DRAFT MARKED FROM 10-K FILED MARCH 27, 1996
FORM 10-K/A
Amendment No. 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] For the Fiscal Year Ended December 30, 1995
[ ] For the Transition Period From ____ To ____
Commission File No. 0-22468
WICKES LUMBER COMPANY
(Exact name of registrant as specified in its charter)
Delaware 36-3554758
(State of Incorporation) (IRS Employer Identification No.)
706 Deerpath Drive, Vernon Hills, Illinois 60061
(Address of principal executive offices)
(847) 367-3400
(Registrant's telephone number, including area code)
Securities Registered Pursuant to Section 12 (b) of the Act:
None
Securities Registered Pursuant to Section 12 (g) of the Act:
Common Stock, par value of $.01 per share
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. [ ]
As of February 29, 1996, the Registrant had 5,647,134 shares of Common
Stock, par value $.01 per share, and 499,768 shares of Class B Non-Voting
Common Stock, par value $.01 per share, outstanding, and the aggregate
market value of outstanding voting stock (based on the last sale price on
the NASDAQ National Market System) held by nonaffiliates was approximately
$16,200,000 (includes the market value of all such stock other than shares
beneficially owned by 10% stockholders, executive officers and directors).
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Proxy Statement in connection with its
Annual Meeting of Shareholders tentatively scheduled to be held on May 20,
1996, are incorporated by reference into Part III hereof, as more
specifically described herein.
Item 6. SELECTED FINANCIAL DATA.
The following table presents selected financial data derived from the
audited consolidated financial statements of the Company for each of the
five years ended December 30, 1995. The following selected financial data
should be read in conjunction with "Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the
Consolidated Financial Statements and Notes thereto contained elsewhere in
this report.
WICKES LUMBER COMPANY AND SUBSIDIARIES
SELECTED CONSOLIDATED FINANCIAL DATA
(in thousands, except ratios and per share data)
<TABLE>
<CAPTION>
Dec. 30 Dec. 31, Dec. 25, Dec. 26, Dec. 28,
1995 1994 1993 1992 1991
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<S> <C> <C> <C> <C> <C>
Income Statement Data:
Net sales $972,612 $986,872 $846,842 $745,365 $745,842
Gross profit 220,812 233,831 206,558 187,622 182,795
Selling, general and administrative expense 194,629 194,586 174,889 157,639 172,738
Depreciation, goodwill and trademark amortization 5,882 4,543 5,782 5,850 5,720
Provision for doubtful accounts 6,482 2,457 1,942
Restructuring and unusual items(1) 17,789 2,000 53 - -
Other operating income (loss) 5,831 6,772 4,575 3,618 (1,019)
Income/(loss) from operations 1,852 37,017 28,467 27,751 3,318
Interest expense(3) 24,351 21,663 20,298 20,845 24,577
Equity in loss of affiliated company 3,543 - - - -
Income (loss) before income taxes, extraordinary gain, and
cumulative effect of accounting change (26,042) 15,354 8,169 6,906 (21,259)
Income taxes 1,353 1,660 1,227 902 704
Deferred tax benefit (4) (11,796) (14,360) - - -
Income (loss) before extraordinary gain and cumulative effect
of accounting change (15,599) 28,054 6,942 6,004 (21,963)
Extraordinary gain (5) - - 1,241 - -
Income (loss) before cumulative effect of accounting change (15,599) 28,054 8,183 6,004 (21,963)
Cumulative effect of accounting change(6) - - - - (1,914)
Net income (loss) (15,599) 28,054 8,183 6,004 (23,877)
Dividends applicable to redeemable preferred stock - - (872) (1,080) (1,080)
Income (loss) applicable to common shares (15,599) 28,054 7,311 4,924 (24,957)
Ratio of earnings to fixed charges (7) - 1.63 1.37 1.31 -
Interest coverage (8) 0.35 2.09 2.08 2.10 0.44
Adjusted interest coverage (9) 1.15 2.19 2.09 2.10 0.44
Per Share Data:(10)
Earnings (loss) per common share (per pro forma
share in 1993, 1992 and 1991) (11) ($2.54) $4.59 $1.34 $0.98 $ -
Weighted average pro forma common shares outstanding(11) 6,151,771 6,106,279 6,099,985 6,099,985 6,099,985
Earnings (loss) per common share - historical ($2.54) $4.59 $2.55 $2.27 ($11.51)
Weighted average common shares outstanding - historical 6,151,771 6,106,279 2,871,091 2,168,784 2,167,633
Operating and Other Data:
EBITDA (12) $7,734 $41,560 $34,249 $33,601 $9,038
Adjusted EBITDA (13) 25,532 43,560 34,302 33,601 9,038
Cash interest expense(14) 22,266 19,882 16,435 15,971 20,363
Depreciation and amortization 5,882 4,543 5,782 5,850 5,720
Deferred financing cost amortization 2,085 1,781 1,840 2,179 2,179
Capital expenditures 7,538 9,760 4,289 5,502 3,557
Same store sales growth(15) (3.8%) 14.1% 14.3% 8.8% 1.7%
Building centers open at end of period 110 130 124 125 141
Net cash provided by (used in) operating activities 15,862 1,331 (21,269) 13,643 (11,585)
Net cash provided by (used in) investing activities (10,277) (41,777) 5,323 (1,446) (2,181)
Net cash provided by (used in) financing activities (7,535) 42,480 15,944 (12,197) 13,771
Balance Sheet data (at period end):
Working capital $139,622 $163,511 $104,089 $60,706 $61,337
Total assets 302,515 319,573 248,015 222,611 215,731
Total long-term debt, less current maturities 205,221 211,139 167,883 166,837 179,805
Redeemable preferred stock - - - 15,960 14,880
Total stockholders' equity (deficit) 15,129 30,146 1,818 (48,957) (53,888)
</TABLE>
Notes to Selected Consolidated Financial Data
(1) In 1995, the Company recorded a $17.8 million charge relating to a
plan to reduce the number of operating centers, the corresponding
overhead to support those centers identified, strengthen its capital
structure, and other unusual items. In 1994, the Company recorded a
$2.0 million charge primarily as a result of its headquarters cost
reduction plan.
(2) Income from operations for the year ended December 28, 1991 was
negatively affected by a write-down in 1991 of preferred shares
acquired in the sale of land and buildings to Leeds Building Products,
Inc. ($4.3 million) and a provision for building center closings ($7.5
million).
(3) Interest expense includes cash interest expense, amortization of
deferred financing costs and accretion of note discount. (See note 14
below)
(4) The deferred tax benefit recorded in 1994 includes a $21.0 million
reduction of the Company's valuation allowance for deferred tax
assets.
(5) During the year ended December 25, 1993, the Company completed its
Recapitalization Plan. As a result of the Recapitalization Plan, the
early extinguishment of debt, the retirement of supplemental
retirement benefits and the expensing of unamortized 1988 Acquisition
costs, the Company recorded an extraordinary gain of $1.2 million, net
of income taxes of $0.2 million.
(6) For the year ended December 28, 1991, the Company recorded a one-time
non-cash charge of $1.9 million relating to the cumulative effect of
adopting Statement of Financial Accounting Standards No. 106
"Employers Accounting for Postretirement Benefits Other Than
Pensions."
(7) For purposes of computing this ratio, earnings consist of income
(loss) before income taxes, extraordinary gain and cumulative effect
of accounting change and fixed charges. Fixed charges consist of
interest, amortization of deferred financing costs, and a portion of
operating lease rental expense that is representative of the interest
factor attributable to interest expense. Such earnings were
insufficient to cover fixed charges by $26.0 million for the year
ended December 30, 1995 and $21.2 million for the year ended December
28, 1991.
(8) For purposes of computing this ratio, earnings consists of EBITDA (see
note 12 below), which is divided by cash interest expense.
(9) For purposes of computing this ratio, earnings consists of Adjusted
EBITDA (see note 13 below), which is divided by cash interest expense.
(10)All per share data reflect a 21.73-for-1 stock split declared in
October 1993, immediately prior to the consummation of the
Recapitalization Plan.
(11)For all periods prior to 1994 earnings per share is based upon the pro
forma 6,099,985 weighted average number of common shares outstanding
giving effect to the Recapitalization Plan.
(12)EBITDA represents income (loss) before income taxes, extraordinary
gain, cumulative effect of accounting change, equity in loss of
affiliated company, interest expense, depreciation and amortization.
EBITDA is not presented herein as an alternative measure of operating
results but rather to provide additional information related to debt
service capability, and does not represent cash flow from operations,
as defined by GAAP.
(13)Adjusted EBITDA represents EBITDA (see note 12 above) adjusted to
exclude restructuring and unusual items.
(14)Cash interest expense consists of interest expense less amortization
of deferred financing costs and accretion of subordinated note
discount. The following table details interest expense, cash interest
expense, and interest paid for each of the five years ended December
30, 1995.
<TABLE>
1995 1994 1993 1992 1991
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Interest expense $24,351 $21,663 $20,298 $20,845 $24,577
Less:
Amortization of deferred financing costs 2,085 1,781 1,840 2,179 2,179
Accretion of note discount -- -- 2,023 2,695 2,035
------- ------- ------- ------- -------
Cash interest expense 22,266 19,882 16,435 15,971 20,363
(Increase) Decrease in accrued interest 557 (1,105) 8,863 (1,339) (1,486)
------- ------- ------- ------- -------
Interest paid $22,823 $18,777 $25,298 $14,632 $18,877
======= ======= ======= ======= =======
</TABLE>
(15)For 1995, same store data reflects average sales from 101 building
centers and other facilities currently operated by the Company that
were operated throughout 1995 and 1994. The sixteen lumber centers
closed on December 29, 1995 were excluded from the 1995 same store
figures, and two centers that were consolidated with another Wickes
center, in early 1995, were included in 1995 same store results. For
1994 same store data reflects average sales from the 122 building
centers and other facilities that were operated by the Company
throughout 1994 and 1993. Prior years data reflects 124 building
centers and other facilities operated throughout the period 1991
through 1993.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
General
The following table sets forth, for the periods indicated, the
percentage relationship to net sales of certain expense and income items.
The table and subsequent discussion should be read in conjunction with the
financial statements and notes thereto appearing elsewhere herein.
<TABLE>
Year Ended
----------
Dec. 30, Dec. 31, Dec. 25,
1995 1994 1993
------ ------ ------
<S> <C> <C> <C>
Net sales 100.0% 100.0% 100.0%
Gross profit 22.7 23.7 24.4
Selling, general and
administrative expense 20.0 19.7 20.7
Depreciation, goodwill and
trademark amortization .6 .4 .7
Provision for doubtful accounts .7 .3 .2
Restructuring and
Unusual Items 1.8 .2 -
Other operating income (.6) (.7) (.6)
Income from operations .2 3.8 3.4
</TABLE>
The Company's operations, as well as those of the building material
industry generally, have reflected substantial fluctuations from period to
period as a consequence of various factors, including levels of
construction activity, general regional and local economic conditions,
prices of commodity wood products, interest rates and the availability of
credit, all of which are cyclical in nature. The Company anticipates that
fluctuations from period to period will continue in the future. Because a
substantial percentage of the Company's sales are attributable to building
professionals, certain of these factors may have a more significant impact
on the Company than on companies more heavily focused on consumers. The
Company's first quarter and, frequently, its fourth quarter are adversely
affected by weather patterns in the Midwest and Northeast, which result in
seasonal decreases in levels of construction activity in these areas. The
extent of such decreases in activity is a function of the severity of
winter conditions. While the Company experienced a relatively mild first
quarter in 1995, severe ice storms in the Northeast in 1994, and record
setting snow falls throughout the Midwest and Northeast in January of 1996,
have adversely affected construction activity in the first quarter of these
years.
The following table contains selected unaudited quarterly financial data
for the years ended December 30, 1995, December 31, 1994 and December 25,
1993.
<TABLE>
QUARTERLY FINANCIAL DATA
Three Months Ended
(in millions, except per share data and percentages)
Net Sales as a Net Earnings
% of Annual Gross Net Income per Common
Net Sales Net Sales Profit /(Loss) Share*
--------- --------- ------- ---------- ----------
<S> <C> <C> <C> <C> <C>
1995
April 1 $191.7 19.7% $45.6 $(4.6) $(.75)
July 1 272.8 28.0 63.9 2.5 .40
September 30 284.5 29.3 62.9 1.9 .31
December 30 223.6 23.0 48.4 (15.4) (2.50)
1994
March 26 149.6 15.1 37.2 (8.7) (1.43)
June 25 259.3 26.3 62.0 7.4 1.21
September 24 284.2 28.8 67.1 10.7 1.75
December 31 293.8 29.8 67.5 18.7 3.06
1993
March 27 142.9 16.9 35.7 (6.8) (1.11)
June 26 227.9 26.9 55.9 3.6 .59
September 25 251.1 29.7 59.2 6.2 1.01
December 25 224.9 26.5 55.8 5.2 .85
</TABLE>
* Pro forma common shares in 1993.
The Company has historically generated approximately 15% to 20% of its
annual revenues during the first quarter of each year, and the Company has
historically recorded a significant net loss for this quarter. As a result
of these seasonal factors, the Company's inventories and receivables reach
peak levels during the second and third quarters and are generally lower
during the first and fourth quarters, depending on sales volume and lumber
prices. Net income/(loss) in the fourth quarter of 1995 was negatively
impacted by a $17.8 million charge for restructuring and unusual items.
For additional information on the restructuring and unusual items charge
see "1995 Compared with 1994" and Note 12 of Notes to Consolidated
Financial Statements included elsewhere herein.
1995 Compared with 1994
Net Sales
Net sales for 1995 decreased $14.3 million, or 1.4%, to $972.6 million
from $986.9 million in 1994. The 1994 fiscal year consisted of 53 weeks
compared with 52 weeks in 1995. After adjusting for this additional week
of sales in 1994, the Company experienced only a $.3 million sales decline
from 1994. Sales for all facilities operated throughout both years
decreased 3.8%. After adjusting for the additional week in 1994 the
decrease was 2.1%.
In 1995 deflation in lumber prices amounted to approximately 18%. This
decrease was a result of increased production in Canadian mills, generated
by demand for wood pulp, and a decrease in demand for construction lumber
in both the United States and foreign markets. The Company estimates the
decline in wood prices accounted for $45 million in lost sales for 1995, or
approximately a 4.6% decline. A decline in housing starts in the United
States also adversely affected sales. U.S. Bureau of the Census data
indicates a nation-wide decline of approximately 7.5% and declines in the
Company's primary markets, the Midwest and Northeast, of approximately
12.1% and 15.1%, respectively. Nationally, single family housing starts,
which generate the majority of the Company's sales to building
professionals, experienced a larger decline of 10.8% in 1995, from 1.20
million starts in 1994 to 1.07 million starts in 1995. While the Company
added seven new building centers through acquisition and expansion during
1995, it also closed or consolidated 26 other building centers (sixteen of
these occurred on December 29, 1995).
The Company experienced a 6.2% increase in sales to its primary customer
segment, the professional home builder, and a 45.8% increase in sales to
commercial builders. The Company believes that these increases indicate
that the Company increased its share of the market in these targeted
customer segments.
Gross Profit
Gross profit decreased $13.0 million to 22.7% of net sales for 1995
compared with 23.7% of net sales for 1994. The Company estimates that
deflation in lumber prices caused approximately $7.6 million of this
decrease, and the additional week of sales in 1994 contributed
approximately $3.3 million of additional gross profit in 1994.
The Company's continued emphasis on sales to professional builders and
the resulting increased sales of lower margin wood products also
contributed to the change. The Company anticipates that its continued
focus on the professional builder will create additional pressure on gross
profit margins. The Company believes that approximately 50% of the
decrease in gross profit percentage is the result of the shift in customer
mix from 22% consumer and 78% professional in 1994 to 18% consumer and 82%
professional in 1995. An increase in the percent of sales attributable to
commodity lumber and building materials along with customer pricing issues,
accounted for the remainder of the variance.
Selling, General, and Administrative Expense
In 1995, Selling, General, and Administrative expense ("SG&A") increased
as a percent of net sales to 20.0% compared with 19.7% of net sales in
1994. While new residential construction activity slowed during 1995,
expenses were not adjusted quickly enough to match the rate of the decline
in residential construction. The deflation in lumber prices also affected
SG&A as a percent of sales as certain costs tend to increase from year to
year, such as delivery, rent and utilities, and are relatively unaffected
by lumber deflation. In response to the weak sales environment encountered
in 1995, the Company took significant measures in the third and fourth
quarters of 1995 to reduce SG&A expense. As a result of these measures,
SG&A expense as a percentage of sales increased only 1.6 percentage points
to 20.5% in the fourth quarter of 1995 compared to 18.9% in the fourth
quarter of 1994, despite a 23.9% period-to-period sales decline, and fourth
quarter SG&A expense increased only 2.3 percentage points compared to the
third quarter of 1995, despite a 21.4% period-to-period sales decline.
The Company's largest single expense, labor costs, remained constant as
a percent of sales from 1994 to 1995. The Company did experience increases
from 1994 to 1995, as a percent of sales, communications,rental, and
delivery expense. The Company also experienced a decrease, as a percent of
sales, in marketing and advertising costs. In the second half of 1995,
there were significant reductions made in the work force to keep salary and
wage costs in line with actual sales volume.
As discussed below, in December 1995 the Company developed and began
implementing a restructuring plan. In addition to the reductions in SG&A
directly related to building center closings, other cost reductions
include, among other things, a reduction in vehicles and other equipment,
in addition to those disposed of through the center closing and
consolidation process, and various alternatives to reduce costs associated
with the physical space occupied by its corporate headquarters in Vernon
Hills, Illinois.
Depreciation, Goodwill and Trademark Amortization
Depreciation, goodwill and trademark amortization costs increased $1.3
million in 1995 compared with 1994. Depreciation of vehicles and
equipment, and amortization of goodwill for acquisitions purchased during
the second half of 1994 and first half of 1995 account for all of the
increase.
Provision for Doubtful Accounts
The Company extends credit, generally due on the 10th day of the month
following the sale, to qualified and approved contractors. In 1995, the
Company's provision for doubtful accounts increased as a percentage of net
sales to 0.7% compared with 0.3% in 1994. While 0.7% of net sales is
comparable to industry averages the Company has taken steps to reduce
future bad debt expense. Approximately $3.1 million of the $4.0 million
increase is attributable to the Gerrity acquisition centers. During the
integration of the Gerrity center's these centers experienced significant
credit losses as they converted to the Company's more controlled credit
policies. The Company believes that the impact of this conversion is
nearly complete, evidenced by the provision for doubtful accounts being
only 0.4% of net sales in the fourth quarter of 1995 compared with 0.4% in
the fourth quarter of 1994.
Restructuring and Unusual Items
During the fourth quarter of 1995 the Company committed to a plan to
reduce the number of under-performing building centers, the corresponding
overhead to support these building centers, and to strengthen its capital
structure. The purpose of the plan is to achieve a more focused customer
and marketing strategy, to reduce costs, and to dispose of certain under-
performing assets. Management anticipates the completion of this plan in
1996.
The costs for closing these building centers were based on management's
estimates of costs to exit these markets and actual historical experience.
The Company recorded a $17.8 million charge relating to this strategic
restructuring plan and other unusual items. The major components of this
charge include the write-down of assets to their net realizable value,
liabilities associated with closed building centers held for sale,
postemployment benefits to qualified affected employees as a result of the
center closings, and other charges related to the renegotiation of the
terms of the Company's bank revolving credit agreement and a proposed
merger between Riverside Group, Inc. and the Company. The merger proposal
was abandoned in favor of an agreement to sell 2 million shares of the
Company's Common Stock to Riverside Group, Inc. for $10 million in cash.
See "Item 1. Business - Business Strategy - 1995 Restructuring Plan."
Other Operating Income
Other operating income decreased to $5.8 million in 1995 from $6.8
million in 1994. The primary reason for this decline were two unusual gains
recorded in 1994, a $1.2 million gain on the sale of its private label
credit card portfolio and a $0.7 million gain as the result of the
difference between insured replacement cost and book value as the result of
storm related damage to one of the Company's building centers. Service
charges for overdue credit accounts increased to $3.0 million in 1995
compared with $2.5 million in 1994. The Company also experienced an
increase in rental income, interest earned, and miscellaneous revenues of
$0.5 in 1995 compared with 1994.
Interest Expense
Interest expense increased to $24.4 million in 1995 from $21.7 million
in 1994. This increase was the result of an increase in average
outstanding debt, due primarily to acquisitions made in 1995 and late 1994,
and to a lesser degree, an increase in the effective interest rate on the
Company's total debt, up an average of 7 basis points when compared with
1994.
Equity in Loss of Affiliated Company
The consolidated financial statements of the Company present the results
of operations, financial position, and cash flows of Wickes Lumber Company
and all its wholly-owned and majority-owned subsidiaries, except for the
Company's subsidiary engaged in operations in Russia, the investment in
which is recorded under the equity method because control is likely to be
temporary and to be lost in the near term, as a result of financing
agreements entered into in February 1996. See "Item 1. Business -
International Operations" and Notes 2 and 16 of Notes to Consolidated
Financial Statements included elsewhere herein. During 1995, the Company's
equity in the losses of these operations was $3.5 million. During 1994,
the results of these operations were consolidated with those of the Company
and contributed a loss of approximately $0.4 million (pre-tax).
Provision for Income Taxes
In 1995, the Company recorded current income tax expense of $1.4 million
compared with $1.7 million in 1994. The 1995 income tax provision consists
of state and local tax liabilities. The 1994 income tax provision
consisted of $1.4 million for state and local liabilities and $0.3 million
for the alternative minimum federal income tax liability.
A deferred tax benefit of $11.8 million was also recorded in 1995. This
benefit is primarily due to the recording of a deferred tax asset as a
result of the operating loss experienced during 1995, in accordance with
FAS 109. It is management's determination that future profitability will
allow realization of these and previously recorded deferred tax assets.
This determination is based on the Company's positive earnings growth from
1992 through 1994, significant cost reduction efforts during the second
half of 1995, including the restructuring activity, and the Company's multi-
year financial forecast. See Note 11 of Notes to Consolidated Financial
Statements included elsewhere herein.
Net Income
Net income decreased to a loss of $15.6 million in 1995 compared with
$28.1 million in income for 1994, a change of $43.7 million. The primary
components of the decrease include an increase in restructuring and unusual
items of $15.8 million, a decrease in gross profit dollars of $13.0
million, an increase in SG&A of $4.1 million, increased losses of the
Company's Russian operations of $3.1 million, and an increase in interest
expense of $2.7 million. The Company also recorded a lower tax benefit in
1995 compared with 1994, increased depreciation and amortization expense,
and in the fourth quarter of 1994, the company recorded a $1.2 million one
time gain on the sale of its private label credit card portfolio.
1994 Compared with 1993
Net Sales
Net sales for 1994 increased $140.1 million to $986.9 million, a 16.5%
increase from $846.8 million for 1993. The 1994 fiscal year consisted of
53 weeks compared with 52 weeks for 1993, which accounted for approximately
$14.0 million of the additional sales. Also the ten building centers and
three component manufacturing facilities acquired in 1994 contributed $23.7
million to 1994 net sales. Sales for all facilities operated throughout
both years increased 14.1%. After adjusting for the additional week in
1994 the increase is 12.4%. Increased prices for wood products accounted
for approximately one third of the 12.4% same store sales increase. Wood
product prices, while higher on average when compared with 1993, were
substantially less volatile than the previous year. Nationwide, single
family housing starts were up 6.2% for 1994, compared with 1993. Severe
weather conditions in the Northeast and Midwest held sales increases to
modest levels in the first quarter of 1994. In the fourth quarter, though,
favorable weather helped to keep sales activity strong through the end of
the year.
Gross Profit
Gross profit decreased to 23.7% of net sales for 1994 compared with
24.4% of net sales for 1993. The Company's continued emphasis on sales to
professional builders and the resulting increased sales of lower margin
wood products are the main reasons for the change. The Company believes
that approximately 66% of the decrease in gross profit percentage is the
result of the shift in customer mix from 26% consumer and 74% professional
in 1993 to 22% consumer and 78% professional in 1994. Wood product prices
were much less volatile in 1994 compared with 1993 and the Company was able
to mitigate the impact of price fluctuations through its centralized
purchasing function.
Selling, General, and Administrative Expense
SG&A expense declined to 19.7% of net sales in 1994 from 20.7% of net
sales in 1993. The largest contributor to this decrease was the Company's
improvement in labor productivity. Total salaries, wages and bonuses
declined .5% of net sales in 1994 compared with 1993. During the third
quarter of 1994, the Company announced that it was implementing a
headquarters cost reduction plan that would reduce administrative expense
by $3 million to $5 million annually and could include the elimination of
up to 100 positions. During 1994, approximately 100 headquarters positions
were eliminated with a resulting decrease in annualized payroll expense of
$2.4 million. Severance and other termination costs of approximately $2.0
million related to this plan were expensed in 1994. See "Restructuring and
Unusual Items." Marketing expenses also declined by .4% of net sales in
1994 compared with 1993, as the Company continued to focus its marketing
efforts on its key customer segment, the professional builder. Smaller
increases, as a percent of net sales, in rent expense for new information
systems and vehicles as well as travel expenses were offset by reduced
building and vehicle maintenance, telephone, office supplies and utilities
expenses.
Depreciation, Goodwill and Trademark Amortization
Depreciation, goodwill and trademark amortization costs decreased $1.2
million in 1994 compared with 1993. Amortization of the Company's
trademark accounted for all of the $1.2 million decrease. This was as a
result of the change in the trademark's amortization life from 10 to 40
years which took place upon the Company's completion of its
Recapitalization Plan in October 1993. Depreciation expense in 1994
remained relatively unchanged from 1993. The amortization of goodwill
attributable to acquisitions completed in 1994 did not have a material
impact on earnings.
Provision for Doubtful Accounts
The Company extends credit, generally due on the 10th day of the month
following the sale, to qualified and approved contractors. In 1994, the
Company's provision for doubtful accounts increased as a percent of net
sales to 0.3% compared with 0.2% in 1993. This slight increase was
primarily due to the better than average results achieved in 1993.
Restructuring and Unusual Items
In 1994, the Company recorded a charge against earnings of $2.0 million
primarily as a result of its headquarters cost reduction plan. See
"Selling, General and Administrative Expense." In 1993, the Company
reported $53,000.
Other Operating Income
Other operating income increased to $6.8 million in 1994 from $4.6
million in 1993. In the fourth quarter of 1994, the company recorded a $1.2
million gain on the sale of its private label credit card portfolio. As
the result of storm related damage in the first quarter of 1994, a gain of
$0.7 million was recorded. This gain was the result of the difference
between the replacement cost, in accordance with our insurance coverage,
and the book value of the damaged facilities. Service charges for overdue
credit accounts increased to $2.5 million in 1994 compared with $2.1
million in 1993. In 1993, sixteen closed facilities were sold, resulting
in a gain of $0.8 million. In 1994, two closed facilities were sold with
no significant gain or loss. In 1993, the Company also accrued additional
costs of $0.6 million as reserves against costs for closed facilities.
Interest Expense
Interest expense increased to $21.7 million in 1994 from $20.3 million
in 1993. This increase was the result of an increase in effective interest
rates on the Company's long-term debt, up an average of 70 basis points
when compared with 1993, and increased average outstanding debt, primarily
due to acquisitions.
Provision for Income Taxes
In 1994, the Company recorded current income tax expense of $1.7 million
compared with $1.2 million in 1993. The 1994 income tax provision consists
of $1.4 million for state and local tax liabilities and $.3 million for the
alternative minimum federal income tax liability.
A deferred tax benefit of $14.4 million was recorded in 1994. In the
fourth quarter, the Company reversed a $21.0 valuation allowance previously
recorded against deferred tax assets. The basis for this reversal is
management's' determination that the future profitability of the Company
will allow realization of the deferred tax assets. Based on the improved
earnings history from 1992 through 1994, and projected earnings for 1995,
it was expected that the Company's likelihood of realizing the benefit from
some or all of its tax assets was more likely than not, or greater than
50%. In accordance with FAS 109 the valuation allowance was decreased
resulting in a deferred tax asset being recorded on the financial
statements of the Company'. Management recognizes that economic conditions
have an impact on the building industry, however they do not believe that
such uncertainties will impact the Company's ability to realize the
benefit. As a result of recognizing the deferred tax benefit in 1994, the
Company anticipates their provision for taxes in subsequent years will
reflect a normal statutory rate.
Net Income
Net income increased to $28.1 million in 1994 compared with $8.2 million
in 1993. A deferred tax benefit of $14.4 million was recorded in 1994 as
discussed above. Other major contributors to the 1994 increase in net
income included the Company's increased level of sales, together with
reduced SG&A expense as a percentage of sales, reduced trademark
amortization and increased other operating income, partially offset by
decreased gross profit as a percentage of sales, restructuring and unusual
charges, and increased interest expense. In 1993 the Company recorded a
one time extraordinary gain of $1.2 million as a result of its
Recapitalization Plan.
Statements of Financial Accounting Standards
The Company adopted SFAS No. 112-Employers Accounting for Post
Employment Benefits in 1993. SFAS No. 112 requires the Company to accrue
in its financial statements the cost of postemployment benefits offered to
employees. Prior to the adoption of SFAS No. 112 these costs were being
expensed as paid. The adoption of SFAS No. 112 did not have a material
impact on the Company's financial statements.
Recently Issued Accounting Pronouncements
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of," requires that long-lived assets and certain identifiable intangibles
to be held and used by an entity be reviewed for impairment whenever events
or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. Impairment is evaluated by comparing future cash
flows (undiscounted and without interest charges) expected to result from
the use or sale of the asset and its eventual disposition, to the carrying
amount of the asset. This new accounting principle is effective for the
Company's fiscal year ending December 28, 1996. The Company believes that
adoption will not have a material impact on its financial position.
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation," encourages, but does not require, companies to
recognize compensation expense for grants of stock, stock options, and
other equity instruments to employees based on new fair value accounting
rules. Although expense recognition for employee stock based compensation
is not mandatory, the pronouncement requires companies that choose not to
adopt the new fair value accounting, to disclose the pro-forma net income
and earning per share under the new method. This new accounting principle
is effective for the Company's fiscal year ending December 28, 1996. The
Company believes that adoption will not have a material impact on its
financial position as the Company will not adopt the fair new value
accounting, but instead comply with the disclosure requirements.
Liquidity and Capital Resources
The Company's principal sources of working capital and liquidity are
earnings and borrowings under its revolving credit facility. The Company's
primary need for capital resources is to finance inventory and accounts
receivable.
In 1995, net cash provided by operating activities amounted to $15.9
million. This compares favorably with cash provided by operating
activities of $1.3 million in 1994 and cash used by operating activities of
$21.3 million in 1993. This increase is primarily the result of decreases
in accounts receivable and inventory. These funds were used primarily for
acquisitions, purchases of property plant and equipment, and to reduce the
Company's long-term borrowings. Accounts receivable at the end of 1995
were $15.8 million, or 16.2%, lower than at the end of 1994. This
reduction is due to improved collection practices at centers that were
acquired during 1994 and lower sales volumes during the fourth quarter of
1995, when compared with the fourth quarter of 1994. When adjusted for
acquisitions, comparable accounts receivable were down 20% at the end of
1995 when compared with 1994. Inventory at the end of 1995 was $13.4
million, or 10.8%, lower than at year-end 1994. The Company believes that
approximately $3.3 million of this decrease resulted from an approximate
18% decrease in commodity lumber prices during 1994. The Company believes
this decrease is favorable given the relatively flat sales volume between
the two years. The Company's inventory balance has been trending down as a
result of improved inventory control processes and the recent deflation in
commodity lumber prices.
The amount of the Company's accounts payable on any balance sheet date
may vary from the average accounts payable throughout the period due to the
timing of payments.
During 1995, the Company had adequate borrowing capacity under its
revolving credit facility. The Company's receivables and inventory
typically increase in the second and third quarters of the year due to
higher sales in the peak building season. In the first and second quarters
of each year, the Company typically reaches its peak utilization of its
revolving credit facility because of the inventory build-up needed for the
peak building season. As the result of the decline in operating and net
income in 1995, the Company was at September 30, 1995 not in compliance
with the interest coverage requirement then contained in the Company's
revolving credit agreement. This agreement was amended on November 10,
1995 and amended and restated in its entirety on March 12, 1996. Among
other things, the amendment and restatement (i) extended the term of the
facility 15 months to January 1998, (ii) reduced the maximum borrowing
limit $15 million to $130 million, (iii) modified certain covenants,
including changes necessary to accommodate the Company's fourth quarter
1995 restructuring charge, (iv) required the temporary addition of
approximately $12 million of real estate collateral and (v) required the
completion by July 31, 1996 of the receipt from Riverside Group, Inc. of
$10 million in exchange for newly-issued shares of Common Stock of the
Company. The reduction in the maximum borrowing limit was requested by the
Company based on its anticipated needs and to reduce interest costs
incurred on the unused portion of the credit facility. For further
information see "Notes 7 and 9 of Notes to Consolidated Financial
Statements included elsewhere herein.
Availability under the revolving credit facility is limited, in the
aggregate, to the lesser of $130 million and a "borrowing base amount,"
which is the sum of (i) between 80% and 85% of eligible accounts receivable
plus (ii) between 50% and 60% of eligible inventory. At March 2, 1996, the
Company had outstanding borrowings of $100.5 million and unused
availability of $2.7 million under its revolving credit facility. As the
result of the reduction in maximum borrowing limit discussed above, the
Company is currently fully-utilizing its revolving credit facility and does
not anticipate significant unused borrowing capacity under this facility
until June 1996. Accordingly, funds for acquisitions or other significant
unbudgeted capital expenditures may not be available for the foreseeable
future, and in the event of a substantial escalation in lumber prices or
substantial increase in sales the Company's ability to purchase inventory
without further amendment of this facility could be constrained. The
Company anticipates, however, that funds provided by operations and under
this facility will be adequate for the Company's needs.
The revolving credit facility and the trust indenture related to the
Company's 11-5/8% Senior Subordinated Notes contain certain covenants and
restrictions. Among other things, the revolving credit facility prohibits
non-stock dividends, certain investments and other "restricted payments"
by the Company. The trust indenture generally restricts non-stock
dividends and other restricted payments by the Company to 50% of
"cumulative consolidated net income," or if cumulative consolidated net
income shall be a loss, minus 100% of such loss, of the Company earned
subsequent to October 22, 1993, plus the proceeds of the sale of certain
equity securities after such date.
The Company's capital expenditures consist primarily of the construction
of storage facilities, the remodeling of building centers and component
manufacturing facilities, and the purchase of equipment and management
information systems. The Company spent $4.1 million on capital purchases
and improvements in 1995. The Company expects to spend approximately $4
million on capital expenditures in 1996. These expenditures are expected
to be funded by the Company's borrowings and its internally generated cash
flow. At December 30, 1995, there were no material commitments for future
capital expenditures.
Subject to the availability of adequate borrowing capacity and
liquidity, the Company may also seek to acquire additional local or
regional building centers or component manufacturing facilities to
complement its current operations. The Company completed several
acquisitions during 1995. In April, the Company acquired the operating
assets of Owsley Lumber Company, a combination building center and
component manufacturing facility located in Pensacola, Florida. In June of
1995, the Company acquired the operating assets of Lappo Lumber Company,
Inc., a building center in South Haven, Michigan and a combination building
center and component manufacturing facility in Fruitport, Michigan, the
assets of Caro Building Center, a single building center located in Caro,
Michigan, and the facilities of Newtown Lumber, a single building center
located in Newtown, Connecticut. See "Item 1. Business - Acquisitions" and
Note 3 of Notes to Consolidated Financial Statements included elsewhere
herein. In the aggregate, these acquisitions were completed for fair
market value of the assets acquired and liabilities assumed, and were
funded under the Company's revolving line of credit. The Company
anticipates that funds for future acquisitions would be subject to the
consent of its bank lenders and to the increase or modification of the
Company's revolving credit facility.
On January 11, 1996, the Company entered into a definitive agreement
with Riverside Group, Inc. ("Riverside") that provides for the acquisition
by Riverside of 2 million newly-issued shares of the Company's common stock
for $10 million in cash. The transaction is expected to be completed prior
to July 31, 1996. Should the sale to Riverside not occur, the Company
could be required to obtain a waiver of the requirement contained in its
revolving credit facility that this transaction be completed by such date.
See "Item 1. Business - Private Placement to Riverside Group, Inc." and
Note 9 to Notes to Consolidated Financial Statements included elsewhere
herein.
Net Operating Loss Carryforwards
At December 30, 1995, the Company and its subsidiaries had federal
income tax net operating loss carryforwards ("NOLs") of approximately $25.3
million. The NOLs will expire in the years 2004 to 2010, if not previously
utilized. As a result of the Recapitalization Plan, the Company's ability
to use certain of the NOLs carried forward will be subject to the
limitations of Section 382 of the Internal Revenue Code. See Note 11 to
Notes to Consolidated Financial Statements included elsewhere herein.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Financial statements of the Company are set forth herein beginning on
page F-1.
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K.
(a) List of Documents Filed as a Part of this Report:
<TABLE>
<S> <S>
(1) Financial Statements: Page No.
--------
Report of Independent Accountants F-1
Consolidated balance sheets as of December 30, 1995
and December 31, 1994 F-2
Consolidated statements of operations for the years ended December 30,
1995, December 31, 1994 and December 25, 1993 F-3
Consolidated statements of changes in stockholders' equity (deficit) for the
years ended December 30, 1995, December 31, 1994 and December 25,
1993 F-4
Consolidated statements of cash flows for the years ended December 30,
1995, December 31, 1994 and December 25, 1993 F-5
Notes to consolidated financial statements F-6
(2) Financial Statement Schedules:
Schedule Description
---------------------
II. Valuation and Qualifying Accounts S-1
(b) Reports on Form 8-K
The Company filed a Current Report on Form 8-K dated January 11, 1996,
reporting a definitive agreement that provides for the sale of Riverside
Group, Inc. of 2 million newly-issued shares of the registrant's common
stock.
(c) Exhibits
Sequential
Exhibit Page
Number Description No.
- ------ ----------- ---
3.1(a) Amended and Restated Certificate of Incorporation of the *
Registrant (incorporated by reference to Exhibit 3.1 to the
Registrant's Registration Statement on Form S-1 (the "Form
S-1"), Commission File No. 2-67334).
(b) First Amendment to Second Amended and Restated Certificate *
of Incorporation (incorporated by reference to Exhibit 3.01 to
the Registrant's Quarterly Report on Form 10-Q (The "June 1994
Form 10-Q") for the period ended June 25, 1994).
3.2 By-laws of the Registrant, as amended and restated *
(incorporated by reference to Exhibit 3.2 to the Registrant's
Annual Report on Form 10-K (the "1993 Form 10-K") for the
year ended December 25, 1993).
4.1 Credit Agreement dated March 12, 1996, among the 70
Registrant, as borrower, each of the financial institutions
signatory thereto (the "Lenders"), BT Commercial Corporation,
as Agent for the Lenders, and Bankers Trust Company, as
issuing Bank.
4.2 Indenture dated as of October 15, 1993 between the Registrant *
and Marine Midland Bank, N.A. (incorporated by reference to
Exhibit 4.2 to the 1993 Form 10-K).
10.1 Trademark Agreement, dated April 29, 1988, between Wickes *
Companies, Inc. and the Registrant (incorporated by
reference to Exhibit 10.2 to the Form S-1).
10.2 Stock Purchase Agreement, dated as of July 23, 1993, *
among FynSyn Capital Corp., W. Lumber Investment
Partnership, Riverside Group, Inc. and American Financial
Acquisition Corporation (incorporated by reference to
Exhibit 10.11 to the Form S-1).
10.3 Agreement, dated July 21, 1993, between Collins & Aikman *
Group, Inc. and the Registrant (incorporated by reference to
Exhibit 10.12 to the Form S-1).
*Incorporated by reference
10.4 Form of Employee Warrant to purchase Common Stock of the *
Registrant (incorporated by reference to Exhibit 10.16 to the
Form S-1).
10.5 Settlement Agreement, dated as of August 11, 1993, among *
FynSyn Capital Corp., W. Lumber Investment Partnership,
Riverside Group, Inc. and Arthur M. Goldberg (incorporated
by reference to Exhibit 10.17 to the Form S-1).
10.6 Equity Recapitalization Agreement, dated September 20, 1993, *
among the Registrant, American Founders Life Insurance
Company, American Financial Acquisition Corporation, Bankers
Trust (Delaware), Riverside Group, Inc., W. Lumber Investment
Partnership and Arthur M. Goldberg (as voting trustee)
(incorporated by reference to Exhibit 10.18 to the Form S-1).
10.7 Agreement, dated as of September 20, 1993, among the *
Registrant, Riverside Group, Inc., Bankers Trust (Delaware)
and American Financial Acquisition Corporation (incorporated
by reference to Exhibit 10.19 to the Form S-1).
10.8(a) Amended and Restated 1993 Long-Term Incentive Plan of the *
Registrant (incorporated by reference to Exhibit 10.8 to the
1994 Form 10-K).
(b) Form of Option Agreement (incorporated by reference to *
Exhibit 10.22 to the Form S-1).
(c) Form of Option Agreement (incorporated by reference to *
Exhibit 10.8 to the 1994 Form 10-K).
(d) Form of Long-Term Stock Option Agreement (incorporated *
by reference to Exhibit 10.8 to the 1994 Form 10-K).
(e) Form of Long-Term Performance Bonus Agreement *
(incorporated by reference to Exhibit 10.8 to the 1994
Form 10-K).
10.9(a) Amended and Restated 1993 Director Incentive Plan of *
Registrant (incorporated by reference to Exhibit 10.03
to the Registrant's Quarterly Report on Form 10-Q the
("March 1994 Form 10-Q") for the period ended
March 26, 1994).
(b) Form of Option Agreement (incorporated by reference
to Exhibit 10.24 to the Form S-1).
*Incorporated by reference
10.11 Employment Agreement between Douglas J. Woods *
and the Registrant (incorporated by reference to
Exhibit 10.01 to the March 1994 Form 10-Q).
10.12 Employment Agreement between George A. Bajalia and *
the Registrant (incorporated by reference to Exhibit 10.02
to the March 1994 Form 10-Q).
10.13(a) Agreement of Sale dated as of August 18, 1994 by and *
between the Registrant and Gerrity Company, Inc.
(incorporated by reference to Exhibit 2.01(a) to the Registrant's
Current Report on Form 8-K dated October 21, 1994).
(b) First Amendment dated as of October 7, 1994 (incorporated *
by reference to Exhibit 2.01(b) to the Registrant's Current
Report on Form 8-K dated October 21, 1994).
10.14 Marketing Agreement dated as of September 7, 1994 between *
the Registrant and Wickes Financial Services Center, Inc.
(incorporated by reference to Exhibit 10.14 to the 1994
Form 10-K).
10.15 Stock Purchase Agreement dated as of January 11, 1996 *
between Riverside Group, Inc. and the Registrant (incorporated
by reference to Exhibit 99.1 to the Registrants Current
Report on Form 8-K dated January 11, 1996).
11.1 Statement regarding Computation of Per Share Earnings. 213
21.1 List of Subsidiaries of the Registrant. 214
23.1 Consent of Coopers & Lybrand L.L.P. 215
27.1 Financial data schedule (SEC use only)
</TABLE>
*Incorporated by reference.
There have been omitted certain instruments with respect to long-term debt not
in excess of 10% of the consolidated total assets of the Company. The Company
agrees to furnish copies of any such instruments to the Commission upon request.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Amendment No. 1
to Form 10-K to be signed on its behalf by the undersigned, thereunto duly
authorized.
WICKES LUMBER COMPANY
Date: _________ , 1996 By: /s/
George A. Bajalia
Senior Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
REPORT OF INDEPENDENT ACCOUNTANTS
To The Stockholders and Board of Directors
Wickes Lumber Company and Subsidiaries
We have audited the accompanying consolidated balance sheets of Wickes
Lumber Company and Subsidiaries (the "Company") as of December 30, 1995 and
December 31, 1994, and the related consolidated statements of operations,
changes in common stockholders' equity (deficit) and cash flows for the
years ended December 30, 1995 and December 31, 1994, and December 25, 1993.
We have also audited the financial statement schedule of valuation and
qualifying accounts. These financial statements and financial statement
schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
this financial statement schedule based on our audits.
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
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 consolidated financial
position of Wickes Lumber Company and Subsidiaries as of December 30, 1995
and December 31, 1994, and the consolidated results of their operations and
cash flows for the years ended December 30, 1995, December 31, 1994, and
December 25, 1993, in conformity with generally accepted accounting
principles. In addition, in our opinion, the financial statement schedule
referred to above, when considered in relation to the basic financial
statements taken as a whole, presents fairly, in all material respects, the
information required to be included therein.
Chicago, Illinois
March 12, 1996
WICKES LUMBER COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 30, 1995 and December 31, 1994
(in thousands except share data)
<TABLE>
<CAPTION>
ASSETS 1995 1994
---- ----
<S> <C> <C>
Current assets:
Cash $ 87 $ 2,037
Accounts receivable, less allowance for doubtful
accounts of $8,208 in 1995 and $4,657 in 1994 81,792 97,629
Inventory 110,639 124,084
Deferred tax asset 25,906 14,360
Prepaid expenses 1,051 1,584
------- ------
Total current assets 219,475 239,694
------- ------
Property, plant and equipment, net 56,545 56,847
Trademark (net of accumulated amortization
of $9,830 in 1995 and $9,608 in 1994) 7,170 7,392
Deferred tax asset 250 0
Other assets (net of accumulated amortization of
$4,464 in 1995 and $2,071 in 1994) 19,075 15,640
------- ------
302,515 319,573
======= ======
LIABILITIES & STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt $ 424 $ 709
Accounts payable 41,457 46,620
Accrued liabilities 37,972 28,854
------ ------
Total current liabilities 79,853 76,183
------ ------
Long-term debt, less current maturities 205,221 211,139
Other long-term liabilities 2,312 2,105
Commitments and contingencies (Note 8)
Common stockholders' equity:
Common stock (6,143,473 issued and outstanding in 1995
and 6,100,549 shares issued and outstanding in 1994) 61 61
Additional paid-in capital 76,772 76,190
Accumulated deficit (61,704) (46,105)
------ ------
15,129 30,146
------ ------
Total common stockholders' equity 302,515 319,573
====== ======
<S>
The accompanying notes are an integral part of the Condensed Consolidated Financial Statements.
</TABLE>
WICKES LUMBER COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended December 30, 1995, December 31,1994, and December 25, 1993
(in thousands except share and per share data)
<TABLE>
<CAPTION>
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
Net sales $ 972,612 $ 986,872 $ 846,842
Cost of sales 751,800 753,041 640,284
--------- --------- ---------
Gross profit 220,812 233,831 206,558
--------- --------- ---------
Selling, general and administrative expenses 194,629 194,586 174,889
Depreciation, goodwill and trademark amortization 5,882 4,543 5,782
Provision for doubtful accounts 6,482 2,457 1,942
Restructuring and unusual items 17,798 2,000 53
Other operating income (5,831) (6,772) (4,575)
--------- --------- ---------
218,960 196,814 178,091
--------- --------- ---------
Income from operations 1,852 37,017 28,467
Interest expense 24,351 21,663 20,298
Equity in loss of affiliated company 3,543 - -
--------- --------- ---------
Income (Loss) before income taxes and extraordinary gain (26,042) 15,354 8,169
Provision for income taxes
Current 1,353 1,660 1,227
Deferred (11,796) (14,360) -
--------- --------- ---------
Income (loss) before extraordinary gain $ (15,599) $ 28,054 $ 6,942
========= ========= =========
Extraordinary gain on extinguishment of debt,
net of income taxes of $193 - - 1,241
--------- --------- ---------
Net (loss) income (15,599) 28,054 8,183
========= ========= =========
Earnings (loss) per common share (pro forma in 1993)
Earnings (loss) before extraordinary gain $ ($2.54) $ $4.59 $ $1.14
Extraordinary gain - - $0.20
--------- --------- ---------
Earnings (loss) per common share (pro forma in 1993) $ (2.54) 4.59 $ 1.34
========= ========= =========
Weighted average common and common
equivalent shares outstanding (pro forma in 1993) 6,151,771 6,106,279 6,099,985
========= ========= =========
Earnings per common share- historical basis (Note 5)
The accompanying notes are an integral part of the
the Condensed Consolidated Financial Statements.
</TABLE>
WICKES LUMBER COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN COMMON STOCKHOLDERS' EQUITY (DEFICIT)
For the Years Ended December 25, 1993, December 31, 1994 and December 30, 1995
(in thousands)
<TABLE>
<CAPTION>
Total
Additional Common
Common Paid-in Accumulated Stockholders'
Stock Capital Deficit Equity
(Deficit)
<S> <C> <C> <C> <C>
Balance at December 27, 1992......................... $ 20 $ 32,493 $ (81,470) $ (48,957)
Net income........................................... - - 8,183 8,183
Dividends on redeemable preferred stock.............. - - (872) (872)
Issuance of common stock, net of offering costs...... 28 38,266 - 38,294
Issuance of common stock in exchange for preferred stock. 13 16,823 - 16,836
Extinguishment of warrants........................... - (11,666) - (11,666)
------ ------ ------ ------
Balance at December 25, 1993......................... 61 75,916 (74,159) 1,818
------ ------ ------ ------
Net income........................................... - - 28,054 28,054
Issuance of common stock, net ....................... - 274 - 274
------ ------ ------ ------
Balance at December 31, 1994......................... 61 76,190 (46,105) 30,146
------ ------ ------ ------
Net income........................................... - - (15,599) (15,599)
Issuance of common stock, net........................ - 582 - 582
------ ------ ------ ------
Balance at December 30, 1995......................... $ 61 $ 76,772 $ (61,704) $ 15,129
====== ====== ====== ======
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
WICKES LUMBER COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 30, 1995, December 31, 1994, and December
25, 1993
(in thousands)
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income / (loss) $ (15,599) $ 28,054 $ 8,183
Adjustments to reconcile net income/(loss) to
net cash provided by (used in) operating activities:
Depreciation expense 5,391 4,277 4,329
Amortization of trademark 222 222 1,453
Amortization of goodwill 270 44 0
Amortization of deferred financing costs 2,085 1,781 1,839
Provision for doubtful accounts 6,482 2,457 1,942
Accretion of note dicount 0 0 2,023
Gain on sale of assets (71) (238) (1,118)
Extraordinary gain on extinguishment of debt 0 0 (1,434)
Deferred tax benefit (11,795) (14,360) 0
Changes in assets and liabilities (net of effects
from acquisitions):
(Increase) decrease in accounts receivable 9,355 (15,673) (21,231)
(Increase) decrease in inventory 20,697 (98) (12,794)
Increase(decrease)in accounts payable and accrued liabilities 2,377 (4,896) (3,232)
Increase in other assets (3,552) (239) (1,229)
----- ----- -----
NET CASH USED IN OPERATING ACTIVITIES 15,862 1,331 (21,269)
----- ----- -----
Cash flows from investing activities:
Purchases of property, plant and equipment (4,111) (5,947) (4,289)
Payments for acquisitions (8,686) (36,515) 0
Proceeds from sales of property, plant and equipment 2,520 685 9,612
----- ----- -----
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (10,277) (41,777) 5,323
----- ----- -----
Cash flows from financing activities:
Net borrowing (repayment) under revolving line of credit (5,760) 43,462 (21,552)
Reductions of notes payable (2,357) (556) (461)
Repayment of term loan 0 0 (62,839)
Retirement of subordinated notes 0 0 (30,000)
Proceeds from issuance of senior subordinated notes 0 0 100,000
Proceeds from issuance of common stock 582 274 42,000
Payment of transaction costs of the
Recapitalization Plan 0 (700) (11,204)
----- ----- -----
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (7,535) 42,480 15,944
----- ----- -----
NET INCREASE (DECREASE) IN CASH (1,950) 2,034 (2)
Cash at beginning of period 2,037 3 5
----- ----- -----
CASH AT END OF PERIOD $ 87 $ 2,037 $ 3
===== ===== =====
Supplemental schedule of cash flow information:
Interest paid $ 22,823 $ 18,777 $ 25,298
Income taxes paid 1,987 1,536 1,146
Supplemental schedule of non-cash investing and financing activities:
The Company purchased capital stock and assets in conjuction with
acquisitions made during the period. In connection with these
acquitions,
liabilties were assumed as follows
Fair value of assets acquired $ 12,387 $ 41,736
Cash paid (8,686) (36,515)
----- -----
Liabilities assumed $ 3,700 $ 5,221
===== =====
Issuance of common stock in exchange for preferred
stock, including accumulated dividends $ 16,836
=====
</TABLE>
The accompanying notes are an integral part of the Consolidated
Financial Statements.
1. Description of Business
Wickes Lumber Company, through its building centers, markets lumber,
building materials and services to professional contractors, repair and
remodelers and do-it-yourself home owners principally in the Midwest,
Northeast and Southern United States. Wickes Lumber Company's wholly-owned
and majority-owned subsidiaries are: Lumber Trademark Company ("LTC"), a
holding company for the "Flying W" trademark; GLC Division, Inc. ("GLC"),
which operates the Gerrity Lumber business; and Riverside International
Corporation ("RIC"), engaged in the procurement and processing of lumber in
the former Soviet Republics.
2. Accounting Policies
Principles of Consolidation
The consolidated financial statements present the results of operations,
financial position, and cash flows of Wickes Lumber Company and all its
wholly-owned and majority-owned subsidiaries (the "Company"), except for
RIC, the investment in which is recorded under the equity method because
control is likely to be temporary and to be lost in the near term (see Note
16). All significant intercompany balances have been eliminated.
Fiscal Year
The Company's fiscal year ends on the last Saturday in December.
Accounts Receivable
The Company extends credit primarily to qualified contractors. The accounts
receivable balance excludes consumer receivables as such receivables are
sold on a nonrecourse basis. The remaining accounts and notes receivable
represent credit extended to professional contractors and professional
repair and remodelers, generally on a non-collateralized basis.
Inventory
Inventory consists principally of finished goods. The Company utilizes the
first-in, first-out (FIFO) cost flow assumption for valuing its inventory.
Inventory is valued at the lower of cost or market, but not in excess of
net realizable value.
Property, Plant, and Equipment
Property, plant, and equipment are stated at cost and are depreciated under
the straight-line method. Estimated lives used range from 15 to 39 years
for buildings and improvements and leasehold improvements. Machinery and
equipment lives range from 3 to 6 years. Expenditures for maintenance and
repairs are charged to operations as incurred. Gains and losses from
dispositions of property, plant, and equipment are included in the
Company's results of operations as other operating income.
Other Assets
Other assets consist primarily of deferred financing costs and goodwill
which are being amortized on the straight line method, goodwill primarily
over 35 years and deferred financing costs over the expected terms of the
related debt agreements. At each balance sheet date, the Company evaluates
the realizability of goodwill based upon expectations of nondiscounted cash
flows and operating income for each subsidiary having a material goodwill
balance. Based upon its most recent analysis, the Company believes that no
impairment of goodwill exists at December 30, 1995.
Amortization expense for deferred financing costs is reflected as interest
expense on the Company's Consolidated Statements of Operations.
Trademark
Prior to completion of the Recapitalization Plan (as hereinafter defined),
the Company's "Flying W" trademark was being amortized over 10 years.
Effective with the Recapitalization, certain restrictions on the trademark
were eliminated, resulting in a change in the amortization of the trademark
to reflect a 40-year amortization period.
Accounts Payable
The Company includes outstanding checks in excess of in-transit cash in
accounts payable. There were $1,672,000 outstanding checks in excess of in-
transit cash at December 30, 1995 and none at December 31, 1994.
Postretirement Benefits Other Than Pensions
The Company provides certain health and life insurance benefits for
eligible retirees and their dependents. The Company accounts for the costs
of these postretirement benefits over the employees' working careers in
accordance with Statement of Financial Accounting Standards No. 106,
"Employers' Accounting for Postretirement Benefits Other Than Pensions."
Postemployment Benefits
The Company provides certain other postemployment benefits to qualified
former or inactive employees. The Company accounts for the costs of these
postemployment benefits in the period when it is probable that a benefit
will be provided in accordance with Statement of Financial Accounting
Standards No. 112, "Employers' Accounting for Postemployment Benefits".
Income Taxes
The Company accounts for income taxes in accordance with statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes." Tax
provisions and credits are recorded at statutory rates for taxable items
included in the consolidated statements of operations regardless of the
period for which such items are reported for tax purposes. Deferred income
taxes are recognized for temporary differences between financial statement
and income tax bases of assets and liabilities for which income tax
benefits will be realized in future years. Deferred tax assets are reduced
by a valuation allowance when the Company cannot make the determination
that it is more likely than not that some portion of the related tax asset
will be realized.
Computation of Earnings Per Common Share and Pro Forma Common Share
Earnings per common share is based upon the weighted average number of
shares of common stock outstanding and, where dilutive, common equivalent
shares (using the treasury stock method). Common equivalent shares consist
of common stock warrants and common stock options. Dilution relating to
common stock options was not material. Pro forma common shares is
presented for fiscal year 1993, giving effect to the Recapitalization Plan
as if it had occurred on December 27, 1992 (see Note 4). Computation of
earnings per share on a historical basis for fiscal year 1993 is presented
in Note 15.
Stock Split
In connection with the Recapitalization Plan, on October 14, 1993 the
Company's Board of Directors declared a 21.73-for-1 stock split of its
outstanding shares of common stock. The accompanying financial statements
have been restated to reflect this stock split.
Cash and Cash Equivalents
The Company considers all highly liquid investments with a maturity date of
three months or less to be cash equivalents.
Use of Estimates in the Preparation of Financial Statements
The preparation of 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 at
the date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ from
the estimates reported.
Significant estimates made by the Company include accrued compensation
liability and medical claims, accrued postemployment and postretirement
benefits, accrued restructuring charges, and valuation allowances for
accounts receivable, inventory and deferred tax assets. Accrued
compensation liability and medical claims involve the determination of
reserves for incurred but not reported claims. Accrued postemployment and
postretirement benefits involve the use of actuarial assumptions, including
selection of discount rates (see Note 10). Accrued restructuring charges
involve an estimation of what the market will bring and specific costs
incurred relating to the liquidation of certain Company assets using actual
historical results (see Note 12). Determination of the valuation allowances
for accounts receivable and inventory involve assumptions related to
current market conditions and historical market trends. While the
valuation allowance for the deferred tax assets considers estimates of
projected taxable income (see Note 11). It is reasonably possible that the
company's estimates for such items could change in the near term.
Recently Issued Accounting Pronouncements
Impairment of Long-Lived Assets. Statement of Financial Accounting
- --------------------------------
Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to be Disposed Of," requires that long-lived assets
and certain identifiable intangibles to be held and used by an entity be
reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable.
Impairment is evaluated by comparing future cash flows (undiscounted and
without interest charges) expected to result from the use or sale of the
asset and its eventual disposition, to the carrying amount of the asset.
This new accounting principle is effective for the Company's fiscal year
ending December 28, 1996. The Company believes that adoption will not have
a material impact on its financial position.
Stock-Based Compensation. Statement of Financial Accounting Standards No.
- -------------------------
123, "Accounting for Stock-Based Compensation," encourages, but does not
require, companies to recognize compensation expense for grants of stock,
stock options, and other equity instruments to employees based on new fair
value accounting rules. Although expense recognition for employee stock
based compensation is not mandatory, the pronouncement requires companies
that choose not to adopt the new fair value accounting, to disclose the pro-
forma net income and earning per share under the new method. This new
accounting principle is effective for the Company's fiscal year ending
December 28, 1996. The Company believes that adoption will not have a
material impact on its financial position as the Company will not adopt the
fair new value accounting, but instead comply with the disclosure
requirements.
3. Acquisitions
All acquisitions have been accounted for as purchases; operations of the
companies and businesses acquired have been included in the accompanying
consolidated financial statements from their respective dates of
acquisition. The excess of the purchase price over fair value of the net
assets acquired is included in goodwill. The fair market value of the
assets acquired were approximately $12.4 million in 1995.
During 1995 the Company acquired five retail building material centers for
a total cost of $11.8 million, $8.1 million in cash and $3.7 million in
liabilities assumed. The cost of the acquisitions have been allocated on
the basis of the fair market value of the assets acquired and the
liabilities assumed. This allocation resulted in goodwill for one of the
acquired businesses which is being amortized over a 30 year period on a
straight line basis.
In August 1994, the Company acquired all of the net assets of Great Lakes
Building Supply, Inc. and Ishpeming Building Supply, Inc. The cost of the
acquisition approximated the fair market value of the assets acquired and
liabilities assumed. In addition, the Company acquired all of the
outstanding Class B common stock of Riverside International Corporation,
from an affiliated entity. The cost of this acquisition has been allocated
on the basis of the estimated fair value of the assets acquired and
liabilities assumed. In October 1994, the Company acquired the Gerrity
Lumber business from the Gerrity Company, Inc. The acquired business
consisted of the operating assets of eight lumber and building material
centers of which three include component manufacturing plants. The purchase
price has been adjusted in accordance with a post-acquisition audit of the
acquired assets, resulting in an increase in goodwill. Goodwill is being
amortized over 35 years under a straight line basis.
The following unaudited pro forma summary presents information as if the
1994 acquisitions had occurred at the beginning of the fiscal year. The
pro forma information is not required for the 1995 acquisitions and is
provided for 1994 for informational purposes only. It is based on
historical information and does not necessarily reflect the actual results
that would have occurred nor is it necessarily indicative of future results
of operations of the combined enterprise:
<TABLE>
(Unaudited)
Years Ended
December 31, December 25,
1994 1993
---- ----
(in thousands except per share amounts)
<S> <C> <C>
Net sales $1,059,218 $933,364
Income before extraordinary item 29,356 7,433
Net income 29,356 8,674
====== ======
Per share:
Earnings before extraordinary item 4.80 1.22
==== ====
Earnings per common share and pro forma in 1993 4.80 1.42
==== ====
</TABLE>
See Note 2 - Accounting Policies - Computation of Earnings Per Common Share and
Pro Forma Common Share
4. Recapitalization Plan
On October 22, 1993, the Company completed a recapitalization plan (the
"Recapitalization Plan"), which included (i) the initial public offering by
the Company of 2,800,000 shares of common stock, par value $.01 per share
(the "Common Stock"), which resulted in $42 million in gross proceeds; (ii)
the offering of 11-5/8% Senior Subordinated Notes due 2003, which generated
$100 million in gross proceeds; (iii) the establishment of a new $135
million revolving credit facility; (iv) the payment by the Company of an
aggregate of $35 million in full payment and cancellation of the
subordinated note and warrant to purchase common stock of the Company
issued by the Company to the holder of the subordinated note; (v) the
payment by the Company of an aggregate of $65.5 million in full payment and
cancellation of the term loan and warrant to purchase common stock of the
Company issued to the lender of the term loan, and the repayment of all
outstanding indebtedness, $32.7 million, under and termination of the
Company's then-existing revolving credit working capital facility, and the
payment of $1.5 million of accrued interest on the term loan and the
revolving credit facility; (vi) the restructuring of the Company's
outstanding capital stock pursuant to which the Company in September 1993
reclassified each share of the existing classes of common stock into one
share of Common Stock or Class B non-voting common stock, par value $.01
per share, and effected a 21.73-for-1 stock split immediately prior to the
consummation of the initial common stock offering, on October 22, 1993;
(vii) the issuance by the Company of 1,206,881 shares of Common Stock
(valued at the public offering price in the initial common stock offering,
less underwriting discount) in exchange for the outstanding shares of
preferred stock (including accrued and unpaid dividends to the date of the
consummation of the recapitalization plan); (viii) the payment by the
Company of $1.7 million in full settlement of certain supplemental
retirement benefits ("SRBs") payable by the Company and acquired by
Riverside Group, Inc. from certain former executive officers of the
Company; and (ix) the payment of fees and expenses relating to the
foregoing.
Upon the completion of the Recapitalization Plan, there were 5,571,461
shares of Common Stock and 499,768 shares of Class B Non-Voting Common
Stock outstanding.
As a result of the Recapitalization Plan the Company recorded an
extraordinary gain of $1.2 million. This gain is comprised of (i) a gain
of $0.7 million on retirement of the SRBs, (ii) a gain of $4.6 million on
the retirement of the previously outstanding subordinated note and accrued
interest, (iii) a $3.9 million write-off of the unamortized transaction
costs from the 1988 Acquisition, in which former members of senior
management and other investors participated in a leveraged buy-out of the
Company, and (iv) applicable income tax expense of $0.2 million.
5. Property, Plant, and Equipment
Property, plant, and equipment is summarized as follows:
<TABLE>
December 30, December 31,
1995 1994
---- ----
(in thousands)
<S> <C> <C>
Land and improvements $15,888 $15,142
Buildings 32,242 30,212
Machinery and equipment 26,495 25,785
Leasehold improvements 2,715 2,238
Construction in progress 226 549
------ ------
Gross property, plant, and equipment 77,566 73,926
Less: accumulated depreciation 25,932 23,637
------ ------
Property, plant, and equipment
in use, net 51,634 50,289
Assets held for sale, net 4,911 6,558
------ ------
Property, plant, and equipment, net $56,545 $56,847
====== ======
</TABLE>
6. Accrued Liabilities
Accrued liabilities consist of the following:
<TABLE>
December 30, December 31,
1995 1994
---- ----
(in thousands)
<S> <C> <C>
Accrued payroll $ 6,934 $11,469
Accrued interest 1,546 2,103
Accrued liability insurance 4,970 3,063
Accrued restructuring charges 14,871 723
Other 9,651 11,496
------ ------
Total accrued liabilities $37,972 $28,854
====== ======
</TABLE>
7. Long-Term Debt
Long-term debt obligations are summarized as follows:
<TABLE>
December30, December 31,
1995 1994
---- ----
(in thousands)
<S> <C> <C>
Revolving line of credit, interest payable
at 1.5% above prime or 3.0% over LIBOR ,
principal due January 22, 1998 $105,021 $110,498
Senior subordinated notes, interest payable
at 11-5/8% semi-annually, principal due
December 15, 2003 100,000 100,000
Other 624 1,350
------- -------
Total long-term debt 205,645 211,848
Less current maturities (424) (709)
------- -------
Total long-term debt less current maturities $205,221 $211,139
======= =======
</TABLE>
Revolving Line of Credit
The revolving credit agreement was amended and restated in its entirety on
March 12, 1996. Among other things, the amendment and restatement (i)
extended the term of the facility 15 months to January 1998, (ii) reduced
the maximum borrowing limit $15 million to $130 million, (iii) modified
certain covenants, including changes to accommodate the Company's fourth
quarter 1995 restructuring charge, (iv) required the temporary addition of
approximately $12 million of real estate collateral and (v) required the
completion by July 31, 1996 of the receipt from Riverside Group, Inc. of
$10 million from the sale of equity securities of the Company.
Under the revolving line of credit, the Company may borrow against certain
levels of accounts receivable and inventory. Taking into account the March
12, 1996 amendment and restatement, the amount available for borrowing on
December 30, 1995 would have been $9.3 million. A commitment fee of 1/2 of
1% is payable on the unused portion of the commitment. The
weighted-average interest rate on the revolving line of credit for the
years ending December 30, 1995 and December 31, 1994 was approximately 8.8%
and 8.2%, respectively.
Substantially all of the Company's accounts receivable, inventory, general
intangibles and certain real estate, machinery and equipment are pledged as
collateral for the revolving line of credit. Covenants under the related
debt agreements require, among other restrictions, that the Company
maintain certain financial ratios and certain levels of consolidated net
worth. In addition, the debt agreement restricts among other things,
capital expenditures, the incurrence of additional debt, asset sales,
dividends, investments, and acquisitions.
Senior Subordinated Notes
On October 22, 1993, the Company issued $100,000,000 in principal amount of
10-year unsecured senior subordinated notes. Interest on the notes is 11-
5/8%, payable semi-annually. Covenants under the related indenture
restrict among other things, the payment of dividends, the prepayment of
certain debt, the incurrence of additional debt if certain financial ratios
are not met, and the sale of certain assets unless the proceeds are applied
to the notes. In addition, the notes require that, upon a change in
control of the Company, the Company must offer to purchase the notes at
101% of the principal thereof, plus accrued interest.
Aggregate Maturities
The aggregate amounts of long-term debt maturities by fiscal year are as
follows:
<TABLE>
<S> <C>
Year Amount
---- ------
(in thousands)
1996 $ 424
1997 130
1998 105,075
1999 16
2000 0
Thereafter 100,000
</TABLE>
8. Commitments and Contingencies
At December 30, 1995, the Company had accrued approximately $1,000,000 for
remediation of certain environmental and product liability matters,
principally underground storage tank removal.
Many of the building center facilities presently and formerly operated by
the Company and its predecessor contained underground petroleum storage
tanks. All such tanks known to the Company located on facilities owned or
operated by the Company have been filled, removed, or are scheduled to be
removed in accordance with applicable environmental laws in effect at the
time. As a result of reviews made in connection with the sale or possible
sale of certain facilities, the Company has found petroleum contamination
of soil and ground water on several of these sites and has taken, and
expects to take, remedial actions with respect thereto. In addition, it is
possible that similar contamination may exist on properties no longer owned
or operated by the Company the remediation of which the Company could under
certain circumstances be held responsible. Since 1988, the Company has
incurred approximately $ 2.1 million of costs with respect to the filling
or removing of underground storage tanks and related investigatory and
remedial actions.
In February 1994, the Company was notified that a stock certificate
representing 103,922 shares of Common Stock that had been previously
reported as lost and that had been reissued and transferred to an affiliate
of the Company may in fact not have been lost but instead previously
transferred by the original owner to a third party. In connection with the
reissuance of the allegedly lost stock certificate, the Company examined
its records, found no information concerning a possible prior transfer of
the stock certificate, and received an indemnity from the original owner.
If both transferees are determined to be bona fide purchasers, both may be
entitled to ownership of the 103,922 shares, which would result in a
corresponding increase in the number of outstanding shares of Common Stock.
In such a case, the Company believes it would be entitled to indemnity from
the original owner, which could be utilized to purchase and retire an
equivalent number of shares. If either of the purported transferees is
determined not to be a bona fide purchaser, its certificate would be
canceled. Litigation has been commenced in which, among other things, the
Company is seeking indemnity and a declaratory judgment concerning the
rights and obligations of the various parties and the original owner is
disputing its obligation to indemnify the Company.
At December 30, 1995, the Company's investment in RIC was $4.5 million.
This investment entails significant inherent risks, including
expropriation, legal, currency, crime, management, labor, weather and other
operational risks.
The Company is one of many defendants in 164 actions, each of which seeks
unspecified damages, brought in 1993, 1994 and 1995 in various Michigan
state courts against manufacturers and building material retailers by
individuals who claim to have suffered injuries from products containing
asbestos. All of the plaintiffs in these actions are represented by the
same counsel. The Company is aggressively defending these actions and does
not believe that these actions will have a material adverse effect on the
Company.
On November 3, 1995, a complaint was filed against the Company, its
directors and Riverside Group, Inc. seeking to enjoin or to obtain damages
with respect to the Company's agreement to issue two million newly-issued
shares of common stock to Riverside Group, Inc. for $10 million (see Note
9).
The Company is involved in various other legal proceedings which are
incidental to the conduct of its business. The Company does not believe
that any of these proceedings will have a material adverse effect on the
Company.
Leases
The Company has entered into operating leases for retail space, equipment
and other items. These leases provide for minimum rents. These leases
generally include options to renew for additional periods. Total minimum
rents under all operating leases were $10,501,000, $8,086,000, and
$5,482,000 for the years ended December 30, 1995, December 31, 1994, and
December 25, 1993, respectively.
Future minimum commitments for noncancelable operating leases are as
follows:
<TABLE>
<S> <C>
Year Amount
---- ------
(in thousands)
1996 $ 9,121
1997 6,895
1998 4,047
1999 2,872
2000 938
Thereafter 2,252
-------
Subtotal 26,125
Less: Sublease income (1,026)
-------
$25,099
=======
</TABLE>
9. Stockholders' Equity
The Company's Recapitalization Plan is discussed in Note 4.
Preferred Stock
As of December 30,1995 the Company had authorized 3,000,000 shares of
preferred stock, none of which is issued or outstanding.
Common Stock
The Company has two classes of common stock: Common Stock, par value $.01
per share, and Class B Non-Voting Common Stock, par value $.01 per share.
At December 30, 1995 there were 20,000,000 shares of Common Stock
authorized and 5,643,705 shares issued and outstanding, and there were
1,200,000 shares of Class B Non-Voting Common authorized and 499,768 shares
issued and outstanding. Class B Non-Voting Common Stock is generally
equivalent to Common Stock, except that shares of Class B Non-Voting Common
Stock may not be voted except on certain matters regarding merger,
consolidation, recapitalization and reorganization, and as otherwise
provided by law. Class B Non-Voting Common Stock is convertible into Common
Stock on a share-for-share basis in certain circumstances. In addition, at
December 30, 1995, 14,589 shares of Class A Voting Common Stock were
reserved for issuance under outstanding warrants.
Warrants
In 1989 and 1992, the Company issued warrants to certain members of its
management. These warrants would have become exercisable for up to 195,970
shares of Common Stock upon the date of determination of the Company's
attainment of certain levels of financial results. These warrants were
replaced during the Recapitalization Plan by the issuance of 162,975 shares
of Common Stock and warrants for 28,756 shares of Common Stock, exercisable
through April 29, 1998, at a nominal exercise price.
Stock Options
At December 30, 1995 and December 31, 1994, the Company had outstanding,
under its Director Incentive Plan, options held by members of the Company's
Board of Directors to purchase 16,335 and 16,002 shares of Common Stock,
respectively. These options have an exercise price of between $10.95 and
$23.25 per share; approximately 3,334 of the options were exercisable at
December 31, 1994, of which none were exercised during fiscal 1995.
Approximately 5,779 shares were exercisable at December 30, 1995.
In addition, at December 30, 1995 and December 31, 1994, the Company had
outstanding under its Long-Term Incentive Plan, options held by key
employees to purchase 430,351 and 270,213 shares of Common Stock,
respectively. These options have an exercise price of between $15.00 and
$18.50 per share; approximately 29,683 of the options were exercisable at
December 31, 1994, of which none were exercised during fiscal 1995.
Approximately 108,295 shares were exercisable at December 30, 1995.
Proposed Sale of Common Stock
On January 11, 1996, the Company entered into a definitive agreement with
Riverside Group, Inc. ("Riverside"), the Company's largest stockholder,
that provides for the acquisition by Riverside of 2 million newly-issued
shares of the Company's common stock for $10 million in cash. The
definitive agreement was approved and recommended by committees of each
company's independent directors. The sale is subject to the reorganization
or sale by Riverside of one of certain of its operations. The transaction
is expected to be completed prior to July 31, 1996.
10. Employee Benefit Plans
401(k) Plan
The Company sponsors a defined contribution 401(k) plan covering
substantially all of its full-time employees. Additionally, the Company
provides matching contributions up to a maximum of 2.5% of participating
employees' salaries and wages. Total expenses under the plan for the years
ended December 30, 1995, December 31, 1994, and December 25, 1993 were
$1,700,000, $2,625,000, and $2,167,000, respectively.
Postretirement Benefits Other than Pensions
The Company provides life and health care benefits to retired employees.
Generally, employees who have attained an age of 60, have rendered 10 years
of service and are currently enrolled in the medical benefit plan are
eligible for postretirement benefits. The Company accrues the estimated
cost of retiree benefit payments, other than pensions, during the
employees' active service period.
The plans' funded status is as follows:
<TABLE>
December 30, December 31,
1995 1994
---- ----
(in thousands)
<S> <C> <C>
Accumulated postretirement benefit obligation-
Retirees and their dependents $ 934 $ 866
Active employees fully eligible to retire
and receive benefits 531 298
Active employees not fully eligible 1,292 1,552
----- -----
Total accumulated postretirement benefit obligations 2,757 2,716
Plan's assets at fair value -0- -0-
----- -----
Accumulated postretirement benefit obligation in
excess of plans' assets 2,757 2,716
Unrecognized net loss (445) (611)
Accrued postretirement health care cost $ 2,312 $ 2,105
===== =====
</TABLE>
Actuarial assumptions used were as follows:
<TABLE>
December 30, December 31,
1995 1994
---- ----
(in thousands)
<S> <C> <C>
Projected health care costs trend rate 6.0% 9.4%
Ultimate trend rate 6.0% 5.5%
Year ultimate trend rate achieved n/a 2021
Effect of a 1% point increase in the health care
cost trend rate on the postretirement benefit
obligation $ 63 $ 119
Effect of a 1% point increase in the health care
cost trend rate on the aggregate of service and
interest cost $ 18 $ 25
Discount rate 7.25% 8.25%
</TABLE>
The Company's postretirement health care plan at December 25, 1993 was not
funded. The present value of accumulated postretirement benefits at
December 25, 1993 was $1,790,000. The assumed discount rate used in
determining the accumulated postretirement benefit obligation at December
25, 1993 was 6.63%.
Postemployment Benefits
The Company provides certain postemployment benefits to qualified former or
inactive employees who are not retirees. These benefits include salary
continuance, severance, and healthcare. Salary continuance and severance
pay is based on normal straight-line compensation and is calculated based
on years of service. Additional severance pay is granted to eligible
employees who are 40 years of age or older and have been employed by the
Company five or more years. The Company accrues the estimated cost of
benefits provided to former or inactive employees who have not yet retired
over the employees service period or as an expense at the date of the event
triggering the benefit. The Company incurred postemployment benefit
expense of $160,000 (exclusive of amounts included in its restructuring
liability) for the year ended December 30, 1995 (see Note 12). The total
postemployment benefits expense for the years ended December 31, 1994 and
December 25, 1993 was $2,000,000 and $53,000, respectively.
11. Income Taxes
The Company files a consolidated federal tax return with its wholly-owned
subsidiaries. As of December 30, 1995, the Company has net operating loss
carryforwards available to offset future U.S. income of approximately $25.3
million expiring in the years 2004 through 2010; and $1.5 million of
capital loss carryforwards which expire in the years 1997 through 2000.
The completion of the Recapitalization Plan, as discussed in Note 4,
created an "ownership change" as defined by Section 382 of the Internal
Revenue Code of 1986, as amended. As a result of this, certain of the loss
carryforwards of the Company are subject to an annual limitation of
approximately $2.6 million a year. Due to the inherent tax gain in the
assets owned by the Company at the time of the ownership change, the annual
limitation on use of the loss carryforwards will be increased by the amount
of the gains as they are recognized. To the extent that the 1995 loss
carryforward limitation as increased for gains recognized was not utilized
in 1995, the annual limitation for 1996 will be increased. The Company has
reviewed its valuation allowance for deferred tax assets, the inherent tax
gain in the assets owned by the Company at the time of the ownership
change, and their net operating loss availability. As a result, the
Company anticipates an additional increase to the annual limitation on
utilization of loss carryforwards in 1996 of approximately $1.3 million as
a result of gains recognized during the year. This amount is subject to
further review by the Internal Revenue Service. An additional loss
carryforward of $11.2 million was generated during 1995. This amount will
be available without limitations, to offset taxable income in future
periods and will expire in 2010.
Tax provisions and credits are recorded at statutory rates for taxable
items included in the consolidated statements of operations regardless of
the period for which such items are reported for tax purposes. Deferred
income taxes were recorded to reflect changes in temporary differences
between the financial reporting basis and the tax basis of the company's
assets and liabilities. These amounts are expected to be recognized in
future periods . A deferred tax benefit of $11.8 million was recorded in
1995. The benefit in the current year was mainly due to differences in the
restructuring liability, allowance for doubtful accounts, net operating
loss carryover, intangible asset amortization and utilization of prior year
capital loss carryovers. As a result of recognizing the deferred tax
benefit in 1995, the Company anticipates their provision for taxes in
subsequent years will reflect a normal statutory rate adjusted for state
taxes. The Company continues to record a valuation allowance with respect
to the future tax benefits of capital losses reflected in deferred income
taxes as a result of the uncertainty of their ultimate realization due to
restrictions placed on their usage. Significant components of the
Company's deferred tax assets and liabilities, and their related tax
effects, as of December 30, 1995 and December 31, 1994 are as follows:
<TABLE>
1995 1994
---- ----
(in thousands)
<S> <C> <C>
Trade accounts receivable $ 3,193 $ 1,816
Inventories 2,446 3,252
Accrued personnel cost 1,850 2,153
Other accrued liabilities 12,042 8,718
Net operating loss 9,856 5,640
Other 1,399 2,003
------ ------
Total deferred tax assets 30,786 23,582
Less: valuation allowance (1,350) (3,421)
------ ------
Net deferred tax assets 29,436 20,161
------ ------
Property, plant and equipment 1,906 5,094
Goodwill and trademark 1,348 690
Other accrued income items 26 17
------ ------
Total deferred tax liabilities 3,280 5,801
------ ------
Net deferred tax asset $ 26,156 $ 14,360
====== ======
</TABLE>
Income tax expense including applicable tax on extraordinary gain, consists
of the following components:
<TABLE>
1995 1994 1993
---- ---- ----
(in thousands)
<S> <C> <C> <C>
Current: Charge to operations $ 1,353 $ 1,660 $ 1,227
Charge to extraordinary item - - 193
Deferred benefit (11,796) (14,360) -
-------- -------- -------
Total income tax expense (benefit) $ (10,443) $ (12,700) $ 1,420
======== ======== =======
</TABLE>
Provision for income taxes on income differs from expected tax expense
computed by applying the Federal corporate tax rate of 35% in 1995, 34% in
1994 and 1993 as follows:
<TABLE>
1995 1994 1993
---- ---- ----
(in thousands)
<S> <C> <C> <C>
Taxes (benefit) computed at
statutory rate $ (9,115) $ 5,220 $ 3,687
State tax expense 894 891 1,036
Alternative minimum tax rate differential - 310 384
Current and deferred benefit of capital loss (utilized) - (2) (373)
Current benefit of deferred tax asset - (14,360) -
Other (151) 148 -
Change in valuation allowance for deferred tax asset (2071) - -
Current and deferred benefit of NOL
carried forward (utilized) - (4,907) (3,314)
------- ------ -------
Total tax provision $(10,443) $(12,700) $ 1,420
======= ======= =======
</TABLE>
Deferred tax expense results from temporary differences in the recognition
of certain items of revenue and expense for tax and financial reporting
purposes. The sources of these differences and the tax effect of each were
as follows:
<TABLE>
1995 1994
---- ----
(in thousands)
<S> <C> <C>
Change in bad debt reserve $ 1,377 $ 631
Differences in tax and book inventory (806) (47)
Settlement of deferred compensation (303) 309
Change in accrued liabilities 3,324 2,548
Utilization of NOL 4,216 (7,474)
AMT credit and capital loss carryforward (604) 993
Differences in tax and book asset basis 3,188 (2,909)
Differences in tax and book basis in intangibles (658) (690)
Extinguishment of debt - -
Change in accrued income items (9) 34
Change in valuation allowance for
deferred tax assets 2,071 20,965
------ ------
Deferred tax benefit $ 11,796 $ 14,360
====== ======
</TABLE>
12. Restructuring and Unusual Charges
During the fourth quarter of 1995, the Company committed to and began
implementing a restructuring plan to improve return on assets by closing or
consolidating under-performing operating centers, decreasing the
corresponding overhead to support these building centers, and initiating
actions to strengthen its capital structure. Management anticipates
completion of the plan in 1996. The costs for closing these building
material centers were based on management estimates of costs to exit these
markets and actual historical experience. The Company recorded a $17.8
million charge relating to its strategic restructuring program and other
one time costs which are reflected in the Company's Consolidated Statements
of Operations as restructuring and unusual items. The restructuring
charge includes $12.6 million in anticipated losses on the disposition of
closed center assets and liabilities and $2.2 million in severance and
postemployment benefits.
The major components of this charge include the write-down of assets to
their net realizable value, liabilities associated with closed building
centers held for sale, postemployment benefits to qualified former
employees as a result of the center closings, and other charges related to
the strengthening of the Company's capital structure. Also included is a
charge for unusual employment related claims expensed in the fourth quarter
of 1995.
13. Fair Value of Financial Instruments
In accordance with SFAS No. 107, "Disclosures About Fair Value of Financial
Instruments," information has been provided about the fair value of certain
financial instruments. The following methods and assumptions were used to
estimate the fair value of each material class of financial instruments
covered by the Statement for which it is practicable to estimate that
value:
Long-Term Debt
The fair value of the Company's long-term debt is estimated based on the
quoted market prices for the same or similar issues or on the current rates
offered to the Company for debt of the same remaining maturities. The
estimated fair values of the Company's material financial instruments at
December 30, 1995 and December 31, 1994 are as follows:
<TABLE>
Fair Carrying
Value Value
----- -----
(in thousands)
<S> <C> <C>
1995 Financial Liabilities:
Long-term Debt
Revolver $105,021 $105,021
Senior Subordinated Notes 68,000 100,000
1994 Financial Liabilities:
Long-term Debt
Revolver $110,498 $110,498
Senior Subordinated Notes 97,380 100,000
</TABLE>
14. Related Party Transactions
In September 1992, the Company began efforts to determine the feasibility
of obtaining lumber from the former Soviet Republics. In March 1993, the
Company determined to enter into a test arrangement that required the
approval of one of its former lenders. This former lender declined to
grant its approval but permitted the Company's participation, on a test
basis, in an arrangement pursuant to which an affiliate of the Company,
formed for the purpose, imported in December 1993 a load of rough sawn
goods, which the Company acquired upon arrival in the United States and
milled into common finishing boards and moulding. On July 31, 1994, the
Company acquired the affiliate that imported the test load, Riverside
International Corporation, from the Riverside Group, Inc., the Company's
largest stockholder, for $895,000. The acquisition was accounted for as a
purchase and ended the related party relationship. In December 1995,
voting rights to 66 2/3% of RIC's voting stock were assigned to Riverside
Group, Inc. In addition, Riverside Group, Inc. obtained the right, during
1996, to acquire up to $5 million of RIC's non-voting common stock, at the
then fair market value.
In 1995, the Company paid approximately $613,000 in reimbursements to an
affiliate of the Company's chairman and to third parties for costs related
to services provided to the Company during 1995 by certain employees of the
affiliated company and use of a corporate aircraft. Total payments in 1994
and 1993 for similar services were approximately $810,000 and $860,000,
respectively.
The Chairman and certain directors of the Company, as well as an affiliated
company, own in the aggregate a majority of the voting securities of a
private manufacturer of glass products, wooden stair parts and other
building materials that supplies products, primarily through independent
distributors, to the Company. The Chairman of the Company also is chairman
of the board, president and chief executive officer, and one of the
Company's directors is a director and officer, of this manufacturer.
During 1995, the Company estimates that it purchased approximately
$1,423,000 of this manufacturer's products at prices generally available
from the third party distributors from which the products were obtained.
This compares with $2,086,000 and $1,500,000 of similar products purchased
in 1994 and 1993, respectively.
A certain director and executive officer of the Company, is a shareholder
of the law firm that is general counsel to the Company. The Company paid
this firm $394,000, $623,000, and $518,000 for legal services provided to
the Company during 1995, 1994, and 1993, respectively.
For a description of the proposed sale of 2 million newly-issued shares by
the Company to Riverside Group, Inc., see Note 9.
15. Computation of Earnings Per Common Share-Historical Basis
The earnings per common and common equivalent share, computed on a
historical basis for fiscal year 1993, less redeemable preferred stock
dividends is presented below to comply with the provisions of Accounting
Principles Board Opinion No. 15:
<TABLE>
Year Ended
December 25,
1993
----
<S> <C>
Income (loss) before extraordinary gain
and cumulative effect of accounting change $ 2.12
Extraordinary gain .43
Cumulative effect of accounting change -
----
Net income (loss) $ 2.55
====
Weighted average common
and common equivalent shares 2,871,091
=========
</TABLE>
16. Subsequent Event
On February 21, 1996, the Company and its RIC subsidiary entered into an
agreement with two investment funds. Pursuant to this agreement, the two
funds are each to invest $5 million in this subsidiary and are each to
receive a 25% equity interest, with the Company retaining an interest
slightly less than 50% and the subsidiary's management receiving the
balance of the equity. A total of $4 million of the funds' investment has
been advanced to the subsidiary as a loan, which is to be converted to
equity upon funding of the remaining $6 million, which is to occur upon
satisfaction of certain conditions, including among other things the
resolution of certain legal matters and the achieving of specified
operational levels.
The sale of RIC stock to the investment funds will be recorded on the
books of RIC as an issuance of authorized but unissued capital stock. The
impact of this stock issue to the Company's consolidated financial
statements will be a reduction in the percent of future RIC
earnings/(losses) reported under "Equity in earnings/(loss) of affiliated
company", from 100% to slightly less than 50%.
WICKES LUMBER COMPANY AND SUBSIDIARIES
Schedule II-Valuation and Qualifying Accounts
For the Years Ended December 30, 1995, December 31, 1994, and December 25, 1993
(dollars in thousands)
<TABLE>
<CAPTION>
Col. A Col. B Col. C Col. D Col. E
Additions
(1) (2)
Balance at Charged to Charged to Balance at
Beginning Costs and Other accounts End of
Description of Period Expenses Deductions Period
(a) (b) (c)
<S> <C> <C> <C> <C> <C>
1995:
Allowance for doubtful accounts $4,657 $6,482 $2,931 $8,208
1994:
Allowance for doubtful accounts $3,039 $2,457 $634 $1,473 $4,657
1993:
Allowance for doubtful accounts $2,439 $1,942 $1,342 $3,039
<S>
(a) Net of reserved and collected accounts.
(b) Bad debt allowance related to acquisitions and recorded as a reduction to the purchase price.
(c) Reserved accounts written-off.
</TABLE>
