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 March 28, 1998 Number 0-22468
-------------- -------
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 April 30, 1998, the Registrant had 8,194,644 shares of Common Stock, par
value $.01 per share, and no shares of Class B Non-Voting Common Stock, par
value $.01 per share, outstanding.
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<TABLE>
<CAPTION>
WICKES INC. AND SUBSIDIARIES
INDEX
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Page
Number
------
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
March 28, 1998 and December 27, 1997 (unaudited) 3
Condensed Consolidated Statements of Operations
For the three months ended March 28, 1998 and
March 29, 1997 (Unaudited) 4
Condensed Consolidated Statements of Cash Flows
For the three months ended March 28, 1998 and
March 29, 1997 (Unaudited) 5
Notes to Condensed Consolidated
Financial Statements (Unaudited) 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 12
PART II. OTHER INFORMATION
Item 5. Other Information 20
Item 6. Exhibits and Reports on Form 8-K 20
</TABLE>
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WICKES INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(in thousands except share data)
<TABLE>
<CAPTION>
March 28, December 27,
1998 1997
--------- -----------
ASSETS
<S> <C> <C>
Current assets:
Cash $ 72 $ 79
Accounts receivable, less allowance for doubtful
accounts of $4,764 in 1998 and $3,765 in 1997 74,825 81,788
Notes Receivable 1,062 3,200
Inventory 114,665 102,706
Deferred tax asset 13,121 8,955
Prepaid expenses 1,445 1,246
-------- --------
Total current assets 205,190 197,974
-------- ---------
Property, plant and equipment, net 45,181 46,763
Trademark (net of accumulated amortization of
$10,330 in 1998 and $10,274 in 1997) 6,690 6,745
Deferred tax asset 17,054 17,054
Rental Equipment (net of accumulated depreciation
of $269 in 1998 and $176 in 1997) 1,925 2,030
Other assets (net of accumulated amortization of
$8,409 in 1998 and $8,053 in 1997) 12,490 12,786
-------- --------
$288,530 $283,352
======== ========
LIABILITIES & STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt $ 37 $ 46
Accounts payable 48,993 41,190
Accrued liabilities 22,539 22,279
-------- --------
Total current liabilities 71,569 63,515
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Long-term debt, less current maturities 196,932 193,061
Other long-term liabilities 2,811 2,775
Commitments and contingencies (Note 4)
Common stockholders' equity:
Common stock (8,182,434 shares issued and
outstanding in 1998 and 8,176,205 shares
issued and outstanding in 1997) 82 82
Additional paid-in capital 86,691 86,675
Accumulated deficit (69,555) (62,756)
-------- --------
Total common stockholders' equity 17,218 24,001
-------- --------
$288,530 $283,352
======== ========
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
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WICKES INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(in thousands except share and per share data)
<TABLE>
<CAPTION>
Three Months Ended
------------------
March 28, March 29,
1998 1997
--------- ---------
<S> <C> <C>
Net sales $ 168,746 $ 159,319
Cost of sales 127,763 122,372
--------- ---------
Gross profit 40,983 36,947
--------- ---------
Selling, general and administrative expenses 40,595 37,782
Depreciation, goodwill and trademark amortization 1,266 1,188
Provision for doubtful accounts 1,333 1,046
Restructuring and unusual items 5,431 -
Other operating income (2,386) (844)
-------- --------
46,239 39,172
-------- --------
Loss from operations (5,256) (2,225)
Interest expense 5,422 5,152
Equity in loss of affiliated company - 553
-------- --------
Loss before income taxes (10,678) (7,930)
Provision for income tax benefit (3,879) (2,740)
-------- --------
Net loss $ (6,799) $ (5,190)
======== ========
Basic loss per common share $ (0.83) $ (0.64)
======== ========
Diluted loss per common share $ (0.83) $ (0.63)
======== ========
Weighted average common shares - for basic 8,181,850 8,162,831
========= =========
Weighted average common shares - for diluted 8,187,225 8,198,345
========= =========
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
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WICKES INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
(in thousands)
<TABLE>
<CAPTION>
Three Months Ended
------------------
March 28, March 29,
1998 1997
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (6,799) $ (5,190)
Adjustments to reconcile net loss to
net cash used in operating activities:
Equity in loss of affiliated company -- 553
Depreciation expense 1,149 1,072
Amortization of trademark 56 55
Amortization of goodwill 61 61
Amortization of deferred financing costs 538 441
Provision for doubtful accounts 1,333 1,046
Gain on sale of assets (1,399) (25)
Deferred tax benefit (4,166) (3,100)
Changes in assets and liabilities:
Decrease in accounts receivable 5,630 2,714
Decrease in notes receivable 2,138 --
Increase in inventory (11,959) (8,834)
Increase in accounts payable, accrued liabilities
and other long term liabilities 8,099 88
Increase in other assets (491) (417)
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NET CASH USED IN OPERATING ACTIVITIES (5,810) (11,536)
------- -------
Cash flows from investing activities:
Purchases of property, plant and equipment (799) (502)
Proceeds from sales of property, plant and equipment 2,724 143
------- -------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 1,925 (359)
------- -------
Cash flows from financing activities:
Net borrowings under revolving line of credit 3,877 10,063
Reductions of note payable (15) (41)
Net proceeds from issuance of common stock 16 16
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NET CASH PROVIDED BY FINANCING ACTIVITIES 3,878 10,038
------- -------
NET DECREASE IN CASH (7) (1,857)
Cash at beginning of period 79 1,933
------- -------
CASH AT END OF PERIOD $ 72 $ 76
======== ========
Supplemental schedule of cash flow information:
Interest paid $ 2,159 $ 1,854
Income taxes paid $ 82 $ 322
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
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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 March 28, 1998, the condensed
consolidated statements of operations and the condensed consolidated statements
of cash flows for the three-month periods ended March 28, 1998 and March 29,
1997 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 March 28, 1998 and for all periods presented have been made. The
results for the three-month period ended March 28, 1998 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 27, 1997, filed
with the Securities and Exchange Commission.
Reclassifications
-----------------
Reclassifications have been made to the first quarter condensed consolidated
balance sheet and condensed consolidated statement of cash flows to reflect,
more appropriately, purchase rebates receivable as a reduction of accounts
payable rather than as accounts receivable. The amount previously recorded as
accounts receivable in the first quarter of 1997 was $1.5 million.
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Share Data
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The Company issued 4,695 shares of Common Stock to members of its board of
directors as compensation and 1,534 shares of Common stock upon exercise of
employee warrants during the three-months ended March 28, 1998.
2. LONG-TERM DEBT
--------------
Long-term debt is comprised of the following at March 28, 1998 (in
thousands):
<TABLE>
<S> <C>
Revolving line of credit $ 96,922
Senior subordinated notes 100,000
Other 47
Less current maturities (37)
-------
Total long-term debt $ 196,932
=======
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 March 28, 1998 was $25.3 million.
On March 20, 1998, the Company and its lenders entered into a third amendment
to the Company's revolving credit agreement. This amendment includes a
modification to the fixed charge ratio covenant to reflect the restructuring
announced by the Company in February, 1998 and includes the lenders' consent to
the Company's sale of its Iowa facilities and its internet and utilities
marketing operations.
3. INCOME TAXES
------------
The provision for income taxes for the three-month period ended March 28, 1998
was a benefit of $3.9 million compared to a benefit of $2.7 million for the
three-month period ended March 29, 1997. An effective federal income tax rate
of 39.0% was used to calculate federal income taxes for the first three months
of 1998, compared with an effective rate of 39.1% for the first three months of
1997. In addition to the effective federal tax rate, state income and franchise
taxes were calculated separately and are included in the provision reported.
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4. COMMITMENTS AND CONTINGENCIES
-----------------------------
At March 28, 1998, the Company had accrued approximately $500,000 (included
in accrued liabilities at March 28, 1998) for remediation of certain
environmental and product liability matters, principally underground storage
tank removal. Many of the sales and distribution facilities presently and
formerly operated by the Company contained underground petroleum storage tanks.
Other than tanks at one acquired facility, recently installed, 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 $1.9 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 95 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. All of the
plaintiffs in these actions are 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 $5 per share.
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
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<PAGE 9>
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
-----------------------------------------
Reporting Comprehensive Income. Statement of Financial Accounting Standards
No. 130, "Reporting Comprehensive Income," establishes standards for reporting
and display of comprehensive income and its components in a full set of general-
purpose financial statements. The term comprehensive income is defined as the
change in the equity of a business. Comprehensive income includes net income as
well as other components (revenues, expenses, gains, and losses) that under
generally accepted accounting principles are excluded from net income but
affect equity. The statement was effective for fiscal years beginning after
December 15, 1997, however, as the Company has no items of other comprehensive
income this statement is not applicable to the Company.
Disclosure about Segments. Statement of Financial Accounting Standards No.
131, "Disclosure about Segments of an Enterprise and Related Information,"
changes Statement of Financial Accounting Standards No. 14 by requiring a new
framework for segment reporting and includes the disclosure of financial
information related to each segment. The statement was effective for fiscal
years beginning after December 15, 1997, however, adoption of this statement is
not required in interim statements in the initial year of application. The
Company is currently evaluating the effects of this pronouncement.
Employers' Disclosures About Pensions and Other Postretirement Benefits.
Statement of Financial Accounting Standards No. 132, "Employers' Disclosures
About Pensions and Other Postretirement Benefits," standardizes the disclosure
requirements for pensions and other post retirement benefits, requires
additional information on changes in the benefit obligation and fair values of
plan assets and eliminates certain disclosures that are no longer useful. This
statement is effective for fiscal years beginning after December 15, 1997. The
Company believes that the adoption of this statement will not have a significant
impact on its financial statements.
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6. EARNINGS PER SHARE
------------------
The Company calculates earnings per share in accordance with Statement of
Financial Accounting Standards No. 128. As required by this statement the
Company has adopted the standard for computing and presenting earnings per
share, and for all prior period earnings per share data presented. The
following is the reconciliation of the numerators and denominators of the basic
and diluted earnings per share:
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended
------------------
March 28, March 29,
1998 1997
---------- ----------
<S> <C> <C>
Numerators:
Net loss - for basic and
diluted EPS $(6,799,000) $(5,190,000)
Denominators:
Weighted average common
shares - for basic EPS 8,181,850 8,162,831
Common share from warrants 5,375 10,767
Common shares from options - 24,747
---------- ----------
Weighted average common
shares - for diluted EPS 8,187,225 8,198,345
</TABLE>
In addition, options to purchase of 668,000 and 372,000 weighted average shares
of common stock during the first quarter of 1998 and 1997, respectively, were
not included in the diluted EPS as the options' exercise prices were greater
than the average market price and the effect would be antidilutive.
7. OPERATIONAL RESTRUCTURING
--------------------------
In the first quarter of 1998, the Company announced and completed a plan for
additional restructuring activities (the "1998 Plan"). The 1998 Plan included
the closing or consolidation of eight building centers and two component
manufacturing facilities, the sale of two additional building centers, and
further reductions in headquarters staffing. The Company recorded a
restructuring charge of $5.4 million with respect to the 1998 Plan, consisting
of $3.7 million in anticipated losses on the disposition of closed center assets
and liabilities, $2.0 million in severance and post employment benefits, and a
benefit of $300,000 for adjustments to prior years' restructuring accruals.
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8. SUBSEQUENT EVENT
----------------
On April 13, 1998, all 499,768 outstanding shares of Class B Non-Voting
Common Stock, par value $.01 per share, were converted to 499,768 shares of
Common Stock, par value $.01 per share.
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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 27, 1997.
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 sales and distribution and component manufacturing
facilities operated by the Company, including those closed or sold during the
period.
<TABLE>
<CAPTION>
Three Months Ended
------------------
March 28, March 29,
1998 1997
-------- --------
<S> <C> <C>
Net sales 100.0% 100.0%
Gross profit 24.3% 23.2%
Selling, general and
administrative expense 24.1% 23.7%
Depreciation, goodwill and
trademark amortization 0.7% 0.7%
Provision for doubtful 0.8% 0.7%
accounts
Restructuring and unusual 3.2% -
items
Other operating income (1.4)% (0.5)%
Income from operations (3.1)% (1.4)%
</TABLE>
Net Earnings
- ------------
The Company's first quarter has historically been adversely affected by
seasonal decreases in building construction activity in the Northeast and
Midwest resulting from winter weather conditions. In the first quarter of 1998,
the Midwest experienced a very mild winter. The positive effects of the mild
winter in this region, the Company's primary region, were partially offset by
increased precipitation in the Northeast and South. Weather conditions during
the first quarter of 1997 were closer to historical seasonal averages. The
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<page 13>
first quarter of 1998 also had favorable economic conditions for the building
materials supply industry. Single family housing starts were up 8.5% over the
first quarter of 1997.
Net loss for the three months ended March 28, 1998 was $6,799,000 compared
with a loss of $5,190,000 for the three months ended March 29, 1997. The
increase in the net loss is primarily the result of a $5.4 million charge for
restructuring and unusual items and an increase in selling, general and
administrative ("SG&A") expense, interest expense, and provision for doubtful
accounts. The impact of these changes were partially offset by increases in
sales and gross profit margins, a $1.5 million increase in other operating
income, and the elimination of equity in losses of an affiliated company.
Operational Restructuring
- -------------------------
In the first quarter of 1998, the Company announced and completed a plan for
additional restructuring activities (the "1998 Plan"). The 1998 Plan included
the closing or consolidation of eight building centers and two component
manufacturing facilities, the sale of two additional building centers, and
further reductions in headquarters staffing. The Company recorded a
restructuring charge of $5.4 million with respect to the 1998 Plan, consisting
of $3.7 million in anticipated losses on the disposition of closed center assets
and liabilities, $2.0 million in severance and post employment benefits, and a
benefit of $300,000 for adjustments to prior years' restructuring accruals.
In March 1998, as contemplated by the 1998 Plan, the Company sold the assets
of its two Iowa building centers to another building center chain for
approximately $3.9 million, resulting in a gain of approximately $700,000.
Three Months Ended March 28, 1998 Compared
------------------------------------------
with the Three Months Ended March 29, 1997
------------------------------------------
Net Sales
- ---------
Net sales for the first quarter of 1998 increased 5.9% to $168.7 million from
$159.3 million for the first quarter of 1997. Same store sales increased 10.3%
compared with the same period last year. Same store sales to the Company's
primary customers, building professionals, also increased 10.3% when compared
with the first quarter of 1997, and consumer same store sales increased by 4.3%
for the quarter. As of March 28, 1998 the Company operated 101 sales and
distribution facilities, nine less than it operated at the end of the first
quarter of 1997. The Company estimates that deflation in lumber prices reduced
total sales for the quarter by approximately $4.4 million, compared with the
1997 comparable period.
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The Company believes that the sales increase results primarily from its
recent investments in its target major market and re-merchandised conventional
market sales and distribution facilities, as well as favorable economic and
weather conditions. Same store sales increased 29% in the Company's nine target
major markets, while same store sales increased 34% in the five building centers
the Company finished remerchandising before the fourth quarter of 1997. Single
family housing starts were 8.5% higher, nationally, in the first quarter of 1998
than in the comparable period of 1997. In the Company's primary geographical
market, the Midwest, single family housing starts were 14.0% higher.
Gross Profit
- ------------
1998 first quarter gross profit increased to $41.0 million from $36.9 million
for the first quarter of 1997, a 10.9% increase. Gross profit as a percentage
of sales increased to 24.3% for the first quarter of 1998 from 23.2% in 1997.
The increase in gross profit as a percentage of sales is primarily attributable
to improved product costs, increased margins on internally manufactured products
and a reduction in costs associated with physical inventory count adjustments.
Sales to building professionals as a percentage of sales remained constant in
the two quarters, at 89.7%. Lumber and building materials accounted for 87.4%
of sales in the first quarter of 1998, unchanged from the first quarter of 1997.
Selling, General and Administrative Expense
- -------------------------------------------
SG&A expense increased to 24.1% of net sales in the first quarter of 1998
compared with 23.7% of net sales in the first quarter of 1997. Much of the
increase is attributable to major market expansion programs and the Company's
decision, in the second half of 1997, to remerchandise 19 sales and distribution
facilities and invest in programs to support sales improvement.
Increases as a percentage of sales in salaries and wages, employee relocation
and real estate and equipment rental expense were partially offset by reductions
in professional fees. Salaries, wages and employee benefits increased as a
percentage of sales by 0.8%. As of March 28, 1998, the Company had 3,550 full
time and part time employees, relatively unchanged from March 29, 1997.
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Depreciation, Goodwill and Trademark Amortization
- -------------------------------------------------
Depreciation, goodwill and trademark amortization increased to $1.3 million
for the first quarter of 1998 compared with $1.2 million for the same period in
1997. This increase is primarily due to depreciation on rental equipment. The
Company's tool rental program was initiated during 1997 and no depreciation on
rental equipment was recorded in the first quarter of 1997.
Provision for Doubtful Accounts
- -------------------------------
The provision for doubtful accounts increased to $1.3 million for the first
quarter of 1998 from $1.0 million in the first quarter of 1997. The primary
reasons for the increase are better than historical collection performance in
the first quarter of 1997 and additional expense as a result of delinquency of
one major account in 1998.
Restructuring and Unusual Items
- -------------------------------
In February of 1998, the Company announced the 1998 Plan which included the
closing or consolidation of eight building centers and two component
manufacturing facilities in February, the sale of two additional building
centers in March, and further reductions in headquarters staffing. The Company
recorded a restructuring charge of $5.4 million, which included $3.7 million in
anticipated losses on the disposition of closed center assets and liabilities,
$2.0 million in severance and post employment benefits related to the 1998 Plan,
and a benefit of $300,000 for adjustments to prior years' restructuring
accruals. No restructuring or unusual items were recorded in the first quarter
of 1997.
Other Operating Income
- ----------------------
Other operating income for the first quarter of 1998 was $2.4 million
compared with $800,000 for the first quarter of 1997. During the first quarter
of 1998, the Company recorded a gain of approximately $1.4 million on the sale
of its two Iowa centers, two other closed building centers, and excess
equipment. In the first quarter of 1997, the Company sold no real estate and
recorded gains of $25,000 on the sale of excess equipment.
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<page 16>
Interest Expense
- ----------------
In the first quarter of 1998 interest expense increased to $5.4 million from
$5.2 million during the first quarter of 1997, resulting primarily from an
increase in average total long term debt of approximately $15.3 million,
partially offset by a decrease in the effective borrowing rate on total long
term debt of approximately 47 basis points. 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. Approximately 92% of the
Company's first quarter average borrowings on its revolving credit facility were
LIBOR-based.
Equity in Loss of Affiliated Company
- ------------------------------------
In the first quarter of 1997 the Company recorded equity in loss of
affiliated company of $600,000. The Company's net equity in this affiliate was
reduced to zero at December 31, 1997, thus no additional equity losses for this
affiliate were recorded in 1998.
Provision for Income Tax Benefit
- --------------------------------
The Company recorded an income tax benefit of $3.9 million for the first
quarter of 1998 compared with a benefit of $2.7 million in the first quarter of
1997. An effective federal income tax rate of 39.0% was used to calculate
federal income taxes for the first quarter of 1998, compared with an effective
rate of 39.1% for the first quarter of 1997. 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 and 1997, 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.
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<page 17>
Recently Issued Accounting Pronouncements
- -----------------------------------------
Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive
Income," establishes standards for reporting and display of comprehensive
income and its components in a full set of general-purpose financial statements.
The term comprehensive income is defined as the change in the equity of a
business. Comprehensive income includes net income as well as other components
(revenues, expenses, gains, and losses) that under generally accepted accounting
principles are excluded from net income but affect equity. The statement was
effective for fiscal years beginning after December 15, 1997, however, as the
Company has no items of other comprehensive income this statement is not
applicable to the Company.
Statement of Financial Accounting Standards No. 131, "Disclosure about
Segments of an Enterprise and Related Information," changes Statement of
Financial Accounting Standards No. 14 by requiring a new framework for segment
reporting and includes the disclosure of financial information related to each
segment. The statement was effective for fiscal years beginning after December
15, 1997, however, adoption of this statement is not required in interim
statements in the initial year of application. The Company is currently
evaluating the effects of this pronouncement.
Statement of Financial Accounting Standards No. 132, "Employers' Disclosures
About Pensions and Other Postretirement Benefits," standardizes the disclosure
requirements for pensions and other post retirement benefits, requires
additional information on changes in the benefit obligation and fair values of
plan assets and eliminates certain disclosures that are no longer useful. This
statement is effective for fiscal years beginning after December 15, 1997. The
Company believes that the adoption of this statement will not have a significant
impact on its financial statements.
Year 2000
- ---------
In response to the Year 2000 issue, the Company initiated a project in early
1997 to identify, evaluate and implement changes to its existing computerized
business systems. The Company is addressing the issue through a combination of
modifications to existing programs and conversions to Year 2000 compliant
software. In addition, the Company is communicating with its customers,
suppliers, and other service providers to determine whether they are actively
involved in projects to ensure that their products and business systems will be
Year 2000 compliant. If modifications and conversions by the Company and those
it conducts business with are not made in a timely manner, the Year 2000 issue
may have a material adverse effect on the Company's business, financial
condition, and results of operations. The total cost associated with the
required modifications is not expected to be material to the Company's
consolidated results of operations and financial position, and is being expensed
as incurred.
17
<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.
During the first three months of 1998 net cash used in operating activities
was $5.8 million, $5.7 million less than the $11.5 million used in the first
quarter of 1997. The first three months of the year historically have generated
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 inventory levels during the first quarter to meet
the anticipated increase in sales.
The Company's accounts receivable balance at the end of the first quarter of
1998 increased $7.4 million when compared to the end of the first quarter of
1997, an increase of 10.9%. Approximately $4.3 million of this increase is
attributable to increased credit sales during March 1998, compared with March
1997. Balances on accounts with special terms have also increased approximately
$4.0 million from 1997 to 1998.
Inventory at the end of the first quarter of 1998 was $5.2 million, or 4.7%,
higher than at the end of the first quarter of 1997. This increase is largely
attributable to the major market and showroom remerchandising programs, as well
as the increase in first quarter sales. Roofing, insulation and vinyl siding
account for a $6.2 million increase in inventory which is partially offset by
decreases in commodity lumber inventory, primarily as a result of lower market
prices. Accounts payable at the end of the first quarter of 1998 increased
approximately $6.9 million, or 16.4% from the first quarter of 1997, primarily
attributable to an increase in total inventory and special buys on commodity
building materials (roofing, drywall, insulation) which included extended
accounts payable terms.
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 three months of 1998 the Company spent $0.8 million on capital
expenditures as compared to $0.5 million for the same period in 1997. The
Company expects to spend approximately $5.0 million for all of 1998. Under the
Company's bank revolving credit agreement, as amended, capital expenditures
during 1998 are limited to $6.0 million plus the proceeds from the sale of
certain excess real estate plus the portion of 1997's capital expenditures that
were not spent. The Company expects to fund capital expenditures through
borrowings and its internally generated cash flow.
18
<page 19>
Through the first three months of 1998, the Company has closed, consolidated,
or sold ten sales and distribution facilities and two component manufacturing
facilities. At May 1, 1998 the Company operated 101 sales and distribution
centers and 10 component manufacturing facilities compared with 112 sales and
distribution facilities and 11 component manufacturing facilities at May 1,
1997. The following table reconciles the number of sales and distribution
facilities and component manufacturing facilities operated by the Company,
through May 1, 1998:
<TABLE>
<CAPTION>
Sales and Component
Distribution Manufacturing
Facilities Facilities
---------- ----------
<S> <C> <C>
As of December 27, 1997 111 11
Expansion - 1
Sold (2) -
Closings (7) (2)
Consolidation (1) -
----- -----
As of May 1, 1998 101 10
===== =====
</TABLE>
The Company maintained excess availability under its revolving line of credit
throughout the first three months of 1998. At the end of the first quarter
total borrowings under the revolving line of credit were $10.5 million higher
than at the end of the first quarter of 1997.
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 March 28, 1998, $96.9
million was outstanding under the Company's revolving line of credit, and the
unused availability was approximately $25.3 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 Tax
Benefit".
On March 20, 1998, the Company and its lenders entered into a third amendment
to the Company's revolving credit agreement. This amendment includes a
modification to the fixed charge ratio covenant to reflect the restructuring
announced by the Company in February 1998 and includes the lenders' consent to
the Company's sale of its Iowa facilities and its internet and utilities
marketing operations.
19
<page 20>
PART II
OTHER INFORMATION
-----------------
Item 5. Other Information
- ---------------------------
On April 13, 1998, all 499,768 outstanding shares of Class B Non-Voting
Common Stock, par value $.01 per share, were converted to 499,768 shares of
Common Stock, par value $.01 per share.
Item 6. Exhibits and Reports on Form 8-K
- ------------------------------------------
(a) Exhibits
27.1 Financial data schedule (SEC use only).
(b) Reports on Form 8-K
None.
20
<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/ Kenneth M. Kirschner
-------------------------
Kenneth M. Kirschner
Vice Chairman and Principal Financial
Officer
By: /s/ John M. Lawrence
---------------------
John M. Lawrence
Controller and Principal Accounting
Officer
Date: May 11, 1998
21
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE MARCH
28, 1988 FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-26-1998
<PERIOD-END> MAR-28-1998
<CASH> 72
<SECURITIES> 0
<RECEIVABLES> 79,589
<ALLOWANCES> 4,764
<INVENTORY> 114,665
<CURRENT-ASSETS> 205,190
<PP&E> 77,187
<DEPRECIATION> 32,006
<TOTAL-ASSETS> 288,530
<CURRENT-LIABILITIES> 71,569
<BONDS> 100,000
0
0
<COMMON> 82
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 288,530
<SALES> 168,746
<TOTAL-REVENUES> 168,746
<CGS> 127,763
<TOTAL-COSTS> 127,763
<OTHER-EXPENSES> 44,906
<LOSS-PROVISION> 1,333
<INTEREST-EXPENSE> 5,422
<INCOME-PRETAX> (10,678)
<INCOME-TAX> (3,879)
<INCOME-CONTINUING> (6,799)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (6,799)
<EPS-PRIMARY> (0.83)
<EPS-DILUTED> 0
</TABLE>
