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 27, 1997 Number 0-22468
------------------ -------
WICKES INC.
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(Exact name of registrant as specified in its charter)
Delaware 36-3554758
-------- ----------
(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 October 31, 1997, the Registrant had 8,183,120 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
-----
Page
Number
------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
September 27, 1997 (Unaudited) and
December 28, 1996 3
Condensed Consolidated Statements of Operations
For the three months and nine months ended
September 27, 1997 and September 28, 1996 (Unaudited) 4
Condensed Consolidated Statements of Cash Flows
For the nine months ended September 27, 1997 and
September 28, 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 22
Item 6. Exhibits and Reports on Form 8-K 22
<PAGE 3>
WICKES INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(in thousands except share data)
<TABLE>
<CAPTION> September 27, December 28,
ASSETS 1997 1996
-------------- ------------
<S> <C> <C>
Current assets:
Cash $ 78 $ 1,933
Accounts receivable, less allowance for doubtful
accounts of $3,335 in 1997 and $4,289 in 1996 103,808 71,210
Inventory 117,970 100,672
Deferred tax asset 10,910 10,331
Prepaid expenses 2,169 915
---------- -----------
Total current assets 234,935 185,061
---------- -----------
Property, plant and equipment, net 46,026 50,171
Trademark (net of accumulated amortization of
$10,218 in 1997 and $10,052 in 1996) 6,801 6,948
Deferred tax asset 15,525 15,525
Other assets (net of accumulated amortization of
$7,697 in 1997 and $6,487 in 1996) 13,021 15,137
---------- -----------
316,308 272,842
========== ===========
LIABILITIES & STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt $ 57 $ 133
Accounts payable 51,070 41,039
Accrued liabilities 28,582 27,118
---------- -----------
Total current liabilities 79,709 68,290
---------- -----------
Long-term debt, less current maturities 210,311 176,376
Other long-term liabilities 2,757 2,677
Commitments and contingencies (Note 4)
Common stockholders' equity:
Common stock (8,170,613 shares issued and outstanding in 1997
and 8,159,498 shares issued and outstanding in 1996) 82 82
Additional paid-in capital 86,660 86,613
Accumulated deficit (63,211) (61,196)
---------- -----------
Total common stockholders' equity 23,531 25,499
---------- ----------
316,308 272,842
========== ===========
</TABLE>
The accompanying notes are an integral part of the
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 Nine Months Ended
------------------ -----------------
Sept. 27, Sept. 28, Sept. 27, Sept. 28,
1997 1996 1997 1996
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net sales $ 266,324 $ 255,575 $ 662,978 $ 636,856
Cost of sales 206,048 200,118 511,448 495,260
------- ------- ------- -------
Gross profit 60,276 55,457 151,530 141,596
------- ------- ------- -------
Selling, general and administrative
expenses 51,063 44,181 135,752 121,984
Depreciation, goodwill and trademark
amortization 1,123 1,296 3,540 4,066
Provision for doubtful accounts 301 339 884 1,097
Other operating income (2,056) (1,364) (4,534) (3,899)
------- ------- ------- -------
50,431 44,452 135,642 123,248
------- ------- ------- -------
Income from operations 9,845 11,005 15,888 18,348
Interest expense 5,491 5,475 15,902 16,647
Equity in loss of affiliated company 704 322 1,470 2,252
------- ------- ------- -------
Income/(Loss) before income taxes 3,650 5,208 (1,484) (551)
Provision for income taxes 1,817 2,365 531 899
------- ------- ------- -------
Net income/(loss) $ 1,833 $ 2,843 $ (2,015) $ (1,450)
======= ======= ======= =======
Income/(Loss) per common share $ 0.22 $ 0.35 $ (0.25) $ (0.21)
======= ======= ======= =======
Weighted average common and common
equivalent shares outstanding 8,179,517 8,166,529 8,176,598 6,903,047
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of the the condensed consolidated
financial statements.
<PAGE 5>
WICKES INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(in thousands)
<TABLE>
<CAPTION>
Nine Months Ended
-----------------
Sept. 27, Sept. 28,
1997 1996
------ ------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (2,015) $ (1,450)
Adjustments to reconcile net loss to
net cash used in operating activities:
Equity in loss of affiliated company 1,470 2,252
Depreciation expense 3,190 3,720
Amortization of trademark 167 166
Amortization of goodwill 184 180
Amortization of deferred financing costs 1,026 1,340
Provision for doubtful accounts 884 1,097
Gain on sale of assets (1,354) (418)
Deferred tax benefit (579) 0
Changes in assets and liabilities:
Increase in accounts receivable (33,482) (10,472)
(Increase) decrease in inventory (17,298) 2,164
Increase in accounts payable and accrued 10,904 10,444
liabilities
Increase in other assets (1,838) (2,240)
------ -------
NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES (38,741) 6,783
------ -------
Cash flows from investing activities:
Purchases of property, plant and equipment (4,966) (2,550)
Proceeds from sales of property, plant and 7,946 4,125
equipment
------ -------
NET CASH PROVIDED BY INVESTING ACTIVITIES 2,980 1,575
------ -------
Cash flows from financing activities:
Net borrowing (repayment) under revolving line 33,974 (15,752)
of credit
Reductions of notes payable (115) (268)
Net proceeds from issuance of common stock 47 9,849
------ -------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 33,906 (6,171)
------ -------
NET (DECREASE) INCREASE IN CASH
(1,855) 2,187
Cash at beginning of period 1,933 87
------ -------
CASH AT END OF PERIOD $ 78 $ 2,274
====== =======
Supplemental schedule of cash flow information:
Interest paid $ 12,137 $ 12,549
Income taxes paid 1,052 661
</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 September 27,
1997, the condensed consolidated statements of operations for the
three-month and nine-month periods ended September 27, 1997 and
September 28, 1996, and the condensed consolidated statements of
cash flows for the nine-month periods ended September 27, 1997
and September 28, 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 September 27, 1997 and for all periods presented have
been made. The results for the nine-month period ended September
27, 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.
Reclassifications
-----------------
Reclassifications have been made to the third quarter condensed
consolidated balance sheet and condensed consolidated statement
of cash flows to more appropriately reflect purchase rebates
receivable as a reduction of accounts payable rather as
accounts receivable. The amounts previously recorded as accounts
receivable in the first and second quarters of 1997 were $1.5
million and $2.1 million respectively. Prior year amounts were
immaterial.
Share Data
----------
The Company issued 9,581 shares of Common Stock to members of
its board of directors as compensation, and employee warrants for
1,534 shares of Common Stock were also exercised, during the nine-
months ended September 27, 1997.
<PAGE 7>
2. LONG-TERM DEBT
--------------
Long-term debt is comprised of the following at September 27,
1997 (in thousands):
Revolving line of credit $ 110,287
Senior subordinated notes 100,000
Other 81
Less current maturities (57)
Total long-term debt $ 210,311
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 September 27, 1997 was
$19.4 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 adjustments 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 30 day LIBOR borrowing rate remains below
6.7%. At November 3, 1997 the 30 day LIBOR borrowing rate was
5.65%.
<PAGE 8>
3. INCOME TAXES
------------
The provision for income taxes for the nine-month period ended
September 27, 1997 was $.5 million compared to $.9 million for
the nine-month period ended September 27, 1996. An effective
federal income tax rate of 39.1% was used to calculate federal
income taxes for the first nine months of 1997, compared with an
effective rate of 38.5% for the first nine 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.
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
net rent expense (selling, general and administrative expenses)
more than offset by reduced interest expense.
At September 27, 1997, the Company had accrued approximately
$1.0 million (included in accrued liabilities at September 27,
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.
<PAGE 9>
The Company is one of many defendants in approximately 114
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.
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 nine month periods ending September 27, 1997 and
September 28, 1996.
<PAGE 10>
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.
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 Nine Months Ended
------------------ -----------------
Sept. 27, Sept. 28, Sept. 27, Sept. 28,
1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0%
Gross profit 22.6% 21.7% 22.8% 22.2%
Selling, general and
administrative expense 19.2% 17.3% 20.5% 19.1%
Depreciation, goodwill and
trademark amortization 0.4% 0.5% 0.5% 0.6%
Provision for doubtful
accounts 0.1% 0.1% 0.1% 0.2%
Other operating income (0.8)% (0.5)% (0.7)% (0.6)%
Income from operations 3.7% 4.3% 2.4% 2.9%
</TABLE>
Net Earnings
- ------------
Net income for the three months ended September 27, 1997 was
$1,833,000 compared with $2,843,000 for the three months ended
September 28, 1996. The net loss for the nine months ended
September 27, 1997 was $2,015,000 compared with a loss of
$1,450,000 for the nine months ended September 28, 1996. The
decrease in net income for the three-month period primarily
results from increases in selling, general and administrative
expenses ("SG&A") and equity in loss of affiliated company
partially offset by increased sales and gross profit, increased
other operating income, and decreases in depreciation, goodwill
and trademark amortization, and provision for income taxes. The
decrease in net income for the nine-month period primarily
results from an increase in selling, general and administrative
expenses ("SG&A") partially offset by increased sales and gross
profit, increased other operating income, and decreases in
provision for doubtful accounts, interest expense, equity in loss
of affiliated company, depreciation, goodwill and trademark
amortization, and provision for income taxes.
<PAGE 12>
Operational Restructuring
- -------------------------
For information concerning an operational restructuring,
announced by the Company on October 17, 1997, that involves
segmentation of the Company's core business, the closing of
several building material centers, the sale of several
non-core programs and the reduction of staffing levels,
see "Item 5. Other Events" and the
Company's press release included herein as Exhibit 99.1 and
incorporated herein by this reference.
Three Months Ended September 27, 1997 Compared
with the Three Months Ended September 28, 1996
Net Sales
- --------- -
Net sales for the third quarter of 1997 increased 4.2% to
$266.3 million from $255.6 million for the third quarter of 1996.
Same store sales increased 4.9% compared with the same period
last year. Same store sales to the Company's primary customers,
building professionals, increased 5.9% when compared with the
third quarter of 1996. Consumer same store sales were down 5.9%
for the quarter. As of September 27, 1997 the Company operated
111 building centers, one more than it operated at the end of the
third quarter of 1996. The Company estimates that deflation in
lumber prices reduced total sales for the quarter by
approximately $1.9 million, compared with the 1996 comparable
period.
Gross Profit
- ------------
1997 third quarter gross profit increased to $60.3 million
from $55.5 million for the third quarter of 1996, a 8.6%
increase. Gross profit as a percent of sales increased to 22.6%
for the third quarter of 1997 from 21.7% in 1996. The increase
in gross profit as a percent of sales is primarily attributable
to improved product costs. Sales to building professionals, as a
percent of total sales, increased to 84.7% for the third quarter
of 1997 from 83.1% for the same period in 1996. Lumber and
building materials accounted for 89.0% of the materials sold in
the third quarter of 1997, compared with 89.6% of the materials
sold in the third quarter of 1996.
<PAGE 13>
Selling, General and Administrative Expense
- -------------------------------------------
SG&A expense increased to 19.2% of net sales in the third
quarter of 1997 compared with 17.3% of net sales in the third
quarter of 1996. Much of the increase is attributable to market
expansion programs and the Company's decision to remerchandise
certain facilities and invest in programs to support sales
improvement. The showrooms in four facilities were
remerchandised and the Company opened two new building centers
and one component manufacturing facility during the third
quarter. Costs associated with pre-opening expenses for new
facilities and remerchandising of existing showrooms amounted to
$500,000 for the quarter. Another four building centers and one
component facility were also opened during the first half of the
year. Total SG&A expense attributable to these start-up
operations amounted to $3.0 million during the third quarter of
1997.
The discontinued programs and staffing reductions discussed in
the operational restructuring, announced by the Company on
October 17, 1997, account for approximately $2.1 million in third
quarter SG&A expense. See Item. 5 "Other Information" for a more
detailed description of this plan.
Increases, as a percent of sales, in salaries and wages,
maintenance, travel, professional fees, supplies, employee
relocation, casualty insurance, rental expense and marketing were
partially offset by reductions in health insurance costs.
Salaries, wages and employee benefits increased, as a percent of
sales, by 0.9%. As of September 27, 1997, the Company had 4,168
full time and part time employees, up 292 from September 28,
1996.
Depreciation, Goodwill and Trademark Amortization
- -------------------------------------------------
Depreciation, goodwill and trademark amortization decreased to
$1.1 million for the third 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
- -------------------------------
The provision for doubtful accounts remained relatively the same
for the third quarters of 1997 and 1996, an expense of $0.3 million.
<PAGE 14>
Other Operating Income
- ----------------------
Other operating income for the third quarter of 1997 was $2.1
million, or 0.8% of sales. During the third quarter of 1996,
other operating income was $1.4 million or 0.5% of sales. The
Company recorded a gain of approximately $700,000 on the sale of
previously closed building centers during the third quarter of
1997. There were no significant gains on the sale of excess real
estate recorded in the third quarter of 1996.
Interest Expense
- ----------------
In the third quarter of 1997 interest expense was relatively
unchanged when compared with the third quarter of 1996, at
approximately $5.5 million. The Company did experience an
increase in average total long term debt of approximately $17.9
million which was offset by a decrease in the effective borrowing
rate on total long term debt for the third quarter of 57 basis
points, when compared with the third quarter of 1996. The
decrease in the effective borrowing rate is 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 94% 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 1997, the Company recorded a loss of
$0.7 million, under the equity method, with respect to its
investment in its affiliate engaged in operations in Russia. In
the third quarter of 1996 the Company recorded a loss of $0.3
million.
Provision for Income Taxes
- --------------------------
The Company recorded income tax expense of $1.8 million for
the third quarter of 1997 compared with expense of $2.4 million
in the third quarter of 1996. An effective federal income tax
rate of 39.1% was used to calculate federal income taxes for the
third quarter of 1997, compared with an effective rate of 38.5%
for the third 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 made pursuant
to the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995 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>
Nine Months Ended September 27, 1997 Compared
with the Nine Months Ended September 28, 1996
Net Sales
- ---------
Net sales for the first nine months of 1997 increased 4.1% to
$663.0 million from $636.9 million for the first nine months of
1996. Same store sales increased 4.6% compared with the same
period last year. Same store sales to the Company's primary
customers, building professionals, increased 5.8% when compared
with the first nine months of 1996. Consumer same store sales
were down 6.4% for the first nine months. As of September 27,
1997 the Company operated 111 building centers, one more than it
operated at the end of the first nine months of 1996. The
Company estimates that inflation in lumber prices accounted for
approximately $8.5 million of the sales increase for the first
nine months of 1997, compared with the 1996 comparable period.
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 nine months of 1997 increased to
$151.5 million from $141.6 million for the first nine months of
1996, a 7.0% increase. Gross profit as a percent of sales
increased to 22.8% for the first nine months of 1997 from 22.2%
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 building professionals, as a percent of
total sales, increased to 86.2% for the first nine months of 1997
from 84.4% for the same period in 1996. Lumber and building
materials accounted for 88.8% of the materials sold in the first
nine months of 1997, compared with 88.1% of the materials sold in
the first nine months of 1996.
<PAGE 16>
Selling, General and Administrative Expense
- -------------------------------------------
SG&A expense increased to 20.5% of net sales in the first nine
months of 1997 compared with 19.1% of net sales in the first nine
months of 1996. Much of the increase is attributable to market
expansion programs and the Company's decision to remerchandise
certain facilities and invest in programs to support sales
improvement. The showrooms in four facilities were
remerchandised and the Company opened six new building centers
and two component manufacturing facilities in the first nine
months of 1997. Costs associated with pre-opening expenses for
new facilities and remerchandising of existing showrooms amounted
to $1.1 million during the first nine months of 1997. Total SG&A
expense attributable to these new start-up operations amounted to
approximately $4.7 million during the first nine months of 1997.
The Company has also expended $500,000 on new sales training
programs through the first nine months of 1997.
The discontinued programs and staffing reductions discussed in
the operational restructuring, announced by the Company on
October 17, 1997, account for approximately $6.4 million of SG&A
expense through the first nine months of 1997. See Item. 5
"Other Information" for a more detailed description of this plan.
Increases, as a percent of sales, in salaries and wages,
maintenance, travel, professional fees, training costs, office
supplies and marketing were partially offset by reductions in
health and casualty insurance costs, utilities and delivery
expense. Total salaries and wages increased, as a percent of
sales, by 0.7%. As of September 27, 1997, the Company had 4,168
full time and part time employees, up 292 from September 28,
1996.
Depreciation, Goodwill and Trademark Amortization
- -------------------------------------------------
Depreciation, goodwill and trademark amortization decreased to
$3.5 million for the first nine months of 1997 compared with $4.1
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 $0.9 million or
0.1 % of sales for the first nine months of 1997 compared with
$1.1 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.
<PAGE 17>
Other Operating Income
- ----------------------
Other operating income for the first nine months of 1997 was
$4.5 million, or 0.7% of sales. Other operating income for the
first nine months of 1996 was $3.9 million or 0.6% of sales.
During 1997 the Company recorded gains of approximately $1.3
million on the sale of previously closed building centers. In
the first nine months of 1996 the Company did not experience any
significant gains on the sale of excess real estate but did
record 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 nine months of 1997 interest expense decreased
4.5% to $15.9 million compared with $16.6 million in the first
nine months of 1996. This reduction reflects a decrease in the
Company's effective borrowing rate on total long-term debt of 23
basis points. Average borrowings on the Company's revolving
credit facility were relatively unchanged for the first nine
months of 1997 from the first nine months of 1996. Approximately
90% of the Company's first nine months average borrowings on its
revolving credit facility were LIBOR-based.
Equity in Loss of Affiliated Company
- ------------------------------------
In the first nine months of 1997, the Company recorded a loss
of $1.5 million, under the equity method, with respect to its
investment in its affiliate engaged in operations in Russia. In
the first nine months of 1996 the Company recorded a loss of $2.3
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 a provision for income taxes of $0.5
million for the first nine months of 1997 compared with a
provision of $0.9 million in the first nine months of 1996. An
effective federal income tax rate of 39.1% was used to calculate
federal income taxes for the first nine months of 1997, compared
with an effective rate of 38.5% for the first nine months 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.
<PAGE 18>
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 made pursuant
to the Private Securities Litigation Reform Act of 1995 and is
inherently subject to the uncertainties discussed under the
heading "Provision for Income Taxes" in the comparative
discussion of third quarter operations.
<PAGE 19>
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.
During the first nine months of 1997 the Company generated
negative cash flows from operating activities of $38.7 million.
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.
The third quarter traditionally provides cash through operating
income and reductions in inventory as the Company begins its
seasonal adjustments. The Company did experience positive cash
flow from both activities during the third quarter of 1997, but
an increase in accounts receivable and reductions in accounts
payable resulted in negative cash flow of $5.5 million for the
quarter.
The Company's accounts receivable balance at the end of the
third quarter of 1997 increased $12.6 million when compared to
the end of the third quarter of 1996, an increase of 13.9%.
Approximately $8.2 million of this increase is attributable to
increased credit sales during September of 1997, when compared
with September of 1996.
Inventory at the end of the third quarter of 1997 was $9.5
million, or 8.8%, higher than at the end of the third quarter of
1996. This increase is largely attributable to special buys on
commodity building materials to support new programs and
remerchandised showrooms as well as the start-up of six new
building centers and two component manufacturing facilities.
Roofing, drywall, insulation and vinyl siding account for $9.3
million of the inventory increase. Accounts payable at the end
of the third quarter of 1997 were down approximately $3.1 million
from the third quarter of 1996, primarily from an increase in
accrued purchase rebates from inventory suppliers of
approximately $3.3 million, see Note 1 of Notes to Condensed
Consolidated Financial Statements included elsewhere herein.
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 for both existing and new
operations. In the first nine months of 1997 the Company spent
$5.0 million on capital expenditures as compared to $2.6 million
for the same period in 1996. The Company expects to spend
approximately $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 20>
Through the first nine months of 1997, the Company has begun
operations in six start-up building center facilities located in
Aurora, Illinois, Colorado Springs, Colorado, Denton, North
Carolina, Denver, Colorado, Niles, Michigan, and a second facility
in Pensacola, Florida. The Company has also opened a new door and
wall panel manufacturing facility in Denver, Colorado and a wall
panel manufacturing facility in Denton, North Carolina. The
Pensacola and Niles facilities are located in previously closed
facilities owned by the Company. The remaining facilities are
leased. Since the beginning of the year the Company has also
closed or consolidated three building centers and two component
manufacturing facilities. The following table reconciles the
number of building centers and component manufacturing facilities
operated by the Company, through October 30, 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
Expansion 2 1
Consolidation (1) (1)
Closing (2) -
--- ---
As of September 27,1997 111 12
The Company maintained excess availability under its revolving
line of credit throughout the first nine months of 1997. At the
end of the first nine months of 1997 total borrowings under the
revolving line of credit were $20.9 million higher than at the
end of the first nine months of 1996. 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 September
27, 1997, $110.3 million was outstanding under the Company's
revolving line of credit, and the unused availability was
approximately $19.4 million. The Company's assessment of its
future funds availability constitutes Forward-Looking Information
made pursuant to the Private Securities Litigation Reform Act of
1995 and is inherently subject to uncertainty resulting from,
among other things, the factors discussed under "Results of
Operations - Provision for Income Taxes".
<PAGE 22>
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.
PART II
-------
OTHER INFORMATION
-----------------
Item 5. Other Information
On October 17, 1997 the Company announced a plan to
streamline operations, reduce SG&A expense, and focus on its core
professional builder business. In addition to the closing of
several building material centers, the Company expects to sell or
close several non-core programs, such as its mortgage lending
program and its Internet and utilities marketing operations, and
to write-off its remaining investment in its Russian affiliate by
the end of 1997. The Company has entered into an agreement with
Riverside Group, Inc., its majority stockholder, pursuant to
which Riverside proposes, subject to obtaining adequate
financing, to acquire certain of these non-core operations from
the Company. This agreement was approved by a committee
comprised of the independent members of the Company's Board of
Directors. The Company also announced it was reducing its
headquarters staffing by approximately 15%. These programs and
eliminated positions accounted for approximately $8.5 million in
SG&A expense and net losses of approximately $4.4 million, over
the most recent 12 month period. It is expected that most of
these reductions will be completed by the end of 1997.
For further information, see the press release issued by the
Company on October 17, 1997 included herein as Exhibit 99.1 and
incorporated herein by this reference.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.1 Agreement dated November 4,1997, between the
Company and Riverside Group, Inc.
11.1 Statement regarding computation of earnings per share.
27.1 Financial data schedule (SEC use only).
99.1 Press Release Issued by the Company on October 17, 1997
(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 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: November 10, 1997
November 4, 1997
Wickes Inc.
706 North Deerpath Drive
Vernon Hills, Illinois 60061
Re: Agreement for Acquisition of Operations
Ladies and Gentlemen:
This letter will set forth our mutual agreements with
respect to:
i. the transfer by Wickes Inc. ("Wickes") to
Riverside Group, Inc. ("Riverside") of the
Wickes Plus/wickes.net Operations (as
hereinafter defined);
ii. the transfer by Wickes to Riverside of the
opportunity to invest in the MDF Plant (as
hereinafter defined); and
iii. the granting of a right of first refusal by
Wickes and certain purchase rights to
Riverside with respect to Wickes' interest in
Riverside International LLC ("RIC LLC").
1. Wickes Plus/wickes.net Operations. (a) The Transfer.
On and subject to the terms and conditions of this Agreement,
Riverside agrees to acquire from Wickes, and Wickes agrees to
sell, transfer, convey, and deliver to Riverside, the Wickes
Plus/wickes.net Operations for the consideration specified below.
The transfer shall be effective five days after notice from
Riverside of its determination to proceed, and shall occur, if at
all, no later than December 31, 1997. This acquisition, sale and
transfer will be accomplished through:
i. the assignment by Wickes to Riverside of all
of its right, title and interest in and to,
and the assumption by Riverside of all
Wickes' obligations under, the agreements
listed on Schedule 1 hereto (the "Wickes
Plus/wickes.net Agreements");
ii. the transfer to Riverside by Wickes of the
assets listed on Schedule 2 the ("Wickes
Plus/wickes.net Assets") hereto; and
iii. the transfer, to the extent possible, of
Wickes' parent-company and building center
positions in the multi-level marketing
programs established or being established by
Wickes with respect to the marketing of
natural gas, electricity, telephony and
internet services (the "MLM Programs") and
the continuation at least through March 31,
1998 (but not later than June 30, 1998) of
Wickes' involvement in the MLM Programs as
set forth on Schedule 3 hereto.
(b) Consideration. In addition to the assumption of
obligations set forth above, in consideration of the acquisition,
sale and transfer of the Wickes Plus/wickes.net Operations,
Riverside agrees to pay to Wickes:
i. 10% of the gross payments received within one year
after the date of the transfer by the Wickes
Plus/wickes.net Operations from end-user customers in
place September 28, 1997, payable on a monthly basis.
ii. An amount in cash, payable at the time of the transfer,
equal to the sum of (A) the book value of the Wickes
Plus/wickes.net Assets shown on Wickes' financial
statements and (B) the operating expenses of the Wickes
Plus/wickes.net Operations from October 1, 1997 through
the date of the transfer, reduced by the revenues
generated and future expense reductions (e.g., by
"Excel bonus" offsets under Wickes' Excel sponsorship
arrangements with certain of its employees) such
operations during such period.
iii. Installments (applied first to accrued and unpaid
interest described below at the date of payment)
payable in cash within 45 days after the end of each
calendar quarter equal to 10 percent of the net income
generated by the Wickes Plus/wickes.net Operations
during such quarter; provided that aggregate amount of
such installments shall be limited to the cumulative
operating expenses of the Wickes Plus/wickes.net
Operations prior to September 28, 1997, reduced by (I)
the revenues generated by such operations during such
period and (II) severance and related costs with
respect to persons hired or offered to be hired by
Riverside that would have been incurred by Wickes had
the Wickes Plus/wickes.net Operations been terminated
on September 28, 1997 increased by interest on the
aggregate unpaid amount from September 28, 1997 at the
rate which Bankers Trust Company announces from time to
time as its prime lending rate, as in effect from time
to time. Should the payment with respect to any
quarter be insufficient to pay accrued and unpaid
interest at the end of such quarter, any unpaid
interest shall be added to the unpaid amount and bear
interest effective at the end of such quarter.
(c) Use of Name and Trademark. On the date of the
transfer, Riverside will, and Wickes will cause Lumber Trademark
Company to, enter into a Trademark License Agreement
substantially in the form of Exhibit A hereto.
(d) Employees. In connection with the transfer, Wickes
will permit Riverside to hire such of its employees whose
responsibilities are primarily related to the Wickes
Plus/wickes.net Operations.
(e) Non-competition. Except as contemplated hereby, Wickes
will not, for a period of three years from the transfer, directly
or indirectly engage anywhere in the United States in the
marketing, sale or supply of natural gas, electricity, telephony,
internet access services, or third-party internet or third-party
World Wide Web content services.
(f) Conditions. Riverside's obligation to effect the
acquisition of the Wickes Plus/wickes.net Operations is subject
to (i) the approval of Riverside's Board of Directors and (ii)
the obtaining by Riverside of financing for the continued
operation of the Wickes Plus/wickes.net Operations satisfactory
to Riverside in its sole discretion, which Riverside agrees to
use reasonable efforts to obtain. Wickes' obligation to effect
the acquisition of the Wickes Plus/wickes.net Operations is
subject to the required approval or non-disapproval of Wickes'
bank lenders.
(g) Termination. If the transfer has not been effected by
January 1, 1998, either Wickes or Riverside may unilaterally
terminate the provisions of this paragraph 1.
(h) Definition of "Wickes Plus/wickes.net Operations." As
used herein, "Wickes Plus/wickes.net Operations" means all of
Wickes' activities in furtherance of the Wickes Plus/wickes.net
Agreements and activities directly related to the marketing, sale
or supply of natural gas, electricity, telephony, internet
services, or third-party internet or third-party World Wide Web
content services and advertising (including the operations
currently conducted or proposed to be conducted under the
wickes.net, wickes.net, and Wickes Energy names).
(i) Operations Pending Transfer. The parties acknowledge
that from and after the date hereof, Wickes will not hire
additional staff or acquire additional assets to support the
Wickes Plus/wickes.net Operations and will take all reasonably
practicable steps to defer the acquisition of previously ordered
assets until the transfer has been effected.
2. MDF. Wickes agrees to transfer to Riverside Wickes's
opportunity, if any, to invest directly or indirectly in the
manufacturing plant (the "MDF Plant") currently proposed to built
by Fay-Penn Fiber, Ltd. and its promoters ("Fay-Penn");
provided, that Wickes shall have determined not to make such
investment itself and such determination shall have been reviewed
and approved by the Related Party Committee of Wickes' Board of
Directors. If there is no comparable investment offered by Fay-
Penn to other investors, as determined by Wickes in its sole
discretion, at the time Riverside makes such an investment
Riverside shall pay Wickes such amount in cash as shall be
determined by Wickes to be fair at the time. In order to
effectuate the terms of this paragraph 2, Riverside agrees to
give Wickes at least 15 days prior notice before making any
direct or indirect investment in the MDF Plant.
3. RIC LLC. (a) Right of First Refusal. In consideration
of the payment of $10.00 by Riverside, Wickes hereby agrees:
i. not to dispose directly or indirectly of any
of its interest in RIC LLC other than to a
subsidiary of Wickes, within the meaning of
the indenture related to Wickes' 11-5/8%
Subordinated Notes (a "Wickes Subsidiary")),
or to permit any Wickes Subsidiary to effect
such a disposition, unless it shall have
given Riverside 30 days' advance notice of
the terms of such sale and Riverside shall
not have offered within such 30-day period to
acquire such interest on the terms described
in the notice; if Riverside shall have made
such an offer, Wickes or such Wickes
Subsidiary shall promptly accept such offer
and such purchase shall be promptly effected;
if Riverside shall not have made such an
offer, Wickes or such Wickes Subsidiary may
sell such interest on terms no less favorable
to Wickes; provided, that no such sale may be
completed after 180 days after Wickes' notice
to Riverside without repeating the procedures
set forth in this paragraph; and
ii. in connection with any Business Combination
(as hereinafter defined) effected within one
year after the date hereof, Wickes will use
reasonable efforts to determine the value
placed in such Business Combination on
Wickes' interest in RIC LLC in determining
the consideration to be paid in such Business
Combination and to cause at least Riverside's
pro rata interest (through Wickes) in RIC LLC
to be offered to Riverside for purchase prior
to or in connection with such Business
Combination at such value (or pro rata
portion thereof).
(b) Definition of "Business Combination." As used herein,
"Business Combination" means a transaction involving a merger,
consolidation or similar transaction involving Wickes in which
shareholders of Wickes prior to the merger hold less than a
majority of the voting interest in the surviving or acquiring
corporation, any sale by Wickes of substantially all of its
assets or the issuance by Wickes in a transaction or series of
related transactions of voting securities representing a majority
of the voting interest in Wickes.
Please indicate your agreement with the foregoing by signing
a copy of this letter agreement in the space provided below.
Very truly yours,
RIVERSIDE GROUP, INC.
By /s/ Kenneth M. Kirschner
------------------------
Vice Chairman
Agreed:
WICKES INC.
By /s/ David T. Krawczyk
---------------------
President & Chief Operating Officer
List of Schedules:
Schedule 1 - Wickes Plus/wickes.net Agreements
Schedule 2 - Wickes Plus/wickes.net Assets
Schedule 3 - MLM Programs
Schedule 1
Wickes Plus/wickes.net Agreements
1. Agreement dated April 8, 1997 among Wickes, Riverside and
KeySpan Energy Services, Inc.
2. Agreement dated August 28, 1997 between Wickes Energy and
Power Alternatives, Inc.
3. Consulting agreements with Herb Navis, Edward Carey and
others related to energy marketing and supply.
4. All agreements and arrangements with Excel Communications,
Inc. related to marketing of telephony services.
5. All other agreements primarily involving the Wickes
Plus/wickes.net Operations.
Schedule 2
Wickes Plus/wickes.net Assets
1. All assets utilized primarily in the Wickes Plus/wickes.net
Operations.
Schedule 3
MLM Programs
1. To the extent not unreasonably disruptive to Wickes'
operations, Riverside will be permitted conduct
enrollment and other meetings at Wickes' Headquarters
and building centers.
2. The building centers (including new roll-outs) will
continue their bonus pool programs other than
sponsorship on their current terms, with funds supplied
or arranged by Riverside.
3. Employees will be permitted to continue involvement
pursuant to procedures designed to ensure minimal
disruption of Wickes' normal operations..
COMPUTATION OF EARNINGS PER SHARE
AND EQUIVALENT SHARES OF COMMON STOCK
(Unaudited)
(thousands except share and per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------ -----------------
Sept. 27, Sept. 28, Sept. 27, Sept. 28,
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 8,169,643 8,155,390 8,166,325 6,890,919
2. Net additional common equivalent
shares assuming exercise of common stock
warrants as computed under the treasury
stock method 9,874 11,139 10,273 12,128
--------- --------- --------- ---------
3. Weighted average number of shares
and equivalent shares of common stock
outstanding during the period 8,179,517 8,166,529 8,176,598 6,903,047
========= ========= ========= =========
Income (Loss)
4. Net income (loss) available for
common stock $ 1,833 $ 2,843 $ (2,015) $ (1,450)
========= ========= ========= =========
Per Share Amounts
5. Earnings (loss) $ 0.22 $ 0.35 $ (0.25) $ (0.21)
========= ========= ========= =========
</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.
Wickes Inc.
706 North Deerpath Drive
Vernon Hills, IL 60061
TRADED: NASDAQ
SYMBOL: WIKS
AT THE COMPANY: AT THE FINANCIAL RELATIONS
BOARD:
George Bajalia, CFO Jeff Wescott -- General
(847) 367-3551 Inquiries:
875 N. Michigan Avenue
Jim Hopwood Chicago, IL 60611
(847) 367-3552 (312) 266-7800
FOR IMMEDIATE RELEASE
FRIDAY, OCTOBER 17, 1997
WICKES ANNOUNCES MAJOR OPERATIONAL RESTRUCTURING;
EXPECTS TO REPORT THIRD QUARTER REVENUE AND MARGIN IMPROVEMENTS
Vernon Hills, IL, October 17, 1997 -- Wickes Inc. (Nasdaq: WIKS)
today announced a major operational restructuring to streamline
operations and focus on its core professional builder business.
Wickes will divide its operations into four segments; 18 Major
Markets, 79 Conventional Markets, Wickes Direct, and
Manufacturing. Each of these distribution channels offer
different services and in some cases different products.
Overhead costs and programs not directly tied to supporting these
business segments will either be sold or discontinued by year-
end. For the twelve months ended June 28, 1997, these expenses
and discontinued operations reduced operating income by more than
$4.5 million and contributed $4.4 million, or $0.54 per share, in
net losses.
"The pro forma effects of these major restructuring actions are
substantial," said J. Steven Wilson, Chairman and Chief Executive
Officer. "We believe these cost and program reductions will
allow the Company to focus better on its core builder business
and improve its operating performance. Our current major market
program, remerchandised conventional market program, direct sales
and value added manufacturing operations will continue to be key
components of our business."
The Company also indicated that it expects to report continued
revenue and gross margin gains when it publishes third quarter
results later in the month. Operating and net income for the
third quarter are expected to be positive but lower than the
third quarter of 1996 due to continued investments in its store
reset, new market initiatives and other pilot programs.
Included in the Company's non-core programs expected to be sold
are: the Company's mortgage lending program, the Company's
utilities marketing operations and its internet operations not
directly related to its building supply business. In addition,
the Company's remaining investment in its Russian timber and
logging
- MORE -
operations will be written off by year-end. For the twelve
months ended June 28, 1997, the Company's results of operations
included more than $1.5 million in SG&A spending related to these
programs and $2.0 million in losses on its equity investment in
Russia which contributed a combined $2.2 million, or $0.27 per
share, in net losses during this twelve month period.
The Company has further reviewed its administrative structure and
has reorganized certain functions for increased efficiency and is
implementing an overall 15% reduction in headquarters staffing
levels. These changes will result in approximately $2.0 million
in SG&A savings on an annualized basis. For the twelve months
ended June 28, 1997, the Company's results included approximately
$1.9 million in SG&A spending for these eliminated positions and
$1.1 million, or $0.135 per share, in net losses.
Underperforming centers recently closed are Gurnee, IL; North
Haven, CT and South Haven, MI. In addition, the manufacturing
operation located in Mansfield, OH is being combined with
manufacturing sites throughout the Company. For the twelve
months ended June 28, 1997, these operations reported combined
operating losses of $1.1 million and contributed $1.1 million, or
$0.135 per share, in net losses.
"We are pleased with the continued improvement in our strategy to
serve the professional segment," added Wilson. "Our professional
mix has grown to 86% through the third quarter of 1997 compared
to 84% and 81% in 1996 and 1995, respectively. We have also been
successful expanding our product mix and manufacturing margins
resulting in higher overall gross margins."
Beginning in 1997, the Company increased its emphasis on Major
Markets which serve the large national builder by expanding in
three of these high growth markets. Through the first half of
1997, sales in these three Major Markets have increased 30%, or
$6.5 million, over the same period last year. In the third
quarter, sales growth continued -- increasing 46.1%, or $5.1
million over last year's third quarter. The Company stated that
the startup costs and capitalized investments of these three
Major Market expansions were $346,000 and $297,000, respectively,
through the second quarter ended June 28, 1997. "We are very
pleased with this initial growth," stated Mr. Wilson. "We remain
committed to and confident in the market potential of this
business segment and are in the beginning stages of rolling out
this program into two additional markets."
The 79 Conventional Markets or "Reset Centers" are located in
smaller markets and serve small to medium builders and R&R
contractors. The Company has completed remerchandising and
remarketing programs in four Reset Centers to better support the
dominant professional customer segments, the repair and remodel
contractor and the custom homebuilder. An additional four
centers will be reset by October 31, 1997. Tool rental
operations are now present in 15 of these centers and represent a
very profitable opportunity for the Company in future quarters.
Second quarter sales (of the two Reset Centers) increased 51.1%
over last year's second quarter and third quarter sales (of the
four Reset Centers) increased 16.8% over the comparable period
last year. Mr. Wilson added, "Management will focus on
improving the overall operating and marketing plans of the eight
completed Reset Centers during the winter months to perfect the
strategy. We will then continue the reset of other conventional
market centers in the spring." Through the second quarter ended
June 28, 1997, the Company has invested $239,000 in pre-opening
reformat costs and inventory liquidations and $129,000 in
capitalized investments to support these Reset Center efforts.
- MORE -
Wickes Direct, the Company's direct ship division, complements
the other Wickes operations where direct shipment provides added
services and value to our customers and gives the company the
ability to expand economically into new markets not currently
being served as well as internationally. Sales in this division
have grown substantially, with increases of 166.0%, or $3.1
million, and 283.0%, or $7.7 million, in the second and third
quarters, respectively, over comparable periods in the prior
year.
To complement the expansion of center operations in major
markets, Wickes has greatly expanded its manufacturing
operations, which are now a core focus of the Company. These
expanded manufacturing operations will allow value-added products
and services to be provided to Wickes' customers in these
markets. By year end, the Company will have an annual capacity
to panelize 15,000 houses, manufacture 15,000 truss packages and
pre-hang over 300,000 interior and exterior doors. Start-up
expenses and capitalized costs associated with the expansion, a
portion of which are included in the major market totals, were
$248,00 and $453,000, respectively through June 28, 1997.
Wickes Lumber Company is headquartered in Vernon Hills, Illinois.
Wickes is one the largest suppliers of building materials in the
United States and had over $848 million in sales in 1996.
Serving builders, trade contractors, remodelers and serious-do-it-
yourselfers, Wickes distributes materials nationally and
internationally, and operates building centers in 24 states in
the Midwest, Northeast and South. Wickes' component
manufacturing facilities produce pre-hung door units, window
assemblies, roof and floor trusses and framed wall panels.
Further information and services can be located at the Wickes Web
site, http://www.wickes.com.
Safe Harbor For Forward-Looking Statements
- ------------------------------------------
Statements contained herein which are not historical facts
are forward-looking statements within the meaning of the
Securities Act of 1933 and the Securities Exchange Act of 1934
which are intended to be covered by the safe harbors created
thereby. For a summary of important facts which could cause the
Company's actual results to differ materially from those included
in, or inferred by, the forward-looking statements, refer to the
Company's Form 10-K and other documents, which are on file with
the Securities and Exchange Commission.
FOR MORE INFORMATION ON WICKES INC. VIA FACSIMILE AT NO COST,
SIMPLY DIAL 1-800-PRO-INFO AND ENTER THE TICKER SYMBOL WIKS
- TABLES TO FOLLOW -
The pro forma impact of this major restructuring is as follows:
<TABLE>
<CAPTION>
Six Months Ended 6/28/97 Twelve Months Ended 6/28/97
------------------------ ---------------------------
Discontinued Discontinued
Operations Operations
and Staffing Pro and Staffing Pro
Actuals Reductions Forma Actuals Reductions Forma
------- ---------- ------- ------- ---------- -------
<S> <C> <C> <C> <C> <C> <C>
Net sales 396,654 (8,939) 387,715 863,909 (22,949) 840,960
Cost of sales 305,400 (7,427) 297,973 669,331 (18,632) 650,699
--------- -------- --------- --------- --------- ---------
Gross profit 91,254 (1,512) 89,742 194,578 (4,317) 190,261
Selling, general and
administrative expense 84,689 (4,363) 80,326 169,026 (8,677) 160,349
Depreciation, goodwill
and trademark amortization 2,417 (73) 2,344 5,014 (163) 4,851
Provision for doubtful
accounts 583 (65) 518 759 (32) 727
Other operating income (2,478) 11 (2,467) (5,672) 32 (5,640)
--------- --------- --------- --------- --------- ---------
Income from operations 6,043 2,978 9,021 25,451 4,523 29,974
Interest expense 10,411 (274) 10,137 20,989 (627) 20,362
Equity in loss of
affiliated company 766 (766) - 2,018 (2,018) - -
--------- --------- --------- --------- --------- ---------
Income (Loss) before
income taxes (5,134) 4,018 (1,116) 2,444 7,168 9,612
Provision for income taxes(1,286) 1,568 282 1,490 2,796 4,286
--------- --------- --------- --------- --------- ---------
Net income (loss) (3,848) 2,450 (1,398) 954 4,372 5,326
--------- --------- --------- --------- --------- ---------
Per share data: --------- --------- --------- --------- --------- ---------
Net income (loss)
per common share (0.47) 0.30 (0.17) 0.12 0.54 0.65
Weighted average common
and common equivalent
shares outstanding 8,175,138 8,175,138 8,175,138 8,171,670 8,171,670 8,171,670
EBITDA 8,460 2,905 11,365 30,465 4,360 34,825
Summary of Growth Programs
--------------------------
Quarters Ended
--------------
3/29/97 3/30/96 6/28/97 6/29/96 9/27/97 9/28/96
-------- ------- ------- ------- ------- -------
Major Markets (a)
- -----------------
Sales $ 12,729 10,065 15,277 11,481 16,190 11,081
Growth % 26.5% 33.1% 46.1%
Pre-opening costs through 6/28/97 (c) 346
Capitalized investment through 6/28/97 297
(a) includes results for operations in Denver, CO;
Raleigh/Charlotte, NC and Pensacola, FL.
Conventional Market Resets (b)
- ------------------------------
Sales $ 5,251 3,475 7,973 6,825
Growth % 51.1% 16.8%
Pre-opening costs through 6/28/97 (c) 239
Capitalized investment through 6/28/97 129
(b) includes results of two centers reset in the second quarter
and the results of four centers in the third quarter.
(c) third quarter pre-opening costs and capital investments will
be reported with the third quarter financial release.
- ### -
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMANTION EXTRACTED FROM THE
SEPTEMBER 27, 1997 FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-27-1997
<PERIOD-END> SEP-27-1997
<CASH> 78
<SECURITIES> 0
<RECEIVABLES> 110700
<ALLOWANCES> 3336
<INVENTORY> 117970
<CURRENT-ASSETS> 238491
<PP&E> 77201
<DEPRECIATION> 31175
<TOTAL-ASSETS> 319864
<CURRENT-LIABILITIES> 83265
<BONDS> 100000
0
0
<COMMON> 82
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 319864
<SALES> 662978
<TOTAL-REVENUES> 662978
<CGS> 511448
<TOTAL-COSTS> 511448
<OTHER-EXPENSES> 136228
<LOSS-PROVISION> 884
<INTEREST-EXPENSE> 15902
<INCOME-PRETAX> (1484)
<INCOME-TAX> 531
<INCOME-CONTINUING> (2015)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2015)
<EPS-PRIMARY> (0.25)
<EPS-DILUTED> 0
</TABLE>
