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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 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)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which 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 1, 1999, 5,370,345 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 $49,244,000.
Documents Incorporated by Reference
Portions of the Annual Report of the registrant to its shareholders for the
year ended December 26, 1998 are incorporated by reference into Part II.
Portions of the definitive Proxy Statement of the registrant, dated March 26,
1999, filed pursuant to Regulation 14A are incorporated by reference into
Part III.
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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 50 building supply stores located in Illinois,
Indiana, Kentucky, Michigan and Ohio.
In June 1998 the registrant acquired Central Michigan Lumber Company
headquartered in Lansing, Michigan which currently operates nine
stores throughout mid-Michigan which sell lumber and building
materials.
The registrant sells to contractor builders and remodelers and to the
"do-it-yourself" market consisting principally of homeowners. These
customer types accounted for approximately 63% and 37%, respectively,
of the registrant's sales for 1998.
The registrant sells more than 30,000 different products which are
purchased from approximately 2,000 suppliers. No supplier accounts for
more than 5% 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; 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 national and regional chains and from
local independent merchants, as well as integrated department stores.
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 1,575 full-time employees at December
26, 1998.
To the best of the registrant's knowledge, it is complying with all
federal, state and local environmental protection provisions.
2
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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 March 1, 1999, the registrant operated 50 building supply stores
in the states of Illinois, Indiana, Kentucky, Michigan and Ohio. The
showroom selling space in the stores averages 24,000 square feet. In
addition, total warehouse and storage space (under roof) ranges in
size from 6,000 square feet to 66,000 square feet (average of 26,000
square feet).
All of the building supply stores are owned in fee by the registrant
with the exception of four leased stores.
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 320 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.
3
<PAGE>
Executive Officers of the Registrant
The executive officers of the registrant are as follows:
Has Served
In Position
Name Position Since Age
- ------------------ -------------------------------- ------------- ---
James L. Wolohan Chairman of the Board, 1994 47
President and 1986
Chief Executive Officer 1987
David G. Honaman Vice President-Administration, 1995 47
Secretary, and Chief
Financial Officer
Curtis J. LeMaster Vice President- 1997 49
Marketing, Purchasing
and Systems
John A. Sieggreen Vice President- 1997 36
Operations
Edward J. Dean Corporate Controller 1984 48
James R. Krapohl Treasurer and 1978 53
Assistant Secretary
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 Curtis J.
LeMaster and John Sieggreen. Mr. LeMaster was Vice President of Marketing and
Purchasing with Henry Bacon Building Materials, Inc., before joining the
registrant in 1995 as Vice President-Marketing. Mr. Sieggreen served as
Marketing Director of the registrant until he resigned in February 1994.
Thereafter, he was employed by BMC West until April 1997 when he rejoined the
registrant.
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 1998 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 1998 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 1998 Annual
Report of the registrant to its shareholders, is incorporated herein
by reference.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
Not Applicable
Item 8. Financial Statements and Supplementary Data.
The report of management, report of independent auditors, and
financial statements included on pages 10 through 20 of the 1998
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 1998 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.
None
5
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Wolohan Lumber Co.
We have audited the balance sheet of Wolohan Lumber Co. as of December 28,
1996, and the related statements of income, shareowners' equity, and cash
flows for the year then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit 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 audit provides 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 the results of its operations and its cash flows for
the year then ended, in conformity with generally accepted accounting
principles.
ERNST & YOUNG LLP
Detroit, Michigan
February 14, 1997
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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 26, 1999, 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 26, 1999, 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 26, 1999, filed with the Securities and Exchange
Commission pursuant to Regulation 14A is incorporated herein by
reference.
Item 13. Certain Relationships and Related Transactions.
None.
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<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 was filed as an exhibit 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)
Exhibit (10)(b) ********Stock Option Plan for Non-Employee
Directors (10) (b) (X)
(X) A compensatory plan required to be filed as an exhibit.
8
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Exhibit (13) Annual Report of registrant to its shareholders for
the year ended December 26, 1998
Exhibit (21) Subsidiaries of the registrant
Exhibit (23) Consent of Independent Auditors
Exhibit (23.1) Consent of Independent Auditors
(b) Reports on Form 8-K filed in the fourth quarter of 1998.
None
(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.
9
<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 March 24,
1999.
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 24, 1999.
Signature Title Signature Title
- --------- ----- --------- -----
Director Director
/s/ Hugo E. Braun, Jr. /s/ Lee A. Shobe
- ---------------------- --------------------
Hugo E. Braun, Jr. Lee A. Shobe
Director Director
/s Leo B. Corwin /s/ Charles R. Weeks
- ---------------------- --------------------
Leo B. Corwin Charles R. Weeks
Director Director
/s/ F. R. Lehman /s/ James L. Wolohan
- ---------------------- --------------------
F.R. Lehman James L. Wolohan
10
<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 26, 1998
WOLOHAN LUMBER CO.
SAGINAW, MICHIGAN
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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 1998 Annual Report of the
registrant to its shareholders for the year ended December 26, 1998, are
incorporated by reference in Item 8:
Balance sheets -- December 26, 1998 and December 27, 1997.
Statements of income -- Years ended December 26, 1998,
December 27, 1997 and December 28, 1996.
Statements of shareowners' equity -- Years ended
December 26, 1998, December 27, 1997 and
December 28, 1996.
Statements of cash flows -- Years ended December 26, 1998,
December 27, 1997 and December 28, 1996.
Notes to financial statements -- December 26, 1998.
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.
12
<PAGE>
EXHIBIT INDEX
The exhibit marked by one asterisk below was filed as an exhibit 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)
Exhibit (10)(b) ********Stock Option Plan for Non-Employee
Directors
Exhibit (13) Annual Report of registrant to its 14-37
shareholders for the year ended December 26, 1998
Exhibit (21) Subsidiaries of the registrant 38
Exhibit (23) Consent of Independent Auditors 39
Exhibit (23.1) Consent of Independent Auditors 40
13
EXHIBIT 13
1998 Annual Report
WOLOHAN LUMBER CO.
Quality Home Builders And
Remodelers Build With Wolohan
<PAGE>
Company Profile
Wolohan Lumber Co., is a full-line retailer of lumber, building
materials and related products used primarily for new-home construction and
home-improvement and maintenance projects.
Headquartered in Saginaw, Mich., the Company was founded in 1964
with three stores and at year-end 1998, 56 stores were in operation under the
names Wolohan Lumber, Central Michigan Lumber and Weber Lumber. Each store
provides a strong offering of quality materials, competitive prices and
expert and personal service. Each location includes a retail sales area (with
most stores having significant square footage devoted to displays of
kitchens, baths, doors and windows and other building materials), under-roof
storage areas and an outside lumberyard area. In addition, the Company has
one truss plant, a specialty millwork operation, a wall-panel facility and
several stores with door assembly capabilities.
The Company's primary customer focus is the project-oriented
consumer, single-family homebuilder and remodeler. The Company offers a wide
range of services including computer-design, delivery, installation, various
financing options and job-site contractor sales representatives with
experienced store support coordination.
Table of Contents
- -----------------
Corporate and Financial Highlights .................... 1
Shareholders' Address ................................. 2
Common Stock Data ..................................... 4
Quarterly Summaries ................................... 4
Sales Mix ............................................. 5
5-Year Performance .................................... 6
Management's Discussion and Analysis of
Results of Operations and Financial Condition ........ 7
Reports of Management and Independent Auditors ........ 10
Financial Statements
Consolidated Balance Sheets ...................... 11
Consolidated Statements of Income ................ 12
Consolidated Statements of Shareowners'
Equity ......................................... 12
Consolidated Statements of Cash Flows ............ 13
Notes to Consolidated Financial Statements ....... 14
Corporate Information.....................(Inside Back Cover)
<PAGE>
Corporate Highlights
o The Company acquired Central Michigan Lumber Co. ("CML"), on June 29,
1998. This acquisition was a significant contributor to Company sales and
profits in 1998.
o Sales increased 6 percent to a record $449,904,000. Fourth-quarter sales
were up 26 percent to a record $120,736,000.
o Net income increased 56 percent from 1997 to $6.8 million.
o The Company took actions to restructure including the closing of six
stores, the sale of six stores, the consolidation of two stores into one
location and a reduction in corporate office administrative staff. This
restructuring will allow the Company to focus on its core business and
accelerate attainment of its strategic objectives.
o Store operations were reorganized to include single-market strategies for
multiple- store groupings.
o The Company selected Enterprise Computer System to be the point-of-sale
and corporate computer system. Installation will begin in early 1999.
o The Company repurchased 1.4 million shares of its common stock at an
average price of $12.07 per share.
o The Company ended 1998 with a strong balance sheet highlighted by a sound
working-capital position and a low debt ratio.
FINANCIAL HIGHLIGHTS
(in thousands, except per-share amounts, ratios and percentages)
1998 1997
vs vs
1998 1997 1996 1997 1996
---- ---- ---- ---- ----
INCOME STATISTICS
Net sales $449,904 $424,503 $430,358 + 6% (1%)
Gross profit 102,492 101,583 103,375 + 1% (2%)
Income before income taxes 11,186 7,247 10,511 +54% (31%)
Net Income 6,779 4,332 6,171 +56% (30%)
Per share, basic:
Net income 1.05 .63 .89 +67% (29%)
Dividends .28 .28 .28 -- --
BALANCE SHEET STATISTICS
Working capital $53,202 $72,070 $61,689 (26%) +17%
Total assets 157,511 157,463 162,709 -- (3%)
Long-term debt, net of
current portion 17,091 20,443 19,883 (16%) + 3%
Total liabilities 58,840 47,284 54,916 +24% (14%)
Shareowners' equity 98,671 110,179 107,793 (10%) + 2%
Book value per share 17.78 15.94 15.60 +12% + 2%
KEY RATIOS AND PERCENTAGES
Current ratio 2.3:1 3.7:1 2.8:1 (41%) +32%
Liquidity ratio .08:1 .94:1 .44:1 (91%) +114%
Gross profit margin 22.8% 23.9% 24.0% (5%) --
Pre-tax profit margin 2.5% 1.7% 2.4% +47% (29%)
Return on sales 1.5% 1.0% 1.4% +50% (29%)
Return on average assets 4.2% 2.7% 3.7% +56% (27%)
Return on beginning
shareowners' equity 6.2% 4.0% 5.9% +55% (32%)
1
<PAGE>
[ Photo Omitted ]
Shareowners' Address
The past year has been a remarkable one in many ways at Wolohan
Lumber Co. Sales of $449.9 million set a Company record. Net income of $6.8
million was 56 percent higher than in 1997, when net income was $4.3 million.
Earnings per share also improved significantly, from 63 cents per share in
1997 to $1.05 per share in 1998, an increase of 67 percent.
These financial results were impacted by a number of events which
are related to the two most significant changes at Wolohan Lumber Co. from
1997 to 1998.
First, the Company acquired Central Michigan Lumber Co. ("CML") on
June 29, 1998. CML had annualized sales of approximately $60 million in the
12 months preceding the acquisition and contributed $41.3 million in sales to
Wolohan Lumber Co. results during the second half of 1998. Wolohan operates
CML as a wholly owned subsidiary because of the unique niche CML has created
with project-oriented consumers and residential builders. Wolohan and CML
have, however, worked together to develop operating and purchasing synergies
which will benefit customers of the two companies. CML represents the largest
single acquisition in the 35-year history of Wolohan Lumber Co., and we look
forward to its continued growth.
Second, the Company made a strategic decision during the second half
of 1998 to exit its westernmost states of Wisconsin and Illinois. This exit
was accomplished through the closure of six locations and the divestiture of
six others. Although the Company felt it would be possible to develop
strategies to improve results in these westernmost states, we decided our
highest priorities for time, energy, and financial capital are in the three
midwestern states of Michigan, Indiana, and Ohio, where we are among the
leading companies in terms of market share to our target customers. Wolohan
still operates one store in southern Illinois and one in northern Kentucky.
Wolohan now operates 50 locations, under the Wolohan and CML operating names.
Simultaneously with the decision to exit certain markets, Wolohan
also moved forward with a reduction-in-workforce program at its corporate
offices in Saginaw, Michigan. This program brings our general and
administrative structure to the appropriate size relative to our more-focused
geography and store count. Thirty-six Wolohan associates were separated as a
result of this reduction in workforce.
Although I believe that this restructuring positions the Company
well for the future, it did
2
<PAGE>
have a negative impact on our 1998 financial performance. A pre-tax charge of
$4.6 million was incurred from asset liquidations, inventory adjustments, and
the accrual of costs associated with the restructuring and store closings.
The charge was offset, in part, by gains of $2.9 million from the sale of
real property and a LIFO credit of $1.3 million.
The liquidation of non-productive assets has been a key financial
source of funds to support the Company's aggressive repurchase of its common
stock. In 1998, 1,370,000 shares were repurchased at an average price of
$12.07 per share. The repurchases occurred at less than book value and have
increased the Company's book value per share from $15.94 at year end 1997 to
$17.78 at Dec. 26, 1998. Accordingly, outstanding shares of common stock were
20 percent lower at Dec. 26, 1998, compared with year-end 1997. Fewer shares
outstanding provide a future leverage factor on an earnings-per-share basis.
As the liquidation of non-productive assets continues in 1999
(liquidation of remaining working capital and the sale of real estate from
those locations closed in 1998), proceeds will be used to pursue additional
acquisitions. While we consider our Dec. 26, 1998 balance sheet to be very
sound, these redeployments will further improve our financial position.
It is also important to note that while the Company was undertaking
the time-consuming process of restructuring and divesting, it was still able
to significantly increase fourth-quarter sales. Comparable stores recorded a
14-percent increase in the fourth quarter of 1998 compared with 1997. This,
combined with the 15-percent increase from CML, increased total sales 26
percent for the quarter.
Beyond the 1998 financial impact these changes have had, the result
of our 1998 efforts has been to transform our Company into a much stronger,
more focused, and more efficient competitor. We are committed to our vision
statement, which says that "Quality Home Builders and Remodelers Build with
Wolohan." This vision is right on target for Wolohan because it addresses all
three of our core customer segments: home builders, professional remodelers,
and serious project-oriented consumers who are engaged in the remodel or
improvement of their homes. Our team has embraced the pursuit of these
customers and has committed itself to doing so through excellence in the
service elements important to these customers, such as on-time delivery,
product selection and depth that are appropriate for the professional, and
quality of product that meets a professional's exacting standards.
We have made several other strategic decisions which will play an
important role in our results for 1999 and beyond. One exciting investment is
the installation of a new point-of-sale computer system. This system will
allow us to offer many features and benefits to customers that we had
previously been unable to offer. It will also improve our sales efficiency
and productivity at the store level. This system will be completely in place
by year-end 1999.
We are also making additional investments in the value-added areas
of our business. We are evaluating ways to both expand our capacity to
manufacture wall panels, trusses, and pre-hung doors at our existing
value-added facilities, as well as considering adding capacity in some
markets where we do not have capacity today. These value-added products are
important to our core customer groups, especially the single-family home
builder. There are also a number of value-added services, such as specialized
delivery, product installation, and construction financing that are important
to our customers. We will continue to expand our presence in these areas
during 1999 as well.
Finally, we intend to remain active in the identification of
opportunities to acquire companies whose business strategies and target
customers are well aligned with those of Wolohan and CML. Our focus will be
on acquiring companies which are among the leaders in the midwestern markets
we serve.
I want to thank our Wolohan associates and shareholders for their
support in the changes the Company made during 1998. It has certainly been a
year of transition, and one which has resulted in a more growth-oriented,
more efficient, and more energetic Wolohan Lumber Co. I am looking forward to
putting all these initiatives into action and seeing the response from our
customers, where it matters most. I am confident our customers will be
pleased with the changes we've made and their effect on the organization's
ability to respond to their needs.
I would also like to make special mention of Pete Lehman as he
retires from our Board of Directors. We would particularly like to thank Pete
for his valuable contributions to our Company as a Director for the past 13
years. Pete's presence and counsel have been greatly valued and appreciated
and his contributions will be missed.
Thank you again for your support. Our team is committed to making
1999 a great year for Wolohan Lumber Co.
/s/ James L. Wolohan
-------------------------------------
James L. Wolohan,
Chairman of the Board,
President and Chief Executive Officer
3
<PAGE>
COMMON STOCK DATA
1998 1997
------------------------------ -----------------------------
CASH CASH
MARKET RANGE DIVIDENDS MARKET RANGE DIVIDENDS
HIGH LOW DECLARED HIGH LOW DECLARED
First Quarter $13 5/8 $11 $.07 $15 3/4 $11 3/4 $.07
Second Quarter 13 1/4 11 1/4 .07 12 3/4 11 7/8 .07
Third Quarter 13 7/16 11 .07 14 1/2 11 5/8 .07
Fourth Quarter 13 5/16 8 13/16 .07 14 1/2 12 7/8 .07
Year 13 5/8 8 13/16 $.28 15 3/4 11 5/8 $.28
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 Dec. 26, 1998 was 788.
QUARTERLY SUMMARIES
(in thousands, except per-share amounts)
FIRST SECOND THIRD FOURTH TOTAL
QUARTER QUARTER QUARTER QUARTER YEAR
------- ------- ------- ------- ----
1998
Net sales $73,195 $112,856 $143,117 $120,736 $449,904
Gross profit 17,175 27,206 31,678 26,433 102,492
Net income:
Amount (854) 2,800 3,075 1,758 6,779
Per share, basic (.12) .41 .46 .30 1.05
1997
Net sales $77,354 $126,827 $124,119 $96,203 $424,503
Gross profit 18,723 30,026 28,368 24,466 101,583
Net income:
Amount (931) 2,989 599 1,675 4,332
Per share, basic (.13) .43 .08 .25 .63
4
<PAGE>
SALES MIX
BY CUSTOMER SEGMENT
(in thousands, except percentages) 1998 Mix 1998 Mix
- ---------------------------------- ---- --- ---- ---
Contractor Builder
and Remodeler $285,497 63% $259,594 61%
Project-Oriented Consumer 164,407 37% 164,909 39%
-------- --- -------- ---
Total Sales $449,904 100% $424,503 100%
======== === ======== ===
Single-family home builders, remodelers and commercial/industrial
accounts are all part of the contractor builder and remodeler segment of the
Company's sales. Project selling is the Company's focus regarding the
consumer/DIY customer.
BY PRODUCT CATEGORY
(percent of total sales)
1998 1997
---- ----
Dimension Lumber 18.1 18.5
Sheathing Plywood 10.0 8.6
Other Forest Products 11.0 11.5
Building Materials 17.5 16.8
Hardware 5.0 5.3
Home Decorations 2.0 2.4
Millwork 17.1 17.3
Kitchen Cabinets and Vanities 6.4 5.9
Plumbing, Heating, and Electrical 4.8 5.9
Trusses and Components 7.1 6.1
Lawn and Garden 1.0 1.7
---- ----
Total Sales 100 100
==== ====
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 continues to invest in value-added
services such as computer design, door and window assembly, wall
panelization, truss manufacturing, specialized delivery equipment, product
installation and construction financing. 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.
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.
5
<PAGE>
<TABLE>
<CAPTION>
5-YEAR PERFORMANCE
(In thousands, except per-share amounts, ratios and percentages)
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Income Statistics
Net sales $ 449,904 $ 424,503 $ 430,358 $ 418,058 $ 448,840
Gross profit 102,492 101,583 103,375 99,989 108,029
Store closing costs 1,966 3,800 921 3,317 --
Interest expense 1,828 2,212 2,457 2,919 3,082
Income before income taxes 11,186 7,247 10,511 6,498 18,268
Income taxes 4,407 2,915 4,340 2,763 7,206
Net income 6,779 4,332 6,171 3,735 11,062
Net income per share, basic 1.05 .63 .89 .53 1.55
Cash dividends declared:
Amount per share .28 .28 .28 .28 .28
Percent of net income 26.6% 44.7% 31.6% 53.2% 18.1%
Average shares outstanding 6,474 6,912 6,968 7,100 7,146
Balance Sheet Statistics
Current assets $ 94,951 $ 98,911 $ 96,722 $ 92,041 $ 100,871
Other assets 18,121 7,544 2,311 2,149 2,174
Properties (net) 44,439 51,008 63,676 68,250 68,002
Total assets 157,511 157,463 162,709 162,440 171,047
Working capital 53,202 72,070 61,689 60,631 64,767
Long-term debt, net of current portion 17,091 20,443 19,883 26,674 30,035
Total liabilities 58,840 47,284 54,916 58,084 66,836
Shareowners' equity:
Amount 98,671 110,179 107,793 104,356 104,211
Book value per share 17.78 15.94 15.60 14.93 14.58
Key Operating Percentages
Gross profit margin 22.8% 23.9% 24.0% 23.9% 24.1%
Pre-tax profit margin 2.5% 1.7% 2.4% 1.6% 4.1%
Return on sales 1.5% 1.0% 1.4% 0.9% 2.5%
Return on average assets 4.2% 2.7% 3.7% 2.2% 6.4%
Return on average working capital 10.8% 6.5% 10.1% 6.0% 17.2%
Return on beginning shareowners' equity 6.2% 4.0% 5.9% 3.6% 11.6%
Return on average total invested capital 5.5% 3.4% 4.8% 2.8% 8.4%
Key Financial Ratios and Measures
Sales to average working capital 7.2:1 6.3:1 7.0:1 6.7:1 7.0:1
Sales to average shareowners' equity 4.3:1 3.9:1 4.1:1 4.0:1 4.5:1
Sales to average total invested capital 3.7:1 3.3:1 3.3:1 3.2:1 3.4:1
Current ratio 2.3:1 3.7:1 2.8:1 2.9:1 2.8:1
Quick ratio 1.1:1 2.1:1 1.4:1 1.3:1 1.3:1
Liquidity ratio .08:1 .94:1 .44:1 .44:1 .61:1
Debt to total assets ratio .11:1 .13:1 .12:1 .16:1 .18:1
Capitalization ratio .15:1 .16:1 .16:1 .20:1 .22:1
Shareowners' equity to total assets ratio .63:1 .70:1 .66:1 .64:1 .61:1
Inventory turnover 7.68 6.73 6.30 5.89 5.73
Asset turnover 2.81 2.62 2.58 2.47 2.60
Stores
Number of stores at end of year 56 56 62 61 60
</TABLE>
6
<PAGE>
Management's Discussion and Analysis of
Results of Operations and Financial Condition
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 in 1998 improved to $6.8 million ($1.05 per basic share)
from $4.3 million (63 cents per basic share) in 1997. This 56-percent
increase in net income was due to the positive contribution of Central
Michigan Lumber Co. ("CML"), acquired on June 29, 1998; gains from selling
idle properties; a lower operating expense factor and a 6-percent increase in
total sales. Included in the 1998 results were approximately $4.6 million
(pre-tax) of costs related to restructuring activities. Of this total
restructuring charge, $3.5 million resulted from costs associated with the
closings of seven stores, of which, $1.5 million was a charge to cost of
sales. Net income in 1997 declined 30 percent from 1996 net income of $6.2
million due to a slight decline in sales and margins and the effect of
closing six stores, which resulted in costs (pre-tax) of $3.8 million.
Sales of $449.9 million in 1998 were 6 percent higher than 1997
sales of $424.5 million. This was the result of a comparable store increase
for Wolohan stores of 8 percent and $41 million of sales from the CML stores.
Sales in 1997 declined 1 percent from 1996 sales of $430.4 million with
comparable store sales up 1 percent from 1996. Contractor builder and
remodeler sales accounted for 63 percent of total sales for 1998, compared
with 61 percent in 1997. The higher mix of sales to the contractor customer
is due to the Company's strategy to focus on selling products to the builder,
remodeler and project-oriented customer, versus selling general
home-improvement merchandise to individual consumers.
The gross profit margin in 1998 was 22.8 percent, compared with 23.9
percent in 1997 and 24.0 percent in 1996. The impact of closing seven stores,
recording an allowance for obsolete inventory and some change in sales mix
had a negative effect on margins in 1998. Approximately $1.5 million was
charged to cost of sales related to liquidating inventories at the seven
closed stores and the Company set up an allowance for obsolete inventory of
$1.9 million as part of the process to bring product mix in balance with its
customer focus. The impact of these two items accounted for approximately 70
percent of the drop in 1998 overall gross margin. The LIFO provision was a
credit of $1,286,000 in 1998, compared with a credit of $1,281,000 in 1997
and a charge of $1,866,000 in 1996. The gross margin in 1998, excluding the
provision for LIFO, was 22.5 percent, compared to 23.6 percent in 1997 and
24.5 percent in 1996.
Other operating income, which is primarily revenue from installed
labor income and finance charges related to trade receivables, totaled $2.8
million in 1998, compared with $2.7 million in 1997 and $2.1 million in 1996.
Selling, general, and administrative expenses (excluding
store-closing costs) rose 5 percent in 1998 to $85.7 million from $81.9
million in 1997, resulting in an expense factor of 19.0 percent of sales in
1998 compared with 19.3 percent and 19.2 percent in 1997 and 1996,
respectively. The lower 1998 expense factor was
[GRAPHIC OMITTED] [GRAPHIC OMITTED] [GRAPHIC OMITTED] [GRAPHIC OMITTED]
7
<PAGE>
primarily due to lower provision for uncollectible trade receivables and
marketing expense. The higher 1997 expense factor compared with 1996 was
primarily due to an increase in the provision for uncollectible trade
receivables.
The closing of seven stores in 1998 resulted in costs of $3.5
million, compared with $3.8 million recorded in 1997 and costs of $900,000
recorded in 1996 related to the closing of six and two stores, respectively.
The closing costs in 1998 were primarily related to liquidating inventories
and certain writedowns of real property. 1997 costs included expensing
portions of future lease payments on longer-term leases, the write-off of
leasehold improvements, the write-down of certain owned properties and the
costs of liquidating inventories. The Company will continue to evaluate
performances of stores in terms of meeting minimum return on investment
criteria, and additional store closings may result from this on-going review
(see Note J to consolidated financial statements).
Excluding store-closing costs, the net operating expense factor for
1998 was lowered to 20.9 percent of sales from 21.6 percent in 1997 and 21.5
percent in 1996. Depreciation and amortization expense in 1998 was reduced
$1.2 million from 1997.
Other income and expenses netted to an income of $1.9 million in
1998 compared with an expense of $1.7 million in 1997 and an expense of $1.5
million in 1996. The improvement in 1998 compared with 1997 and 1996 was due
primarily to the significant amount of gain on sale of idle properties. In
addition, interest expense was reduced 17 percent to $1.8 million from $2.2
million in 1997 and $2.5 million in 1996. The decrease reflects the
reductions made in long-term debt.
The effective income tax rate (federal and state combined) was 39.4
percent in 1998, compared with 40.2 percent in 1997 and 41.3 percent in 1996.
The decrease in the effective tax rate in 1998 resulted primarily from a
decrease in the effective state rate to 6.5 percent from 10.1 percent.
Financial Condition--
Liquidity and Capital Resources
Cash and cash equivalents totaled $3.2 million at December 26, 1998,
compared with $25.3 million at December. 27, 1997. The reduction in cash and
cash equivalents from year-end 1997 was due primarily to the $17.9 million
cash outlay for the purchase of CML and $16.5 million used to repurchase
1,370,000 shares of Company common stock during 1998 at an average price of
$12.07 per share. The repurchase represents 20 percent of the shares
outstanding at the beginning of 1998. Net cash provided by operating
activities totaled $14.2 million in 1998, compared with $19.1 million for
1997 and $13.6 million for 1996. The 1998 reduction in net cash from
operations was primarily a result of higher accounts receivable compared with
year-end 1997, reflecting the Company's focus on contractor builder and
remodeler sales and strong fourth-quarter 1998 sales activity.
Working capital was $53.2 million at the end of 1998, compared with
$72.1 million at year-end 1997. The Company expects that net cash provided
from operating activities and available lines of credit will be adequate to
meet working-capital needs and capital expenditures for 1999 (estimated to be
$5.4 million).
The Company has $60 million available in lines of credit
arrangements for short-term debt. There was $2 million outstanding under
these arrangements at year-end 1998 and no outstanding balance at year-end
1997.
The long-term debt-to-asset ratio was lowered to .11:1 at December
26, 1998, compared with .13:1 for year-end 1997.
Capital expenditures (excluding the CML purchase) totaled $5.4
million in 1998 and included: (1) the purchase of land and buildings at one
location which had previously been leased, (2) replacements and additions of
equipment at existing stores and (3) payment for software and hardware
related to a new point-of-sale computer system to be installed in 1999.
Capital expenditures have totaled $41 million over the last five years.
Invested capital (long-term debt and shareowners' equity) was 73
percent of total assets at December 26, 1998, compared with 83 percent at
December 27, 1997. Shareowners' equity has been the principal financing
factor over the years, accounting for more than 82 percent of invested
capital at year-end 1998 and 1997.
Effect of Inflation
The Company does not measure precisely the effect of
[GRAPHIC OMITTED] [GRAPHIC OMITTED] [GRAPHIC OMITTED] [GRAPHIC OMITTED]
8
<PAGE>
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 or on operating results or cash flows in any one year.
Impact Of Year 2000
The Company has been actively addressing the potential impact of the
Year 2000 problem since early 1997. An inventory of information systems
Company wide was completed in 1997. This assessment included information
technology ("IT") systems as well as non-IT systems such as embedded
systems/microcontrollers. The Company's conclusion on the impact of Y2K on
the non-IT systems was that there was minimal exposure. Regarding the IT
systems, the assessment indicated systems involving accounts payable, general
ledger, accounts receivable and point-of-sale were the areas most likely to
be affected by potential Y2K failures. The Company determined that it was
necessary to modify or replace significant portions of hardware and software
to allow its information systems to process properly dates related to the Y2K
date transition. The Company believes that with these modifications and
replacements, the major impact of the Y2K problem can be mitigated. However,
if such modifications and replacements are not made, or are not completed,
the Year 2000 issue could have a material adverse impact on the operations of
the Company.
With the assistance of a third-party software company, contract
programmers, and its in-house programming staff, the Company believes it has
completed the software upgrade, testing, and implementation to correct
accounts payable, general ledger, and other corporate-based systems. A new
point-of-sale system which includes accounts receivable has been purchased.
The Company has received confirmation from its vendor that this new system is
Y2K compliant. The training, installation, and roll out to all stores will
start in March 1999 and will be completed in November 1999.
The Company has contacted all 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. The Company will continue to communicate with its vendors and
suppliers throughout 1999 to obtain additional assurance about their Y2K
plans. The Company has built logic into its software to prevent erroneous
dates from being passed from a third party.
Based on the efforts to date, the Company believes that the vast
majority of its information technology systems will remain up and running
after January 1, 2000 and expects to suffer only minor failures, if any.
Accordingly the Company does not currently anticipate that internal systems
failure will result in any material adverse effect on its operations or
financial condition. Certain contingency plans have been created such as
around-the-clock support teams. Despite these contingency plans, the Company
may be adversely affected by failure of a significant third party (such as
suppliers of utilities, communication, transportation and other services) to
become Year 2000 compliant.
The total cost of the Company's Year 2000 compliance program is
estimated at $800,000 of which $720,000 has been paid. The costs of the
program are being funded through operating cash flows.
Outlook
Wolohan Lumber Co. enters 1999 with a strong balance sheet. The
Company is committed to expanding market share by being focused on its target
customers (project-oriented consumers, remodeling contractors and new-home
construction contractors). The Company will continue to place strong emphasis
on buying and distribution strategies to improve its competitive position and
will work aggressively to lower its operating-expense ratios by focusing on
training and more-efficient systems. By proper execution of these strategies,
the Company expects to improve profitability in 1999.
<PAGE>
WOLOHAN LUMBER CO.
GRAPH TITLE 1994 1995 1996 1997 1998
- ----------- ---- ---- ---- ---- ----
SALES ($ in millions) 448.8 418.1 430.4 424.5 449.9
NET INCOME ($ in millions) 11.1 3.7 6.2 4.3 6.7
NET INCOME PER SHARE (in dollars) 1.55 0.53 0.89 0.63 1.05
SHAREOWNERS' EQUITY ($ in millions) 104.2 104.4 107.8 110.2 98.7
EQUITY PER SHARE (in dollars) 14.58 14.93 15.60 15.94 17.78
PROPERTIES (NET) ($ in millions) 68.0 68.3 63.7 51.0 44.4
WORKING CAPITAL ($ in millions) 64.8 60.6 61.7 72.1 53.2
TOTAL ASSETS ($ in millions) 171.0 162.4 162.7 157.5 157.5
NET RETURN ON SALES % 2.5 0.9 1.4 1.0 1.5
GROSS MARGIN % (LIFO) 24.1 23.9 24.0 23.9 22.8
EQUITY TO ASSET RATIO % 61% 64% 66% 70% 63%
DEBT TO EQUITY RATIO % 29% 26% 18% 19% 17%
9
<PAGE>
Reports of Management and Independent Auditors
Report of Management
The accompanying consolidated 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 consolidated financial
statements, and other financial information included in this report, rests
with management. The consolidated 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 reported in the consolidated financial
statements.
Wolohan Lumber Co. maintains internal accounting-control systems
that are designed to provide reasonable assurance that assets are safeguarded
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 its Audit Committee, is responsible
for assuring that management fulfills its responsibilities in the preparation
of the consolidated 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, Rehmann Robson, P.C. has full and free access to meet with the
Audit Committee to discuss the results of their audit, 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,
Secretary and Chief Financial Officer
/s/ Edward J. Dean
- -------------------------------------
Edward J. Dean
Corporate Controller
Report of Independent Auditors
Board of Directors and Shareowners
Wolohan Lumber Co.
Saginaw, Michigan
We have audited the accompanying consolidated balance sheets of
Wolohan Lumber Co. and subsidiaries as of December 26, 1998 and December 27,
1997, and the related consolidated statements of income, changes in
shareowners' equity and cash flows for the years then ended. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits. The related statements of income,
shareowners' equity and cash flows of Wolohan Lumber Co. for the year ended
December 28, 1996 were audited by other auditors whose report dated
February 14, 1997, expressed an unqualified opinion on those statements.
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 consolidated financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the
consolidated 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 consolidated financial statements referred to
above present fairly, in all material respects, the financial position of
Wolohan Lumber Co. and subsidiaries as of December 26, 1998 and December 27,
1997, and the results of their operations and their cash flows for the years
then ended in conformity with generally accepted accounting principles.
/s/ Rehmann Robson, P.C.
- ------------------------
Rehmann Robson, P.C.
Saginaw, Michigan
February 19, 1999
<PAGE>
CONSOLIDATED BALANCE SHEETS ---- WOLOHAN LUMBER CO.
(in thousands, except per-share amounts) December 26, December 27,
1998 1997
------------ ------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 3,166 $ 25,333
Trade receivables, net 41,687 30,064
Builder Finance Program
receivables 3,296 322
Inventories, net 40,903 39,209
Other current assets 5,899 3,983
-------- --------
TOTAL CURRENT ASSETS 94,951 98,911
PROPERTIES
Land 7,595 8,411
Land improvements 13,177 13,697
Buildings 44,652 46,929
Equipment 47,473 43,819
-------- --------
TOTAL PROPERTIES 112,897 112,856
Accumulated depreciation (68,458) (61,848)
-------- --------
PROPERTIES, NET 44,439 51,008
OTHER ASSETS
Properties held for sale 9,805 5,490
Intangible assets, net 3,964 --
Other 4,352 2,054
-------- --------
TOTAL ASSETS $157,511 $157,463
======== ========
LIABILITIES AND SHAREOWNERS' EQUITY
CURRENT LIABILITIES
Trade accounts payable $ 20,123 $ 10,814
Employee compensation and accrued
expenses 15,867 13,787
Short-term debt 2,000 --
Current portion of long-term debt 3,759 2,240
-------- --------
TOTAL CURRENT LIABILITIES 41,749 26,841
LONG-TERM DEBT, net of current portion 17,091 20,443
-------- --------
TOTAL LIABILITIES 58,840 47,284
SHAREOWNERS' EQUITY
Common stock, $1 par value
Authorized - 20,000 shares;
issued and outstanding -
5,548 shares (6,910 in 1997) 5,548 6,910
Additional capital 6,694 21,819
Retained earnings 86,429 81,450
-------- --------
TOTAL SHAREOWNERS' EQUITY 98,671 110,179
-------- --------
TOTAL LIABILITIES AND SHAREOWNERS' EQUITY $157,511 $157,463
======== ========
BOOK VALUE PER SHARE $ 17.78 $ 15.94
======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
11
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEAR ENDED
------------------------------------------
(in thousands, except December 26, December 27, December 28,
per-share amounts) 1998 1997 1996
------------ ------------ ------------
NET SALES $ 449,904 $ 424,503 $ 430,358
Cost of sales 347,412 322,920 326,983
--------- --------- ---------
Gross profit 102,492 101,583 103,375
Other operating income 2,795 2,711 2,066
OPERATING EXPENSES
Selling, general and
administrative 85,660 81,920 82,718
Store closing costs 1,966 3,800 921
Depreciation and
amortization 8,367 9,616 9,834
--------- --------- ---------
NET OPERATING EXPENSES 95,993 95,336 93,473
--------- --------- ---------
Income from operations 9,294 8,958 11,968
OTHER INCOME ( EXPENSES)
Interest expense (1,828) (2,212) (2,457)
Interest income 839 562 417
Gain (loss) from sale of
properties 2,881 (61) 583
--------- --------- ---------
OTHER INCOME (EXPENSES), NET 1,892 (1,711) (1,457)
--------- --------- ---------
INCOME BEFORE INCOME TAXES 11,186 7,247 10,511
Income taxes 4,407 2,915 4,340
--------- --------- ---------
NET INCOME $ 6,779 $ 4,332 $ 6,171
========= ========= =========
NET INCOME PER SHARE, basic $ 1.05 $ 0.63 $ 0.89
========= ========= =========
NET INCOME PER SHARE,
assuming dilution $ 1.03 $ 0.62 $ 0.88
========= ========= =========
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF SHAREOWNERS' EQUITY
(in thousands, except per-share amounts)
Common Stock Total
--------------- Additional Retained Shareowners'
Shares Amount Capital Earnings Equity
------ ------ ---------- -------- ------------
<S> <C> <C> <C> <C> <C>
BALANCES AT JANUARY 1, 1996 6,989 $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, net of related
tax benefit 23 23 237 260
Shares purchased and retired (100) (100) (943) (1,043)
------ ------ ------- ------- -------
BALANCE AT DECEMBER 28, 1996 6,912 6,912 21,828 79,053 107,793
Net income for 1997 4,332 4,332
Cash dividends - $.28 per share (1,935) (1,935)
Shares issued under Long-Term
Incentive Plan, net of
related tax benefit 8 8 104 112
Shares purchased and retired (10) (10) (113) (123)
------ ------ ------- ------- -------
BALANCES AT DECEMBER 27, 1997 6,910 6,910 21,819 81,450 110,179
Net income for 1998 6,779 6,779
Cash dividends - $.28 per share (1,800) (1,800)
Shares issued under Long-Term
Incentive Plan, net of
related tax benefit 8 8 52 60
Shares purchased and retired (1,370) (1,370) (15,177) (16,547)
------ ------ ------- ------- -------
BALANCES AT DECEMBER 26, 1998 5,548 $5,548 $6,694 $86,429 $98,671
====== ====== ======= ======= =======
<FN>
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED
------------------------------------------
(In thousands) December 26, December 27, December 28,
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Operating Activities
Net income $ 6,779 $ 4,332 $ 6,171
Adjustments to reconcile net income to net
cash provided by operating activities
Depreciation 8,236 9,616 9,834
Amortization 131 -- --
Provision for losses on accounts receivable 996 1,502 735
Provision for obsolete inventory 1,900 -- --
Effect of LIFO (1,286) (1,281) 1,866
Deferred income taxes (benefit) 70 (633) (202)
(Gain) loss on sale of properties (2,881) 61 (583)
Store closing costs related to properties 195 1,699 500
Changes in assets and liabilities net of
effects in 1998 from purchase of CML:
Trade receivables (5,528) 1,156 (6,986)
Builder Finance Program receivables (2,974) (322) --
Other assets (3,127) (43) (610)
Inventories 6,628 6,825 1,920
Accounts payable and accrued expenses 5,025 (3,813) 943
-------- -------- --------
Net Cash Provided By Operating Activities 14,164 19,099 13,588
Investing Activities
Additions to properties (5,384) (3,680) (5,968)
Payment for purchase of CML, net of cash acquired (17,912) -- --
Proceeds from the sale of properties 6,347 477 1,283
-------- -------- --------
Net Cash Used In Investing Activities (16,949) (3,203) (4,685)
Financing Activities
Proceeds from credit lines 2,000 -- --
Payments on long-term debt (3,035) (3,990) (4,343)
Dividends paid (1,800) (1,935) (1,951)
Purchases of common stock (16,547) (123) (1,043)
-------- -------- --------
Net Cash Used In Financing Activities (19,382) (6,048) (7,337)
-------- -------- --------
(Decrease) Increase In Cash and Cash Equivalents (22,167) 9,848 1,566
-------- -------- --------
Cash and cash equivalents at beginning of year 25,333 15,485 13,919
-------- -------- --------
Cash and Cash Equivalents at End of year $ 3,166 $ 25,333 $ 15,485
======== ======== ========
Supplemental disclosure of cash flows information:
Interest paid $ 2,117 $ 2,029 $ 2,452
======== ======== ========
Income taxes paid $ 5,670 $ 4,497 $ 5,148
======== ======== ========
<FN>
The accompanying notes are an integral part of these consolidated financial
statements.
</TABLE>
13
<PAGE>
Notes to Consolidated Financial Statements
Note A--Nature of Business and Significant Accounting Practices
Organization. Wolohan Lumber Co.("WLC"), together with its wholly owned
subsidiaries Central Michigan Lumber Co. ("CML") and Wolohan Lumber Co., LLC
("LLC"), collectively the "Company", is engaged in the retail sale of a full
line of lumber and building materials and related items through a chain of 56
building supply stores in Illinois, Indiana, Kentucky, Michigan, Ohio and
Wisconsin. The stores operate primarily under the names Wolohan Lumber or
Central Michigan Lumber.
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.
Principles of Consolidation. The consolidated financial statements of the
Company include the accounts of WLC and its subsidiaries after elimination of
significant intercompany accounts and transactions.
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 as compared to a
calendar year, the effect of this calendar change on fiscal 1996, 1997, and
1998 was not material.
Use of Estimates. The preparation of consolidated financial statements in
conformity with generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at the
date of the consolidated financial statements and the reported amounts of
income and expenses during the reporting period. Significant estimates
include but are not limited to allowances for bad debts and obselete
inventories, self-insured medical and workers' compensation accruals and fair
value less cost to sell of assets held for sale. Actual results could differ
from those estimates.
Concentrations of Credit Risk. Financial instruments that potentially subject
the Company to significant concentrations of credit and other financial risk
consist principally of cash investments, trade accounts receivable and
Builder Finance Program receivables.
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 has deposits with financial institutions which exceed
federally insured limits. The Company performs periodic evaluations of the
relative credit standing of those financial institutions that are considered
in the Company's investment strategy. In management's opinion, the Company is
not subject to undue interest rate or financial risk as a result of these
concentrations.
The Company grants credit in the normal course of business related
to product sales and a Builder Finance Program. Concentrations of credit risk
with respect to accounts receivable from product sales and the Builder
Finance Program are limited because of the large number of businesses and
individual customers comprising the Company's customer base. The Company's
receivables are primarily from customers in the residential construction
industry. Generally, no collateral is required for trade receivables but
security, in the form of a first mortgage, is obtained for all Builder
Finance Program receivables.
Cash and Cash Equivalents. The Company considers all highly liquid
investments with a maturity of three months or less when purchased to
14
<PAGE>
be cash equivalents. Cash equivalents consist principally of money market
funds and short-term tax-exempt securities.
Inventories. Inventories of WLC and LLC are stated at the lower of cost,
determined by the last-in, first-out method ("LIFO"), or market. Current cost
exceeded the LIFO value of inventories by approximately $12,135,000 at
December 26, 1998 and $13,421,000 at December 27, 1997. In 1998 and 1997, the
liquidation of certain LIFO layers decreased cost of sales by $1,286,000 and
$1,281,000, respectively. Inventories of CML, totaling $8,606,000 at December
26, 1998, are stated at the lower of cost, determined by the first-in,
first-out method ("FIFO"), or market.
Properties. Properties are stated at cost. Depreciation is provided on the
straight-line basis over the estimated useful life of the property.
Management reviews these assets quarterly to determine whether carrying
values have been impaired.
Start-Up Expenses. Expenses associated with the opening of new stores are
charged against income as incurred.
Advertising Expenses. The cost of advertising is expensed as incurred. The
Company incurred $4,214,000, $4,428,000 and $3,690,000 in advertising costs
during 1998, 1997 and 1996, respectively.
Cash-Based Employee Benefit Plans. The Company maintains 401(k) retirement
savings and profit sharing plans for eligible employees. Consolidated
profit-sharing contributions approximated $634,000, $722,000 and $900,000 for
1998, 1997 and 1996, respectively, and consolidated contributions to the
401(k) plans were approximately $469,000, $486,000 and $548,000 for 1998,
1997 and 1996, respectively.
Earnings Per Share. Earnings-per-share information is based on the weighted
average number of shares outstanding for the year. The assumed issuance of
the performance-based incentive share awards and the assumed exercise of
outstanding stock options have an insignificant effect on earnings per share.
The following table presents a reconciliation of the denominator used in the
calculation of basic net income per share and net income per share assuming
dilution:
FOR THE YEAR ENDED
----------------------------------------
DECEMBER 26, DECEMBER 27, DECEMBER 28,
(in thousands) 1998 1997 1996
------------ ------------ ------------
Weighted average number of
common shares outstanding
used for basic calculation 6,474 6,912 6,968
Dilutive effect of assumed
exercise of common stock options 104 108 79
----- ----- -----
Number of shares outstanding
assuming dilution 6,578 7,020 7,047
===== ===== =====
Reclassifications. Certain amounts as originally reported in the 1997 and
1996 financial statements have been reclassified to conform to their 1998
presentation.
15
<PAGE>
Note B--Acquisition of Central Michigan Lumber
The Company acquired CML effective June 29, 1998 in a transaction
accounted for as a purchase. CML has eight locations throughout mid-Michigan
and operates as a wholly owned subsidiary of WLC. The purchase price of
$17,933,000 was paid in cash and allocated to the assets acquired and
liabilities assumed based on their fair values (see table below).
The intangible assets which consist of goodwill, customer lists and
the trained employee work force are being amortized on a straight-line basis
over their expected lives, which is approximately 15 years. Results of
operations are included in the consolidated financial statements since June
29, 1998, the date of acquisition. Sales from the date of acquisition were
approximately $41 million.
(in thousands)
Total assets $ 21,469
Total liabilities (7,631)
Intangible assets 4,095
--------
Total purchase price 17,933
Less cash received (21)
--------
Net cash paid $ 17,912
========
Note C--Valuation Accounts
During 1998, the Company recorded a valuation allowance for obsolete
inventory in the amount of $1,900,000. The following table presents a summary
of the changes in the allowance for doubtful accounts receivable for each of
the years in the three-year period ended December 26, 1998:
(in thousands) 1998 1997 1996
---- ---- ----
Balance at beginning of year $ 1,933 $ 1,250 $ 862
Provisions for doubtful accounts 996 1,502 735
Amounts charged off (732) (819) (347)
------- ------- -------
Balance at end of year $ 2,197 $ 1,933 $ 1,250
======= ======= =======
Note D--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 1998, 18,300 performance shares (21,000
shares in 1997 and 18,200 in 1996) were awarded at average weighted fair
values of $13, $13.13 and $12.50 per share for 1998, 1997 and 1996,
respectively. At December 26, 1998, there were 106,100 performance shares
awarded but unissued. The Company also has a stock option plan for
non-employee directors in addition to the Long-Term Incentive Plan for key
employees. The following table summarizes information about stock option
transactions:
16
<PAGE>
WEIGHTED AVERAGE
NUMBER EXERCISE PRICE EXERCISE PRICE
OF SHARES PER SHARE PER SHARE
--------- -------------- ----------------
Outstanding at January 1, 1996 126,000 $9.25 - 14.50 $12.66
------- ---- ----- -----
Granted 14,300 9.25 - 12.75 9.52
Exercised -- -- --
Forfeited (17,700) 9.25 - 14.38 12.73
------- ---- ----- -----
Outstanding at December 28, 1996 122,600 9.25 -14.50 12.28
------- ---- ----- -----
Granted 16,800 12.00 - 13.38 12.52
Exercised (200) 9.25 9.25
Forfeited (21,700) 9.25 - 14.50 12.73
------- ---- ----- -----
Outstanding at December 27, 1997 117,500 9.25 - 14.50 12.24
------- ---- ----- -----
Granted 196,400 11.13 - 13.25 13.09
Exercised (1,000) 9.31 9.31
Forfeited (18,800) 9.25 - 14.50 12.80
------- ---- ----- -----
Outstanding at December 26, 1998 294,100 9.25 - 14.50 12.78
======= ==== ===== =====
The number of shares exercisable were 122,600, 117,500 and 134,100
as of the year-ends 1996, 1997 and 1998, respectively. The fair value of
options granted in 1998 was $4.68 per share. Options outstanding at December
26, 1998 are composed of the following:
OUTSTANDING EXERCISABLE
------------------------------------- -----------------------
WEIGHTED
NUMBER OF AVERAGE WEIGHTED NUMBER OF WEIGHTED
RANGE OF SHARES AT REMAINING AVERAGE SHARES AT AVERAGE
EXERCISE DECEMBER 26, CONTRACTUAL EXERCISE DECEMBER 26, EXERCISE
PRICES 1998 LIFE PRICE 1998 PRICE
-------- ------------ ----------- -------- ------------ --------
$9.25 - 11.13 40,000 7.35 $9.32 40,000 $9.32
12.00 - 13.06 30,000 8.50 12.61 30,000 12.61
13.13 - 14.00 172,100 9.29 13.13 12,100 13.13
14.38 - 15.50 52,000 5.38 14.38 52,000 14.38
------- ---- ------ ------- ------
$9.25 - 14.50 294,100 8.24 $12.78 134,100 $12.78
======= ==== ====== ======= ======
All options expire 10 years after the date of grant. There are
173,000 shares reserved for future issuance under the Long-Term Incentive
Plan and 31,000 shares reserved for future issuance 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 February 15, 1990. The rights become exercisable 10
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 10 days after an acquisition
of 10% of the Company's common shares or more by a person or group deemed by
the Board of Directors to have interests adverse to those of the Company and
its shareowners. 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 nonvoting, may generally be
redeemed by the Company at a price of 1 cent per right and expire on February
15, 2000. The Company has
17
<PAGE>
reserved for issuance 6.6 million common shares for this stock rights plan.
The Company has elected to continue to apply the provisions of
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees", and, accordingly, stock options do not constitute compensation
expense in the determination of net income. Had stock option compensation
expense been determined pursuant to the methodology provided in Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation", the proforma effect on results of operations in 1998 would
have been a decrease in net income of $141,000, or 2 cents per common share.
The proforma effect on results of operations for 1997 and 1996 would have
been a reduction in the Company's earnings per share of less than 1 cent per
share.
Note E--Debt and Lease Transactions
The Company has available, under lines of credit arrangements with
several banks, $60 million in unsecured short-term borrowings. The interest
rate applicable when using these lines is dependent upon a variety of
formulae which utilize different money rate pricing indexes. In no case does
the interest rate exceed the Prime Rate and there are no commitment fees.
These credit arrangements are reviewed annually for change and/or renewal. At
year-end 1998, $2 million of short-term borrowings were outstanding under
these arrangements. The Company also has unused letters of credit in the
amount of $5.3 million related to liability coverage and bonds payable.
Long-term debt consisted of the following obligations:
(in thousands) DECEMBER 26, DECEMBER 27,
1998 1997
------------ ------------
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% $10,000 $10,000
Unsecured notes to insurance company, due in
annual installments of $2,000 with the
final payment in 2002. Interest is payable
semi-annually at 8.99% 6,000 8,000
Michigan Strategic Fund limited obligation
revenue bonds, payable in 2001. Interest
varies weekly at prevailing market rates
for similar tax exempt securities (average
of 3.42% for 1998) and is paid quarterly 3,300 3,300
Industrial revenue bonds, payable in annual
installments ranging from $140 to $160 with
the fianl payment in 2001. Interest payable
quarterly at 83% of the Prime Rate 460 600
Other 1,090 783
------- -------
Total long-term debt 20,850 22,683
Less amount due in one year 3,759 2,240
------- -------
Total long-term debt net of current maturities $17,091 $20,443
======= =======
Properties at December 26, 1998 with a net carrying value of
approximately $4,333,000 are pledged as collateral for the revenue bonds
Maturities of long-term debt for each of the four years following
1999 approximate the following: $4,339,000 in 2000; $7,642,000 in 2001;
$4,595,000 in 2002 and $139,000 in 2003. The industrial revenue bonds were
repaid in January 1999.
18
<PAGE>
The Company leases certain facilities under various operating
leases. Lease expense for such facilities totaled approximately $373,000 in
1998, $522,000 in 1997, and $620,000 in 1996. Future minimum lease payments
for each of the next five years approximate $342,000 and aggregate $2,025,000
thereafter.
Note F--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 assets are as follows:
DECEMBER 26, DECEMBER 27,
(in thousands) 1998 1997
------------ ------------
Deferred tax assets
Basis differences in properties $727 $459
Compensation and employee benefits 431 437
Allowance for doubtful accounts 857 754
Basis differences in inventories 154 176
Store closings 530 961
Insurance claims accrual 239 219
Other 50 52
------ ------
Total deferred tax assets $2,988 $3,058
====== ======
The provisions for income taxes consist of:
FOR THE YEAR ENDED
-----------------------------------------
DECEMBER 26, DECEMBER 27, DECEMBER 28,
(in thousands) 1998 1997 1996
------------ ------------ -------------
Current
Federal $3,273 $2,364 $ 3,253
State 1,064 1,184 1,289
Deferred Federal and State(credit) 70 (633) (202)
------ ------ ------
Total provision for income taxes $4,407 $2,915 $4,340
====== ====== ======
A reconciliation of the income tax provisions and the amount
computed by applying the statutory federal income tax rate of 34% to income
before income taxes, is as follows:
FOR THE YEAR ENDED
-----------------------------------------
DECEMBER 26, DECEMBER 27, DECEMBER 28,
(in thousands) 1998 1997 1996
------------ ------------ -------------
Computed amount $3,803 $2,464 $3,574
State income taxes, net of federal
income tax benefit 708 725 833
Tax exempt investment income (116) (111) (74)
Other 12 (163) 7
------ ------ ------
Total provision for income taxes $4,407 $2,915 $4,340
====== ====== ======
19
<PAGE>
Note G--Store Closing Costs
During 1998, the Company closed seven stores which did not meet the Company's
strategic and financial expectations. The costs associated with these
closings primarily related to liquidating inventories and certain writedowns
of real property values and were approximately $3.5 million, of which
approximately $1.5 million was recorded as a charge to cost of sales.
Six stores were closed in 1997 and two stores were closed in 1996 with
related costs totaling $3,800,000 and $921,000, respectively. Real estate
owned related to these closed stores is held for sale and included with other
assets on the accompanying consolidated balance sheets.
Note H--Fair Value of Financial Instruments
The following methods and assumptions were used by the Company in estimating
fair value disclosures for financial instruments.
Cash and Cash Equivalents. The carrying amount reported in the balance sheet
for cash and cash equivalents approximates its fair value.
Current Receivables and Payables. The carrying amounts reported in the
balance sheet for accounts receivable, Builder Finance Program receivables,
accounts payable and short-term debt approximate their fair value.
Long-Term Debt. The fair value of the Company's long-term debt is 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:
DECEMBER 26, DECEMBER 27,
1998 1997
------------------ ------------------
CARRYING FAIR CARRYING FAIR
(in thousands) AMOUNT VALUE AMOUNT VALUE
-------- ----- -------- -----
Cash and cash equivalents $ 3,166 $ 3,166 $25,333 $25,333
Trade receivables 41,687 41,687 30,064 30,064
Builder Finance Program
receivables 3,296 3,296 322 322
Accounts payable 20,123 20,123 10,814 10,814
Short-term debt 2,000 2,000 -- --
Long-term debt including
current portion 20,850 21,684 22,683 23,555
====== ====== ====== ======
Note I--Contingencies
Various lawsuits arising during the normal course of business are
pending against the Company. In the opinion of management based upon
discussion with legal counsel the ultimate liability, if any, resulting from
these matters will have no significant effect on the Company's consolidated
results of operations, liquidity or financial position.
Note J--Subsequent Event
On February 1, 1999, the Company sold inventory, trade receivables
and equipment related to six of its stores to Stock Lumber Co. The selling
price, which approximated net book value was approximately $10 million. The
real property is now being leased to Stock Lumber under lease arrangements
varying by location. These six stores in aggregate contributed $49 million,
$53 million and $57 million to Company sales in 1998, 1997 and 1996,
respectively.
20
<PAGE>
Corporate Information
Annual Meeting
The Annual Meeting of shareowners of Wolohan Lumber Co. will
be held April 29, 1999, 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.
Headquarters
Wolohan Lumber Co. Administrative Offices
1740 Midland Road
P.O. Box 3235 o Saginaw, MI 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 EquiServe Limited Partnership
P.O. Box 8200 o Boston, MA 02266-8200
(800) 426-5523
General Counsel
Dickinson Wright PLLC
500 Woodward Avenue, Suite 4000 o Detroit, MI 48226
Independent Auditors
Rehmann Robson, P.C.
5800 Gratiot o Saginaw, MI 48603
Board of Directors
James L. Wolohan
Chairman of the Board,
President and Chief Executive Officer;
Director since 1986
Hugo E. Braun, Jr.
Partner, Braun Kendrick Finkbeiner,
Attorneys-at-Law;
Director since 1984
Leo B. Corwin
President, Txcor, Inc.;
Director since 1992
Charles R. Weeks
Chairman and formerly Chief Executive Officer of Citizens Banking Corp.;
Director since 1996
Lee A. Shobe
formerly President and Chief Executive Officer of Dow Brands, Inc.;
Director since 1996
Committees
Management Review Committee
Lee A. Shobe, Chairman
Hugo E. Braun, Jr.
Leo B. Corwin
Charles R. Weeks
Compensation Committee
Charles R. Weeks, Chairman
Hugo E. Braun, Jr.
Audit Committee
Hugo E. Braun, Jr., Chairman
Leo B. Corwin
Lee A. Shobe
Charles R. Weeks
Officers
James L. Wolohan
Chairman of the Board, President and Chief Executive Officer
John A. Sieggreen
Vice President-Operations
David G. Honaman
Vice President-Administration, Secretary and Chief Financial Officer
Curtis J. LeMaster
Vice President-Marketing, Purchasing and Systems
Edward J. Dean
Corporate Controller
James R. Krapohl
Treasurer and
Assistant Secretary
<PAGE>
[ LOGO ]
Wolohan Lumber Co. - 1740 Midland Road - P.O. Box 3235 -
Saginaw, MI 48605 - (517) 793-4532
Web Address: www.wolohan.com
Exhibit 21
Subsidiaries of the Registrant
Jurisdiction of
Name Incorporation
---- ---------------
Central Michigan Lumber Company Michigan
Wolohan Lumber Co. of Michigan, LLC Michigan
Wolohan Lumber Co. LLC Indiana
Exhibit 23
Consent of Independent Auditors
We 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
19, 1999, with respect to the consolidated financial statements and schedules
of Wolohan Lumber Co. included in Annual Report (Form 10-K) for the year
ended December 26, 1998.
Rehmann Robson, P.C.
March 24, 1999
Saginaw, Michigan
Exhibit 23.1
Consent of Independent Auditors
We 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 of Wolohan Lumber Co. for
the year ended December 28, 1996, included in its Annual Report (Form 10-K)
for the year ended December 26, 1998.
ERNST & YOUNG LLP
Detroit, Michigan
March 24, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-26-1998
<PERIOD-START> DEC-28-1997
<PERIOD-END> DEC-26-1998
<CASH> $ 3,166,000
<SECURITIES> 0
<RECEIVABLES> 41,687,000
<ALLOWANCES> 0
<INVENTORY> 40,903,000
<CURRENT-ASSETS> 94,951,000
<PP&E> 112,897,000
<DEPRECIATION> 68,458,000
<TOTAL-ASSETS> 157,511,000
<CURRENT-LIABILITIES> 41,749,000
<BONDS> 0
<COMMON> 5,548,000
0
0
<OTHER-SE> 93,123,000
<TOTAL-LIABILITY-AND-EQUITY> 157,511,000
<SALES> 449,904,000
<TOTAL-REVENUES> 109,007,000
<CGS> 347,412,000
<TOTAL-COSTS> 86,630,000
<OTHER-EXPENSES> 8,367,000
<LOSS-PROVISION> 996,000
<INTEREST-EXPENSE> 1,828,000
<INCOME-PRETAX> 11,186,000
<INCOME-TAX> 4,407,000
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,779,000
<EPS-PRIMARY> 1.05
<EPS-DILUTED> 1.03
</TABLE>
