<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
|X| Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934.
For the quarter ended September 23, 2000
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|_| Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the transition period from to
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Commission file number 0-6169
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WOLOHAN LUMBER CO.
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(Exact name of registrant as specified in its charter)
Michigan 38-1746752
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
1740 Midland Road, Saginaw, Michigan 48603
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(Address of principal executive offices)
(517) 793-4532
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes |X| No |_|
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practical date.
Common stock, $1 par value -- 4,577,260 shares as of October 31, 2000.
<PAGE> 2
PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL INFORMATION
WOLOHAN LUMBER CO.
CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
SEPT. 23, DEC. 25,
2000 1999
---- ----
(Unaudited) (Note)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 19,692 $ 3,217
Trade receivables, net 27,634 33,741
Builder Finance Program receivables 1,827 5,220
Inventories - at average cost 37,488 48,796
Reduction to LIFO cost (11,543) (12,943)
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Inventories at the lower of LIFO cost or market 25,945 35,853
Other current accounts 3,154 5,385
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TOTAL CURRENT ASSETS 78,252 83,416
NET PROPERTIES 38,091 43,344
OTHER ASSETS 16,342 13,886
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TOTAL ASSETS $ 132,685 $ 140,646
========= =========
LIABILITIES AND SHAREOWNERS' EQUITY
CURRENT LIABILITIES
Trade accounts payable $ 12,746 $ 12,467
Employee compensation and accrued expenses 12,085 14,458
Short-term bank borrowings 2,500 --
Current portion of long-term debt 4,179 4,189
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TOTAL CURRENT LIABILITIES 31,510 31,114
LONG-TERM DEBT, less current portion 8,449 12,593
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TOTAL LIABILITIES 39,959 43,707
SHAREOWNERS' EQUITY
Common stock 4,616 5,031
Additional capital -- 673
Retained earnings 88,110 91,235
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TOTAL SHAREOWNERS' EQUITY 92,726 96,939
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TOTAL LIABILITIES AND SHAREOWNERS' EQUITY $ 132,685 $ 140,646
========= =========
</TABLE>
Note: The consolidated balance sheet at December 25, 1999, 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.
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WOLOHAN LUMBER CO.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(in thousands, except per-share amounts)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-------------------------------------
SEPT. 23, SEPT. 25,
2000 1999
---- ----
<S> <C> <C>
NET SALES $ 90,321 $ 118,727
Cost of sales 68,788 91,713
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Gross profit 21,533 27,014
Other operating income 849 1,054
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Total operating income 22,382 28,068
OPERATING EXPENSES
Selling, general and administrative 17,588 21,114
Store closing costs 1,138 --
Depreciation and amortization 1,799 1,798
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Total operating expenses 20,525 22,912
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INCOME FROM OPERATIONS 1,857 5,156
OTHER (EXPENSES) INCOME
Interest expense (267) (365)
Interest income 207 65
Gain on sale of properties -- 1,035
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Other (expenses) income, net (60) 735
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INCOME BEFORE INCOME TAXES 1,797 5,891
Income taxes 712 2,283
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NET INCOME $ 1,085 $ 3,608
========= =========
Average shares outstanding 4,680 5,269
Net income per share, basic $ .23 $ .68
Net income per share, assuming dilution $ .22 $ .67
Dividends per share $ .07 $ .07
</TABLE>
See notes to condensed consolidated financial statements.
PAGE 3
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WOLOHAN LUMBER CO.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(in thousands, except per-share amounts)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
------------------------------------
SEPT. 23, SEPT. 25,
2000 1999
---- ----
<S> <C> <C>
NET SALES $ 248,174 $ 309,289
Cost of sales 189,281 238,776
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Gross profit 58,893 70,513
Other operating income 2,492 2,724
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Total operating income 61,385 73,237
OPERATING EXPENSES
Selling, general and administrative 52,041 60,032
Store closing costs 1,623 --
Depreciation and amortization 5,423 5,296
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Total operating expenses 59,087 65,328
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INCOME FROM OPERATIONS 2,298 7,909
OTHER (EXPENSES) INCOME
Interest expense (796) (1,160)
Interest income 407 203
Gain on sale of properties 312 2,716
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Other (expenses) income, net (77) 1,759
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INCOME BEFORE INCOME TAXES 2,221 9,668
Income taxes 880 3,777
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NET INCOME $ 1,341 $ 5,891
========= =========
Average shares outstanding 4,830 5,331
Net income per share, basic $ .28 $ 1.11
Net income per share, assuming dilution $ .27 $ 1.09
Dividends per share $ .21 $ .21
</TABLE>
See notes to condensed consolidated financial statements.
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WOLOHAN LUMBER CO.
CONSOLIDATED STATEMENT OF SHAREOWNERS' EQUITY
(UNAUDITED)
(in thousands)
<TABLE>
<CAPTION>
COMMON STOCK TOTAL
----------------------- ADDITIONAL RETAINED SHAREOWNERS'
SHARES AMOUNT CAPITAL EARNINGS EQUITY
-------- -------- ---------- -------- --------
<S> <C> <C> <C> <C> <C>
Balances at December 26, 1999 5,031 $ 5,031 $ 673 $ 91,235 $ 96,939
Net loss (1,206) (1,206)
Cash dividends--$.07 per share (347) (347)
Shares issued under Long-Term
Incentive Plan 10 10 126 -- 136
Shares repurchased and retired (103) (103) (799) (362) (1,264)
-------- -------- -------- -------- --------
Balances at March 25, 2000 4,938 4,938 -- 89,320 94,258
Net income 1,462 1,462
Cash dividends--$.07 per share (337) (337)
Shares issued under Long-Term
Incentive Plan -- -- 2 2 2
Shares repurchased and retired (221) (221) (2) (2,129) (2,352)
-------- -------- -------- -------- --------
Balances at June 24, 2000 4,717 4,717 -- 88,316 93,033
Net income 1,085 1,085
Cash dividends--$.07 per share (326) (326)
Shares issued under Long-Term
Incentive Plan 1 1 19 -- 20
Shares repurchased and retired (102) (102) (19) (965) (1,086)
-------- -------- -------- -------- --------
Balances at Sept. 23, 2000 4,616 $ 4,616 $ -- $ 88,110 $ 92,726
======== ======== ======== ======== ========
</TABLE>
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WOLOHAN LUMBER CO.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(in thousands)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
-------------------------
SEPT. 23, SEPT. 25,
2000 1999
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<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 1,341 $ 5,891
Adjustments to reconcile net income to
cash provided by (used in) operating activities:
Depreciation 5,194 5,090
Amortization 229 206
Provision for losses on accounts receivable 744 149
Gain on sale of properties (312) (2,716)
Changes in operating assets & liabilities net of effects in 1999 of
sale of stores to Stock Lumber
Accounts receivable 5,363 (2,778)
Builder Finance Program receivables 3,393 (3,490)
Other assets 1,992 1,527
Inventories 9,908 (8,021)
Accounts payable & accrued expenses (1,783) (100)
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NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 26,069 (4,242)
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INVESTING ACTIVITIES
Additions to properties (4,053) (6,336)
Proceeds from sale of stores to Stock Lumber -- 9,956
Proceeds from the sale of properties 1,825 6,781
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NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES (2,228) 10,401
-------- --------
FINANCING ACTIVITIES
Net credit lines borrowings 2,500 --
Payments on long-term debt (4,154) (4,023)
Repurchase of common stock (4,702) (4,068)
Dividends paid (1,010) (1,116)
-------- --------
NET CASH USED IN FINANCING ACTIVITIES (7,366) (9,207)
-------- --------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 16,475 (3,048)
Cash and cash equivalents at beginning of period 3,217 3,166
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 19,692 $ 118
======== ========
</TABLE>
See notes to condensed consolidated financial statements.
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WOLOHAN LUMBER CO.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 23, 2000
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 and nine months ended September 23, 2000
are not necessarily indicative of the results that may be expected for
the entire year ending December 31, 2000.
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 25, 1999.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Certain information contained in Management's Discussion and Analysis
of Financial Condition and Results of Operations may be deemed to be
forward-looking statements within the meaning of The Private Securities
Litigation Reform Act of 1995 and are subject to the Act's safe harbor
provisions. These statements are based on current expectations and
involve a number of risks and uncertainties. Actual results could
differ materially and adversely from those described in the
forward-looking statements as a result of various factors outside the
control of the Company, including, but not limited to the following:
fluctuations in customer demand and spending, expectations of future
volumes and prices for the Company's products, prevailing economic
conditions affecting the retail lumber and building materials markets
and seasonality of operating results.
Results Of Operations
Net income was $1.1 million (23 cents per share) for fiscal
third-quarter 2000, compared with $3.6 million (68 cents per share) for
the third quarter of 1999. The decline in net income for the quarter
ended Sept. 23, compared with the third quarter of the prior year
reflects: (1) $1.9 million in operating losses (inclusive of store
closing costs) associated with seven discontinued stores in 2000. In
1999, the impact from discontinued stores was negligible. (2) Gross
margin dollars benefited from a $1.5 million LIFO credit in 2000
compared with a decrease in gross margin
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dollars from a LIFO charge of $218,000 in 1999. (3) $1.0 million in
non-operating gains from the sale of real estate properties recorded in
1999.
The decline in year-to-date net income for the period ended Sept. 23,
compared with the same period in 1999 reflects: (1) $2.8 million in
operating losses (inclusive of store closing costs) associated with
seven discontinued stores in 2000. In 1999, $749,000 in operating
losses were incurred from discontinued stores. (2) Gross margin dollars
benefited from a $1.5 million LIFO credit in 2000 compared with a
decrease in gross margin dollars from a LIFO charge of $448,000 in
1999. (3) $312,000 in non-operating gains from the sale of real estate
properties in 2000, compared with $2.7 million in such gains in 1999.
Sales totaled $90.3 million for fiscal third-quarter 2000, falling 23.9
percent from fiscal third-quarter 1999 sales of $118.7 million. Sales
for comparable stores declined 18.5 percent in the third quarter of
2000 from the third quarter of 1999. Sales for the nine-month period
ended Sept. 23, 2000 were $248.2 million, a 19.8-percent decrease from
the corresponding period a year earlier. Sales for comparable stores
declined 15.3 percent for the 2000 nine-month period from the same
period in 1999. The sales decline in both the third quarter and
nine-month period was due, in part, to significant price deflation in
lumber and structural panel products (the Company estimates that sales
were approximately 9 percent lower for the third quarter and 2 percent
lower for the nine-month period due to the lower selling prices of
these lumber-related products), an overall slowdown of housing and
other construction activity for the industry in general and the
Company's decision to reduce or eliminate certain product categories
which are inconsistent with the Company's long-term strategies.
The sales mix for fiscal third-quarter 2000 was approximately 58
percent contractor-builder sales and 42 percent project-consumer sales,
compared with a 60/40 split for third quarter 1999. For the nine-month
period, contractor sales accounted for approximately 63 percent of
total sales in both periods.
Gross margins for the third-quarter and nine-month period of 2000 were
23.8 percent and 23.7 percent, respectively, 100 basis points higher
than 1999's third quarter and 90 basis points higher than the
nine-month period of 1999. Gross margins in the third quarter and
nine-month period of 2000 benefited from a $1.5 million LIFO credit,
compared with a decrease from a LIFO charge of $218,000 and $448,000,
respectively, for the corresponding periods of 1999. The LIFO credit
reflects the price deflation in certain commodity products and lower
inventory levels.
Store closing costs related to the seven discontinued stores in 2000
totaled $1.7 million for the third quarter of 2000 and $2.2 million for
the nine-month period. There were no store closing costs for the
similar periods in 1999. A portion of the closing costs ($.6 million)
in the third quarter and nine-month period was a charge to cost of
sales. The closing costs in 2000 were primarily related to liquidating
inventories, writing down of certain owned real property, expensing a
portion of future lease payments and writing off leasehold improvements
for the one leased store and absorbing certain other on-going fixed
costs.
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<PAGE> 9
One store was converted to the CML format during the third quarter of
2000, bringing the total to four conversions for the year. The CML
format is a cost-efficient operating model focused on servicing project
customers and large building contractors. Costs incurred in the third
quarter related to this conversion totaled approximately $81,000
(approximately $244,000 for the nine-month period).
The Company's operating-expense ratio, excluding store closing costs,
was 21.5 percent in third quarter 2000, compared with 19.3 percent in
1999's third quarter. For the 2000 nine-month period, the operating
expense ratio was 23.2 percent compared with 21.1 percent for the same
period of 1999. The unfavorable trend in these ratios reflects the
impact of certain fixed and semi-fixed operating costs being absorbed
by lower sales volume.
The effective income tax rate (Federal and state) for the third quarter
and the nine-month period of 2000 was 39.6 percent, compared with 38.9
percent and 39.1 percent for the corresponding periods of 1999.
Financial Condition
At Sept. 23, 2000, the Company's balance sheet remained strong. Net
working capital at Sept. 23, 2000, totaled $46.7 million, compared with
$52.3 million at Dec. 25, 1999. The current ratio at Sept. 23, 2000,
was 2.5 to 1, compared with 2.7 to 1 at Dec. 25, 1999.
Cash and cash equivalents less short-term debt were $17.2 million at
Sept. 23, 2000, compared with $3.2 million at Dec. 25, 1999. The
liquidity ratio at Sept. 23, 2000, was .62 to 1, compared with .1 to 1
at Dec. 25, 1999. Cash and cash equivalents increased $16.5 million
during the first nine months of 2000. Operating activities provided net
cash of $26.1 million in the first nine months of 2000, primarily from
reductions in accounts receivable, Builder Finance Program receivables,
other assets and inventories plus depreciation. Investing activities in
the nine months of 2000 included $4.1 million of additions to
properties which were offset, in part, by $1.8 million of proceeds from
the sale of fixed assets (primarily closed facilities). Financing
activities in the nine months of 2000 used net cash of $7.4 million and
included $4.2 million for payments on long-term debt, $4.7 million for
the purchase of 426,000 shares of Company common stock at an average
price of $11.04 per share (which included 102,000 shares in the third
quarter at an average price per share of $10.60), $1.0 million for
dividend payments and net borrowings of $2.5 million under the
Company's credit lines.
The Company expects that net cash from operating activities and
available lines of credit should be adequate to meet future working
capital needs.
Invested capital (long-term debt and shareowners' equity) was equal to
76% of total assets at Sept. 23, 2000, compared with 78% at fiscal
year-end 1999. At Sept. 23, 2000, the total debt-to-asset ratio was
.06, versus .09 at fiscal year-end 1999 and the ratio of equity to
total assets increased to .70:1 from .69:1 at year-end 1999.
In 1997, the Company began testing a Builder Finance Program as a way
of improving market share and product mix of builder sales. The program
started out
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with Wolohan Lumber being the licensed mortgage broker/lender. The
Company utilized its working capital to fund the loans. The average
mortgage loan is for a six-month period, carries a competitive interest
rate and generally has a lower administrative fee for the builder when
compared to a commercially-offered construction loan. A first mortgage
is obtained as security for each loan. The program had grown from
financing three homes in 1997 to over 100 homes in 1999. Because of the
growth of the program, the Company has partnered with a financial
institution to fund the needs of qualified Michigan builders. In 2000,
most of the funding for loans to the Company's customers in Michigan is
being done through the independent financial institution. The Company
continues to be the mortgage lender for the program in Ohio and
Indiana. At the end of the third quarter 2000, the balance of
receivables in the Builder Finance Program totaled $1.8 million,
compared with $5.2 million at year-end 1999.
Outlook
The Company expects revenues to continue to lag behind last year's
levels for the remainder of the year. Factors contributing to lower
sales expectations include lower demand for housing, significantly
lower prices for commodity wood products and the impact of store
closings. In addition, as the Company moves its strategic focus to
professional builders and large-project-oriented consumers, it will
continue to eliminate or reduce certain products previously sold to the
do-it-yourself home improvement market, which in turn, will continue to
have a negative impact on sales comparisons. Given these factors, the
Company will focus on improving market share to its target customers.
The Company uses Economic Value Added (EVA) as its primary measurement
of return on investment. EVA measures the profitability of an existing
or potential investment relative to the Company's cost of capital. The
Company will continue to analyze its existing and future investments
according to this criteria.
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.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereto duly authorized.
WOLOHAN LUMBER CO.
----------------------------------------
Registrant
Date: November 6, 2000 David G. Honaman
-------------------------- ----------------------------------------
David G. Honaman
Senior Vice President
and Chief Financial Officer
Date: November 6, 2000 Edward J. Dean
-------------------------- ----------------------------------------
Edward J. Dean,
Corporate Controller
(Principal Accounting Officer)
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Exhibit Index
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<TABLE>
<CAPTION>
Exhibit No. Description
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<S> <C>
27 Financial Data Schedule
</TABLE>
