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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 June 27, 1998
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|_| Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from to
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Commission file number 0-6169
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WOLOHAN LUMBER CO.
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(Exact name of registrant as specified in its charter)
Michigan 38-1746752
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
1740 Midland Road, Saginaw, Michigan 48603
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(Address of principal executive offices)
(517) 793-4532
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(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 -- 6,594,622 shares as of July 31, 1998.
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<PAGE>
PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL INFORMATION
<TABLE>
<CAPTION>
WOLOHAN LUMBER CO.
CONDENSED BALANCE SHEETS
June 27, DEC. 27,
1998 1997
----------- --------
(Unaudited) (Note)
(000's omitted)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 19,894 $ 25,333
Trade receivables 35,969 30,064
Inventories - at average cost 57,975 52,630
Reduction to LIFO cost (13,463) (13,421)
--------- ---------
Inventories at the lower of LIFO
cost or market 44,512 39,209
Other current accounts 3,856 4,305
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TOTAL CURRENT ASSETS 104,231 98,911
NET PROPERTIES 47,994 51,008
OTHER ASSETS 7,827 7,544
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TOTAL ASSETS $ 160,052 $ 157,463
========= =========
LIABILITIES AND SHAREOWNERS' EQUITY
CURRENT LIABILITIES
Trade accounts payable $ 17,193 $ 10,814
Employee compensation and accrued expenses 11,617 13,787
Short-term debt 2,000 0
Current portion of long-term debt 3,680 2,240
--------- ---------
TOTAL CURRENT LIABILITIES 34,490 26,841
LONG-TERM DEBT, less current portion 16,813 20,443
--------- ---------
TOTAL LIABILITIES 51,303 47,284
SHAREOWNERS' EQUITY
Common stock 6,722 6,910
Additional capital 19,584 21,819
Retained earnings 82,443 81,450
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TOTAL SHAREOWNERS' EQUITY 108,749 110,179
--------- ---------
TOTAL LIABILITIES AND SHAREOWNERS' EQUITY $ 160,052 $ 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>
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<PAGE>
<TABLE>
<CAPTION>
WOLOHAN LUMBER CO.
CONDENSED STATEMENTS OF INCOME (UNAUDITED)
THREE MONTHS ENDED
----------------------
JUNE 27, JUNE 28,
1998 1997
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(000's omitted, except per share data)
<S> <C> <C>
NET SALES $ 112,856 $ 126,827
Cost of sales 85,650 96,801
--------- ---------
Gross profit 27,206 30,026
Other operating income 597 754
--------- ---------
Total operating income 27,803 30,780
OPERATING EXPENSES:
Selling, general and administrative 21,079 22,813
Depreciation 2,005 2,473
--------- ---------
Total operating expenses 23,084 25,286
--------- ---------
INCOME FROM OPERATIONS 4,719 5,494
OTHER EXPENSES (INCOME):
Interest expense 475 571
Interest income (248) (61)
Gain on sale of properties (164) (32)
--------- ---------
Other expenses, net 63 478
--------- ---------
INCOME BEFORE INCOME TAXES 4,656 5,016
Income taxes 1,856 2,027
--------- ---------
NET INCOME $ 2,800 $ 2,989
========= =========
Average shares outstanding 6,759 6,915
Net income per share, basic $ .41 $ .43
Net income per share, assuming dilution $ .41 $ .43
Dividends per share $ .07 $ .07
<FN>
See notes to condensed financial statements.
</TABLE>
page 3
<PAGE>
<TABLE>
<CAPTION>
WOLOHAN LUMBER CO.
CONDENSED STATEMENTS OF INCOME (UNAUDITED)
SIX MONTHS ENDED
----------------------
JUNE 27, JUNE 28
1998 1997
--------- ---------
(000's omitted, except per share data)
<S> <C> <C>
NET SALES $ 186,051 $ 204,181
Cost of sales 141,670 155,432
--------- ---------
Gross Profit 44,381 48,749
Other operating income 1,089 1,243
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Total operating income 45,470 49,992
OPERATING EXPENSES:
Selling, general and administrative 38,110 40,712
Depreciation 4,098 4,961
--------- ---------
Total operating expenses 42,208 45,673
--------- ---------
INCOME FROM OPERATIONS 3,262 4,319
OTHER EXPENSES (INCOME):
Interest expense 945 1,112
Interest income (506) (170)
Gain from sale of properties (409) (58)
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Other expenses, net 30 884
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INCOME BEFORE INCOME TAXES 3,232 3,435
Income taxes 1,286 1,377
--------- ---------
NET INCOME $ 1,946 $ 2,058
========= =========
Average shares outstanding 6,812 6,915
Net income per share, basic $ .29 $ .30
Net income per share, assuming dilution $ .28 $ .29
Dividends per share $ .14 $ .14
<FN>
See notes to condensed financial statements.
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
WOLOHAN LUMBER CO.
CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
SIX MONTHS ENDED
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JUNE 27, JUNE 28,
1998 1997
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(000's omitted)
<S> <C> <C>
NET CASH USED IN OPERATING ACTIVITIES $ (755) $ (2,211)
NET CASH USED IN INVESTING ACTIVITIES (1,047) (2,480)
NET CASH USED IN FINANCING ACTIVITIES (3,637) (3,930)
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DECREASE IN CASH AND CASH EQUIVALENTS (5,439) (8,621)
CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD 25,333 15,485
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CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 19,894 $ 6,864
======== ========
<FN>
See notes to condensed financial statements.
</TABLE>
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<PAGE>
WOLOHAN LUMBER CO.
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 27, 1998
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited condensed 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 June 27, 1998 are not
necessarily indicative of the results that may be expected for the
entire year ending December 26, 1998.
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.
Results Of Operations
Net income for fiscal second-quarter 1998 was $2.8 million (41 cents
per share), versus $3 million (43 cents per share) for fiscal
second-quarter 1997. A slight improvement in gross margins and lower
expenses were offset by lower sales and resulted in the small
earnings decline. Net income for the first six months of 1998
totaled $1.9 million (29 cents per share), compared with $2.1
million (30 cents per share) for the same period of 1997.
Sales totaled $112.9 million for fiscal second-quarter 1998, a
decline of 11 percent from fiscal second-quarter 1997 sales of
$126.8 million. The impact of lower selling prices of lumber
products (down approximately 4 percent from second-quarter 1997) and
six fewer
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<PAGE>
stores compared with second-quarter 1997 were primarily responsible
for the sales decline. Sales at comparable stores were down 3
percent in second-quarter 1998. Contractor-builder and remodeler
sales increased 2 percent and consumer (DIY) sales fell 11 percent.
Sales for the six-month period ended June 27, 1998 were $186.1
million, a 9-percent decline from $204.2 million for the
corresponding period a year earlier. The effect of lower selling
prices for lumber products and fewer stores, as discussed earlier,
were the primary cause of this decline. Comparable-store sales were
down 1 percent for the 1998 six-month period.
The sales mix for fiscal second-quarter 1998 was 37-percent consumer
sales and 63-percent contractor sales compared with a 40/60 mix for
fiscal second-quarter 1997. For the six-month period, contractor
sales accounted for 65 percent of total sales in 1998 versus 62
percent for 1997.
Gross margins improved by 40 basis points to 24.1 percent in fiscal
second-quarter 1998, compared with 23.7 percent for fiscal
second-quarter 1997. The higher gross margin is primarily the result
of improved inventory control. Gross margins for the six-month
period ended June 27, 1998 were 23.9 percent, the same as the
corresponding period a year earlier.
The total operating expense factor was 20.5 percent for fiscal
second-quarter 1998 versus 19.9 percent for fiscal second-quarter
1997. For the 1998 six-month period, the operating expense ratio was
22.7 percent compared with 22.4 percent for the same period of 1997.
The effective income tax rate (federal and state) for fiscal
second-quarter 1998 was 40.4 percent, compared with 39.4 percent for
fiscal second-quarter 1997. For the six-month period, the effective
tax rate approximated 40 percent for both years.
Financial Condition
At June 27, 1998, the Company's balance sheet remained strong. Net
working capital at June 27, 1998, totaled $69.7 million, compared
with $62.5 million at June 28, 1997, and $72.1 million at Dec. 27,
1997. The current ratio at June 27, 1998, was 3.0 to 1, compared
with 2.6 to 1 at June 28, 1997, and 3.7 to 1 at Dec. 27, 1997.
Cash and cash equivalents were $19.9 million at June 27, 1998,
compared with $6.9 million at June 28, 1997, and $25.3 million at
Dec. 27, 1997. The liquidity ratio at June 27, 1998, was .58 to 1,
compared to .17 to 1 at June 28, 1997, and .94 to 1 at Dec. 27,
1997. Cash and cash equivalents decreased $.2 million during the
1998 second quarter primarily the result of property additions, $.6
million, and $.7 million used to repurchase 53,000 shares of Company
common stock at an average price of $12.58 per share ($2.5 million
was used to repurchase 196,000 shares in the first half of 1998 at
an average share price of $12.74). The Company expects that net cash
from operating activities and available lines of credit should be
adequate to meet future working capital needs. However, because of
the favorable rate environment, which is enhanced by the strong
financial position of the Company, the Company is in the process
of securing additional working capital through the issuing of
long-term debt.
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<PAGE>
Invested capital (long-term debt and shareowners' equity) was equal
to 78% of total assets at June 27, 1998, compared with 83% at fiscal
year-end 1997. At June 27, 1998, the total debt-to-asset ratio was
.11, versus .13 at fiscal year-end 1997 and the ratio of equity to
total assets was .68:1 compared with .70:1 at fiscal year-end 1997.
Outlook
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). Our strong balance sheet and liquidity will allow the
Company to take advantage of growth and profit opportunities as they
arise. Subsequent to the end of second-quarter 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 seven 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.
Our acquisition of CML should have a positive impact on our
second-half results.
The second half of 1998 will be challenging as we strive to improve
on the first half results. Deflation in lumber prices and a modest
slowdown in construction activity could have a negative impact on
sales. Our strategic focus continues to be on gaining market share
and developing industry-leading managers and salespeople. We are
committed to improving consumer sales with strategies to increase
sales of kitchens and baths, decks, sheds, garages, pole barns and
major remodeling projects. We continue to provide more value-added
services to improve market share of contractor business. We are
working diligently to strengthen our associate team.
PART II -- OTHER INFORMATION
ITEM 3. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The following information is furnished with respect to the
Annual Meeting of security holders of the Registrant held during April 1998:
(a) A meeting was held on April 23, 1998 and was an Annual
Meeting.
(b) Not Applicable
(c) At such meeting the following nominees for election as
directors were elected to hold office until the next
annual meeting of stockholders or until their
successors are elected and qualified. The votes cast
with respect to each nominee for director are as
follows:
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<PAGE>
<TABLE>
<CAPTION>
Votes to Withhold
Votes for Authority to Vote
Nominee Nominee for the Nominee
- ------- ------- ---------------
<S> <C> <C>
Hugo E. Braun, Jr. 4,595,298 28,755
James L. Wolohan 4,595,422 28,631
F.R. Lehman 4,595,177 28,876
Leo B. Corwin 4,595,238 28,815
Lee A. Shobe 4,595,301 28,752
Charles R. Weeks 4,595,301 28,752
</TABLE>
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: August 10, 1998 David G. Honaman
--------------------- ------------------------------
David G. Honaman
Vice President - Administration
and Chief Financial Officer
Date: August 10, 1998 Edward J. Dean
--------------------- ------------------------------
Edward J. Dean,
Corporate Controller
(Principal Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-26-1998
<PERIOD-START> DEC-28-1997
<PERIOD-END> JUN-27-1998
<CASH> $ 19,894,000
<SECURITIES> 0
<RECEIVABLES> 35,969,000
<ALLOWANCES> 0
<INVENTORY> 44,512,000
<CURRENT-ASSETS> 104,231,000
<PP&E> 112,485,000
<DEPRECIATION> 64,491,000
<TOTAL-ASSETS> 160,052,000
<CURRENT-LIABILITIES> 34,490,000
<BONDS> 0
<COMMON> 6,722,000
0
0
<OTHER-SE> 102,027,000
<TOTAL-LIABILITY-AND-EQUITY> 160,052,000
<SALES> 186,051,000
<TOTAL-REVENUES> 46,385,000
<CGS> 141,670,000
<TOTAL-COSTS> 37,716,000
<OTHER-EXPENSES> 4,098,000
<LOSS-PROVISION> 394,000
<INTEREST-EXPENSE> 945,000
<INCOME-PRETAX> 3,232,000
<INCOME-TAX> 1,286,000
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,946,000
<EPS-PRIMARY> 0.29
<EPS-DILUTED> 0.28
</TABLE>
