SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
|X| Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934.
For the quarter ended September 26, 1998
---------------------------------------------------
|_| 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 jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
1740 Midland Road, Saginaw, Michigan 48603
- -------------------------------------------------------------------------
(Address of principal executive offices)
(517) 793-4532
- -------------------------------------------------------------------------
(Registrant's telephone number, including area code)
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 the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practical date.
Common stock, $1 par value -- 5,865,599 shares as of October 24, 1998.
<PAGE>
PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL INFORMATION
<TABLE>
<CAPTION>
WOLOHAN LUMBER CO.
CONSOLIDATED BALANCE SHEETS
(in thousands) SEPT. 26, DEC. 27,
1998 1997
(Unaudited) (Note)
--------- --------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 3,622 $ 25,333
Trade receivables - net 44,845 30,064
Inventories - at average cost 62,099 52,630
Reduction to LIFO cost (13,420) (13,421)
--------- ---------
Inventories at the lower of LIFO
cost or market 48,679 39,209
Other current assets 5,535 4,305
--------- ---------
TOTAL CURRENT ASSETS 102,681 98,911
NET PROPERTIES 52,680 51,008
OTHER ASSETS 11,547 7,544
--------- ---------
TOTAL ASSETS $ 166,908 $ 157,463
========= =========
LIABILITIES AND SHAREOWNERS' EQUITY
CURRENT LIABILITIES
Trade accounts payable $ 21,999 $ 10,814
Employee compensation and accrued expenses 15,451 13,787
Short-term debt 7,000 0
Current portion of long-term debt 3,747 2,240
--------- ---------
TOTAL CURRENT LIABILITIES 48,197 26,841
LONG-TERM DEBT, less current portion 17,151 20,443
--------- ---------
TOTAL LIABILITIES 65,348 47,284
SHAREOWNERS' EQUITY
Common stock 5,873 6,910
Additional capital 10,631 21,819
Retained earnings 85,056 81,450
--------- ---------
TOTAL SHAREOWNERS' EQUITY 101,560 110,179
--------- ---------
TOTAL LIABILITIES AND SHAREOWNERS' EQUITY $ 166,908 $ 157,463
========= =========
<FN>
Note: The balance sheet at December 27, 1997, has been derived from the
audited financial statements at that date but does not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements.
See notes to condensed financial statements.
</TABLE>
Page 2
<PAGE>
WOLOHAN LUMBER CO.
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(in thousands, except per-share amounts)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------
SEPT. 26, SEPT. 27,
1998 1997
--------- ---------
<S> <C> <C>
NET SALES $ 143,117 $ 124,119
Cost of sales 111,439 95,751
--------- ---------
Gross profit 31,678 28,368
Other operating income 868 834
--------- ---------
Total operating income 32,546 29,202
--------- ---------
OPERATING EXPENSES:
Selling, general and administrative 25,046 22,812
Store closing costs 0 2,575
Depreciation 2,111 2,413
--------- ---------
Total operating expenses 27,157 27,800
--------- ---------
INCOME FROM OPERATIONS 5,389 1,402
OTHER EXPENSES (INCOME):
Interest expense 477 459
Interest income (98) (168)
Gain on sale of properties (32) (27)
--------- ---------
Other expenses, net 347 264
--------- ---------
INCOME BEFORE INCOME TAXES 5,042 1,138
Income taxes 1,967 539
--------- ---------
NET INCOME $ 3,075 $ 599
========= =========
Average shares outstanding 6,502 6,910
Net income per share, basic $ .46 $ .08
Net income per share, assuming dilution $ .46 $ .08
Dividends per share $ .07 $ .07
<FN>
See notes to condensed financial statements.
</TABLE>
page 3
<PAGE>
WOLOHAN LUMBER CO.
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(in thousands, except per-share amounts)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
-----------------
SEPT. 26, SEPT. 27
1998 1997
--------- --------
<S> <C> <C>
NET SALES $ 329,168 $ 328,300
Cost of sales 253,109 251,183
--------- ---------
Gross profit 76,059 77,117
Other operating income 1,957 2,077
--------- ---------
Total operating income 78,016 79,194
OPERATING EXPENSES:
Selling, general and administrative 63,156 63,524
Store closing costs 0 2,575
Depreciation 6,209 7,374
--------- ---------
Total operating expenses 69,365 73,473
--------- ---------
INCOME FROM OPERATIONS 8,651 5,721
OTHER EXPENSES (INCOME):
Interest expense 1,422 1,571
Interest income (604) (338)
Gain from sale of properties (441) (85)
--------- ---------
Other expenses, net 377 1,148
--------- ---------
INCOME BEFORE INCOME TAXES 8,274 4,573
Income taxes 3,253 1,916
--------- ---------
NET INCOME $ 5,021 $ 2,657
========= =========
Average shares outstanding 6,708 6,913
Net income per share, basic $ .75 $ .38
Net income per share, assuming dilution $ .74 $ .38
Dividends per share $ .21 $ .21
<FN>
See notes to condensed financial statements.
</TABLE>
page 4
<PAGE>
WOLOHAN LUMBER CO.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(in thousands)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
-----------------
SEPT. 26, SEPT. 27,
1998 1997
--------- ---------
<S> <C> <C>
NET CASH (USED IN) FROM OPERATING ACTIVITIES $ (5,411) $ 9,472
NET CASH USED IN INVESTING ACTIVITIES (7,809) (2,978)
NET CASH USED IN FINANCING ACTIVITIES (8,491) (5,417)
-------- --------
(DECREASE) INCREASE IN CASH AND
CASH EQUIVALENTS (21,711) 1,077
CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD 25,333 15,485
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 3,622 $ 16,562
======== ========
<FN>
See notes to condensed financial statements.
</TABLE>
page 5
<PAGE>
WOLOHAN LUMBER CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 26, 1998
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have
been prepared in accordance with generally accepted accounting
principles for interim financial information and with the
instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments
(consisting only of normal recurring accruals) considered necessary
for a fair presentation have been included.
The Company's business is seasonal in nature and subject to general
economic conditions and outside factors and, accordingly, its
operating results for the three months ended September 26, 1998 are
not necessarily indicative of the results that may be expected for
the year ending December 26, 1998.
The Company acquired Central Michigan Lumber Company ("CML")
effective June 29, 1998. CML, with corporate administrative offices
in St. Johns, Michigan, had sales in excess of $60 million for the
most recent fiscal year. CML has eight locations throughout
mid-Michigan which sell lumber and building materials to contractors
and project-oriented consumers. The capital investment (cash payments
plus long-term debt assumed) for this acquisition was approximately
$19 million and included approximately $4 million of intangible
assets. CML will operate as a wholly owned subsidiary of Wolohan
Lumber Co.
For further information, refer to the financial statements and
footnotes included in the Company's annual report on Form 10-K for
the year ended December 27, 1997.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
Certain information contained in Management's Discussion and Analysis
of Financial Condition and Results of Operations may be deemed to be
forward-looking statements within the meaning of The Private
Securities Litigation Reform Act of 1995 and are subject to the Act's
safe harbor provisions. These statements are based on current
expectations and involve a number of risks and uncertainties. Actual
results could differ materially and adversely from those described in
the forward-looking statements as a result of various factors outside
the control of the Company, including, but not limited to the
following: fluctuations in customer demand and spending, expectations
of future volumes and prices for the Company's products, prevailing
economic conditions affecting the retail lumber and building
materials markets and seasonality of operating results.
page 6
<PAGE>
Results Of Operations
Net income for fiscal third-quarter 1998 was $3.1 million (46 cents
per share), versus $.6 million (8 cents per share) for fiscal
third-quarter 1997. The increase resulted primarily from an increase
in sales and the positive operating contribution of Central Michigan
Lumber Co. ( the wholly owned subsidiary acquired by Wolohan Lumber
on June 29, 1998). Third-quarter results in 1997 were negatively
affected by the closure of four stores and asset-impairment losses
recorded for certain other stores ( the after-tax effect was $1.7
million). Net income for the first nine months of 1998 totaled $5
million (75 cents per share), compared with $2.7 million (38 cents
per share) for the same period of 1997.
Sales totaled $143.1 million for fiscal third-quarter 1998, an
increase of 15 percent from fiscal third-quarter 1997 sales of $124.1
million. The sales increase in third quarter 1998 resulted from a
6-percent increase in comparable-store sales plus $23.6 million in
sales from CML. On a comparable-store basis, contractor-builder and
remodeler sales increased 5 percent and consumer (DIY) sales fell 12
percent in third quarter 1998. Sales for the nine-month period ended
September 26, 1998 were $329.2 million (including $23.6 million in
sales from CML), compared with $328.3 million for the corresponding
period a year earlier. Comparable-store sales were up 2 percent for
the 1998 nine-month period.
The sales mix for fiscal third-quarter 1998 was 64-percent contractor
sales and 36-percent consumer sales, compared with a 58/42 mix for
fiscal third-quarter 1997. For the nine-month period, contractor
sales accounted for 65 percent of total sales in 1998 versus 60
percent for 1997.
Gross margins declined 80 basis points to 22.1 percent in fiscal
third-quarter 1998, compared with 22.9 percent for fiscal
third-quarter 1997. The lower gross margin resulted primarily from
changes in sales mix and the writedown to estimated net realizable
value of slow-moving inventory. Gross margins for the nine-month
period ended September 26, 1998 were 23.1 percent, 40 basis points
lower than the corresponding period a year earlier.
The total operating expense factor was 19 percent for fiscal
third-quarter 1998 versus 20.3 percent for fiscal third-quarter 1997
( excluding the costs related to store closings in third-quarter
1997). For the 1998 nine-month period, the operating expense ratio
was 21.1 percent compared with 21.6 percent for the same period of
1997 (excluding the costs related to store closings recorded in the
nine-month period of 1997).
The effective income tax rate (federal and state) for fiscal
third-quarter 1998 was 39 percent, compared with 47.3 percent for
fiscal third-quarter 1997. The higher effective tax rate in third
quarter 1997 was due to adjusting the nine-month rate to reflect a
higher effective state rate. For the nine-month period, the effective
tax rate was 39.3 percent compared with 41.9 percent for the same
period of 1997.
page 7
<PAGE>
Financial Condition
At September 26, 1998, the Company's balance sheet remained strong.
Net working capital at September 26, 1998, totaled $54.5 million,
compared with $64.3 million at September 27, 1997, and $72.1 million
at Dec. 27, 1997. The current ratio at September 26, 1998, was 2.1 to
1, compared with 2.7 to 1 at September 27, 1997, and 3.7 to 1 at Dec.
27, 1997.
Cash and cash equivalents were $3.6 million at September 26, 1998,
compared with $16.6 million at September 27, 1997, and $25.3 million
at Dec. 27, 1997. The liquidity ratio at September 26, 1998, was .1
to 1, compared to .4 to 1 at September 27, 1997, and .94 to 1 at Dec.
27, 1997. Cash and cash equivalents decreased $16.3 million during
the 1998 third quarter due primarily to the acquisition of Central
Michigan Lumber ("CML") and the repurchase of Company common stock.
Approximately $18 million was used for the CML acquisition and $9.6
million was used to repurchase 836,000 shares of Company common stock
at an average price of $11.51 per share ($12.3 million was used to
repurchase 1,045,000 shares in the first nine months of 1998 at an
average share price of $11.76). The Company expects that net cash
from operating activities and available lines of credit should be
adequate to meet future working capital needs. Short-term debt
totaled $7 million at the end of the third quarter.
Invested capital (long-term debt and shareowners' equity) was equal
to 71% of total assets at September 26, 1998, compared with 83% at
fiscal year-end 1997. At September 26, 1998, the long-term
debt-to-asset ratio was .10, versus .13 at fiscal year-end 1997 and
the ratio of equity to total assets was .61:1 compared with .70:1 at
fiscal year-end 1997.
Year 2000
The Company's Year 2000 compliance program is progressing as planned.
The Company is on schedule to have all corporate financial systems
including inventory replenishment Year 2000 compliant by December 31,
1998. The Company is in the process of changing its store
point-of-sale system to a new system which is Year 2000 compliant.
The Company will begin to install the new point-of-sale system in
stores during the first quarter of 1999 and plans to have the final
installation complete by early December 1999.
The Company has initiated formal communication with significant
suppliers to evaluate their Year 2000 compliance. Most of these
vendors have stated their ability to supply the Company will not be
affected by the Year 2000 issue. However, the Company cannot assure
timely compliance of third parties and may be adversely affected by
failure of a significant third party to become Year 2000 compliant.
Total costs of modifying the Company's current systems are not
expected to have a material adverse impact on the Company's financial
position, results of operations or cash flows in future periods.
Should the Company not successfully complete a significant portion of
its Year 2000 compliance program its financial condition may be
materially adversely impacted; however, management does not consider
the possibility of such an occurrence to be reasonably likely. Should
the outlook for completion of the compliance
page 8
<PAGE>
program change, management will develop appropriate contingency plans
to address any non-compliance issues.
Outlook
The Company's strategic focus continues to be on gaining market share
and developing industry-leading managers and salespeople. The Company
is committed to improving consumer sales with strategies to increase
sales of kitchens and baths, decks, sheds, garages, pole barns and
major remodeling projects. The Company continues to provide more
value-added services to improve market share of contractor business.
The Company is working diligently to strengthen its associate team.
The Company continues to seek opportunities for growth through
acquisitions of businesses aligned with the Company's target
customers (single-family builder, remodeler and project-oriented
consumer). Its strong balance sheet and liquidity will allow the
Company to take advantage of growth and profit opportunities as they
arise.
The Company is committed to improving its return-on-investment ratios
and will continue to analyze the profitability of all locations from
an economic value-added perspective, which may result in some future
store closings.
PART II -- OTHER INFORMATION
ITEM 4. EXHIBITS AND REPORTS ON FORM 8-K
(a) Reports on Form 8-K
The registrant filed no reports on Form 8-K during the
quarter for which this Report is filed.
page 9
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereto duly authorized.
WOLOHAN LUMBER CO.
------------------
Registrant
Date: November 5, 1998 David G. Honaman
-------------------------- ----------------
David G. Honaman
Vice President - Administration
and Chief Financial Officer
Date: November 5, 1998 Edward J. Dean
-------------------------- --------------
Edward J. Dean,
Corporate Controller
(Principal Accounting Officer)
page 10
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-26-1998
<PERIOD-START> DEC-28-1997
<PERIOD-END> SEP-26-1998
<CASH> $ 3,622,000
<SECURITIES> 0
<RECEIVABLES> 44,845,000
<ALLOWANCES> 0
<INVENTORY> 48,679,000
<CURRENT-ASSETS> 102,681,000
<PP&E> 124,841,000
<DEPRECIATION> 72,161,000
<TOTAL-ASSETS> 166,908,000
<CURRENT-LIABILITIES> 48,197,000
<BONDS> 0
<COMMON> 5,873,000
0
0
<OTHER-SE> 95,687,000
<TOTAL-LIABILITY-AND-EQUITY> 166,908,000
<SALES> 329,168,000
<TOTAL-REVENUES> 79,061,000
<CGS> 253,109,000
<TOTAL-COSTS> 62,454,000
<OTHER-EXPENSES> 6,209,000
<LOSS-PROVISION> 702,000
<INTEREST-EXPENSE> 1,422,000
<INCOME-PRETAX> 8,274,000
<INCOME-TAX> 3,253,000
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,021,000
<EPS-PRIMARY> 0.75
<EPS-DILUTED> 0.74
</TABLE>
