART and Sears. Because of the variety of
competition faced by the registrant and the wide range of products it
sells, it is virtually impossible to determine the registrant's
competitive position in the markets it serves.
The registrant holds no material patents, trademarks, licenses,
franchises or concessions.
The registrant's business, like the retail lumber business, generally
is subject to seasonal influences. The second and third quarters are
generally the periods of highest sales volumes while the first
quarter is usually the period of lowest sales volume.
The registrant had approximately 1,550 full-time employees at
December 28, 1996.
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<PAGE>
To the best of the registrant's knowledge, it is complying with all
federal, state and local environmental protection provisions.
Item 2. Properties.
The administrative offices of the registrant are located in a
28,000-square-foot, two-story brick face building situated on three
acres of land owned by the registrant in Saginaw, Michigan.
As of December 28, 1996, the registrant operated 62 building supply
stores in the states of Illinois, Indiana, Kentucky, Michigan, Ohio
and Wisconsin. The showroom selling space in the stores averages
27,000 square feet. In addition, total warehouse and storage space
(under roof) ranges in size from 11,000 square feet to 50,000 square
feet (average of 25,000 square feet).
All of the building supply stores are owned in fee by the registrant
with the exception of six leased stores and one store which is
occupied under an agreement with a local municipality. This agreement
provides for payments in amounts sufficient to retire the industrial
revenue bonds issued to finance the acquisition and construction of
the store and to pay interest on the bonds. This obligation has been
recorded in the registrant's financial statements.
The registrant believes that all of its building supply stores and
the display, warehouse and storage facilities and equipment located
thereon are well maintained and adequate for the purpose for which
they are used. A fleet of approximately 300 trucks is owned by the
registrant for the delivery of its retail merchandise.
Item 3. Legal Proceedings.
Various lawsuits arising during the normal course of business are
pending against the Company. In the opinion of management, the
ultimate liability, if any, resulting from these matters will have no
significant effect on the Company's results of operations, liquidity
or financial position.
Item 4. Submission of Matters to a Vote of Security Holders.
Not applicable.
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<PAGE>
Executive Officers of the Registrant
The executive officers of the registrant are as follows:
<TABLE>
<CAPTION>
Has Served
In Position
Name Position Since Age
- --------------------- ----------------------------- ----------- ---
<S> <C> <C> <C>
James L. Wolohan Chairman of the Board, 1994 45
President and 1986
Chief Executive Officer 1987
David G. Honaman Vice President-Administration, 1995 45
Secretary, and Chief
Financial Officer
William E. Stark Vice President- 1994 48
Human Resources
Mark H. Hershberger Vice President- 1996 46
Purchasing
Curtis J. LeMaster Vice President- 1996 48
Marketing
Edward J. Dean Corporate Controller 1984 46
James R. Krapohl Treasurer and 1978 51
Assistant Secretary
</TABLE>
Officers of the registrant are elected each year in April at the Annual
Meeting of the Board of Directors to serve for the ensuing year and until
their successors are elected and qualified.
All of the officers of the registrant named above have held various positions
with the registrant for more than five years, with the exception of William
E. Stark and Curtis J. LeMaster. Mr. Stark joined the Company in 1993 and
prior thereto was Director of Human Resources for Wickes Lumber Company. Mr.
LeMaster was Vice President of Marketing and Purchasing with Henry Bacon
Building Materials, Inc., before joining Wolohan Lumber in 1995.
-4-
<PAGE>
PART II
Item 5. Market for the Registrant's Common Equity and Related Shareholder
Matters.
The information set forth under the caption "Common Stock Data" on
page 4 of the 1996 Annual Report of the registrant to its
shareholders, is incorporated herein by reference.
Item 6. Selected Financial Data.
The five year selected financial data set forth under the caption
"Five Year Performance" on page 6 of the 1996 Annual Report of the
registrant to its shareholders, is incorporated herein by reference.
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations.
The information set forth on pages 7, 8 and 9 of the 1996 Annual
Report of the registrant to its shareholders, is incorporated herein
by reference.
Item 8. Financial Statements and Supplementary Data.
The report of management, report of independent auditors, and
financial statements included on pages 10 through 19 of the 1996
Annual Report of the registrant to its shareholders, are incorporated
herein by reference.
The information set forth under the caption "Quarterly Summaries" on
page 4 of the 1996 Annual Report of the registrant to its
shareholders, is incorporated herein by reference.
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.
As reported in the 8-K dated November 1, 1996, which is incorporated
herein by reference, the registrant will change its independent
auditors from Ernst & Young LLP to Rehmann Robson PC effective for
the fiscal year ending December 27, 1997.
-5-
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant.
The information set forth under the caption "Information About
Nominees As Directors" on pages 4 and 5 of the definitive Proxy
Statement of the registrant, dated March 27, 1997, filed with the
Securities and Exchange Commission pursuant to Regulation 14A is
incorporated herein by reference for information as to directors of
the registrant.
Reference is made to Part I of this Report for information as to
executive officers of the registrant.
Item 11. Executive Compensation.
The information set forth under the captions "Compensation Committee
Report" on pages 5, 6 and 7 and "Executive Compensation" on pages 7,
8 and 9 of the definitive Proxy Statement of the registrant, dated
March 27, 1997, filed with the Securities and Exchange Commission
pursuant to Regulation 14A is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and
Management.
The information set forth under the caption "Security Ownership" on
pages 2 and 3 of the definitive Proxy Statement of the registrant,
dated March 27, 1997, filed with the Securities and Exchange
Commission pursuant to Regulation 14A is incorporated herein by
reference.
Item 13. Certain Relationships and Related Transactions.
None.
-6-
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on
Form 8-K.
(a) (1) and (2) -- The response to this portion of Item 14 is submitted
as a separate section of this report.
(3) Listing of Exhibits -- The exhibit marked by one asterisk
below were filed as exhibits to Form 10-K of the registrant
for the year ended December 31, 1980; the exhibits marked with
three asterisks below were filed as exhibits to Form 10-Q of
the registrant for the quarter ended June 30, 1987; the
exhibit marked with four asterisks below was filed as an
exhibit to Form 10-K of the registrant for the year ended
December 31, 1988; the exhibit marked with five asterisks
below was filed as an exhibit to Form 10-Q of the registrant
for the quarter ended June 30, 1990; the exhibit marked with
six asterisks below was filed as an exhibit to Form 10-Q of
the registrant for the quarter ended June 30, 1991, the
exhibit marked with seven asterisks below was filed as an
exhibit to Form 10-K of the registrant for the year ended
December 31, 1991; and the exhibit marked with eight asterisks
below was filed as an exhibit to Form 10-K of the registrant
for the year ended December 31, 1994 (file number 0-6169), and
are incorporated herein by reference, the exhibit number in
parenthesis being those in such Form 10-K or 10-Q reports.
Exhibit (3) (a) *Articles of Incorporation (1)
Exhibit (3) (b) ***Amendment to Articles of
Incorporation (3) (a)
Exhibit (3) (c) *****Amendment to Articles of
Incorporation (6) (a) (1)
Exhibit (3) (d) ****By-laws (3) (c)
Exhibit (4) (a) ***Note Agreement dated as of May 1, 1987,
between registrant and Massachusetts
Mutual Life Insurance Company (4)
Exhibit (4) (b) *******Note Agreement dated as of January 15,
1992, between registrant and Principal
Mutual Life Insurance Company
Exhibit (10) (a) ******1991 Long-Term Incentive Plan of Wolohan
Lumber Co. (6) (a) (1) (X)
(10) (b) ********Stock Option Plan for Non-Employee
Directors (10) (b) (X)
(X) A compensatory plan required to be filed as an exhibit.
-7-
<PAGE>
Exhibit (13) Annual Report of registrant to its shareholders
for the year ended December 28, 1996
Exhibit (23) Consent of Independent Auditors
(b) Reports on Form 8-K filed in the fourth quarter of 1996.
The registrant filed Form 8-K on November 1, 1996. The purpose of
the filing was due to the Company changing its independent auditors
for the fiscal year ending December 27, 1997.
(c) Exhibits -- The response to this portion of item 14 is submitted as
a separate section of this report.
(d) Financial Statement Schedules -- The response to this portion
of Item 14 is submitted as a separate section of this report.
-8-
<PAGE>
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 on the 24th day
of March, 1997.
WOLOHAN LUMBER CO.
By /s/James L. Wolohan
-------------------------------------
James L. Wolohan
Chairman of the Board, President and
Chief Executive Officer
(Principal Executive Officer)
By /s/David G. Honaman
-------------------------------------
David G. Honaman
Vice President-Administration
Chief Financial Officer and Secretary
(Principal Financial Officer)
By /s/Edward J. Dean
-------------------------------------
Edward J. Dean
Corporate Controller
(Principal Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated on March 24th, 1997.
Signature Title Signature Title
/s/Lee A. Shobe Director /s/Ervin E. Wardlow Director
- ------------------------ ------------------------
Lee A. Shobe Ervin E. Wardlow
/s/James L. Wolohan Director /s/Hugo E. Braun, Jr. Director
- ------------------------ ------------------------
James L. Wolohan Hugo E. Braun, Jr.
/s/ F.R. Lehman Director /s/Leo B. Corwin Director
- ------------------------ ------------------------
F.R. Lehman Leo B. Corwin
/s/ Charles R. Weeks Director /s/Richard V. Wolohan Director
- ------------------------ ------------------------
Charles R. Weeks Richard V. Wolohan
-9-
<PAGE>
ANNUAL REPORT ON FORM 10-K
Item 14 (a) (1) and (2), (c) and (d)
Lists of Financial Statements and Financial Statement Schedules
Certain Exhibits
Financial Statement Schedules
Year-Ended December 28, 1996
WOLOHAN LUMBER CO.
SAGINAW, MICHIGAN
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<PAGE>
FORM 10-K -- Item 14 (a) (1) and (2)
WOLOHAN LUMBER CO.
List of Financial Statements and Financial Statement Schedules
The following financial statements, included in the 1996 Annual Report of the
registrant to its shareholders for the year ended December 28, 1996, are
incorporated by reference in Item 8:
Balance sheets -- December 28, 1996 and December 31, 1995.
Statements of income -- Years ended December 28, 1996 and December
31, 1995 and 1994.
Statements of shareowners' equity -- Years ended December 28, 1996
and December 31, 1995 and 1994.
Statements of cash flows -- Years ended December 28, 1996 and
December 31, 1995 and 1994.
Notes to financial statements -- December 28, 1996.
The following financial statement schedule of Wolohan Lumber Co. is included
in Item 14 (d):
Schedule II -- Valuation and qualifying accounts.
All other schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are not required under
the related instructions or are inapplicable, and therefore have been
omitted.
-11-
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
WOLOHAN LUMBER CO.
- -------------------------------------------------------------------------------------
COL. A COL. B COL. C COL. D COL. E
- -----------------------------------------------------------------------------------------------
ADDITIONS
-----------------------
(1) (2)
BALANCE CHARGES TO CHARGES TO BALANCE AT
AT BEGINNING COSTS AND OTHER ACCTS DEDUCTIONS END
DESCRIPTION OF PERIOD EXPENSES -DESCRIBE -DESCRIBE OF PERIOD
- -----------------------------------------------------------------------------------------------
Reserves and allowances
deducted from asset accounts:
Allowances for doubtful
accounts:
(1)
<S> <C> <C> <C> <C>
Year ended Dec. 28, 1996 $ 862,000 $ 735,000 $ 347,000 $ 1,250,000
Year ended Dec. 31, 1995 $ 935,000 $ 662,000 $ 735,000 $ 862,000
Year ended Dec. 31, 1994 $ 943,000 $ 387,000 $ 395,000 $ 935,000
<FN>
(1) The indicated amounts represent accounts written off.
</TABLE>
-12-
<PAGE>
EXHIBIT INDEX
The exhibit marked by one asterisk below were filed as exhibits to Form 10-K
of the registrant for the year ended December 31, 1980; the exhibits marked
with three asterisks below were filed as exhibits to Form 10-Q of the
registrant for the quarter ended June 30, 1987; the exhibit marked with four
asterisks below was filed as an exhibit to Form 10-K of the registrant for
the year ended December 31, 1988; the exhibit marked with five asterisks
below was filed as an exhibit to Form 10-Q of the registrant for the quarter
ended June 30, 1990; the exhibit marked with six asterisks below was filed as
an exhibit to Form 10-Q of the registrant for the quarter ended June 30,
1991, the exhibit marked with seven asterisks below was filed as an exhibit
to Form 10-K of the registrant for the year ended December 31, 1991; and the
exhibit marked with eight asterisks below was filed as an exhibit to Form
10-K of the registrant for the year ended December 31, 1994 (file number
0-6169), and are incorporated herein by reference, the exhibit number in
parenthesis being those in such Form 10-K or 10-Q reports.
Page Number
Sequential
Exhibit Numbering
Number System
- ------- -----------
Exhibit (3) (a) *Articles of Incorporation (1)
Exhibit (3) (b) ***Amendment to Articles of
Incorporation (3) (a)
Exhibit (3) (c) *****Amendment to Articles of
Incorporation (6) (a) (1)
Exhibit (3) (d) ****By-laws (3) (c)
Exhibit (4) (a) ***Note Agreement dated as of May 1,
1987, between registrant and
Massachusetts Mutual Life Insurance
Company (4)
Exhibit (4) (b) *******Note Agreement dated as of
January 15, 1992 between registrant and
Principal Mutual Life Insurance Company
Exhibit (10) (a) ******1991 Long-Term Incentive Plan
of Wolohan Lumber Co. (6) (a) (1)
(10) (b) ********Stock Option Plan for Non-Employee
Directors
Exhibit (13) Annual Report of registrant to its share-
holders for the year ended December 28,
1996 14-37
Exhibit (23) Consent of Independent Auditors 38
-13-
EXHIBIT 13
Wolohan
Lumber Co.
1996
Annual
Report
<PAGE>
IN RECOGNITION OF...
Wolohan Lumber Co. recognizes the outstanding service of two former
chairmen and presidents and extends our sincere thanks to these gentlemen who
have done so much for our Company. 1996 was the last full year these men were
active on the Board of Directors. This annual report is a tribute to them.
All of us still working at Wolohan Lumber Co. are deeply appreciative of
their contributions and are grateful for their legacy. We intend to be good
stewards and build upon their solid foundation.
[ PHOTO ]
Dick Wolohan -- Dick Wolohan was the principal founder of Wolohan Lumber Co.
He began his working career at age 16 at Charles Wolohan, Inc., his father's
grain-storage and lumber business. In 1944, the Wolohan family purchased a
grain elevator in Davison, Mich., which became Dick Wolohan's first full
management responsibility. During the post-World War II housing market boom,
Dick added lumber to the Davison business.
In 1950, Charles Wolohan, Inc. merged with Wickes Corporation. A year
later, Dick Wolohan was asked to join Wickes' Saginaw headquarters where he
served as vice president and general manager of the Wickes Lumber Division
and a member of the Wickes Corporation Board of Directors.
In 1964, Dick Wolohan left Wickes to start Wolohan Lumber Co., opening
three stores during that first year. Dick saw this Company grow from three
small stores to a formidable chain of 62 stores. He served as president and
chief executive officer of Wolohan Lumber Co. from 1964 to 1976. In 1976, he
became chairman of the board. Dick ceded the responsibilities of chief
executive officer to Dave Wallace in 1982 and chairman of the board in 1985.
Dick retains a position on the board to date but plans to retire in early
1997. In 1986, Dick Wolohan was nationally recognized by his peers, when he
was inducted into the Home Center Industry Hall of Fame. His faith in God,
love of family and his ethics are the driving forces in his life and served
as an excellent foundation upon which to build a business.
[ PHOTO ]
Dave Wallace -- Dave Wallace started his business career in 1949 working for
Standard Oil Company. In 1963, Dave was introduced to the wood-products
industry joining the Wickes Corporation. Leaving Wickes in 1974 with the
title of senior vice president, he joined the Grossman's Division of Evans
Products Company. Dave was vice president of Grossman's when through a
nationwide search he was recruited to join Wolohan Lumber Co. in 1980.
He joined Wolohan Lumber Co. as president, chief operating officer and a
member of its Board of Directors. In 1980, the retail lumber and building
material industry was in turmoil, due primarily to a severe housing
recession. Dave faced an enormous challenge. As an innovative leader and with
a strong sense of urgency, he built a highly effective team. This team took
Wolohan Lumber to a number of successes, including recognition as Retailer of
the Year in 1989 by the Building Supply News. He is a man of tremendous
integrity, one of many characteristics that made him so compatible with Dick
Wolohan. In 1982, Dave became chief executive officer. In addition to his
title of president and chief executive officer, Dave became chairman of the
board in 1985.
During this period, a young talent was emerging as successor. With the
help of Dave's mentorship, Jim Wolohan became president and chief operating
officer in 1986. Dave ceded the title and responsibility of chief executive
officer in 1987 and ultimately chairman in 1994. Dave retained a seat on
Wolohan Lumber Co.'s Board until his retirement, late in 1996.
COMPANY PROFILE...
Wolohan Lumber Co., a full-line retailer of lumber, building materials
and related products used primarily for new-home construction and
home-improvement and maintenance projects, provides service to both the
consumer/do-it-yourself (DIY) customers and contractor (builders and
remodelers) customers.
Headquartered in Saginaw, Mich., the Company was founded in 1964 with
three stores and has grown to 62 stores in the Midwest. Each store provides
the customer with a strong offering of quality materials (10,000 to 15,000
items) and competitive prices, with expert and personal service. The retail
sales area for most stores ranges from 20,000 to 45,000 square feet with
total under-roof storage area averaging about 52,000 square feet. Store
locations provide convenient shopping and most are open seven days a week.
The Company provides various profit-sharing programs for its eligible
employees.
<PAGE>
TABLE OF CONTENTS
1 Corporate and Financial Highlights
2 Shareowners' Address
4 Common Stock Data
Quarterly Summaries
5 Sales Mix
6 5-Year Performance
7 Management's Discussion and Analysis
10 Reports of Management and Auditors
11 Balance Sheets
12 Statements of Income
Statements of Shareowners' Equity
13 Statements of Cash Flows
14 Notes to Financial Statements
20 Corporate Information
<PAGE>
CORPORATE HIGHLIGHTS
o Net income increased 65 percent from 1995 to $6.2 million.
o The Company ended 1996 with a strong balance sheet highlighted by a sound
liquidity position and a low debt ratio.
o Capital expenditures of $6 million included the addition of three new
stores.
o The Company expanded programs related to the training and development of
its associates.
o The Company increased its ability to provide value-added services by making
investments in boom trucks, door-assembly equipment and wall-panelization
manufacturing.
o A major upgrade to the Company's computer and communication systems was
completed in 1996.
o The Company continued its transformation to put maximum emphasis and
resources on sales and marketing efforts to its target customers.
o The infrastructure to support project-related selling was further
strengthened in 1996.
o Two underperforming stores were closed in 1996 and their assets redeployed.
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
(In thousands, except per-share amounts, ratios and percentages)
1996 1995
vs vs
1996 1995 1994 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Income Statistics
Net sales $430,358 $418,058 $448,840 + 3% (7%)
Gross profits 103,375 99,989 108,029 + 3% (7%)
Income before income taxes 10,511 6,498 18,268 +62% (64%)
Net income 6,171 3,735 11,062 +65% (66%)
Per share:
Net income .89 .53 1.55 +68% (66%)
Dividends .28 .28 .28 -- --
Balance Sheet Statistics
Working capital $ 61,689 $ 60,631 $ 64,767 + 2% (6%)
Total assets 162,709 162,440 171,047 -- (5%)
Long-term debt 19,883 26,674 30,035 (25%) (11%)
Total liabilities 54,916 58,084 66,836 (5%) (13%)
Shareowners' equity 107,793 104,356 104,211 + 3% --
Book value per share 15.60 14.93 14.58 + 4% 2%
Key Ratios and Percentages
Current ratio 2.8:1 2.9:1 2.8:1 (3%) 4%
Liquidity ratio .44:1 .44:1 .61:1 -- (28%)
Gross profit margin 24.0% 23.9% 24.1% -- (1%)
Pre-tax profit margin 2.4% 1.6% 4.1% +50% (61%)
Return on sales 1.4% 0.9% 2.5% +56% (64%)
Return on average assets 3.7% 2.2% 6.4% +68% (66%)
Return on beginning shareowners' equity 5.9% 3.6% 11.6% +64% (69%)
</TABLE>
<PAGE>
[ PHOTO ]
James L. Wolohan, Chairman of the Board, President
and Chief Executive Officer
SHAREOWNERS'
ADDRESS
Wolohan Lumber had a good year in 1996, achieving $430.4 million in
sales. This resulted in a 65-percent increase in net income. There were a
number of opposing forces in the business environment that counteracted the
effect of any single factor. Therefore, our performance in 1996 as a whole
was based on our internal ability to execute.
The general business climate was good. Inflation was low and consumer
confidence was high. The U.S. economy enjoyed a year of slow but steady
growth. Housing starts in the Midwest jumped 11 percent. The publication,
Random Length, reported that the comparative composite lumber price, December
1996 to December 1995, was up 19 percent. These are all factors that foster
prosperity.
However, the retail lumber and building material industry is still
navigating through some turbulent times. It is consolidating at a rapid pace.
Predatory pricing exists in most of our markets and only the strong will
survive the battle for market share. The weather for the first two quarters
was unusually cold and wet, which slowed construction activity. Comparing
December 1996 to December 1995, Random Length reported the composite
structural panel price was down 12 percent. The volatility in wood fiber
pricing we have seen over the last few years has made it more difficult for
us to develop effective pricing strategies. Wood fiber sales are a larger
percentage of our sales mix than they are for our national home center
competitors. Consequently, the impact of the volatility of wood pricing means
substantially more to us than it does to them. These factors tempered the
positive aspects of the business environment.
The net result was the business climate allowed a prudent, well-managed
business to prosper in 1996. For the first six months of 1996, we were
trailing 1995's results. Our performance over the last two quarters made the
year a success, which bodes well for 1997. During the third quarter, Wolohan
Lumber restructured the operations management to be more responsive to our
customer base. We eliminated the Vice President of Operations position and
added two regional managers. Reporting to the regional managers are five
district managers. In addition, we took seven stores that had very different
needs and put them under a Special Opportunities Manager. This restructuring
greatly improves the supervision of stores by district and regional managers.
In turn, this raised the level of accountability at our retail operations,
and store performances improved. Our ability to communicate expectations and
keep focused on our customers improved significantly.
Wolohan Lumber is committed to being the premier building material
supplier in the Midwest for single-family home builders, residential
remodelers and building-project oriented consumers. We have invested
considerable time and resources to distinguish ourselves as offering better
value to these three target customer groups. We have established three
regional trainer positions to help us develop the most knowledgeable sales
staff in the industry. We have flattened our organizational structure to have
the regional managers report directly to me. The officers of the Company are
in our stores regularly, assisting customers, talking with associates and
making sure our focus is on giving our customers good value. Our focus is
being responsive to customers' needs and wants.
To that end, in 1996 we added seven more door shops, two wall-panel
facilities and a millwork shop.
2
<PAGE>
We added 7 boom trucks and other pieces of equipment to better serve our
customers. We added CAD deck design computers in 32 stores and now offer
custom-designed floor plans for new home construction. This orientation to
value-added services will continue where we see it as our niche.
As we continued to see competitive pressures on gross margin, we
vigilantly examined ways to reduce our costs both of overhead and inventory.
We are an industry leader in automation: for example, using EDI transactions,
wherever possible, is a huge boon to our productivity. In 1996 we installed a
sophisticated computer system for inventory replenishment that will give us
considerable help with inventory balance and eliminating stock outages. We
are taking innovative steps to reduce our landed-cost of quality merchandise
and improve inventory balance. This challenge has caused us to examine
different channels of distribution.
We are always looking for expansion opportunities primarily through
acquisition. In 1996 we added stores in Shelbyville, Ind., and Fremont and
Vassar, Mich. We closed stores that did not produce a reasonable return on
our assets in Cape Girardeau, Mo., and Dayton, Ohio. We continue to serve the
Dayton market with stores in Kettering and Vandalia.
The momentum of the last two quarters of 1996 should propel us toward
continued growth in 1997. We expect the business environment to stay about
the same for the coming year. Areas of concern would include any downturn in
consumer confidence or substantial increase in long-term interest rates.
Other than the effect of those two factors, we expect housing starts and
material sourcing to be about the same as 1996. Predatory pricing will become
more severe and competition more intense in our markets. The real strengths
we see in the coming year are the quality of our people, our plan and our
ability to execute.
1997 will be our first full year of management restructuring. This
should give us greater adaptability and help us read and react more quickly
in all 62 of our markets. We are consolidating our buying efforts to take
advantage of volume buying incentives. Our buyers are taking a much more
active role on the sell-through of the products they buy. Moreover, we are
consistently focusing on providing the quality and type of material our three
target customer groups desire. This tailoring of products and services to our
target customer groups differentiates us in the marketplace. We are narrowing
the breadth of our product lines and increasing the depth of our inventory.
This process is reducing the number of vendors we have, resulting in two
benefits: a stronger relationship with remaining suppliers and greater
administrative efficiencies. Furthermore, with the help of sophisticated
systems, we are customizing many more of our marketing efforts to meet the
specific needs of each customer base and store.
We are investing in our people. Wolohan Lumber is committed to becoming
an employer of choice in each of our markets. Through management and our
three regional trainers, we want each associate to view their Wolohan Lumber
employment as a long-term relationship. Inculcated into our culture is the
understanding that career advancement is a matter of demonstrating skills and
abilities. Many members of our management team started by loading trucks or
working the sales floor. Our continuing success is tied to attracting and
retaining such associates.
Wolohan Lumber has been in business for 33 years, and every year we have
produced a profit. We have stores in very competitive markets with several,
large national and regional home centers. We know the competition will become
even more intense in 1997. Our challenge is to differentiate ourselves from
our competition on the basis of our quality products, customer service and
niche-marketing focus. This will only be accomplished through a strong,
motivated associate team. That is why we focus so intensely on training and
nurturing our people; they deliver the results. We have a very strong balance
sheet. We have a capable management team enthusiastically prepared for
expansion. We have the people, we have the financial resources, we have the
plan, and given the opportunity, 1997 will be a year of continued growth for
Wolohan Lumber Company.
/s/ James L. Wolohan
James L. Wolohan, Chairman of
the Board, President and Chief
Executive Officer
[ PHOTO ]
Curtis J. LeMaster, Vice President - Marketing
William E. Stark, Vice President - Human Resources
David G. Honaman, Vice President - Administration and Chief Financial Officer
Mark H. Hershberger, Director - Purchasing
3
<PAGE>
<TABLE>
<CAPTION>
COMMON STOCK DATA
1996 1995
------------------------------- ----------------------------
Cash Cash
Market Range Dividends Market Range Dividends
High Low Declared High Low Declared
---- --- --------- ---- --- ---------
<S> <C> <C> <C> <C> <C> <C>
First Quarter $10-1/4 $ 9-1/4 $ .07 $16-1/4 $14-1/4 $ .07
Second Quarter 11-1/8 9-5/8 .07 15-1/2 11-1/4 .07
Third Quarter 10-5/8 9-7/8 .07 12-3/4 11 .07
Fourth Quarter 13-1/8 10-5/8 .07 11-1/2 8-3/4 .07
Total Year 13-1/8 9-1/4 $ .28 16-1/4 8-3/4 $ .28
</TABLE>
The Company's common stock trades on the Nasdaq Stock Market under the
symbol WLHN. The approximate number of record holders of the Company's common
stock at December 28, 1996 was 920.
<TABLE>
<CAPTION>
QUARTERLY SUMMARIES
(in thousands,
except per-share First Second Third Fourth Total
amounts) Quarter Quarter Quarter Quarter Year
------- ------- ------- ------- -----
<S> <C> <C> <C> <C> <C>
1996
- ----
Net sales $ 73,453 $ 119,193 $ 132,850(1) $ 104,862(1) $ 430,358
Cost of sales 17,784 29,794 31,222 24,575 103,375
Net income:
Total (1,570) 3,096 3,486 1,159(2) 6,171
Per share (.22) .44 .50 .17(2) .89
1995
- ----
Net sales $ 75,417 $ 123,089 $ 122,638 $ 96,914 $ 418,058
Cost of sales 18,099 29,269 28,807 23,814 99,989
Net income:
Total (737) 2,853 1,561 58 3,735
Per share (.10) .40 .22 .01 .53
1994
- ----
Net sales $ 76,528 $ 133,685 $ 132,624 $ 106,003 $ 448,840
Cost of sales 17,309 32,528 32,283 26,179 108,029
Net income:
Total (1,307) 4,705 4,909 2,755 11,062
Per share (.18) .66 .69 .38 1.55
<FN>
(1) A change in the fiscal calendar resulted in two fewer days in the third
quarter, and one in the fourth quarter of 1996 compared with 1995.
(2) Includes a pre-tax LIFO charge of $1.3 million, which reduced earnings per
share by 11 cents (a pre-tax LIFO credit of $1.2 million in 1995 increased
earnings per share by 10 cents).
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
SALES MIX
BY CUSTOMER SEGMENT
(in thousands, except percentages) 1996 MIX 1995 MIX
---- --- ---- ---
<S> <C> <C> <C> <C>
Consumer/DIY $179,747 42% $201,596 48%
Contractor Builder and Remodeler 250,611 58% 216,462 52%
-------- --- -------- ---
Total Sales $430,358 100% $418,058 100%
======== === ======== ===
<CAPTION>
BY PRODUCT CATEGORY
(PERCENT OF TOTAL SALES)
1996 1995
---- ----
<S> <C> <C>
Dimension Lumber 17.3 14.4
Sheathing Plywood 9.6 10.1
Other Forest Products 11.1 12.5
Building Materials 16.8 15.7
Hardware 5.6 6.3
Home Decorations 2.7 3.1
Millwork 17.1 16.5
Kitchen Cabinets and Vanities 6.0 6.0
Plumbing, Heating and Electrical 6.5 8.0
Trusses and Components 5.4 4.7
Lawn and Garden 1.9 2.7
---- ----
Total Sales 100 100
==== ====
</TABLE>
Project-oriented sales, such as doors and windows, kitchens and baths,
decks, fences and storage buildings, continue to be the focus of the Company
for its DIY customers. Knowledgeable sales associates are utilizing
up-to-date displays, computerized drawings and special financing programs to
enhance and improve the market share of this segment of the Company's sales.
Wolohan Lumber Co. will focus on selling more product to its large base
of homebuilders and remodelers while also expanding market share by
developing new customers. The Company is increasing its investment in
value-added services such as computer design, door and window assembly and
wall-panelization. These capabilities will help increase market share of
builder and remodeler sales. These value-added services demonstrate the
Company's commitment to the professional builder.
5
<PAGE>
<TABLE>
<CAPTION>
5-YEAR PERFORMANCE
(In thousands, except per-share amounts, ratios and percentages)
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Income Statistics
Net sales $ 430,358 $ 418,058 $ 448,840 $ 380,693 $ 343,938
Gross profits 103,375 99,989 108,029 90,820 89,476
Interest expense 2,457 2,919 3,082 3,391 3,151
Income before income taxes 10,511 6,498 18,268 12,558 16,810
Income taxes 4,340 2,763 7,206 4,074 6,282
Net income 6,171 3,735 11,062 8,484(1) 10,528
Net income per share .89 .53 1.55 1.19(1) 1.48
Cash dividends declared:
Amount per share .28 .28 .28 .28 .28
Percent of net income 31.6% 53.2% 18.1% 23.6% 19.0%
Average shares outstanding 6,968 7,100 7,146 7,142 7,136
Balance Sheet Statistics
Current assets $ 96,722 $ 92,041 $ 100,871 $ 100,999 $ 101,027
Other assets 2,311 2,149 2,174 1,341 1,819
Properties (net) 63,676 68,250 68,002 64,127 53,117
Total assets 162,709 162,440 171,047 166,467 155,963
Working capital 61,689 60,631 64,767 64,131 71,641
Long-term debt 19,883 26,674 30,035 33,503 36,390
Deferred income taxes -- -- 697 1,008 1,691
Total liabilities 54,916 58,084 66,836 71,379 67,467
Shareowners' equity:
Amount 107,793 104,356 104,211 95,088 88,496
Amount per share 15.60 14.93 14.58 13.31 12.40
Key Operating Percentages
Gross profit margin 24.0% 23.9% 24.1% 23.9% 26.0%
Pre-tax profit margin 2.4% 1.6% 4.1% 3.3% 4.9%
Return on sales 1.4% 0.9% 2.5% 2.2% 3.1%
Return on average assets 3.7% 2.2% 6.4% 4.9% 6.8%
Return on average working capital 10.1% 6.0% 17.2% 12.5% 16.7%
Return on beginning shareowners' equity 5.9% 3.6% 11.6% 9.6% 13.2%
Return on average total invested capital 4.8% 2.8% 8.4% 6.7% 9.2%
Key Financial Ratios
Sales to average working capital 7.0:1 6.7:1 7.0:1 5.6:1 5.5:1
Sales to average shareowners' equity 4.1:1 4.0:1 4.5:1 4.1:1 4.1:1
Sales to average total invested capital 3.3:1 3.2:1 3.4:1 3.0:1 3.0:1
Current ratio 2.8:1 2.9:1 2.8:1 2.7:1 3.4:1
Quick ratio 1.4:1 1.3:1 1.3:1 1.3:1 2.2:1
Liquidity ratio .44:1 .44:1 .61:1 .60:1 1.5:1
Debt to total assets ratio .12:1 .16:1 .18:1 .20:1 .23:1
Capitalization ratio .16:1 .20:1 .22:1 .26:1 .29:1
Shareowners' equity to total assets ratio .66:1 .64:1 .61:1 .57:1 .57:1
Inventory turnover 6.30 5.89 5.73 5.54 5.47
Asset turnover 2.58 2.47 2.60 2.21 2.22
Stores
Number of stores 62 61 60 54 52
<FN>
(1) Includes the cumulative effect of a change in the method of
accounting for income taxes of $516,000 or 7 cents per share.
</TABLE>
6
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
RESULTS OF OPERATIONS
Net income in 1996 improved to $6.2 million (89 cents per share) from
$3.7 million (53 cents per share) in 1995. This 65-percent increase was due to
increased sales, a slight improvement in margins and a $2.4-million reduction
in store-closing costs. These costs reduced earnings per share 8 cents,
compared with 27 cents per share the previous year. The 66-percent decline in
net income in 1995 from the previous year was due to lower sales, slightly
lower margins and the effect of closing four stores.
Sales of $430.4 million in 1996 were 3 percent higher than 1995
sales. This was a result of a 16-percent improvement in contractor builder
and remodeler (contractor) sales, offset by an 11-percent decline in
consumer/do-it-yourself (DIY) sales.
Contractor sales in 1996 were strengthened by strong construction
activity. The higher average selling prices of lumber and panels (up approxi-
mately 4 percent from 1995 on a weighted-average basis) accounted for some
40-percent of the total sales increase from 1995. The consumer sales decline
in 1996 and 1995 was due primarily to increased competition.
Sales in 1995 had declined 7 percent from the previous year, a result
of an 8-percent decrease in consumer sales and a decline of 6 percent in
contractor sales. Sales in 1995 were adversely affected by significantly
lower average selling prices of lumber (down approximately 20 percent from
1994), which amounted to roughly half of the total sales decline from 1994.
Comparable-store consumer sales declined 12 percent in 1996 and 15
percent in 1995; comparable-store contractor sales rose 12 percent in 1996,
after an 8-percent decline in 1995. Total comparable-store sales in 1996 rose
1 percent, compared with a 12-percent drop the previous year.
The gross profit margin in 1996 was 24.0 percent, compared with 23.9
percent in 1995 and 24.1 percent in 1994. In 1996, improvements in purchasing
and better inventory control raised margins and offset the effects of
increased competition and a significant LIFO charge compared with 1995. The
LIFO provision was $1,866,000 in 1996, compared with a credit of $1,713,000
in 1995 and a charge of $1,269,000 in 1994. The gross margin in 1996,
excluding the provision for LIFO, was 24.5 percent versus 23.5 percent in
1995 and 24.4 percent in 1994.
The Company uses the LIFO method of inventory valuation because it
results in a more appropriate matching of current costs and current revenues.
A number of the Company's competitors use the FIFO method. The following
supplemental data is presented to illustrate the comparative effects of FIFO
and LIFO accounting on the Company's results. Under FIFO accounting, net
income would have been $1.1 million, or 16 cents per share higher for 1996;
$1 million, or 14 cents per share lower for 1995; and $800,000, or 11 cents
per share higher for 1994. These supplemental FIFO earnings reflect the tax-
effected LIFO charge for each year.
7
<PAGE>
Income from gains on sale of properties totaled $600,000 in 1996,
compared with $300,000 in 1995 and $1.3 million in 1994. The higher gain
recognized in 1996 and 1994 was the result of selling a closed facility in
each year.
Selling, general and administrative expenses (excluding store-closing
costs) increased 2 percent in 1996 from 1995, resulting in an expense factor
of 19.2 percent in 1996, compared with 19.4 percent and 18.3 percent in 1995
and 1994, respectively. The lower 1996 expense factor was primarily a result
of more productive marketing expenditures. Included in 1996 expenditures was
approximately $1 million related to the major computer technology upgrade the
Company completed that year. The higher expense factor in 1995 was due
primarily to additional costs related to marketing efforts, higher bad-debt
expense, expenses related to the upgrading of computer technology and
higher health-insurance expenses.
Expenses related to new store openings and remodels were approximately
$500,000 in 1996, $1.1 million in 1995 and $2.3 million in 1994. The closing
of two stores in 1996 resulted in costs of $900,000, compared with a $3.3
million expense recorded in 1995 for the closing of four stores (primarily
related to expensing portions of future lease payments on longer-term leases
and the write-off of leasehold improvements).
The $500,000 decrease in interest expense in 1996 reflects the
reductions in long-term debt and lower average short-term borrowings compared
with 1995. The Company had no short-term borrowings at year-end 1996.
Depreciation expense increased $700,000 in 1996 from 1995, due mainly
to investments in equipment, including the major upgrade made in computer
technology, and three new stores. The increase in depreciation expense in
1995 from 1994 reflects expenditure related to five new stores in 1995, and
six in 1994.
The effective income tax rate (federal and state combined) was 41.3
percent in 1996, compared with 42.5 percent in 1995 and 39.4 percent
in 1994. The decrease in the effective tax rate in 1996 resulted primarily
from a decrease in the effective state rate to 7.9 percent from 10.5 percent.
FINANCIAL CONDITION-LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents totaled $15.5 million at Dec. 28, 1996,
compared with $13.9 million at Dec. 31, 1995, and $22.1 million at Dec. 31,
1994. Net cash provided by operating activities totaled $13.6 million in
1996, resulting primarily from net income plus depreciation and a $3.8
million reduction in inventory, offset, in part, by a $7-million increase in
accounts receivable, reflecting the strong fourth-quarter contractor sales.
Major uses of cash in 1996 were: (1) additions to properties of $6 million,
(2) a $4.3-million reduction in long-term debt, (3) dividend payments of $2
million and (4) the purchase and retirement of 100,000 shares of common stock
($1 million).
8
<PAGE>
Working capital was $61.7 million at the end of 1996, compared with
$60.6 million and $64.8 million at Dec. 31, 1995 and 1994, respectively. The
Company expects that funds from operations and available lines of credit will
be adequate to meet working capital needs and capital expenditures for 1997
(estimated to be $2.5 million, excluding any store acquisitions).
The Company has $52 million available in lines of credit arrangements
for short-term debt. There were no borrowings under these arrangements at
year end 1996, 1995 and 1994.
The long-term debt-to-asset ratio was lowered to .12:1 at Dec. 28, 1996
from .16:1 at Dec. 31, 1995 and .18:1 at Dec. 31, 1994.
Capital expenditures totaled $6 million in 1996 and included: (1) the
addition of three new stores, (2) replacements and additions of equipment at
existing stores and (3) hardware and software related to the major computer
technology upgrade completed in 1996. Capital expenditures have totaled $61
million over the last five years.
Invested capital (long-term debt and shareowners' equity) was 78
percent of total assets at Dec. 28, 1996, compared with 81 percent at
Dec. 31, 1995, and 78 percent at Dec. 31, 1994.
Shareowners' equity has been the principal financing factor over the
years, accounting for 84 percent of invested capital at Dec. 28, 1996,
compared with 80 percent at Dec. 31, 1995 and 78 percent at Dec. 31, 1994.
EFFECT OF INFLATION
The Company does not measure precisely the effect of inflation on its
operations; however, it does not believe inflation had a material effect on
sales or results of operations.
ENVIRONMENTAL
The Company is subject to laws and regulations relating to the
protection of the environment. While it is not possible to quantify with
certainty the potential impact of actions regarding environmental matters,
particularly any future remediation and other compliance effects, in the
opinion of management, compliance with the present environmental-protection
laws will not have a material adverse effect on the financial condition of
the Company.
OUTLOOK
The Company enters 1997 with a strong balance sheet and looks forward
to the challenges and opportunities present in each of its markets. The
Company is committed to expanding market share by building on its strengths
in wood products, building materials, millwork and kitchens and by being
focused on its target customers (project-oriented consumers, remodeling
contractors and new-home construction contractors). The Company will
continue to place strong emphasis on buying and distribution strategies
to improve its competitive position and will work aggressively to lower
its operating-expense ratios by focusing on training and more efficient
systems. The Company will continue to build on its strengths in 1997 to
further improve profitability.
<PAGE>
<TABLE>
<CAPTION>
WOLOHAN LUMBER CO.
GRAPH TITLE 1991 1992 1993 1994 1995 1996
- ----------- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
SALES (in millions) 303.7 344 380.7 448.8 418.1 430.4
NET INCOME (in millions) 9.3 10.5 8.5 11.1 3.7 6.2
EARNINGS PER SHARE (in dollars) 1.31 1.48 1.19 1.55 0.53 0.89
NET RETURN ON SALES % 3.1 3.1 2.2 2.5 0.9 1.4
GROSS MARGIN % 26.9 26 23.9 24.1 23.9 24.0
WORKING CAPITAL (in millions) 54.1 71.6 64.1 64.8 60.6 61.7
DEBT TO EQUITY RATIO % 29% 41% 35% 29% 26% 18%
SHAREOWNERS' EQUITY (in millions) 80 88.5 95.1 104.2 104.4 107.8
EQUITY PER SHARE in dollars 11.21 12.4 13.31 14.58 14.93 15.6
TOTAL ASSETS (in millions) 130.8 156 166.5 171 162.4 162.7
PROPERTIES (NET) (in millions) 49.9 53.1 64.1 68 68.3 63.7
EQUITY TO ASSET RATIO % 0.61 0.57 0.57 0.61 0.64 0.66
</TABLE>
9
<PAGE>
REPORTS OF MANAGEMENT AND AUDITORS
REPORT OF MANAGEMENT
The accompanying financial statements of Wolohan Lumber Co., together with the
other financial information included in the Annual Report, were prepared by
management.
The responsibility for the integrity of the financial statements, and other
financial information included in this report, rests with management. The
financial statements have been prepared in accordance with generally accepted
accounting principles appropriate in the circumstances and, of necessity,
include certain amounts which are based on our best estimates and judgments.
The other financial information included herein is consistent with that in the
financial statements.
Wolohan Lumber Co. maintains internal accounting-control systems that are
designed to provide reasonable assurance that assets are safe-guarded from
loss or unauthorized or illegal use and that transactions are executed and
recorded in accordance with management authorization. There are limits
inherent in all systems of internal control, based on the recognition that
costs of such a system should not exceed the benefits to be derived. We
believe the Company's system provides an appropriate balance.
The Board of Directors, through the Audit Committee of the Board, is
responsible for assuring that management fulfills its responsibilities in the
preparation of the financial statements. The Audit Committee meets
periodically with the independent auditors and representatives of management
to ensure that each is discharging its responsibilities. To ensure complete
independence, Ernst & Young LLP has full and free access to meet with the
Audit Committee to discuss the results of their examination, the adequacy of
internal controls, the quality of financial reporting, and other matters of
mutual interest.
/s/ David G. Honaman
David G. Honaman
Vice President-Administration
and Chief Financial Officer
/s/ Edward J. Dean
Edward J. Dean
Corporate Controller
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Wolohan Lumber Co.
We have audited the accompanying balance sheets of Wolohan Lumber Co. as of
December 28, 1996 and December 31, 1995 and the related statements of income,
shareowners' equity and cash flows for the years ended December 28,
1996 and December 31, 1995 and 1994. 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 Wolohan Lumber Co. at
December 28, 1996 and December 31, 1995, and the results of its operations
and its cash flows for the years ended December 28, 1996 and December
31, 1995 and 1994 in conformity with generally accepted accounting
principles.
/s/ Ernst & Young LLP
Ernst & Young LLP
Detroit, Michigan
February 14, 1997
<PAGE>
<TABLE>
<CAPTION>
BALANCE SHEETS
(in thousands, except per-share amounts)
December 28 December 31
1996 1995
----------- -----------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 15,485 $ 13,919
Trade receivables, less allowances for doubtful
accounts of $1,250 ($862 in 1995) 32,722 26,471
Inventories -- at current cost 59,455 61,375
Reduction to last-in, first-out (LIFO) cost (14,702) (12,836)
--------- ---------
Inventories at the lower of LIFO cost or market--
Note A 44,753 48,539
Other current assets 3,762 3,112
--------- ---------
TOTAL CURRENT ASSETS 96,722 92,041
PROPERTIES - NOTE C
Land 10,124 10,104
Land improvements 15,588 15,400
Buildings 53,447 52,665
Equipment 43,352 41,661
Construction in progress 4 923
Less allowances for depreciation (58,839) (52,503)
--------- ---------
63,676 68,250
OTHER ASSETS 2,311 2,149
--------- ---------
TOTAL ASSETS $ 162,709 $ 162,440
========= =========
LIABILITIES AND SHAREOWNERS' EQUITY
CURRENT LIABILITIES
Trade accounts payable $ 15,565 $ 15,258
Employee compensation and accrued expenses 12,678 11,810
Current portion of long-term debt 6,790 4,342
--------- ---------
TOTAL CURRENT LIABILITIES 35,033 31,410
LONG-TERM DEBT, less current portion - NOTE C 19,883 26,674
SHAREOWNERS' EQUITY - NOTE B
Common stock, $1 par value:
Authorized - 20,000 shares
Outstanding - 6,912 shares (6,989 in 1995) 6,912 6,989
Additional capital 21,828 22,534
Retained earnings 79,053 74,833
--------- ---------
TOTAL SHAREOWNERS' EQUITY 107,793 104,356
--------- ---------
TOTAL LIABILITIES AND SHAREOWNERS' EQUITY $ 162,709 $ 162,440
========= =========
BOOK VALUE PER SHARE $ 15.60 $ 14.93
<FN>
See notes to financial statements.
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF INCOME
(in thousands, except per-share amounts
FOR THE YEAR ENDED
--------------------------------------
DECEMBER 28, DECEMBER 31, DECEMBER 31,
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
NET SALES $430,358 $418,058 $448,840
Cost of sales 326,983 318,069 340,811
-------- -------- --------
Gross Profit 103,375 99,989 108,029
OPERATING EXPENSES
Selling, general and administrative 82,718 81,229 82,249
Store closing costs -- Note A 921 3,317 --
Depreciation 9,834 9,160 8,148
-------- -------- --------
Total operating expenses 93,473 93,706 90,397
-------- -------- --------
OPERATING INCOME 9,902 6,283 17,632
Other income (expenses)
Interest expense (2,457) (2,919) (3,082)
Gain from sale of properties 583 309 1,260
Other 2,483 2,825 2,458
-------- -------- --------
Total other 609 215 636
-------- -------- --------
INCOME BEFORE INCOME TAXES 10,511 6,498 18,268
Income taxes - Note D 4,340 2,763 7,206
-------- -------- --------
NET INCOME $ 6,171 $ 3,735 $ 11,062
======== ======== ========
Average shares outstanding 6,968 7,100 7,146
NET INCOME PER SHARE 0.89 0.53 1.55
======== ======== ========
<FN>
See notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF SHAREOWNERS' EQUITY
(in thousands, except per-share amounts)
Total
Common Additional Retained Shareowner's
Stock Capital Earnings Equity
------ ---------- -------- ------------
<S> <C> <C> <C> <C>
BALANCES AT
JANUARY 1, 1994 $ 7,142 $ 23,922 $ 64,024 $ 95,088
Net income for 1994 11,062 11,062
Cash dividends - $.28 per share (2,000) (2,000)
Shares issued under Long-Term
Incentive Plan, including related
tax benefit 4 57 61
------- -------- -------- --------
BALANCES AT
DECEMBER 31, 1994 7,146 23,979 73,086 104,211
Net income for 1995 3,735 3,735
Cash dividends - $.28 per share (1,988) (1,988)
Shares issued under Long-Term
Incentive Plan, including
related tax benefit 11 92 103
Shares purchased and retired (168) (1,537) (1,705)
------- -------- -------- --------
BALANCES AT
DECEMBER 31, 1995 6,989 22,534 74,833 104,356
Net income for 1996 6,171 6,171
Cash dividends - $.28 per share (1,951) (1,951)
Shares issued under Long-Term
Incentive Plan, including related
tax benefit 23 237 260
Shares purchased and retired (100) (943) (1,043)
------- -------- -------- --------
BALANCES AT
DECEMBER 28, 1996 $ 6,912 $ 21,828 $ 79,053 $107,793
======= ======== ======== ========
<FN>
See notes to financial statements.
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF CASH FLOWS
(in thousands)
FOR THE YEAR ENDED
--------------------------------------
DECEMBER 28, DECEMBER 31, DECEMBER 31,
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net Income $ 6,171 $ 3,735 $ 11,062
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 9,834 9,160 8,148
Provision for losses on accounts receivable 735 662 387
Deferred income taxes (credit) (514) (1,009) (332)
Gain on sale of properties (583) (309) (1,260)
Loss on store closings 500 2,389
Changes in operating assets and liabilities:
Increase in accounts receivable (6,986) (1,172) (1,292)
Decrease (increase) in other assets (298) 54 (1,108)
Decrease in inventories 3,786 1,467 1,099
Increase (decrease) in accounts payable and
accrued expenses 943 (7,962) 264
-------- -------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 13,588 7,015 16,968
INVESTING ACTIVITIES
Additions to properties (5,968) (11,157) (14,441)
Proceeds from the sale of properties 1,283 671 3,678
-------- -------- --------
NET CASH USED IN INVESTING ACTIVITIES (4,685) (10,486) (10,763)
FINANCING ACTIVITIES
Proceeds from credit lines and long-term debt borrowings 8,000 14,000 13,750
Payments on credit lines and long-term debt (12,343) (14,989) (18,186)
Dividends paid (1,951) (1,988) (2,000)
Purchases of common stock (1,043) (1,705) --
-------- -------- --------
NET CASH USED IN FINANCING ACTIVITIES (7,337) (4,682) (6,436)
-------- -------- --------
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 1,566 (8,153) (231)
Cash and cash equivalents at beginning of year 13,919 22,072 22,303
-------- -------- --------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 15,485 $ 13,919 $ 22,072
======== ======== ========
<FN>
See notes to financial statements.
</TABLE>
13
<PAGE>
NOTES TO FINANCIAL STATEMENTS - WOLOHAN LUMBER CO.
NOTE A - SIGNIFICANT ACCOUNTING PRACTICES
Organization. The Company is engaged in the retail sale of a full line of
lumber and building materials and related items through a chain of 62 (61 in
1995) building supply stores located in Illinois, Indiana, Kentucky,
Michigan, Ohio, and Wisconsin.
The Company sells to contractor builders and remodelers and to the
"do-it-yourself" market consisting principally of homeowners. The volume of
residential construction can be volatile and is highly dependent on general
economic conditions. A significant decrease in residential construction could
have an adverse effect on the Company's operating results.
Change in Fiscal Year. Effective with the third quarter of fiscal 1996, the
Company adopted a "4-5-4" fiscal calendar wherein each fiscal quarter
contains two four-week periods and one five-week period, with each period
beginning on a Sunday and ending on a Saturday. Previously, the Company used
calendar months for its fiscal periods. Although the change in fiscal
calendar resulted in three fewer days in fiscal 1996, compared with a
calendar year, the effect of this calendar change on fiscal 1996 was not
material.
Use of Estimates. The preparation of the financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
Cash and Cash Equivalents. The Company considers all highly liquid
investments with a maturity of three months or less when purchased to be cash
equivalents. Cash equivalents consist principally of money-market funds and
short-term tax-exempt securities.
Inventories. Inventories are stated at the lower of cost (last-in, first-out
method) or market. Current cost exceeded the LIFO value of inventories by
approximately $14,702,000 at Dec. 28, 1996 and $12,836,000 at Dec. 31, 1995.
Properties. Properties are stated at cost. Depreciation, which includes
amortization of assets recorded as capital leases, is provided on a
straight-line basis over the estimated useful life of the property for
financial reporting purposes and on different lives and methods as required
for tax purposes.
Stock-Based Compensation. The Company has elected to follow Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees"
(APB 25) and related Interpretations in accounting for its employee stock
options because the alternative fair value accounting provided for under FASB
Statement No. 123, "Accounting for Stock-Based Compensation," requires use of
option valuation models that were not developed for use in valuing employee
stock options. Under APB 25, because the exercise price of the Company's
employee stock options equals the market price of the underlying stock on the
date of grant, no compensation expense is recognized.
Pro forma information regarding net income and earnings per share is
required by Statement 123, and has been determined as if the Company had
accounted for its employee stock options under the fair value method of that
Statement. The results of the pro forma analysis are not presented herein
since the effect of applying Statement 123's fair-value method to the
Company's stock-based awards results in net income and earnings per share
that are not materially different from amounts reported.
Start-Up Expenses. Expenses associated with the opening of new stores are
charged against income as incurred.
Store Closing Costs. During 1996, the Company closed two stores. The cost
associated with these closings were $921,000. During 1995, the Company closed
four stores. The costs associated with these
14
<PAGE>
closings, primarily related to expensing portions of future lease payments on
longer term leases and the write-off of leasehold improvements, were
$3,317,000.
Advertising Expenses. The cost of advertising is expensed as incurred. The
Company incurred $3,690,000, $4,277,000 and $4,412,000 in advertising costs
during 1996, 1995 and 1994, respectively.
Earnings Per Share. Earnings-per-share information is based on the average
number of shares outstanding for the period. The assumed issuance of the
performance-based incentive share awards and the assumed exercise of
outstanding stock options would have an insignificant effect on earnings per
share.
Employee Benefit Plans. The Company has a 401(k) retirement savings and
profit-sharing plan under which eligible employees may contribute up to 10%
of their salaries. The Company contributes up to a maximum of $500 per
employee per year. In addition, the Company makes profit-sharing
contributions to the plan annually at an amount based on a percentage of the
Company's pre-tax profits. Profit-sharing contributions approximated
$900,000, $525,000 and $1,545,000 for 1996, 1995 and 1994, respectively and
contributions to the 401(k) plan were approximately $548,000, $414,000 and
$392,000 for 1996, 1995 and 1994, respectively.
The Company maintains a defined-benefit health-care plan that provides
postretirement medical benefits to individuals who retired prior to Aug. 1,
1996 and who met certain age and service requirements at retirement. The plan
is contributory with retiree contributions adjusted periodically, such that
retirees pay substantially all projected costs of the health-care medical
benefits provided by the plan.
Impairment of Long-Lived Assets. The Company adopted the provisions of
Statement of Financial Accounting Standards No. 121 (SFAS No. 121) entitled
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to be Disposed Of" in the first quarter of 1996. SFAS No. 121 establishes
accounting standards for the recognition and measurement of the impairment of
long-lived assets, certain identifiable intangibles and goodwill. The
provisions of this statement require that long-lived assets and certain
identifiable intangibles be reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. In such cases, the expected future cash flows (undiscounted
and without interest charges) resulting from the use of the asset are
estimated and an impairment loss recognized if the sum of such cash flows is
less than the carrying amount of the asset. Should such an assessment
indicate that the value of a long-lived asset or goodwill may be impaired, an
impairment loss is recognized for the difference between the carrying value
of the asset and its estimated fair value. The adoption of the provisions of
this statement did not have a material effect on the Company's financial
position or results of operation.
Impact of Recently Issued Accounting Standards. In October 1996, the
Accounting Standards Executive Committee of the American Institute of
Certified Public Accountants issued Statement of Position 96-1 "Environmental
Remediation Liabilities", which provides guidance on the recognition,
measurement, display and disclosure of environmental remediation
liabilities. The Company will adopt Statement of Position 96-1 in the first
quarter of 1997 and, based on current circumstances, does not believe the
effect of adoption will be material.
15
<PAGE>
NOTE B - SHAREOWNERS' EQUITY AND RELATED MATTERS
The Company's Long-Term Incentive Plan was established to enable key
employees to participate in the future growth and profitability of the
Company by offering them long-term performance-based incentive compensation
through issuance of stock options and performance share awards, which are
vested based on achievement of performance goals. Performance shares awarded
are earned and vested at the rate of 20% per year and become issuable 10
years after date of award. During 1996, 18,100 performance shares (1,800
shares in 1995 and 19,800 in 1994) were awarded, and at Dec. 28, 1996,
there were 88,000 performance shares awarded but unissued. In addition to the
Long-Term Incentive Plan for key employees, in 1995 the Company adopted a
stock option plan for non-employee directors. Stock option transactions
and prices are summarized as follows:
<TABLE>
<CAPTION>
Number of Option
Options Price
--------- ------
<S> <C> <C>
Options outstanding at January 1, 1993 0
Options granted 87,000 $14.38
Options outstanding at December 31, 1994 87,000 14.38
Options granted 49,000 9.25 - 14.50
Options expired or canceled (10,000) 14.38
Options outstanding at December 31, 1995 126,000 9.25 - 14.50
Options granted 14,300 9.25 - 12.75
Options expired or canceled (17,700) 9.25 - 14.38
Options outstanding at December 28, 1996 122,600 9.25 - 14.50
</TABLE>
All options expire 10 years after the date of grant. There are 351,000
shares reserved for future use under the Long-Term Incentive Plan and 42,000
shares reserved for future use under the stock option plan for non-employee
directors.
Holders of common shares received a distribution of one right for each
common share held on Feb. 15, 1990. The rights become exercisable ten days
after a person or group acquires or commences a tender or exchange offer that
could result in the acquisition of 25% of the Company's common shares (except
pursuant to an offer for all shares determined by the non-officer Directors
to be fair and in the best interest of the Company and its shareowners). The
rights also become exercisable ten days after an acquisition of 10% or more
by a person or group deemed by the Board of Directors to have interests
adverse to those of the Company and its shareholders. Each right would,
subject to certain adjustments and alternatives, entitle the rightholder to
purchase common shares of the Company having a market value of $180 at
a price equal to 50% of the fair market value of the shares. The rights are
non-voting, may generally be redeemed by the Company at a price of 1 cent per
right and expire on Feb. 15, 2000. The Company has reserved 6.6 million shares
for this stock rights plan.
16
<PAGE>
NOTE C - DEBT AND LEASE TRANSACTIONS
The Company has available, under lines of credit arrangements with
several banks, $52 million in unsecured short-term borrowings. The interest
rate applicable when using these lines is dependant upon a variety of
formulae which utilize different money rate pricing indexes. In no case does
the interest rate exceed the Prime Rate. There are no commitment fees;
however, a compensating balance is required for a portion of the total credit
lines. These credit arrangements are reviewed annually for change and/or
renewal. At year-end 1996 and 1995, there were no borrowings outstanding under
these arrangements.
Long-term debt consisted of the following obligations (in thousands):
<TABLE>
<CAPTION>
December 28, December 31,
1996 1995
------------ ------------
<S> <C> <C>
Unsecured notes to insurance company,
due in annual installments ranging
from $1,250 to $2,000 with the final
payment in 2002. Interest is payable
semi-annually at 8.99% $ 9,250 $10,500
Unsecured notes to insurance company,
due in annual installments ranging
from $1,430 to $4,060 with the
final payment in 2002. Interest is
payable quarterly at 8.65% 11,500 13,600
Unsecured bank note, due in annual
installments of $500, plus
interest payable quarterly at a
variable rate (8.25% at December 28,
1996) with final payment in 1998 1,000 1,500
Industrial revenue bonds, payable
in annual installments ranging
from $140 to $160 with the final
payment in 2001. Interest payable
quarterly at 83% of the Prime Rate 740 880
Michigan Strategic Fund limited
obligation revenue bonds, payable
in 1997. Interest varies weekly
at prevailing market rates for
similar tax exempt securities
(average of 3.49% for 1996) and is
paid quarterly 3,300 3,300
Other 883 1,236
------- -------
26,673 31,016
Less amount due in one year 6,790 4,342
------- -------
Total long-term debt $19,883 $26,674
======= =======
</TABLE>
Properties at Dec. 28, 1996 with a net carrying value of approximately
$4,433,000 are pledged as collateral for the revenue bonds. Net properties
also include approximately $456,000 relative to capital lease obligations.
The capital leases generally transfer ownership of property to the Company at
the end of the lease term.
Maturities of long-term debt for each of the four years following 1997
approximate $2,740,000 in 1998; $3,680,000 in 1999 and $4,310,000 in 2000 and
2001. The Company made interest payments of $2,452,000 in 1996, $2,925,000 in
1995 and $3,060,000 in 1994.
The Company leases certain facilities under various operating leases. The
lease expense for such facilities totaled approximately $620,000 in 1996,
$650,000 in 1995 and $651,000 in 1994. Future minimum lease payments for each
of the next five years approximate $611,000 and aggregate $4,580,000
thereafter.
17
<PAGE>
NOTE D - INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax purposes.
Significant components of the Company's deferred tax liabilities and assets
are as follows:
<TABLE>
<CAPTION>
(in thousands) December 28, December 31,
1996 1995
------------ ------------
<S> <C> <C>
Deferred tax liabilities:
Tax over book depreciation $ 279 $ 594
Other 82 395
------- -------
Total deferred tax liabilities 361 989
Deferred tax assets:
Compensation and employee benefits 500 413
Bad debts 483 336
Inventory 154 255
Store closings 712 943
Other 125 141
------- -------
Total deferred tax assets 1,974 2,088
------- -------
Net deferred tax assets $ 1,613 $ 1,099
======= =======
</TABLE>
The provisions for income taxes consist of:
<TABLE>
<CAPTION>
(in thousands) For the Year Ended
----------------------------------------
December 28, December 31, December 31,
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Current:
Federal $3,253 $2,605 $5,912
State 1,289 1,167 1,626
Deferred federal and state credit (202) (1,009) (332)
------ ------ ------
Total provision for income taxes $4,340 $2,763 $7,206
====== ====== ======
</TABLE>
A reconciliation of the income tax provision and the amount computed by
applying the statutory federal income tax rate of 34% for 1996 and 1995 and
35% for 1994 to income before taxes, is as follows:
<TABLE>
<CAPTION>
For the Year Ended
(in thousands) -------------------------------------------
December 28, December 31, December 31,
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Computed amount $ 3,574 $ 2,209 $ 6,394
State income taxes, net
of federal income tax 833 681 1,031
Tax exempt investment income (74) (161) (102)
Other 7 34 (117)
------- ------- -------
Total provision for income taxes $ 4,340 $ 2,763 $ 7,206
======= ======= =======
</TABLE>
The Company made income tax payments of $5,148,000 in 1996, $4,407,000 in
1995 and $7,434,000 in 1994.
18
<PAGE>
NOTE E - FAIR VALUE OF FINANCIAL INSTRUMENTS
CONCENTRATIONS OF CREDIT RISK. Financial instruments that potentially subject
the Company to significant concentrations of credit risk consist principally
of cash investments and trade accounts receivable.
The Company maintains cash and cash equivalents including bank money
market funds and short-term tax exempt securities. Bank money market funds
are on deposit with financial institutions located primarily in Michigan and
Company policy is designed to limit exposure to any one institution. The
Company performs periodic evaluations of the relative credit standing of
those financial institutions that are considered in the Company's investment
strategy.
Concentrations of credit risk with respect to trade accounts receivable
are limited because of the large number of entities comprising the Company's
customer base. As of Dec. 28, 1996, the Company's receivables are primarily
from customers in the residential construction industry.
CASH AND CASH EQUIVALENTS. The carrying amount reported in the balance sheet
for cash and cash equivalents approximates its fair value.
ACCOUNTS RECEIVABLE AND ACCOUNTS PAYABLE. The carrying amounts reported in
the balance sheet for accounts receivable and accounts payable approximate
their fair value.
LONG AND SHORT-TERM DEBT. The fair values of the Company's long-term debt are
estimated using discounted cash flow analyses, based on the Company's current
borrowing rates for similar types of borrowing arrangements.
The carrying amounts and fair values of the Company's financial
instruments are as follows:
<TABLE>
<CAPTION>
(in thousands) December 28, December 31,
1996 1995
------------------- ----------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
-------- ----- -------- -----
<S> <C> <C> <C> <C>
Cash and Cash Equivalents $15,485 $15,485 $13,919 $13,919
Accounts Receivable 32,722 32,722 26,471 26,471
Accounts Payable 15,565 15,565 15,258 15,258
Long-Term Debt including current portion 26,673 27,769 31,016 32,752
======= ======= ======= =======
</TABLE>
NOTE F - CONTINGENCIES
Various lawsuits arising during the normal course of business are pending
against the Company. In the opinion of management the ultimate liability, if
any, resulting from these matters will have no significant effect on the
Company's results of operations, liquidity or financial position.
19
<PAGE>
CORPORATE INFORMATION
ANNUAL MEETING
The Annual Meeting of shareowners of Wolohan Lumber Co. will be held
April 24, 1997, 2 p.m. at the Citizens Bank Building, 101 N. Washington
Avenue, Saginaw, Mich. You are cordially invited.
FORM 10-K
Shareowners may obtain a copy of the Form 10-K annual report filed with
the Securities and Exchange Commission (SEC) free of charge by writing to Mr.
Edward J. Dean, Corporate Controller, Wolohan Lumber Co., P.O. Box 3235,
Saginaw, MI 48605.
There are no accounting differences between the financial statements
presented in this annual report and those in the Form 10-K report but the Form
10-K report does provide certain supplemental information required by SEC
regulations.
HEADQUARTERS
Wolohan Lumber Co. Administrative Offices
1740 Midland Road
P.O. Box 3235
Saginaw, Mich. 48605
(517) 793-4532
COMMON STOCK
Wolohan's common stock trades on The Nasdaq Stock Market under the symbol
WLHN.
TRANSFER AGENT
State Street Bank and Trust Company
c/o Boston EquiServe
P.O. Box 8200 - Boston, MA 02266-8200
(800) 426-5523
GENERAL COUNSEL
Dickinson, Wright, Moon, VanDusen & Freeman
500 Woodward Avenue, Suite 4000 - Detroit, MI 48226
AUDITORS
(For the year ended Dec. 27, 1997)
Rehmann Robson PC
5800 Gratiot - Saginaw, MI 48603
<PAGE>
BOARD OF DIRECTORS
James L. Wolohan, 45 Leo B. Corwin, 62
Chairman of the Board, President, Txcor, Inc.;
President and Chief Executive Director since 1992
Officer;
Director since 1986
Ervin E. Wardlow, 75 Charles R. Weeks, 62
formerly President and a Chairman and formerly Chief
Director of K Mart Corp; Executive Officer of
Director of Discount Citizens Banking Corp.;
Parts Co.; Director since 1996
Director since 1981
Hugo E. Braun, Jr., 64 Lee A. Shobe, 58
Partner, Braun Kendrick formerly President and
Finkbeiner, Chief Executive Officer of
Attorneys-at-Law; Dow Brands
Director since 1984 Director since 1996
F.R. Lehman, 71
formerly Vice President of
Dow Chemical U.S.A.,
General Manager of the
Michigan Division;
Director since 1989
COMMITTEES
Management Review Audit Committee
Committee
Hugo E. Braun, Jr., Chairman
F.R. Lehman, Chairman Leo B. Corwin
Hugo E. Braun, Jr. F.R. Lehman
Leo B. Corwin Lee A. Shobe
Lee A. Shobe Ervin E. Wardlow
Ervin E. Wardlow Charles R. Weeks
Charles R. Weeks
Compensation Committee
F.R. Lehman, Chairman
Hugo E. Braun, Jr.
Charles R. Weeks
OFFICERS
James L. Wolohan, 45 James R. Krapohl, 51
Chairman of the Board, Treasurer and
President and Chief Executive Assistant Secretary
Officer
Curtis J. LeMaster, 48
Edward J. Dean, 46 Vice President - Marketing
Corporate Controller
William E. Stark, 48
Mark H. Hershberger, 46 Vice-President - Human
Vice President - Purchasing Resources
David G. Honaman, 45
Vice President - Administration
Secretary and Chief Financial
Officer
<PAGE>
WOLOHAN CUSTOMER SERVICES
Computer Design Services
In addition to computerized kitchen and deck design, the Company offers
custom-designed floor plans for its package-home program and has
computerized estimating systems.
Assembly And Manufacturing Services
Several Wolohan stores have an in-house door shop to assemble exterior steel
door systems and pre-hung interior door packages. The Company has a millshop
to do custom millwork and two wall-panelization facilities.
Delivery Services
Wolohan has a fleet of nearly 300 delivery trucks including several boom
trucks. The boom trucks provide more capabilities to better serve the
customer.
Installation Services
Wolohan offer installation of decks, sheds, playsets, windows, doors, garage
doors and operators, kitchens, fencing, baths and more.
Contractor Services
Wolohan offers its contractors substantial savings with quality materials,
value pricing, on-time delivery, job-site contractor sales representatives
and experienced store support coordination.
Financing Options
Wolohan offers in-house credit to it contractor customers. For the consumer,
the Company offers a private-label credit card for small to medium purchases
and a loan program for larger projects.
CUSTOMER SERVICE GUARANTEES...
The cornerstone of our strategic plan is the customer service mission.
Our purpose is to assure that the customer remains Number One in our plans
and in our actions. Our satisfaction are among the strongest in our industry.
If for any reasons a customer is dissatisfied we offer two vehicles to let
his concern. The first is an in store self-addressed comment card. The second
is published Customer Hotline that lets the customer get directly in touch
with Wolohan's Marketing Departments.
We provide a strong product offering and many special services to
accommodate our customers. We back these products and services with
satisfaction guarantees -- guarantees we are proud to offer because we are
committed to providing what our customers expect and deserve. These
customer-satisfaction guarantees are found in every Wolohan store.
100-PERCENT SATISFACTION GUARANTEE
In the unlikely event that you are not satisfied with your purchase, just
bring it back along with your proof of purchase and we'll make it right with a
product exchange or refund.
30-DAY LOWER PRICE REFUND GUARANTEE
If an item is advertised and sold by us at a lower price within 30 days
of the date you purchased the item, we will honor the lower price and gladly
refund the difference to you.
Customer Service Satisfaction Guarantee
We promise friendly, knowledgeable sales associates... Guaranteed!
IN-STOCK GUARANTEE
We stock what we advertise. In the event that unexpected demand exceeds
our supply, we will give you a 5-percent discount and deliver the item to
your home or substitute a comparable item at the sale price.
WE WON'T BE UNDERSOLD GUARANTEE
Bring in any competitor's current advertising and Wolohan guarantees to
match the advertised price on the same in-stock item.
<PAGE>
[ MAP ]
[ LOGO ] Serving customers in 6 states
throughout the Midwest...
Wolohan Lumber Co. - 1740 Midland Road - P.O. Box 3235 -
Saginaw, MI 48605 - (517) 793-4532
Exhibit 23
Consent of Independent Auditors
We consent to the incorporation by reference in this annual report (Form
10-K) of Wolohan Lumber Co. of our report dated February 14, 1997 included in
the 1996 Annual Report to shareholders of Wolohan Lumber Co.
We also consent to the incorporation by reference in the Registration
Statement (Form S-8 No. 33-81566) pertaining to the 1991 Long-Term Incentive
Plan of Wolohan Lumber Co. of our report dated February 14, 1997, with
respect to the financial statements and schedules of Wolohan Lumber Co.
incorporated by reference in Annual Report (Form 10-K) for the year ended
December 28, 1996.
Our audits also included the financial statement schedule of Wolohan Lumber
Co. listed in item 14 (a). This schedule is the responsibility of the
Company's management. Our responsibility is to express an opinion based on
our audits. In our opinion, the financial statement schedule referred to
above, when considered in relation to the basic financial statements taken as
a whole, presents fairly, in all material respects the information set forth
therein.
March 24, 1997
Detroit, Michigan
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-28-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1995
<CASH> $ 15,485,000
<SECURITIES> 0
<RECEIVABLES> 32,722,000
<ALLOWANCES> 0
<INVENTORY> 44,753,000
<CURRENT-ASSETS> 96,722,000
<PP&E> 122,515,000
<DEPRECIATION> 58,839,000
<TOTAL-ASSETS> 162,709,000
<CURRENT-LIABILITIES> 35,033,000
<BONDS> 0
<COMMON> 6,912,000
0
0
<OTHER-SE> 100,881,000
<TOTAL-LIABILITY-AND-EQUITY> 162,709,000
<SALES> 430,358,000
<TOTAL-REVENUES> 106,441,000
<CGS> 326,983,000
<TOTAL-COSTS> 82,904,000
<OTHER-EXPENSES> 9,834,000
<LOSS-PROVISION> 735,000
<INTEREST-EXPENSE> 2,457,000
<INCOME-PRETAX> 10,511,000
<INCOME-TAX> 4,340,000
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,171,000
<EPS-PRIMARY> 0.89
<EPS-DILUTED> 0.00
</TABLE>
