SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File
For the Quarterly Period Ended September 28, 1996 Number 0-22468
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WICKES LUMBER COMPANY
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(Exact name of registrant as specified in its charter)
Delaware 36-3554758
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
706 North Deerpath Drive, Vernon Hills, Illinois 60061
- ------------------------------------------------ -----
(Address of principal executive offices) (Zip Code)
847-367-3400
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act
of 1934 during the preceding 12 months, and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
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As of November 1, 1996, the Registrant had 7,656,106 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.
WICKES LUMBER COMPANY AND SUBSIDIARIES
INDEX
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Page
Number
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
September 28, 1996 (Unaudited) and
December 30, 1995 3
Condensed Consolidated Statements of Operations
For the three months and nine months ended
September 28, 1996 and September 30, 1995 (Unaudited) 4
Condensed Consolidated Statements of Cash Flows
For the nine months ended September 28, 1996
and September 30, 1995 (Unaudited) 5
Notes to Condensed Consolidated
Financial Statements (Unaudited) 6
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
PART II. OTHER INFORMATION
Item 5. Other Information 18
Item 6. Exhibits and Reports on Form 8-K 18
<TABLE>
WICKES LUMBER COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(in thousands except share data)
<CAPTION>
September December
28, 30,
ASSETS 1996 1995
---- ----
<S> <C> <C>
Current assets:
Cash $ 2,274 $ 87
Accounts receivable, less allowance for doubtful
accounts of $5,114 in 1996 and $8,208 in 1995 91,167 81,792
Inventory 108,475 110,639
Deferred tax asset 25,906 25,906
Prepaid expenses 2,293 1,051
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Total current assets 230,115 219,475
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Property, plant and equipment, net 51,582 56,545
Trademark (net of accumulated amortization of
$9,996 in 1996 and $9,830 in 1995) 7,004 7,170
Deferred tax asset 250 250
Other assets (net of accumulated amortization of
$6,025 in 1996 and $4,464 in 1995) 16,301 19,075
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305,252 302,515
======= =======
LIABILITIES & STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt $ 156 $ 424
Accounts payable 54,136 41,457
Accrued liabilities 35,424 37,972
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Total current liabilities 89,716 79,853
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Long-term debt, less current maturities 189,469 205,221
Other long-term liabilities 2,539 2,312
Commitments and contingencies (Note 5)
Common stockholders' equity:
Common stock, par value $.01 (8,155,874 and 6,143,473 shares
issued and outstanding in 1996 and 1995, respectively) 82 61
Additional paid-in capital 86,600 76,772
Accumulated deficit (63,154) (61,704)
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23,528 15,129
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Total common stockholders' equity 305,252 302,515
======= =======
The accompanying notes are an integral part of the Condensed Consolidated Financial Statements.
</TABLE>
<TABLE>
WICKES LUMBER COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(in thousands except share and per share data)
<CAPTION>
Three Months Ended Nine Months Ended
------------------------ --------------------------
June 29, July 1, June 29, July 1,
1996 1995 1996 1995
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net sales $ 484,348 $ 557,279 $ 636,856 $ 748,983
Cost of sales 377,682 430,480 495,260 576,627
--------- --------- --------- ---------
Gross profit 106,666 126,799 141,596 172,356
--------- --------- --------- ---------
Selling, general and administrative expenses 84,935 101,906 121,984 148,795
Depreciation, goodwill and trademark amortization 2,634 3,055 4,066 4,481
Other operating income (3,011) (3,318) (3,899) (4,384)
--------- --------- --------- ---------
84,558 101,643 122,151 148,892
--------- --------- --------- ---------
Income from operations 22,108 25,156 19,445 23,464
Interest expense 10,941 12,399 16,647 18,366
Equity in loss of affiliated company 1,194 - 2,252 -
--------- --------- --------- ---------
Income/(loss) before provision for income taxes 9,973 12,757 546 5,098
Provision for income taxes 4,152 2,911 899 (132)
Minority interest in subsidiaries - (141) - (159)
--------- --------- --------- ---------
Net Income/(loss) $ 5,821 $ 9,987 $ (353) $ 5,389
========= ========= ========= =========
Income/(loss) per common share $ 0.71 $ 1.62 $ (0.05) $ 0.88
========= ========= ========= =========
Weighted average common shares outstanding 8,166,529 6,156,049 6,903,047 6,149,707
========= ========= ========= =========
The accompanying notes are an integral part of the the Condensed Consolidated Financial Statements.
</TABLE>
<TABLE>
WICKES LUMBER COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(in thousands)
<CAPTION>
Nine Months Ended
--------------------------
Sept. 28, Sept. 30,
1996 1995
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<S> <C> <C>
Cash flows from operating activities:
Net loss $ (1,450) $ (201)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation expense 3,720 4,095
Amortization of trademark 166 166
Amortization of goodwill 180 220
Amortization of deferred financing and other intangibles 1,340 1,499
Provision for doubtful accounts 1,097 5,590
Minority interest - (159)
Gain on sale of assets (418) (96)
Changes in assets and liabilities (net of effects
from acquisitions):
Increase in accounts receivable (10,472) (15,843)
Decrease in inventory 2,164 7,355
Increase in accounts payable and
accrued liabilities 10,444 12,244
(Increase)/decrease in prepaid expense and other assets 12 (3,073)
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NET CASH PROVIDED BY OPERATING ACTIVITIES 6,783 11,797
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Cash flows from investing activities:
Purchases of property, plant and equipment (2,550) (6,717)
Payments for acquisitions - (11,851)
Proceeds from sales of property, plant and equipment 4,125 780
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NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 1,575 (17,788)
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Cash flows from financing activities:
Net borrowing (repayment) under revolving line of credit (15,752) 8,418
Reductions of notes payable (268) (547)
Issuance of common stock 21 -
Proceeds from issuance of common stock 9,828 571
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NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (6,171) 8,442
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NET INCREASE IN CASH 2,187 2,451
Cash at beginning of period 87 2,037
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CASH AT END OF PERIOD $ 2,274 $ 4,488
======= =======
Supplemental schedule of cash flow information:
Interest paid $ 12,549 $ 14,449
Income taxes paid 661 1,498
Supplemental schedule of non-cash investing and financing activities:
The Company purchased assets in conjunction with acquisitions made during the
period. In connection with these acquisitions, liabilities were assumed as follows:
Fair value of assets acquired $ - $ 16,984
Cash paid - 11,851
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Liabilities assumed $ - $ 5,133
======= =======
The accompanying notes are an integral part of the Condensed Consolidated Financial Statements.
</TABLE>
WICKES LUMBER COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
------------------------------------------
Basis of Financial Statement Presentation
-----------------------------------------
The condensed 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 Riverside International Corporation ("RIC"), the investment in
which is accounted for in 1996 under the equity method. In the first three
quarters of 1995, RIC was reported on a consolidated basis. See note 4.
Riverside International Corporation.
The condensed consolidated balance sheet as of September 28, 1996, the
condensed consolidated statements of operations for the three-month and
nine-month periods ended September 28, 1996 and September 30, 1995, and the
condensed consolidated statements of cash flows for the nine-month period
ended September 28, 1996 and September 30, 1995 have been prepared by the
Company without audit. In the opinion of management, all adjustments (which
include only normal recurring adjustments) necessary to present fairly the
financial position, results of operations and cash flows at September 28,
1996 and for all periods presented have been made. The results for the nine-
month periods ended September 28, 1996 and September 30, 1995 are not
necessarily indicative of the results to be expected for the full year or
for any interim period.
The year-end condensed consolidated balance sheet data was derived from
audited financial statements, but does not include all disclosures required
by generally accepted accounting principles. Certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been
condensed or omitted. It is suggested that these condensed consolidated
financial statements be read in conjunction with the financial statements
and notes thereto included in the Company's Annual Report on Form 10-K for
the year ended December 30, 1995, as amended by Amendments No. 1 and 2 (the
"1995 Form 10-K"), filed with the Securities and Exchange Commission.
Share Data
----------
On June 20, 1996 the Company sold 2,000,000 newly-issued shares of
Common Stock to Riverside Group, Inc. This event was disclosed in a Form 8-
K , filed on June 27, 1996 and amended on Form 8-K/A filed on July 24,
1996. The Company also issued 8,566 shares of Common Stock to members of
its board of directors as compensation during the nine-months ended
September 28, 1996. In addition, warrants held by present and former
management employees of the Company were exercised for 3,835 shares of
Common Stock during this same period.
2. LONG-TERM DEBT
--------------
Long-term debt is comprised of the following at September 28, 1996 (in
thousands):
<TABLE>
<S> <C>
Revolving line of credit $ 89,380
Senior subordinated notes 100,000
Other 245
Less current maturities (156)
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Total long-term debt $ 189,469
=======
</TABLE>
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 and (iii) modified
certain covenants, including changes to accommodate the Company's fourth
quarter 1995 restructuring charge.
Under the revolving line of credit, the Company may borrow against
certain levels of accounts receivable and inventory. The unused amount
available for borrowing, at September 28, 1996 was $35.6 million.
3. INCOME TAXES
------------
The provision for income taxes for the nine-month period ended September
28, 1996 was $.9 million, compared to a benefit of $.1 million for the nine-
month period ended September 30, 1995. An effective federal income tax
rate of 38.5% was used to calculate federal income taxes for the first nine
months of 1996, compared with an effective rate of 39.7% for the first nine
months of 1995. In addition to the effective federal tax rate used for
1996, state income and franchise taxes were calculated separately and are
included in the provision reported.
4. RIVERSIDE INTERNATIONAL CORPORATION
-----------------------------------
On February 21, 1996, the Company and RIC entered into an agreement with
two investment funds. Pursuant to this agreement, the two investment funds
each invested $5 million in RIC and each received a 25% equity interest,
with the Company retaining an interest slightly less than 50% and
management receiving the balance of the equity.
$6 million of the total $10 million invested in RIC by the two
investment funds was advanced as loans to RIC during the first two quarters
of 1996 pending satisfaction of certain conditions. On October 1, 1996,
(i) RIC contributed all of its assets and liabilities to a newly-formed
limited liability company, Riverside International, L.L.C. and (ii) the two
investment funds completed the transaction by investing an additional $4
million in total in Riverside International, L.L.C. and by converting their
loans to equity in Riverside International, L.L.C. As a result of this
transaction, RIC remains a more than 90% owned subsidiary of the Company,
and Riverside International, L.L.C. is owned 50% by RIC and 50% by the two
investment funds.
As of September 28, 1996, RIC has controlling interests in two companies
engaged in lumber-related businesses in Russia. The investment in RIC is
recorded under the equity method.
5. COMMITMENTS AND CONTINGENCIES
-----------------------------
At September 28, 1996, the Company had accrued approximately $1.0
million (included in accrued liabilities at September 28, 1996) 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, net of recoveries, 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 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 September 28, 1996, the Company's investment in RIC was $2.3 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 approximately 140 actions, each
of which seeks unspecified damages, brought since 1993, 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.
In the opinion of management, the potential liability in excess of
amounts accrued for the above matters would not materially affect its
financial condition or results of operations. The Company's assessment of
the contingencies described in this note and other forward-looking
statements in this Form 10-Q are made pursuant to the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995
("Forward-Looking Information") and is inherently subject to uncertainty.
The outcome of the contingencies described in this note may differ from
the Company's assessment of these matters as a result of a number of
factors including but not limited to: matters unknown to the Company at
the present time, development of losses materially different from the
Company's experience to date and the unpredictability of matters in
litigation.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
---------------------------------------------------------------
RESULTS OF OPERATIONS
---------------------
The following discussion should be read in conjunction with the
Condensed Consolidated Financial Statements and Notes thereto contained
elsewhere herein and in conjunction with the Consolidated Financial
Statements and Notes thereto and Management's Discussion and Analysis of
Financial Condition and Results of Operations contained in the Company's
Annual Report on Form 10-K for the year ended December 30, 1995, as amended
by Amendments No. 1 and 2.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the
percentage relationship to net sales of certain expense and income items.
This information includes the results from all building centers and
component manufacturing facilities operated by the Company, including those
subsequently closed or sold.
<TABLE>
Three Months Ended Nine Months Ended
------------------ -----------------
September September September September
28, 1996 30, 1995 28, 1996 30, 1995
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0%
Gross profit 21.7% 22.1% 22.2% 23.0%
Selling, general and
administrative expense 17.3% 18.2% 19.1% 19.9%
Depreciation, goodwill and
trademark amortization 0.5% 0.6% 0.6% 0.6%
Provision for doubtful accounts 0.1% 0.5% 0.2% 0.7%
Other operating income (0.5)% (0.5)% (0.6)% (0.6)%
Income from operations 4.3% 3.3% 2.9% 2.4%
</TABLE>
Net Earnings
- ------------
Net income(loss) was $2,843,000 and $(1,450,000) for the three months
and nine months ended September 28, 1996, respectively, compared with
$1,927,000 and $(201,000) for the three months and nine months ended
September 30, 1995. The increase for the three-month period primarily
results from lower selling, general and administrative expenses ("SG&A")
and a reduction in the provision for doubtful accounts, which more than
offsets the decrease in sales and gross profit.
Three Months Ended September 28, 1996 Compared
----------------------------------------------
with the Three Months Ended September 30, 1995
----------------------------------------------
Net Sales
- ---------
Net sales for the third quarter of 1996 decreased 10.2% to $255.6
million from $284.5 million for the third quarter of 1995. Same store sales
declined 4.3% compared with the same period last year. The Company
believes that the decrease in same store sales is primarily attributable to
a slowdown in residential construction and an 18.8% reduction in sales
staff. The Company estimates that inflation in lumber prices accounted for
an increase in total sales of approximately $8.2 million for the quarter,
compared with the 1995 comparable period. Same store sales to the
Company's primary customers, residential and commercial builders, declined
only 0.3% when compared with the third quarter of 1995. The Company's
program to reduce the number of under-performing building centers was also
a major cause of the 1996 sales decline compared with 1995. As of October
28, 1996 the Company operated 110 building centers, 14 fewer than at the
end of the third quarter of 1995.
Gross Profit
- ------------
1996 third quarter gross profit decreased to $55.5 million from $62.9
million for the third quarter of 1995, a 11.8% decrease. Gross profit as a
percent of sales decreased to 21.7% for the third quarter of 1996 from
22.1% in 1995. The decline in gross profit as a percent of sales is
primarily attributable to the Company's continued emphasis on sales to the
professional builder, resulting in an increase in the portion of the
Company's sales comprised of lower margin commodity products. Sales to the
professional builder, as a percent of total sales, increased to 83.1% for
the third quarter of 1996 from 81.0% for the same period in 1995.
Selling, General and Administrative Expense
- -------------------------------------------
SG&A expense decreased to 17.3% of net sales in the third quarter of
1996 compared with 18.2% of net sales in the third quarter of 1995. The
Company was able to reduce its total SG&A expense by 14.9%, which is
proportionately greater than the 10.2% sales decline for the third quarter,
as a result of center closings and several cost reduction initiatives
implemented since mid-1994.
Total salaries, wages and employee benefits decreased, as a percent of
sales, by 0.6%. As of September 28, 1996, the Company had 3,876 full time
and part time employees, down 13.0% from September 1995. In addition,
during the third quarter the Company recognized approximately $700,000 in
recoveries from its casualty insurance carrier for positive claims
experience prior to 1994.
Depreciation, Goodwill and Trademark Amortization
- -------------------------------------------------
Depreciation, goodwill and trademark amortization decreased to $1.3
million for the third quarter of 1996 compared with $1.6 million for the
same period in 1995. This decrease is primarily due to the sale or
disposal of excess facilities and equipment since June of 1995.
Provision for Doubtful Accounts
- -------------------------------
Provision for doubtful accounts decreased to $0.3 million or 0.1 % of
sales for the third quarter of 1996 compared with $1.6 million or 0.5% of
sales for the same period in 1995. This decrease is the result of a more
selective customer base and improved credit policies at centers acquired
since 1994 and increased efforts in collecting previously reserved accounts
receivable.
Other Operating Income
- ----------------------
Other operating income for the third quarter 1996 was $1.4 million.
This was relatively unchanged, as a percent of sales, when compared with
the $1.5 million recorded for the same period in 1995.
Interest Expense
- ----------------
In the third quarter of 1996 interest expense decreased 11.8% to $5.5
million from $6.2 million in the third quarter of 1995. This reduction
reflects a $30.9 million decrease in average borrowings on the Company's
revolving credit facility resulting primarily from the closing of building
centers in December 1995 and $9.8 million in net proceeds from the
Company's issuance of 2 million shares of its common stock in June 1996.
The effective borrowing rate on total long term debt for the third quarter
increased 46 basis points from the third quarter of 1995. Approximately
96% of the Company's third quarter average borrowings on its revolving
credit facility were LIBOR-based.
Equity in Loss of Affiliated Company
- ------------------------------------
In the third quarter of 1996, the Company recorded a loss of $0.3
million, under the equity method, with respect to its investment in its
affiliate engaged in operations in Russia. In the third quarter of 1995
the Company recorded a loss of $0.7 million, on a consolidated basis, with
respect to this affiliate. See Note 4 of "Notes to Condensed Consolidated
Financial Statements" included elsewhere herein.
Provision for Income Taxes
- --------------------------
The Company recorded an income tax expense of $2.4 million for the third
quarter of 1996 compared with $1.3 million in the third quarter of 1995.
An effective federal income tax rate of 38.5% was used to calculate federal
income taxes for the third quarter of 1996, compared with an effective rate
of 39.7% for the third quarter of 1995. In addition to the effective
federal tax rate used, state income and franchise taxes were calculated
separately and are included in the expense reported for 1996.
The Company continues to review future earnings projections to determine
that there is sufficient support for its deferred tax assets and valuation
allowance. In spite of the losses incurred during 1995, management
believes that it is more likely than not that the Company will receive full
benefit of its deferred tax asset and that the valuation allowance is
properly stated. This assessment constitutes Forward-Looking Information
and is inherently subject to uncertainty and dependent upon the Company's
future profitability, which in turn depends upon a number of important risk
factors including but not limited to: the effectiveness of the Company's
operational efforts, cyclicality and seasonality of the Company's business,
the effects of the Company's substantial leverage and competition.
Nine Months Ended September 28, 1996 Compared
---------------------------------------------
with the Nine Months Ended September 30, 1995
---------------------------------------------
Net Sales
- ---------
Net sales for the first nine months of 1996 decreased 15.0% to $636.9
million from $749.0 million for the first nine months of 1995. Same store
sales declined 8.8% compared with the same period last year. The Company
believes that the decrease in same store sales is primarily attributable to
a slowdown in residential construction, severe weather conditions in the
first quarter, and a 18.9% decrease in same store sales staff. The Company
estimates that deflation in lumber prices, which adversely affected the
Company during the first half of 1996, had a negligible effect on sales for
the nine-month period. Same store sales to the Company's primary
customers, residential and commercial builders, declined only 2.2% when
compared with the first nine months of 1995. The Company's program to
reduce the number of under-performing building centers was also a major
cause of the 1996 sales decline compared with 1995. As of October 28, 1996
the Company operated 110 building centers, 14 fewer than at the end of the
third quarter of 1995.
Gross Profit
- ------------
1996 nine months gross profit decreased to $141.6 million from $172.4
million for the nine months of 1995, a 17.8% decrease. Gross profit as a
percent of sales decreased to 22.2% of sales for the first nine months of
1996 from 23.0% in 1995. The decline in gross profit as a percent of sales
is primarily attributable to the Company's continued emphasis on sales to
the professional builder, resulting in an increase in the portion of the
Company's sales comprised of lower margin commodity products, and to a
lesser extent a program to reduce the amount of excess and slow-moving
inventory. During the first nine months of 1996, the percent of Company
sales attributable to professional builders increased to 84.4% from 80.9%
in the first nine months of 1995.
Selling, General and Administrative Expense
- -------------------------------------------
SG&A expense decreased to 19.1% of net sales in the first nine months of
1996 compared with 19.9% of net sales in the first nine months of 1995.
The Company was able to reduce its total SG&A expense by 18.0%, which is
proportionately greater than the 15.0% total sales decline for the first
nine months, as a result of center closings and several cost reduction
initiatives implemented since mid 1994.
Total salaries, wages and employee benefits decreased, as a percent of
sales, by 0.6%. In addition, during the first nine months of 1996 the
Company recognized approximately $1.0 million in recoveries from its
casualty insurance carrier for positive claims experience prior to 1994.
Depreciation, Goodwill and Trademark Amortization
- -------------------------------------------------
Depreciation, goodwill and trademark amortization decreased to $4.1
million in the first nine months of 1996 from $4.5 million in the first
half of 1995. This decrease is primarily due to the sale or disposal of
excess facilities and equipment since January of 1995.
Provision for Doubtful Accounts
- -------------------------------
Provision for doubtful accounts decreased to $1.1 million or 0.2 % of
sales for the first nine months of 1996 from $5.6 million or 0.7% of sales
in the first nine months of 1995. This decrease is the result of a more
selective customer base and improved credit policies at centers acquired
since 1994 and increased efforts in collecting previously reserved accounts
receivable. The improved collection efforts in 1996 are more consistent
with the Companies historical credit collection performance.
Other Operating Income
- ----------------------
Other operating income for the first nine months of 1996 was $3.9
million. This was relatively unchanged, as a percent of sales, when
compared with the $4.4 million recorded for the same period in 1995.
Interest Expense
- ----------------
In the first nine months of 1996 interest expense decreased 9.4% to
$16.6 million from $18.4 million in the first nine months of 1995. This
reduction reflects a $25.1 million decrease in average borrowings on the
Company's revolving credit facility resulting primarily from the closing of
building centers in December 1995 and $9.8 million in net proceeds from the
Company's issuance of 2 million shares of its common stock in June 1996.
The effective borrowing rate on total long term debt for the first nine
months increased 30 basis points from the first nine months of 1995.
Approximately 94% of the Company's 1996 year-to-date average borrowings on
its revolving credit facility were LIBOR-based.
Equity in Loss of Affiliated Company
- ------------------------------------
In the first nine months of 1996, the Company recorded a loss of $2.3
million, under the equity method, with respect to its investment in its
affiliate engaged in operations in Russia. In the first nine months of
1995 the Company recorded a loss of $1.5 million, on a consolidated basis,
with respect to this affiliate. See Note 4 of "Notes to Condensed
Consolidated Financial Statements" included elsewhere herein.
Provision for Income Taxes
- --------------------------
The Company recorded an income tax expense of $0.9 million for the first
nine months of 1996 compared with a benefit of $0.1 million in the first
nine months of 1995. An effective federal income tax rate of 38.5% was used
to calculate federal income taxes for the first nine months of 1996,
compared with an effective rate of 39.7% for the first nine months of 1995.
In addition to the effective federal tax rate used, state income and
franchise taxes were calculated separately and are included in the expense
reported for 1996.
The Company continues to review future earnings projections to determine
that there is sufficient support for its deferred tax assets and valuation
allowance. In spite of the losses incurred during 1995, management
believes that it is more likely than not that the Company will receive full
benefit of its deferred tax asset and that the valuation allowance is
properly stated. This assessment constitutes Forward-Looking Information
and is inherently subject to uncertainty as the result of factors, among
others, described under the discussion above of "Provision for Income
Taxes" for the third quarter.
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 the nine-month period of each of 1996 and 1995 the Company has been
able to generate positive net cash provided by operating activities, $6.8
million and $11.8 million respectively. With the peak building season
historically occurring in the second and third quarters, the Company
normally experiences increases in its accounts receivable and inventory
levels during the first quarter to meet the anticipated increase in sales
and in the second quarter as a result of increased sales activity. In the
first three months of 1996, however, operating activities generated a
positive cash flow as the Company made significant reductions in its
working capital, primarily as a result of building center closings begun in
late December, 1995 as part of the Company's restructuring plan. The third
quarter traditionally provides cash through operating income and reductions
in inventory as the Company begins its seasonal adjustments, this held true
for 1996.
The Company's accounts receivable balance at the end of the third
quarter of 1996 decreased $16.7 million when compared to the third quarter
of 1995, a decrease of 15.5%. Approximately $7.0 million of this decrease
is attributable to accounts receivable from building material centers
closed in 1995. The remainder of the decrease is primarily a result of
reduced sales for 1996 when compared with 1995 and improved collections at
recently acquired building centers.
Inventory at the end of the third quarter of 1996 was $15.5 million, or
12.5%, lower than at the end of the third quarter of 1995. Approximately
$10.8 million of this reduction is attributable to inventory disposed from
building centers closed in 1995. The Company's inventory control processes
are primarily responsible for the remainder of the inventory reduction.
On June 20, 1996, the Company sold to Riverside Group, Inc. 2 million
newly-issued shares of the Company's common stock for $10 million in cash.
In accordance with the terms of the Company's revolving credit agreement,
upon completion of this transaction certain real estate was released as
collateral required under this agreement.
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 vehicles, equipment and
management information systems. In the first nine months of 1996 the
Company spent $2.6 million on capital expenditures. The Company expects to
spend approximately $4 million for all of 1996. Under the Company's bank
revolving credit agreement, as amended, capital expenditures during 1996
are limited to $6 million plus any portion of 1995's capital expenditures
that were not spent. The Company expects to fund capital expenditures
through borrowings and its internally generated cash flow.
During 1996 the Company has not completed any acquisitions of building
centers or component manufacturing facilities. In April of 1996 the
Company began operating a new component manufacturing facility in Elwood,
IN. The operation manufactures trusses and wall panels for several of the
Company's Indiana and Ohio centers. The facility is located on the site of
a former Wickes Lumber building center. In November of 1996 the Company
announced its plans to consolidate the operations of two additional
building centers with other nearby Wickes centers.
Through the first nine months of 1996 the Company has also generated
$4.1 million primarily from the sale of real estate for three closed
building centers and the sale of approximately 350 excess delivery vehicles
and forklifts.
The Company maintained excess availability under its revolving line of
credit, throughout the first nine months of 1996. In the first nine months
of 1996, the Company utilized funds from the sale of 2 million shares of
newly-issued common stock, cash generated by operating activities, and
proceeds from the sale of excess property, plant and equipment to reduce
the Company's net borrowings under its revolving line of credit. At the
end of the third quarter of 1996 total borrowings under the revolving line
of credit were $29.5 million lower than at the end of the third quarter of
1995. Net cash provided by operating activities during the first nine
months of 1995 amounted to $12.1 million Under the current terms of the
Company's bank revolving credit agreement the Company believes that it will
continue to have sufficient funds available for its anticipated operations
and capital expenditures. At October 26, 1996, $83.4 million was
outstanding under the Company's revolving line of credit, and the unused
availability was approximately $37.6 million. The Company's assessment of
its future funds availability constitutes Forward-Looking Information and
is inherently subject to uncertainty resulting from, among other things,
the factors discussed under "Results of Operations - Provision for Income
Taxes" as well as the Company's ability to renew or replace its revolving
credit facility upon its scheduled expiration.
PART II
OTHER INFORMATION
Item 5. Other Information
-----------------
On February 21, 1996, the Company and RIC entered into an agreement with
two investment funds. Pursuant to this agreement, the two investment funds
each invested $5 million in RIC and each received a 25% equity interest,
with the Company retaining an interest slightly less than 50% and
management receiving the balance of the equity.
$6 million of the total $10 million invested in RIC by the two
investment funds was advanced as loans to RIC during the first two quarters
of 1996 pending satisfaction of certain conditions. On October 1, 1996,
(i) RIC contributed all of its assets and liabilities to a newly-formed
limited liability company, Riverside International, L.L.C. and (ii) the two
investment funds completed the transaction by investing an additional $4
million in total in Riverside International, L.L.C. and by converting their
loans to equity in Riverside International, L.L.C. As a result of this
transaction, RIC remains a more than 90% owned subsidiary of the Company,
and Riverside International, L.L.C. is owned 50% by RIC and 50% by the two
investment funds.
As of September 28, 1996, RIC has controlling interests in two companies
engaged in lumber-related businesses in Russia. The investment in RIC is
recorded under the equity method.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
11.01 Statement regarding computation of earnings per share.
27.1 Financial data schedule (SEC use only).
(b) Reports on Form 8-K
None
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
WICKES LUMBER COMPANY
By: /s/ J. Steven Wilson
--------------------
J. Steven Wilson
Chairman and Chief Executive
Officer
By: /s/ George A. Bajalia
---------------------
George A. Bajalia
Senior Vice President and Chief
Financial Officer
Date: November 11, 1996
<TABLE>
COMPUTATION OF EARNINGS PER SHARE
AND EQUIVALENT SHARES OF COMMON STOCK
(Unaudited)
(thousands except share and per share amounts)
<CAPTION>
Three Months Ended Nine Months Ended
-------------------------- -------------------------
Sept. 28, Sept. 30, Sept. 28, Sept. 30,
1996 1995 1996 1995
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Average Shares Outstanding
1. Weighted average number of shares of
common stock outstanding during the
period 8,155,390 6,140,794 6,890,919 6,133,174
2. Net additional common equivalent shares
assuming exercise of common stock
warrants as computed under the treasury
stock method 11,139 16,125 12,128 16,533
--------- --------- --------- ---------
3. Weighted average number of shares and
equivalent shares of common stock
outstanding during the period 8,166,529 6,156,919 6,903,047 6,149,707
========= ========= ========= =========
Income (Loss)
4. Net income (loss) available for common stock $ 2,843 $ 1,927 $ (1,450) $ (201)
========= ========= ========= =========
Per Share Amounts
5. Earnings (loss) $ 0.35 $ 0.31 $ (0.21) $ (0.03)
========= ========= ========= =========
Earnings (loss) per share is computed by dividing net income (loss) available for common stock,
by weighted average number of shares of common stock and common stock equivalents (warrants),
unless anti-dilutive, outstanding during the periods.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
September 28, 1996 financial statements and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-28-1996
<PERIOD-END> SEP-28-1996
<CASH> 2274
<SECURITIES> 0
<RECEIVABLES> 96281
<ALLOWANCES> 5114
<INVENTORY> 108475
<CURRENT-ASSETS> 230115
<PP&E> 81218
<DEPRECIATION> 29636
<TOTAL-ASSETS> 305252
<CURRENT-LIABILITIES> 89716
<BONDS> 100000
0
0
<COMMON> 82
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 305252
<SALES> 636856
<TOTAL-REVENUES> 636856
<CGS> 495260
<TOTAL-COSTS> 495260
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 1097
<INTEREST-EXPENSE> 16647
<INCOME-PRETAX> (551)
<INCOME-TAX> 899
<INCOME-CONTINUING> (1450)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1450)
<EPS-PRIMARY> (.21)
<EPS-DILUTED> 0
</TABLE>
