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 March 27, 1999
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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 ____________________
Commission file number 0-6169
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WOLOHAN LUMBER CO.
- -----------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Michigan 38-1746752
- ------------------------------- ----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
1740 Midland Road, Saginaw, Michigan 48603
- -----------------------------------------------------------------------------
(Address of principal executive offices)
(517) 793-4532
- -----------------------------------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes |X| No |_|
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practical date.
Common stock, $1 par value -- 5,310,450 shares as of April 30, 1999.
<PAGE>
PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL INFORMATION
<TABLE>
<CAPTION>
WOLOHAN LUMBER CO.
CONSOLIDATED BALANCE SHEETS
(in thousands)
MAR. 27, DEC. 26,
1999 1998
----------- --------
(Unaudited) (Note)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 1,213 $ 3,166
Trade receivables, net 28,110 41,687
Builder Finance Program receivables 4,710 3,296
Inventories - at average cost 55,071 53,038
Reduction to LIFO cost (12,224) (12,135)
--------- ---------
Inventories at the lower of LIFO cost or market 42,847 40,903
Other current accounts 6,760 5,899
--------- ---------
TOTAL CURRENT ASSETS 83,640 94,951
NET PROPERTIES 43,042 44,439
OTHER ASSETS 18,321 18,121
--------- ---------
TOTAL ASSETS $ 145,003 $ 157,511
========= =========
LIABILITIES AND SHAREOWNERS' EQUITY
CURRENT LIABILITIES
Trade accounts payable $ 17,497 $ 20,123
Employee compensation and accrued expenses 13,754 15,867
Short-term debt 0 2,000
Current portion of long-term debt 6,226 3,759
--------- ---------
TOTAL CURRENT LIABILITIES 37,477 41,749
LONG-TERM DEBT, less current portion 12,690 17,091
--------- ---------
TOTAL LIABILITIES 50,167 58,840
SHAREOWNERS' EQUITY
Common stock 5,349 5,548
Additional capital 4,365 6,694
Retained earnings 85,122 86,429
--------- ---------
TOTAL SHAREOWNERS' EQUITY 94,836 98,671
--------- ---------
TOTAL LIABILITIES AND SHAREOWNERS' EQUITY $ 145,003 $ 157,511
========= =========
<FN>
Note: The consolidated balance sheet at December 26, 1998, 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 consolidated financial statements.
</TABLE>
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<TABLE>
<CAPTION>
WOLOHAN LUMBER CO.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(in thousands, except per-share amounts)
THREE MONTHS ENDED
--------------------
MAR. 27, MAR. 28,
1999 1998
-------- --------
<S> <C> <C>
NET SALES $ 73,148 $ 73,195
Cost of sales 56,128 56,020
-------- --------
Gross profit 17,020 17,175
Other operating income 721 492
-------- --------
Total operating income 17,741 17,667
OPERATING EXPENSES:
Selling, general and administrative 18,312 17,031
Depreciation and amortization 1,741 2,093
-------- --------
Total operating expenses 20,053 19,124
-------- --------
LOSS FROM OPERATIONS (2,312) (1,457)
OTHER INCOME (EXPENSES):
Interest expense (425) (470)
Interest income 82 258
Gain on sale of properties 1,107 245
-------- --------
Other income, net 764 33
-------- --------
LOSS BEFORE INCOME TAXES (1,548) (1,424)
Income tax credit 616 570
-------- --------
NET LOSS $ (932) $ (854)
======== ========
Average shares outstanding 5,423 6,864
Net loss per share, basic $ (.17) $ (.12)
Net loss per share, assuming dilution $ (.17) $ (.12)
Dividends per share $ .07 $ .07
<FN>
See notes to condensed consolidated financial statements.
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
WOLOHAN LUMBER CO.
CONSOLIDATED STATEMENT OF SHAREOWNERS' EQUITY
(UNAUDITED)
(in thousands)
COMMON SHARES TOTAL
------------------- ADDITIONAL RETAINED SHAREOWNERS'
SHARES AMOUNT CAPITAL EARNINGS EQUITY
------ ------ ---------- -------- ------------
<S> <C> <C> <C> <C> <C>
Balances at December 26, 1998 5,548 $ 5,548 $ 6,694 $ 86,429 $ 98,671
Net loss (932) (932)
Cash dividends - $.07 per share (375) (375)
Shares purchased and retired (218) (218) (2,600) (2,818)
Shares issued under Long-Term
Incentive Plan 19 19 271 290
-------- -------- -------- --------
Balances at March 27, 1999 5,349 $ 5,349 $ 4,365 $ 85,122 $ 94,836
======== ======== ======== ======== ========
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
WOLOHAN LUMBER CO.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(in thousands)
THREE MONTHS ENDED
--------------------
MAR. 27, MAR. 28,
1999 1998
-------- --------
<S> <C> <C>
Operating Activities
Net loss $ (932) $ (854)
Adjustments to reconcile net loss to
cash provided by (used in) operating activities:
Depreciation 1,673 2,093
Amortization 68 --
Provision for losses on accounts receivable 20 255
Gain on sale of properties (1,107) (245)
Changes in operating assets & liabilities net of effects
of sale of stores to Stock Lumber
Accounts receivable 7,711 3,350
Builder Finance Program receivables (1,414) (1,086)
Other assets (655) 1,467
Inventories (5,993) (6,264)
Accounts payable & accrued expenses (4,449) (1,108)
-------- --------
NET CASH USED IN OPERATING ACTIVITIES (5,078) (2,392)
INVESTING ACTIVITIES
Additions to properties (1,216) (631)
Proceeds from sale of stores to Stock Lumber 9,956 --
Proceeds from the sale of properties 1,512 86
-------- --------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 10,252 (545)
FINANCING ACTIVITIES
Payments on credit lines and long-term debt (3,934) (25)
Purchase of common stock (2,818) (1,833)
Dividends paid (375) (481)
-------- --------
NET CASH USED IN FINANCING ACTIVITIES (7,127) (2,339)
-------- --------
DECREASE IN CASH AND CASH EQUIVALENTS (1,953) (5,276)
Cash and cash equivalents at beginning of period 3,166 25,333
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 1,213 $ 20,057
======== ========
<FN>
See notes to condensed consolidated financial statements.
</TABLE>
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<PAGE>
WOLOHAN LUMBER CO.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
MARCH 27, 1999
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial
statements have been prepared in accordance with generally accepted
accounting principles for interim financial information and with the
instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for
complete financial statements. In the opinion of management, all
adjustments (consisting only of normal recurring accruals)
considered necessary for a fair presentation have been included.
The Company's business is seasonal in nature and subject to general
economic conditions and outside factors and, accordingly, its
operating results for the three months ended March 27, 1999 are not
necessarily indicative of the results that may be expected for the
entire year ending December 25, 1999.
For further information, refer to the consolidated financial
statements and footnotes included in the Company's annual report on
Form 10-K for the year ended December 26, 1998.
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
Sales totaled $73.1 million in fiscal first-quarter 1999, nearly
identical to the sales achieved in fiscal first-quarter 1998. The
combination of a 4-percent increase in comparable-store sales and
the sales contribution made by Central Michigan Lumber (CML), which
was acquired mid-year 1998, offset the first-quarter 1998 sales from
the six stores closed in late 1998 and the six stores sold in
February 1999.
The fiscal first-quarter 1999 loss was $932,000 (17 cents per share)
compared with a loss of $854,000 (12 cents per share) for
first-
page 6
<PAGE>
quarter 1998. The 1999 first-quarter results included a pre-tax gain
of $1.1 million from sale of a closed facility, offset, in part, by
costs of approximately $500,000 (pre-tax) related to liquidation
efforts for stores closed in late 1998 and six stores sold in
February 1999. First-quarter 1998 results included a pre-tax gain of
$245,000 from the sale of idle property.
Historically, the Company's fiscal first quarter has the lowest
sales volume which has often resulted in a net loss for the quarter.
Per-share earnings for the 1999 first quarter were affected by the
reduction in outstanding common shares. The Company repurchased
218,000 shares during the first quarter of 1999 and repurchased 1.4
million shares during 1998. Outstanding shares at the end of fiscal
first-quarter 1999 were 21 percent lower compared with first-quarter
1998. This reduction in outstanding shares will leverage up earnings
per share as the Company moves into the positive income producing
months of 1999.
The sales mix for fiscal first-quarter 1999 was 72-percent
contractor-builder and remodeler sales and 28-percent
project-consumer sales compared with a 69/31 mix, respectively, for
fiscal first-quarter 1998.
Gross margins in first-quarter 1999 were 20 basis points lower,
compared with 1998's first quarter. The lower margins reflect, to
some extent, the transition the Company is making to concentrate on
more project selling and builder and remodeler sales with less
emphasis on general home-improvement merchandise.
The Company's operating-expense ratio was 130 basis points higher
compared with the same period of 1998 and reflects costs related to
final liquidation efforts for the closed and sold stores and
additional labor to prepare the Company's facilities and people to
better serve the builder, remodeler and project-consumer customers .
The effective income tax rate (federal and state) for fiscal
first-quarter 1999 was 39.8 percent, compared with 40 percent for
fiscal first-quarter 1998.
Financial Condition
At March 27, 1999, the Company's balance sheet remained strong. Net
working capital at March 27, 1999, totaled $46.2 million, compared
with $69.1 million at March 28, 1998, and $53.2 million at Dec. 26,
1998. The current ratio at March 27, 1999, was 2.2 to 1, compared
with 3.5 to 1 at March 28, 1998, and 2.3 to 1 at Dec. 26, 1998.
Cash and cash equivalents were $1.2 million at March 27, 1999,
compared with $20.1 million at March 28, 1998, and $3.2 million at
Dec. 26, 1998. The liquidity ratio at March 27, 1999, was .03 to 1,
compared to .74 to 1 at March 28, 1998, and .08 to 1 at Dec. 26,
1998. Cash and cash equivalents decreased $2.0 million during the
1999 first quarter. Proceeds received in first-quarter 1999 from the
sale of inventory, receivables and equipment related to six stores
totaled approximately $10 million and offset most of the cash used
during the quarter which included: $ 5 million used in operating
activities ( principally the seasonal buildup of inventories); $3.9
million used for payment of long-term debt and credit lines; and
$2.8 million
page 7
<PAGE>
used to purchase 218,000 shares of Company common stock at an
average price of $12.92 per share.
The Company expects that net cash from operating activities and
available lines of credit should be adequate to meet future working
capital needs. There were no short-term borrowings outstanding at
the end of fiscal first-quarter 1999.
Invested capital (long-term debt and shareowners' equity) was equal
to 74% of total assets at March 27, 1999, compared with 73% at
fiscal year-end 1998. At March 27, 1999, the total debt-to-asset
ratio was .09, versus .11 at fiscal year-end 1998 and the ratio of
equity to total assets was .65:1 versus .63:1 at fiscal year-end
1998.
YEAR 2000
As is more fully described in the Company's annual report on Form
10-K for the fiscal year ended December 26, 1998, the Company's Year
2000 compliance program is progressing as planned. The Company is on
schedule to have all corporate financial systems including inventory
replenishment Year 2000 compliant by December 31, 1999. The Company
is in the process of changing its store point-of-sale system to a
new system which is Year 2000 compliant. The Company began to
install the new point-of-sale system in stores during the first
quarter of 1999 and plans to have the final installation complete by
early December 1999.
The Company has continued its communication with significant
suppliers to obtain additional assurance about their Y2K plans. Most
of these vendors have stated their ability to supply the Company
will not be affected by the Year 2000 issue. However, the Company
cannot assure timely compliance of third parties and may be
adversely affected by failure of a significant third party to become
Year 2000 compliant.
Total costs of modifying the Company's current systems are not
expected to have a material adverse impact on the Company's
financial position, results of operations or cash flows in future
periods. Should the Company not successfully complete a significant
portion of its Year 2000 compliance program its financial condition
may be materially adversely impacted; however, management does not
consider the possibility of such an occurrence to be reasonably
likely. Should the outlook for completion of the compliance program
change, management will develop appropriate contingency plans to
address any non-compliance issues.
The total cost of the Company's Year 2000 compliance program is
estimated at $800,000 of which $732,000 has been paid. The costs of
the program are being funded through operating cash flows.
Outlook
The Company's strategic focus continues to be on gaining market
share and developing industry-leading managers and salespeople. The
Company is committed to improving consumer sales with strategies to
increase sales of kitchens and baths, decks, sheds, garages, pole
barns and major remodeling projects. The Company continues to
provide more value-added services to improve market share of
page 8
<PAGE>
contractor business. The Company is working diligently to strengthen
its associate team.
The Company continues to seek opportunities for growth through
acquisitions of businesses aligned with the Company's target
customers (single-family builder, remodeler and project-oriented
consumer). Its strong balance sheet will allow the Company to take
advantage of growth and profit opportunities as they arise.
The Company is committed to improving its return-on-investment
ratios and will continue to analyze the profitability of all
locations from an economic value-added perspective.
PART II -- OTHER INFORMATION
Item 4. Exhibits and Reports on Form 8-K
(a) Reports on Form 8-K
The registrant filed no reports on Form 8-K during
the quarter for which this Report is filed.
page 9
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereto duly authorized.
WOLOHAN LUMBER CO.
-------------------------------
Registrant
Date: May 10, 1999 David G. Honaman
--------------------- -------------------------------
David G. Honaman
Vice President - Administration
and Chief Financial Officer
Date: May 10, 1999 Edward J. Dean
--------------------- -------------------------------
Edward J. Dean,
Corporate Controller
(Principal Accounting Officer)
page 10
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-25-1999
<PERIOD-START> DEC-27-1998
<PERIOD-END> MAR-27-1999
<CASH> $ 1,213,000
<SECURITIES> 0
<RECEIVABLES> 28,110,000
<ALLOWANCES> 0
<INVENTORY> 42,847,000
<CURRENT-ASSETS> 83,640,000
<PP&E> 109,483,000
<DEPRECIATION> 66,441,000
<TOTAL-ASSETS> 145,003,000
<CURRENT-LIABILITIES> 50,167,000
<BONDS> 0
<COMMON> 5,349,000
0
0
<OTHER-SE> 89,487,000
<TOTAL-LIABILITY-AND-EQUITY> 145,003,000
<SALES> 73,148,000
<TOTAL-REVENUES> 18,930,000
<CGS> 56,128,000
<TOTAL-COSTS> 18,292,000
<OTHER-EXPENSES> 1,741,000
<LOSS-PROVISION> 20,000
<INTEREST-EXPENSE> 425,000
<INCOME-PRETAX> (1,548,000)
<INCOME-TAX> (616,000)
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (932,000)
<EPS-PRIMARY> (.17)
<EPS-DILUTED> (.17)
</TABLE>
