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 June 28, 1997 Number 0-22468
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WICKES INC.
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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
------------
(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
----- -----
As of August 1, 1997, the Registrant had 7,670,078 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.
<Page 2>
WICKES INC. AND SUBSIDIARIES
INDEX
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Page
Number
------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
June 28, 1997 (Unaudited) and
December 28, 1996 3
Condensed Consolidated Statements of Operations
For the three months and six months ended
June 28, 1997 and June 29, 1996 (Unaudited) 4
Condensed Consolidated Statements of Cash Flows
For the six months ended June 28, 1997 and
June 29, 1996 (Unaudited) 5
Notes to Condensed Consolidated
Financial Statements (Unaudited) 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11
PART II. OTHER INFORMATION
Item 5. Other Information 20
Item 6. Exhibits and Reports on Form 8-K 20
<PAGE 3>
WICKES INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(in thousands except share data)
<TABLE>
<CAPTION>
June 28, December 28,
ASSETS 1997 1996
----------- -------------
<S> <C> <C>
Current assets:
Cash $ 78 $ 1,933
Accounts receivable, less allowance for doubtful
accounts of $3,360 in 1997 and $4,289 in 1996 95,654 71,210
Inventory 129,571 100,672
Deferred tax asset 12,338 10,331
Prepaid expenses 1,875 915
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Total current assets 239,516 185,061
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Property, plant and equipment, net 45,375 50,171
Trademark (net of accumulated amortization of
$10,163 in 1997 and $10,052 in 1996) 6,837 6,948
Deferred tax asset 15,525 15,525
Other assets (net of accumulated amortization of
$7,339 in 1997 and $6,487 in 1996) 14,100 15,137
---------- -----------
$ 321,353 $ 272,842
========== ===========
LIABILITIES & STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt $ 80 $ 133
Accounts payable 67,713 41,039
Accrued liabilities 25,057 27,118
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Total current liabilities 92,850 68,290
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Long-term debt, less current maturities 204,024 176,376
Other long-term liabilities 2,797 2,677
Commitments and contingencies (Note 4)
Common stockholders' equity:
Common stock (8,167,002 shares issued and outstanding in 1997
and 8,159,498 shares issued and outstanding in 1996) 82 82
Additional paid-in capital 86,644 86,613
Accumulated deficit (65,044) (61,196)
----------- -----------
Total common stockholders' equity 21,682 25,499
----------- -----------
321,353 272,842
=========== ===========
</TABLE>
The accompanying notes are an integral part of the Condensed Consolidated
Financial Statements.
<PAGE 4>
WICKES INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(in thousands except share and per share data)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------ --------------------
June 28, June 29, June 28, June 29,
1997 1996 1997 1996
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net sales $ 237,335 $ 228,773 $ 396,654 $ 381,281
Cost of sales 183,028 177,564 305,400 295,142
---------- ---------- ---------- ----------
Gross profit 54,307 51,209 91,254 86,139
---------- ---------- ---------- ----------
Selling, general and administrative expenses 46,907 41,986 84,689 77,670
Depreciation, goodwill and trademark amortization 1,229 1,338 2,417 2,770
Provision for doubtful accounts (463) (474) 583 891
Other operating income (1,634) (1,647) (2,478) (2,535)
---------- ---------- ---------- ----------
46,039 41,203 85,211 78,796
---------- ---------- ---------- ----------
Income from operations 8,268 10,006 6,043 7,343
Interest expense 5,259 5,466 10,411 11,172
Equity in loss of affiliated company 213 872 766 1,930
---------- ---------- ---------- ----------
Income/(Loss) before income taxes 2,796 3,668 (5,134) (5,759)
Provision for income taxes 1,454 1,787 (1,286) (1,466)
---------- ---------- ---------- ----------
-
Net income/(loss) $ 1,342 $ 1,881 $ (3,848) $ (4,293)
========== ========== ========== ==========
Income/(Loss) per common share $ 0.16 $ 0.29 $ (0.47) $ (0.68)
========== ========== ========== ==========
Weighted average common and common
equivalent shares outstanding 8,176,694 6,383,352 8,175,138 6,271,307
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of the Condensed Consolidated
Financial Statements.
<PAGE 5>
WICKES INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(in thousands)
<TABLE>
<CAPTION>
Six Months Ended
----------------
June 28, June 29,
1997 1996
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (3,848) $ (4,294)
Adjustments to reconcile net loss to
net cash used in operating activities:
Equity in loss of affiliated company 766 1,930
Depreciation expense 2,183 2,622
Amortization of trademark 111 111
Amortization of goodwill 123 119
Amortization of deferred financing costs 729 899
Provision for doubtful accounts 583 891
Gain on sale of assets (569) (235)
Deferred tax benefit (2,007) (2,217)
Changes in assets and liabilities:
Increase in accounts receivable (25,027) (6,666)
Increase in inventory (28,899) (33)
Increase in accounts payable and accrued liabilities 24,155 7,504
Increase in other assets (1,541) (3,059)
------------ ------------
NET CASH USED IN OPERATING ACTIVITIES (33,241) (2,428)
------------ ------------
Cash flows from investing activities:
Purchases of property, plant and equipment (2,679) (1,997)
Proceeds from sales of property, plant and equipment 6,439 3,190
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NET CASH PROVIDED BY INVESTING ACTIVITIES 3,760 1,193
------------ ------------
Cash flows from financing activities:
Net borrowing (repayment) under revolving line of credit 27,668 (5,780)
Reductions of notes payable (73) (324)
Net proceeds from issuance of common stock 31 9,834
------------ ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 27,626 3,730
------------ ------------
NET (DECREASE) INCREASE IN CASH (1,855) 2,495
Cash at beginning of period 1,933 87
------------ ------------
CASH AT END OF PERIOD $ 78 $ 2,582
============ ============
Supplemental schedule of cash flow information:
Interest paid $ 9,869 $ 10,345
Income taxes paid 832 498
</TABLE>
The accompanying notes are an integral part of the Condensed Consolidated
Financial Statements.
<PAGE 6>
WICKES INC. 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 Inc. and its
consolidated subsidiaries (the "Company").
The condensed consolidated balance sheet as of June 28, 1997, the
condensed consolidated statements of operations for the three-month and six-
month periods ended June 28, 1997 and June 29, 1996, and the condensed
consolidated statements of cash flows for the six-month periods ended June
28, 1997 and June 29, 1996 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 June 28, 1997 and for all periods
presented have been made. The results for the six-month period ended June
28, 1997 is 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 28, 1996, filed with the Securities and Exchange
Commission.
Share Data
----------
The Company issued 6,737 shares of Common Stock to members of its board
of directors as compensation, and employee warrants for 767 shares of
Common Stock were also exercised, during the six-months ended June 28,
1997.
<PAGE 7>
2. LONG-TERM DEBT
--------------
Long-term debt is comprised of the following at June 28, 1997 (in
thousands):
Revolving line of credit...............$ 103,981
Senior subordinated notes.............. 100,000
Other.................................. 123
Less current maturities................ (80)
---------
Total long-term debt...................$ 204,024
=========
A second amendment and restatement of the Company's revolving credit
agreement was completed on April 11, 1997. Among other things, this
amendment and restatement (i) extended the life of the facility to March
2001, (ii) reduced the interest rate premiums over LIBOR and over prime by
75 basis points, (iii) included provisions for further interest rate
premium reductions if certain performance levels are achieved, (iv)
modified certain covenants, and (v) provided for increases in the amount of
capital expenditures allowed by the agreement equal to the proceeds
received from the sale of certain excess real estate.
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 June 28, 1997 was $25.7 million.
On June 16, 1997 the Company entered into an interest rate swap
agreement which effectively fixed the interest rate at 8.11% (subject to
reduction in certain circumstances), for three years, on $40 million of the
Company's borrowings under its floating rate revolving line of credit.
This interest rate swap is operative while the LIBOR borrowing rate remains
below 6.7%.
3. INCOME TAXES
------------
The provision for income taxes for the six-month period ended June 28,
1997 was a $1.3 million benefit, compared to a benefit of $1.5 million for
the six-month period ended June 29, 1996. An effective federal income tax
rate of 39.1% was used to calculate federal income taxes for the first six
months of 1997, compared with an effective rate of 38.5% for the first six
months of 1996. In addition to the effective federal tax rate, state income
and franchise taxes were calculated separately and are included in the
provision reported.
<PAGE 8>
4. COMMITMENTS AND CONTINGENCIES
-----------------------------
On June 30, 1997 the Company completed the sale leaseback of its 72,000
square foot corporate headquarters in Vernon Hills, Illinois. The sale
price was approximately $7.3 million (which was utilized to reduce debt),
and a gain of approximately $600,000 will be amortized over the life of the
lease. The Company will be master leasing the entire building, for a 15
year term (with options to extend), at market rates and has subleased over
20,000 square feet. Based on the Company's current borrowing rate, this
transaction is expected to have a favorable impact on the Company's future
net earnings with the increase in rent expense (selling, general and
administrative expenses) more than offset by reduced interest expense.
At June 28, 1997, the Company had accrued approximately $1.0 million
(included in accrued liabilities at June 28, 1997) 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 contained underground petroleum storage tanks. Other than
tanks at one acquired facility, recently installed and in compliance with
modern standards, 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 $2.0 million of net
costs, with respect to the filling or removing of underground storage tanks
and related investigatory and remedial actions.
The Company is one of many defendants in approximately 110 actions, each
of which seeks unspecified damages, brought since 1993, in various Michigan
state courts against manufacturers and building material retailers by
individuals who claim to have suffered injuries from products containing
asbestos. Each of the plaintiffs in these actions is represented by one of
two law firms. The Company is aggressively defending these actions and
does not believe that these actions will have a material adverse effect on
the Company.
<PAGE 9>
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.
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.
The Company's assessment of the matters 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 are inherently subject to uncertainty.
The outcome of the matters 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, the Company's ability to prevail against its insurers with
respect to coverage issues to date, the financial ability of those insurers
and other persons from whom the Company may be entitled to indemnity, and
the unpredictability of matters in litigation.
5. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
-----------------------------------------
Statement of Financial Accounting Standards No. 128, "Earnings Per
Share," revises the disclosure requirements and increases the
comparability of EPS data on an international basis by simplifying the
existing computational guidelines in APB Opinion No. 15. The pronouncement
will require the Company to present both basic and diluted EPS for net
income on the face of the income statement and is effective for the
Company's fiscal year ending December 27, 1997. The Company has reviewed
the calculation and determined the disclosure to be immaterial for the
three and six month periods ending June 28, 1997 and June 29, 1996.
Statement of Financial Accounting Standards No. 129, "Disclosures of
Information About Capital Structure," establishes standards for disclosing
information about an entity's capital structure. The new accounting
principle is effective for the Company's fiscal year ending December 27,
1997. The Company believes that adoption will not have a material impact
on its financial statements.
<PAGE 10>
In June of 1997, the Financial Accounting Standards Board issued
Statement No. 130, "Reporting Comprehensive Income" and Statement No. 131,
"Disclosures about Segments of an Enterprise and Related Information."
Under the new reporting and disclosure requirements promulgated in these
statements, the Company is required to, and will adopt the provisions
beginning in fiscal 1998.
<PAGE 11>
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 28, 1996.
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>
<CAPTION>
Three Months Ended Six Months Ended
------------------ ----------------
June 28, June 29, June 28, June 29,
1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0%
Gross profit 22.9% 22.4% 23.0% 22.6%
Selling, general and
administrative expense 19.8% 18.3% 21.4% 20.4%
Depreciation, goodwill and
trademark amortization 0.5% 0.6% 0.6% 0.7%
Provision for doubtful accounts (0.2)% (0.2)% 0.1% 0.2%
Other operating income (0.7)% (0.7)% (0.6)% (0.6)%
Income from operations 3.5% 4.4% 1.5% 1.9%
</TABLE>
Net Earnings
- ------------
Net income for the three months ended June 28, 1997 was $1,342,000
compared with $1,881,000 for the three months ended June 29, 1996. The net
loss for the six months ended June 28, 1997 was $3,848,000 compared with a
loss of $4,293,000 for the six months ended June 29, 1996. The decrease in
net income for the three-month period primarily results from by an increase
in selling, general and administrative expenses ("SG&A") partially offset
by increased sales and gross profit, decreases in interest expense, equity
in loss of affiliated company and provision for income taxes. The decrease
in net income for the six-month period primarily results from by an
increase in selling, general and administrative expenses ("SG&A") and
reduced income tax benefit partially offset by increased sales and gross
profit, and decreases in interest expense, equity in loss of affiliated
company and depreciation, goodwill and trademark amortization.
<PAGE 12>
Three Months Ended June 28, 1997 Compared
with the Three Months Ended June 29, 1996
Net Sales
- ---------
Net sales for the second quarter of 1997 increased 3.7% to $237.3
million from $228.8 million for the second quarter of 1996. Same store
sales increased 3.3% compared with the same period last year. Same store
sales to the Company's primary customers, residential and commercial
builders, increased 4.4% when compared with the second quarter of 1996.
Consumer same store sales were down 4.8% for the quarter. As of June 28,
1997 the Company operated 112 building centers, two more than it operated
at the end of the second quarter of 1996. The Company estimates that
inflation in lumber prices accounted for approximately $5.1 million of the
sales increase for the quarter, compared with the 1996 comparable period.
The Company believes that showroom remerchandising, sales training, and big
builder initiatives also contributed to the overall and same store sales
increases.
Gross Profit
- ------------
1997 second quarter gross profit increased to $54.3 million from $51.2
million for the second quarter of 1996, a 6.0% increase. Gross profit as a
percent of sales increased to 22.9% for the second quarter of 1997 from
22.4% in 1996. The increase in gross profit as a percent of sales is
primarily attributable to improved product costs and increased lumber
prices. Sales to the professional builder, as a percent of total sales,
increased to 85.5% for the second quarter of 1997 from 84.1% for the same
period in 1996. Lumber and building materials accounted for 89.4% of the
materials sold in the second quarter of 1997, compared with 88.4% of the
materials sold in the second quarter of 1996.
Selling, General and Administrative Expense
- -------------------------------------------
SG&A expense increased to 19.8% of net sales in the second quarter of
1997 compared with 18.3% of net sales in the second quarter of 1996. Much
of the increase is attributable to increased training, market expansion
programs, and the Company's decision to remerchandise facilities and invest
in programs to support sales improvement. The Company expects to continue
investing in these long-term sales growth initiatives through the end of
1997.
<PAGE 13>
Increases, as a percent of sales, in salaries and wages, travel,
professional fees, training costs, and marketing were partially offset by
reductions in health and casualty insurance costs and delivery expense.
Salaries, wages and employee benefits increased, as a percent of sales, by
0.9%. As of June 28, 1997, the Company had 4,083 full time and part time
employees, up 229 from June 29, 1996.
Depreciation, Goodwill and Trademark Amortization
- -------------------------------------------------
Depreciation, goodwill and trademark amortization decreased to $1.2
million for the second quarter of 1997 compared with $1.3 million for the
same period in 1996. This decrease is primarily due to the sale or
disposal of excess facilities, vehicles and equipment during 1996 and the
first half of 1997, and the replacement of owned delivery vehicles with
new, leased equipment.
Provision for Doubtful Accounts
- -------------------------------
Provision for doubtful accounts remained relatively the same for the
second quarters of 1997 and 1996, income of $0.5 million. Increased
construction activity in the Northeast and Midwest, during the second
quarter, results in improved collections on previously reserved accounts
and lower delinquency levels.
Other Operating Income
- ----------------------
Other operating income for the second quarter of 1997 was $1.6 million,
or 0.7% of sales. This was approximately the same as the second quarter of
1996. During the second quarter of 1997 the Company recorded a gain of
approximately $500,000 on the sale of a previously closed building center.
In the second quarter of 1996 the Company recorded a gain of approximately
$500,000 on the difference between insured replacement cost and book value,
as a result of a fire at one of its building centers.
Interest Expense
- ----------------
In the second quarter of 1997 interest expense decreased 3.8% to $5.3
million compared with $5.5 million in the second quarter of 1996. This
reduction reflects a decrease in the effective borrowing rate on total long
term debt for the second quarter of 21 basis points from the second quarter
of 1996, primarily due to a reduction in interest rate on the Company's
revolving line of credit, effective April 11, 1997, see "Note 2. Long-Term
Debt" of Notes to Condensed Consolidated Financial Statements included
elsewhere herein. Approximately 85% of the Company's second quarter
average borrowings on its revolving credit facility were LIBOR-based.
<PAGE 14>
Equity in Loss of Affiliated Company
- ------------------------------------
In the second quarter of 1997, the Company recorded a loss of $0.2
million, under the equity method, with respect to its investment in its
affiliate engaged in operations in Russia. In the second quarter of 1996
the Company recorded a loss of $0.9 million. In May of 1997, additional
third party equity was invested and the Company's ownership decreased from
46% to 38%.
Provision for Income Taxes
- --------------------------
The Company recorded income tax expense of $1.5 million for the second
quarter of 1997 compared with expense of $1.8 million in the second quarter
of 1996. An effective federal income tax rate of 39.1% was used to
calculate federal income taxes for the second quarter of 1997, compared
with an effective rate of 38.5% for the second quarter of 1996. In
addition to the effective federal tax rate used, state income and franchise
taxes were calculated separately and are included in the provision reported
for both years.
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.
<PAGE 15>
Six Months Ended June 28, 1997 Compared
with the Six Months Ended June 29, 1996
Net Sales
- ---------
Net sales for the first half of 1997 increased 4.0% to $396.7 million
from $381.3 million for the first half of 1996. Same store sales increased
3.8% compared with the same period last year. Same store sales to the
Company's primary customers, residential and commercial builders, increased
5.2% when compared with the first half of 1996. Consumer same store sales
were down 6.8% for the first half. As of June 28, 1997 the Company
operated 112 building centers, two more than it operated at the end of the
first half of 1996. The Company estimates that inflation in lumber prices
accounted for approximately $10.4 million of the sales increase for the
first half of 1997, compared with the 1996 comparable period. The Company
believes that showroom remerchandising, sales training, and big builder
initiatives also contributed to the overall and same store sales increases.
Also, weather conditions in the Northeast during the first quarter of 1997
were more favorable compared with the record snowfalls recorded in the
first quarter of 1996.
Gross Profit
- ------------
Gross profit for the first half of 1997 increased to $91.3 million from
$86.1 million for the first half of 1996, a 5.9% increase. Gross profit as
a percent of sales increased to 23.0% for the first half of 1997 from 22.6%
in 1996. The increase in gross profit as a percent of sales is primarily
attributable to improved product costs and increased lumber prices. Sales
to the professional builder, as a percent of total sales, increased to
87.2% for the first half of 1997 from 85.3% for the same period in 1996.
Lumber and building materials accounted for 88.6% of the materials sold in
the first half of 1997, compared with 87.2% of the materials sold in the
first half of 1996.
Selling, General and Administrative Expense
- -------------------------------------------
SG&A expense increased to 21.4% of net sales in the first half of 1997
compared with 20.4% of net sales in the first half of 1996. Much of the
increase is attributable to increased training, market expansion programs,
and the Company's decision to remerchandise facilities and invest in
programs to support sales improvement. The Company expects to continue
investing in these long-term sales growth initiatives through the end of
1997.
Increases, as a percent of sales, in salaries and wages, travel,
professional fees, training costs, and marketing were partially offset by
reductions in health and casualty insurance costs and delivery expense.
Total salaries and wages increased, as a percent of sales, by 0.7%.
<PAGE 16>
Depreciation, Goodwill and Trademark Amortization
- -------------------------------------------------
Depreciation, goodwill and trademark amortization decreased to $2.4
million for the first half of 1997 compared with $2.8 million for the same
period in 1996. This decrease is primarily due to the sale or disposal of
excess facilities, vehicles and equipment during 1996 and the first half of
1997, and the replacement of owned delivery vehicles with new, leased
equipment.
Provision for Doubtful Accounts
- -------------------------------
Provision for doubtful accounts decreased to $0.6 million or 0.1 % of
sales for the first half of 1997 compared with $0.9 million or 0.2% of
sales for the same period in 1996. 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 first half of 1997 was $2.5 million, or
0.6% of sales. This was approximately the same as the first half of 1996.
During the first half of 1997 the Company recorded a gain of approximately
$500,000 on the sale of a previously closed building center. In the first
half of 1996 the Company recorded a gain of approximately $500,000 on the
difference between insured replacement cost and book value, as a result of
a fire at one of its building centers.
Interest Expense
- ----------------
In the first half of 1997 interest expense decreased 6.8% to $10.4
million compared with $11.2 million in the first half of 1996. This
reduction reflects a $10.4 million decrease in average borrowings on the
Company's revolving credit facility resulting primarily from the closing of
building centers since December 1995 and the $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
half in 1997 was relatively the same as the first half of 1996. Approximately
87% of the Company's first half average borrowings on its revolving
credit facility were LIBOR-based.
<PAGE 17>
Equity in Loss of Affiliated Company
- ------------------------------------
In the first half of 1997, the Company recorded a loss of $0.8 million,
under the equity method, with respect to its investment in its affiliate
engaged in operations in Russia. In the first half of 1996 the Company
recorded a loss of $1.9 million. In May of 1997, additional third party
equity was invested and the Company's ownership decreased from 46% to 38%.
Provision for Income Taxes
- --------------------------
The Company recorded an income tax benefit of $1.3 million for the first
half of 1997 compared with a benefit of $1.5 million in the first half of
1996. An effective federal income tax rate of 39.1% was used to calculate
federal income taxes for the first half of 1997, compared with an effective
rate of 38.5% for the first half of 1996. In addition to the effective
federal tax rate used, state income and franchise taxes were calculated
separately and are included in the benefit reported for both years.
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.
<PAGE 18>
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.
The first half of the year historically generates negative cash flows
from operating activities. 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 in
the second quarter as a result of increased sales activity. In the first
half of 1997 net cash used in operating activities amounted to $33.2
million.
The Company's accounts receivable balance at the end of the second
quarter of 1997 increased $8.1 million when compared to the end of the
second quarter of 1996, an increase of 9.2%. Approximately $7.4 million of
this increase is attributable to increased credit sales during June of
1997, when compared with June of 1996.
Inventory at the end of the first half of 1997 was $18.9 million, or
17.1%, higher than at the end of the first half of 1996. This increase is
largely attributable to special buys on commodity building materials to
support new programs and the start-up of five new building centers. Most
of the special buys on commodity building materials included extended
accounts payable terms and the Company has also negotiated extended terms
on many of its regular purchases. These efforts are the primary reason for
the 27.1% increase in accounts payable.
For information concerning the sale leaseback of the Company's 72,000
square foot corporate headquarters in Vernon Hills, Illinois, completed
June 30, 1997, see "Note 4. Commitments and Contingencies" of Notes to
Condensed Consolidated Financial Statements included elsewhere herein.
The Company's capital expenditures consist primarily of the construction
of storage facilities, the remodeling and reformatting of building centers
and component manufacturing facilities, and the purchase of vehicles,
equipment and management information systems. In the first half of 1997
the Company spent $2.7 million on capital expenditures. The Company
expects to spend approximately $6.0 million to $8.0 million for all of
1997. Under the Company's bank revolving credit agreement, as amended,
capital expenditures during 1997 are limited to $6.0 million plus the
proceeds from the sale of certain excess real estate plus the portion of
1996's capital expenditures that were not spent. The Company expects to
fund capital expenditures through borrowings and its internally generated
cash flow.
<PAGE 19>
In January, the Company began distribution operations in start-up
building center facilities in Aurora, Illinois and Colorado Springs,
Colorado. In April, the Company also began building center operations in
Denton, North Carolina and a second facility in Pensacola, Florida. In
June the Company opened a door and wall panel manufacturing facility in
Denver, Colorado. A new building center will be opened in early August,
also in Denver, Colorado. The Pensacola facility is located in a
previously closed facility which is owned by the Company. The remaining
five facilities are leased. The following table reconciles the number of
building centers and component manufacturing facilities operated by the
Company, through June 28, 1997:
Component
Building Manufacturing
Centers Facilities
-------- -------------
As of December 28, 1996 108 12
Expansion 4 1
Consolidation - (1)
--- ---
As of June 28, 1997 112 12
The Company maintained excess availability under its revolving line of
credit throughout the first half of 1997. At the end of the first half of
1997 total borrowings under the revolving line of credit were $4.7 million
higher than at the end of the first half of 1996. 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 June 28, 1997, $104.0 million was outstanding under the Company's
revolving line of credit, and the unused availability was approximately
$25.7 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".
For a description of the April 11, 1997 amendment to the Company's
revolving line of credit agreement, that, among other things, reduces the
Company's effective interest rate, provides for additional reductions
should certain goals be achieved, extends the length of the agreement, and
modifies or eliminates certain covenants, see "Note 2. Long-Term Debt" of
Notes to Condensed Consolidated Financial Statements included elsewhere
herein.
<PAGE 20>
PART II
-------
OTHER INFORMATION
-----------------
Item 5. Other Information
On April 9, 1997, the Board of Directors of the Company approved a
proposal to amend the Company's Second Amended and Restated Certificate of
Incorporation to change the Company's name to "Wickes Inc." This proposal
was submitted and approved by the Company's shareholders at the Annual
Meeting held on May 20, 1997. The name change was effective on June 9,
1997 upon the filing of a certificate of amendment with the Secretary of
State of the State of Delaware.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
3.1 Second Amendment to Second Amended and Restated
Certificate of Incorporation of Wickes Lumber Company.
4.1 First Amendment to Second Amended and Restated
Credit Agreement dated July 14, 1997, among the Registrant,
as Borrower, each of the financial institutions signatory
thereto, BT Commercial Corporation, as Agent, Nations Bank
of Georgia N.A. as Syndication Agent, and Bankers Trust
Company, as Issuing Bank.
11.1 Statement regarding computation of earnings per share.
27.1 Financial data schedule (SEC use only).
(b) Reports on Form 8-K
The Company filed a Current Report on Form 8-K dated June 19, 1997
reporting the Company's name change under Item 5. Other Events.
<PAGE 21>
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 INC.
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: August 8, 1997
SECOND AMENDMENT TO SECOND AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION OF WICKES LUMBER COMPANY
Wickes Lumber Company, a corporation organized and existing under and
by virtue of the Delaware General Corporation Law (the "Corporation"), DOES
HEREBY CERTIFY:
FIRST: That by Unanimous Written Consent of the Board of Directors of
the Corporation dated and effective April 9, 1997, a resolution was duly
adopted proposing amendment of the Certificate of Incorporation of the
Corporation, declaring such amendment advisable and directing that such
amendment be submitted for approval by the stockholders of the Corporation
pursuant to Section 242 of the Delaware General Corporation Law.
SECOND: That such amendment is set forth below:
"ARTICLE FIRST of the Second Amended and Restated Certificate of
Incorporation of the Corporation is hereby amended by striking the
current ARTICLE FIRST in its entirety and by substituting in lieu of
said Article the following new Article:
FIRST
The name of the Corporation is Wickes Inc."
THIRD: That said amendment was duly adopted by the stockholders and
directors of the Corporation in accordance with the provisions of Section
242 of the Delaware General Corporation Law.
IN WITNESS WHEREOF, the Corporation has caused this certificate to be
signed by Kenneth M. Kirschner, its Vice Chairman, this 9th day of June,
1997.
By: /s/ Kenneth M. Kirschner
-------------------------
Kenneth M. Kirschner
Vice Chairman
FIRST AMENDMENT TO CREDIT AGREEMENT
-----------------------------------
FIRST AMENDMENT TO CREDIT AGREEMENT (this "Agreement"), dated as
of July 14, 1997, among WICKES LUMBER COMPANY (the "Borrower"), the
financial institutions executing this Agreement on the signature pages
hereto (the "Majority Lenders") and BT COMMERCIAL CORPORATION, as agent
(the "Agent") under the Credit Agreement (defined below). Capitalized
terms not otherwise defined herein shall have the meanings ascribed to them
in the Credit Agreement.
W I T N E S S E T H
- - - - - - - - - -
WHEREAS, the Borrower, the Majority Lenders (and any other
Lenders), NATIONSBANK OF GEORGIA, N.A., as Syndication Agent, the Agent and
Bankers Trust Company, as Issuing Bank, are parties to that certain Second
Amended and Restated Credit Agreement dated as of April 11, 1997, as
amended (the "Credit Agreement");
WHEREAS, the Borrower desires to enter into Interest Rate
Agreements with certain Lenders and/or Affiliates of certain Lenders (such
Affiliates, the "IRA Lenders") in order to protect itself against
fluctuations in interest rates and to secure its obligations under such
Interest Rate Agreements with the Collateral (such agreements, "Secured
Interest Rate Agreements"); and
WHEREAS, the Majority Lenders and the Agent are willing to amend
the Credit Agreement to allow for Secured Interest Rate Agreements, subject
to the terms and conditions set forth herein.
NOW, THEREFORE, the parties hereto do hereby agree as follows:
1. Amendments. The Credit Agreement is hereby amended as
----------
follows:
(a) The definition of "Obligations" in Section 1.1 of the Credit
Agreement is hereby amended by adding the phrase ", any repayment
obligation of the Borrower to any Lender in connection with any
Secured Interest Rate Agreement (whether such obligation arises under
Section 7.16 hereof, the agreement governing such Secured Interest
Rate Agreement or otherwise)" immediately following the word
"Expenses" on the twelfth line thereof.
(b) The following definition is hereby inserted in Section 1.1 of
the Credit Agreement in the appropriate alphabetical order:
"Secured Interest Rate Agreement shall mean an Interest
-------------------------------
Rate Agreement (i) between the Borrower and (A) any Lender
or (B) any Affiliate of a Lender; provided that, in the case
of this clause (B), the applicable Lender has agreed to
indemnify such Affiliate from any losses incurred due to the
failure of the Borrower to pay any amounts owed to such
Affiliate in connection with such Interest Rate Agreement,
and (ii) that, in the Permitted Discretion of the Agent, is
intended to protect the Borrower from fluctuations in
interest rates and is otherwise satisfactory to the Agent.
In no event shall the Borrower's aggregate potential
exposure, as determined by the Agent in its sole discretion,
to its counterparties under all Secured Interest Rate
Agreements be greater than $5,000,000 at any time."
(c) Section 2.1 of the Credit Agreement is hereby amended by (i)
adding the phrase "(including, without limitation, with respect to
Secured Interest Rate Agreements as provided in this Section 2.1)"
immediately following the phrase "the aggregate amount of reserves" in
paragraph (C) thereof and (ii) adding the following sentence as the
last sentence thereof:
"The Agent shall establish reserves against the Borrower's
potential exposure, as determined in the Permitted Discretion of
the Agent, to its counterparties under all Secured Interest Rate
Agreements."
(d) Section 2.10 of the Credit Agreement is hereby amended by
adding the phrase "Secured Interest Rate Agreement or any" immediately
following the phrase "Syndication Agent or the Lenders under any" on
the thirteenth line thereof.
(e) Article 7 of the Credit Agreement is hereby amended by adding
the following Section 7.16:
"7.16 Secured Interest Rate Agreements. To the extent any
--------------------------------
Lender reimburses any of its Affiliates for the failure of the
Borrower to pay any amounts owed to such Affiliate in connection
with any Secured Interest Rate Agreement, the Borrower shall
promptly pay to such Lender such reimbursed amount and such
reimbursed amount shall be an "Obligation" of the Borrower
hereunder until paid in full.
(f) Section 8.8(a) of the Credit Agreement is hereby amended by
replacing the word "Lenders" with the word "Agent".
(g) Article 10 of the Credit Agreement is hereby amended by
adding the following Section 10.14:
"10.14 No Liability for Interest Rate Agreements or Lumber
---------------------------------------------------
Hedging Agreements. In no event shall the Agent have any
------------------
liability to the Borrower or any Lender for any losses incurred
under or in connection with any Interest Rate Agreement or Lumber
Hedging Agreement."
(h) Article 11 of the Credit Agreement is hereby amended by
adding the following Section 11.20:
"11.20 Secured Interest Rate Agreements. Each Lender
--------------------------------
agrees that, to the extent that the Borrower's potential
exposure, as determined by the Agent in its sole discretion, to
its counterparties under all Secured Interest Rate Agreements at
any time exceeds $5,000,000, (a) it will either (i) unwind or
modify its Secured Interest Rate Agreements with the Borrower, if
any (or, if applicable, cause its Affiliates to do so), so as to
reduce the Borrower's potential exposure under all such Secured
Interest Rate Agreements to not more than $5,000,000 or (ii)
declare to the Agent in writing that such Secured Interest Rate
Agreement is no longer a "Secured Interest Rate Agreement"
hereunder and, thus, not entitled to the benefits of the
Collateral, and (b) until such time as the Borrower's potential
exposure has been so reduced, the Obligations of the Borrower to
the Lenders under such Secured Interest Rate Agreements that are
secured under the Collateral Documents shall be limited in the
aggregate to a maximum of $5,000,000, allocated pro rata among
--------
such Secured Interest Rate Agreements.
2. Conditions Precedent. The amendments contained in Section 1
--------------------
above is subject to, and contingent upon, satisfaction of each of
the following conditions:
(a) the Agent shall have received duly executed counterparts
hereof signed by the Borrower, the Agent and the Majority Lenders;
(b) all representations and warranties of the Borrower contained
herein shall be true and correct in all material respects as of the
date hereof; and
(c) the Agent shall have received a certificate of an officer of
the Borrower satisfactory to the Agent certifying that attached to the
certificate is a true and correct copy of the resolutions adopted by
the board of directors of the Borrower authorizing the Borrower to
enter into Secured Interest Rate Agreements from time to time in the
discretion of the officers of the Borrower set forth therein.
3. Representations and Warranties. (a) The Borrower hereby
------------------------------
represents and warrants to the Agent, the Syndication Agent and the
Lenders as follows:
(i) As of the date hereof, the representations and
warranties contained in the Credit Agreement and the other Credit
Documents are true and correct in all material respects after giving
effect to this Agreement as though made on and as of such date, except
to the extent that such representations and warranties expressly
relate solely to an earlier date (in which case such representations
and warranties shall have been true and correct on and as of such
earlier date);
(ii) after giving effect to this Agreement, no event has
occurred and is continuing, or would result from this Agreement, which
constitutes a Default or an Event of Default;
(iii) the Borrower has the corporate power and authority to
execute, deliver and perform the terms and provisions of this
Agreement and the transactions contemplated hereby, and has taken or
caused to be taken all necessary actions to authorize the execution,
delivery and performance of this Agreement and the transactions
contemplated hereby;
(iv) except for those that have been obtained, no consent of
any other Person and no action of or filing with any Governmental
Authority is required to authorize, or is otherwise required in
connection with, the execution, delivery and performance of the
transactions contemplated hereby;
(v) this Agreement has been duly executed and delivered on
behalf of the Borrower and constitutes the legal, valid and binding
obligation of the Borrower, enforceable in accordance with its terms;
and
(vi) the execution, delivery and performance of this
Agreement will not violate any law, statute or regulation, or any
order or decree of any Governmental Authority, or conflict with, or
result in the breach of, or constitute a default under, any Material
Contract (including, without limitation, the Indenture (including
Section 4.12 thereof)).
4. Effect of Agreement. Except as specifically provided
-------------------
herein, this Agreement does not in any way affect or impair the terms,
conditions and other provisions of the Credit Agreement or the other Credit
Documents, and all terms, conditions and other provisions of such documents
shall remain in full force and effect. Any waivers herein are limited to
the specific provisions described and shall not be deemed to (i) be a
waiver of any other term or condition of the Credit Agreement or any other
Credit Document or (ii) prejudice any rights not specifically waived herein
which the Agent or any Lender may now have or may have in the future under
the Credit Agreement or any Credit Document. This Agreement is a "Credit
Document," as such term is defined in the Credit Agreement.
5. Counterparts. This Agreement may be executed in any number
------------
of counterparts, each of which shall be deemed an original, and all of
which taken together shall be deemed to constitute one and the same
instrument.
6. Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND
-------------
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT
GIVING EFFECT TO THE CHOICE OF LAW PRINCIPLES THEREOF.
7. Headings. Section headings are included herein for
--------
convenience of reference only and shall not constitute a part of this
Agreement for any other purpose.
[SIGNATURE PAGES FOLLOW]
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be executed and delivered by their proper and authorized officers as of
the date first set forth above.
BORROWER:
--------
WICKES LUMBER COMPANY,
a Delaware corporation
By: /s/ Kenneth M. Kirschner
-----------------------------------------
Title: Vice Chairman
AGENT:
-----
BT COMMERCIAL CORPORATION,
As Agent
By: /s/ Bruce W. Addison
-----------------------------------------
Title: Vice President
MAJORITY LENDERS:
----------------
BT COMMERCIAL CORPORATION
By: /s/ Bruce W. Addison
-----------------------------------------
Title: Vice President
NATIONSBANK OF GEORGIA, N.A.
By: /s/ Robert Walker
-----------------------------------------
Title: Vice President
LASALLE NATIONAL BANK
By: /s/ Christopher G. Clifford
-----------------------------------------
Title: Senior Vice President
BANKAMERICA BUSINESS CREDIT, INC.
By: /s/ Patrick J. Wilson
-----------------------------------------
Title: Vice President
THE FIRST NATIONAL BANK OF BOSTON
By: /s/ Mark J. Forti
-----------------------------------------
Title: Vice President
BTM CAPITAL CORPORATION
By: /s/ William R. York, Jr.
-----------------------------------------
Title: Senior Vice President
THE CIT GROUP/BUSINESS CREDIT, INC.
By: /s/ Uri Tooch
-----------------------------------------
Title: Assistant Vice President
EXHIBIT 11.1
COMPUTATION OF EARNINGS PER SHARE
AND EQUIVALENT SHARES OF COMMON STOCK
(Unaudited)
(thousands except share and per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------ ----------------
June 28, June 29, June 28, June 29,
1997 1996 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Average Shares Outstanding
1. Weighted average number of shares of
common stock outstanding during the
period............................................. 8,166,500 6,371,310 8,164,665 6,258,265
2. Net additional common equivalent shares
assuming exercise of common stock
warrants as computed under the treasury
stock method....................................... 10,194 12,042 10,473 13,042
----------- ----------- ----------- -----------
3. Weighted average number of shares and
equivalent shares of common stock
outstanding during the period...................... 8,176,694 6,383,352 8,175,138 6,271,307
=========== =========== =========== ===========
Income (Loss)
4. Net income (loss) available for common stock...... $ 1,342 $ 1,881 $ (3,848) $ (4,293)
=========== =========== =========== ===========
Per Share Amounts
5. Earnings (loss)................................... $ 0.16 $ 0.29 $ (0.47) $ (0.68)
=========== =========== =========== ===========
</TABLE>
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> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCAIL INFORMATION EXTRACTED FROM THE
JUNE 28, 1997 FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<MULTIPLIER> 1000
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-27-1997
<PERIOD-END> JUN-28-1997
<CASH> 78
<SECURITIES> 0
<RECEIVABLES> 99014
<ALLOWANCES> 3360
<INVENTORY> 129571
<CURRENT-ASSETS> 239516
<PP&E> 75987
<DEPRECIATION> 30611
<TOTAL-ASSETS> 321353
<CURRENT-LIABILITIES> 92850
<BONDS> 100000
0
0
<COMMON> 82
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 321353
<SALES> 396654
<TOTAL-REVENUES> 396654
<CGS> 305400
<TOTAL-COSTS> 305400
<OTHER-EXPENSES> 85394
<LOSS-PROVISION> 583
<INTEREST-EXPENSE> 10411
<INCOME-PRETAX> (5134)
<INCOME-TAX> (1286)
<INCOME-CONTINUING> (3848)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3848)
<EPS-PRIMARY> (0.47)
<EPS-DILUTED> 0
</TABLE>
