WICKES INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
Amendment No. 1
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File
For the Quarterly Period Ended June 26, 1999 Number 0-22468
------------- -------
WICKES INC.
-----------
(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 July 31, 1999, the Registrant had 8,218,417 shares of Common Stock,
par value $.01 per share outstanding.
<PAGE> 2
WICKES INC. AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
Page
Number
------
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
June 26, 1999 and December 26, 1998 (Unaudited) 3
Condensed Consolidated Statements of Operations
For the three months and six months ended
June 26, 1999 and June 27, 1998 (Unaudited) 4
Condensed Consolidated Statements of Cash Flows
For the six months ended June 26, 1999 and
June 27, 1998 (Unaudited) 5
Notes to Condensed Consolidated
Financial Statements (Unaudited) 6
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-k 12
</TABLE>
2
<PAGE> 3
WICKES INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(in thousands except share data)
<TABLE>
<CAPTION>
June 26, December 26,
1999 1998
------- --------
ASSETS
<S> <C> <C>
Current assets:
Cash $ 71 $ 65
Accounts receivable, less allowance for doubtful
accounts of $4,128 in 1999 and $4,393 in 1998 125,461 92,926
Notes receivable 835 1,095
Inventory 133,637 103,716
Deferred tax asset 8,857 8,857
Prepaid expenses 2,940 2,808
------- -------
Total current assets 271,801 209,467
------- -------
Property, plant and equipment, net 48,591 45,830
Trademark (net of accumulated amortization of
$10,607 in 1999 and $10,496 in 1998) 6,412 6,523
Deferred tax asset 17,482 17,482
Rental equipment (net of accumulated depreciation
of $804 in 1999 and $572 in 1998) 2,032 1,883
Other assets (net of accumulated amortization of
$10,414 in 1999 and $9,502 in 1998) 15,334 10,998
------- -------
Total assets $ 361,652 $ 292,183
======= =======
LIABILITIES & STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt $ 4 $ 16
Accounts payable 71,072 54,017
Accrued liabilities 20,206 20,089
------- -------
Total current liabilities 91,282 74,122
------- -------
Long-term debt, less current maturities 243,856 191,961
Other long-term liabilities 3,024 2,952
Commitments and contingencies (Note 4)
Stockholders' equity:
Preferred stock (no shares issued)
Common stock (8,214,776 shares issued and
outstanding in 1999 and 8,207,268 shares
issued and outstanding in 1998) 82 82
Additional paid-in capital 86,818 86,787
Accumulated deficit (63,410) (63,721)
------- -------
Total stockholders' equity 23,490 23,148
------- -------
Total liabilities & stockholders' equity $ 361,652 $ 292,183
======= =======
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
3
<PAGE> 4
WICKES INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(in thousands except share and per share data)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
-------------------- --------------------
June 26, June 27, June 26, June 27,
1999 1998 1999 1998
------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales $ 288,750 $ 237,141 $ 479,860 $ 405,887
Cost of sales 222,425 181,052 367,628 308,815
------- ------- ------- -------
Gross profit 66,325 56,089 112,232 97,072
------- ------- ------- -------
Selling, general and administrative expenses 54,780 45,824 99,423 86,419
Depreciation, goodwill and trademark amortization 1,616 1,284 3,048 2,550
Provision for doubtful accounts (42) (124) 406 1,209
Restructuring and unusual items - - - 5,431
Other operating income (2,171) (1,419) (3,060) (3,805)
------- ------- ------- -------
54,183 45,565 99,817 91,804
------- ------- ------- -------
Income from operations 12,142 10,524 12,415 5,268
Interest expense 5,958 5,489 11,260 10,911
------- ------- ------- -------
Income (loss) before income taxes 6,184 5,035 1,155 (5,643)
Provision (benefit) for income taxes 2,597 2,249 844 (1,630)
------- ------- ------- -------
Net income (loss) $ 3,587 $ 2,786 $ 311 $ (4,013)
======= ======= ======= =======
Basic income (loss) per common share $ 0.44 $ 0.34 $ .04 $ (0.49)
======= ======= ======= =======
Diluted income (loss) per common share $ 0.43 $ 0.33 $ .04 $ (0.49)
======= ======= ======= =======
Weighted average common shares - for basic 8,214,397 8,192,806 8,212,288 8,187,328
========= ========= ========= =========
Weighted average common shares - for diluted 8,266,817 8,333,938 8,263,784 8,187,328
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
4
<PAGE> 5
WICKES INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
(in thousands)
<TABLE>
<CAPTION>
Six Months Ended
----------------
June 26, June 27,
1999 1998
------- -------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 311 $ (4,013)
Adjustments to reconcile net income (loss) to
net cash used in operating activities:
Depreciation expense 2,779 2,316
Amortization of trademark 111 111
Amortization of goodwill 158 123
Amortization of deferred financing costs 729 833
Provision for doubtful accounts 406 1,209
Gain on sale of assets (1,427) (1,501)
Deferred tax benefit - (2,201)
Changes in assets and liabilities:
Increase in accounts receivable (31,185) (18,338)
Decrease in notes receivable 260 2,231
Increase in inventory (29,371) (14,317)
Increase in accounts payable and accrued liabilities 17,103 13,474
Increase in other assets (2,898) (1,000)
------- -------
NET CASH USED IN OPERATING ACTIVITIES (43,024) (21,073)
------- -------
Cash flows from investing activities:
Purchases of property, plant and equipment (4,208) (1,984)
Payments for acquisitions (7,214) -
Proceeds from sales of property, plant and equipment 2,538 3,549
------- -------
NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES (8,884) 1,565
------- -------
Cash flows from financing activities:
Net borrowing under revolving line of credit 51,895 19,463
Reductions of notes payable (12) (29)
Net proceeds from issuance of common stock 31 63
------- -------
NET CASH PROVIDED BY FINANCING ACTIVITIES 51,914 19,497
------- -------
NET INCREASE (DECREASE) IN CASH 6 (11)
Cash at beginning of period 65 79
------- -------
CASH AT END OF PERIOD $ 71 $ 68
======= =======
Supplemental schedule of cash flow information:
Interest paid $ 9,947 $ 10,444
Income taxes paid $ 577 $ 422
Supplemental schedule of non-cash investing and financing activities:
The Company purchased capital stock and assets in conjunction with
acquisitions made during the period. In connection with these
acquisitions, liabilities were assumed as follows:
Purchase price of assets acquired $ 7,355 $ -
Cash paid (7,214) -
------- -------
Liabilities assumed $ 141 $ -
======= =======
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
5
<PAGE> 6
WICKES INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
------------------------------------------
Restatement
-----------
The condensed consolidated balance sheets as of June 26, 1999 and
December 26, 1998 have been restated to reflect an after-tax charge of
$514,000 related to a barter transaction entered into in the third quarter
of 1998, see Note 10. Barter Transaction.
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 Company has determined that
it operates in one business segment, that being the supply and distribution
of lumber and building materials to building professionals and do-it-
yourself customers, primarily in the Midwest, Northeast, and South. All
information required by SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information", is included in the Company's financial
statements.
The condensed consolidated balance sheet as of June 26, 1999, the
condensed consolidated statements of operations and the condensed
consolidated statements of cash flows for the three-month and six-month
periods ended June 26, 1999 and June 27, 1998 have been prepared by the
Company without audit. In the opinion of management, all adjustments
(which include only normal recurring adjustments) necessary to present
fairly the financial position, results of operations and cash flows at June
26, 1999 and for all periods presented have been made. The results for the
three-month and six-month periods ended June 26, 1999 are not necessarily
indicative of the results to be expected for the full year or for any
interim period.
The year-end condensed consolidated balance sheet data was derived from
audited financial statements, but does not include all disclosures required
by generally accepted accounting principles. Certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been
condensed or omitted. It is suggested that these condensed consolidated
financial statements be read in conjunction with the financial statements
and notes thereto included in the Company's Annual Report on Form 10-K for
the year ended December 26, 1998, filed with the Securities and Exchange
Commission.
Share Data
----------
The Company issued 7,508 shares of Common Stock to members of its board
of directors as compensation during the six months ended June 26, 1999.
6
<PAGE> 7
WICKES INC. AND SUBSIDIARIES
NOTES TO CONDENSSED CONSOLLIDATED FINANCIAL STATEMENTS
2. ACQUISITIONS
------------
The Company has made two acquisitions during 1999, both component
facilities, for a total cost of $7.2 million. In January the Company
acquired to assets of a wall panel manufacturer located in Cookeville,
Tennessee and at the end of March the Company acquired the assets of Porter
Building Products, a manufacturer of trusses and wall panels, located in
Bear, Delaware. The costs of these acquisitions have been allocated on the
basis of the fair market value of the assets acquired and the liabilities
assumed. The excess of the purchase price over the fair value of the net
assets acquired for one of the acquisitions resulted in goodwill, which is
being amortized over a 20-year period on a straight-line basis. Both
acquisitions have been accounted for as purchases. Operations of the
companies acquired have been included in the accompanying consolidated
financial statements from their respective dates of acquisition.
3. LONG-TERM DEBT
--------------
Long-term debt is comprised of the following at June 26, 1999 (in
thousands):
<TABLE>
<S> <C>
Revolving line of credit $ 143,856
Senior subordinated notes 100,000
Other 4
Less current maturities (4)
-------
Total long-term debt $ 243,856
=======
</TABLE>
Under the revolving line of credit, the Company may borrow against
certain levels of accounts receivable and inventory. The unused amount
available for borrowing at June 26, 1999 was $16.1 million.
On February 17, 1999 the Company entered into a new revolving credit
agreement with a group of financial institutions. The new revolving line
of credit provides for up to $160 million of revolving credit loans and
credits. See Note 9. Subsequent Events.
4. INCOME TAXES
------------
The provision for income taxes for the six-month period ended June 26,
1999 was $844,000 compared to a benefit of $1,630,000 for the six-month
period ended June 27, 1998. An effective federal and state income tax rate
of 39.1% was used to calculate income taxes for the first six months of 1999,
7
<PAGE> 8
WICKES INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
compared with an effective rate of 39.0% for the first six months of
1998. In addition to the effective income tax rate, state franchise taxes
were calculated separately and are included in the provision reported.
5. COMMITMENTS AND CONTINGENCIES
-----------------------------
At June 26, 1999, the Company had accrued approximately $129,000
(included in accrued liabilities at June 26, 1999) 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. All
such tanks known to the Company located on facilities owned or operated by
the Company have been filled or 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 costs, net of insurance and regulatory
recoveries, with respect to the filling or removing of underground storage
tanks and related investigatory and remedial actions. Insignificant amounts
of contamination have been found on excess properties sold over the past
four years. The Company has currently reserved $47,500 for estimated clean-
up costs at 13 of its locations.
The Company has been identified as having used two landfills which are
now Superfund clean-up sites, for which it has been requested to reimburse
a portion of the clean-up costs. Based on the amounts claimed and the
Company's prior experience, the Company has established a reserve of
$28,000 for these matters.
The Company is one of many defendants in two class action suits filed in
August of 1996 by approximately 200 claimants for unspecified damages as a
result of health problems claimed to have been caused by inhalation of
silica dust, a byproduct of concrete and mortar mix, allegedly generated by
a cement plant with which the Company has no connection other than as a
customer. The Company has entered into a cost sharing agreement with its
insurers, and any liability is expected to be minimal.
The Company is one of many defendants in approximately 110 actions, each
of which seeks unspecified damages, in various Michigan state courts
against manufacturers and building material retailers by individuals who
claim to have suffered injuries from products containing asbestos. Each
8
<PAGE> 9
WICKES INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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.
Since 1993, the Company has settled 16 similar actions for insignificant
amounts, and another 187 of these actions have been dismissed. As of July
31, 1999 none of these suits have made it to trial.
Losses in excess of the $129,000 reserved as of June 26, 1999 are
possible but an estimate of these amounts cannot be made.
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's financial position, results of operations or liquidity.
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.
6. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
-----------------------------------------
Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities," standardizes the accounting
for derivative instruments by requiring that all derivatives be recognized
as assets and liabilities and measured at fair value. The statement is
effective for fiscal years beginning after June 15, 2000. The Company
believes adoption of the statement will not have a material effect on its
financial statements.
7. EARNINGS PER SHARE
------------------
The Company calculates earnings per share in accordance with Statement
of Financial Accounting Standards No. 128. The following is the
9
<PAGE> 10
WICKES INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
reconciliation of the numerators and denominators of the basic and diluted
earnings per share:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------ ----------------
June 26, June 27, June 26, June 27,
1999 1998 1999 1998
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Numerators:
Net income (loss)-for basic
and diluted EPS $3,587,000 $2,786,000 $ 311,000 $(4,013,000)
--------- --------- --------- ---------
Denominators:
Weighted average common
shares - for basic EPS 8,214,397 8,192,806 8,212,288 8,187,328
Common shares from options 52,420 141,132 51,496 53,205
--------- --------- --------- ---------
Weighted average common
shares - for diluted EPS 8,266,817 8,333,938 8,263,784 8,240,533
--------- --------- --------- ---------
</TABLE>
In periods where net losses are incurred, diluted weighted average
common shares are not used in the calculation of diluted EPS as it would
have an anti-dilutive effect on EPS. In addition, options to purchase
415,003 and 413,637 weighted average shares of common stock during the
first half of 1999 and 1998, respectively, were not included in the diluted
EPS as the options' exercise prices were greater than the average market
price. At June, 1999 the Company revised its calculation of diluted earnings
per share to include the income tax benefit that would be realized if options
were exercised with no effect on diluted earnings per share for the reported
period.
8. RESTRUCTURING
-------------
During the first quarter of 1998 the Company implemented a restructuring
plan which resulted in the closing or consolidation of eight sales and
distribution and two manufacturing facilities in February, the sale of two
sales and distribution facilities in March, and further reductions in
headquarters staffing. As a result of the 1998 Plan, the Company recorded
a restructuring charge of $5.4 million in the first quarter. The $5.4
million charge included $3.7 million in estimated losses on the disposition
of closed facility assets and liabilities, $2.0 million in severance and
postemployment benefits related to the 1998 plan, and a benefit of $300,000
for adjustments to prior years' restructuring accruals.
9. SUBSEQUENT EVENTS
-----------------
On July 8, 1999, the Company entered into a First Amendment to Credit
Agreement with its bank lenders. Pursuant to this amendment, the
definition of unused availability contained in the Company's revolving line
of credit agreement was modified. Formerly, "unused availability" was
10
<PAGE> 11
WICKES INC. AND SUBSIDIARIES
NOTE TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
defined as the lesser of $160 million or the borrowing base, less the total
of outstanding loans and credits. As modified, "unused availability"
means the borrowing base less the total of outstanding loans and credits.
As a result, the maximum borrowing under the revolving credit agreement of
$160 million can now be fully utilized. Under the former definition the
maximum was limited to $145 million.
10. BARTER TRANSACTION
------------------
This Amendment No. 1 is being filed as a result in the change of accounting
for a barter transaction that occurred in the third quarter of 1998. This
change affected the Company's condensed consolidated balance sheets at
June 26, 1999 and December 26, 1998. The following table reconciles the
amounts previously reported to the amounts currently being reported as of
June 26, 1999 (amounts in thousands).
<TABLE>
<CAPTION>
Restatement
Previously for Barter
Reported Transaction As Restated
---------- ----------- -----------
<S> <C> <C> <C>
ASSETS
Prepaid expenses $ 3,784 $ (844) $ 2,940
Deferred tax asset 17,205 277 17,482
Total assets 362,219 (567) 361,652
LIABILITIES & STOCKHOLDERS' EQUITY
Accrued liabilities $ 20,259 $ (53) $ 20,206
Accumulated deficit (62,896) (514) (63,410)
Total liabilities &
stockholders' equity 362,219 (567) 361,652
</TABLE>
11
<PAGE> 12
PART II
OTHER INFORMATION
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.
12
<PAGE> 13
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Amendment No. 1
to 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
(Principal Executive and Financial Officer)
By: /s/ John M. Lawrence
--------------------
John M. Lawrence
Controller and Principal Accounting
Officer
Date: October 1, 1999
13
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE JUNE 26,
1999 FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-25-1999
<PERIOD-END> JUN-26-1999
<CASH> 71
<SECURITIES> 0
<RECEIVABLES> 129,589
<ALLOWANCES> 4,128
<INVENTORY> 133,637
<CURRENT-ASSETS> 271,801
<PP&E> 83,715
<DEPRECIATION> 35,124
<TOTAL-ASSETS> 361,652
<CURRENT-LIABILITIES> 91,334
<BONDS> 100,000
0
0
<COMMON> 82
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 361,652
<SALES> 479,860
<TOTAL-REVENUES> 479,860
<CGS> 367,628
<TOTAL-COSTS> 367,628
<OTHER-EXPENSES> 99,411
<LOSS-PROVISION> 406
<INTEREST-EXPENSE> 11,260
<INCOME-PRETAX> 1,155
<INCOME-TAX> 844
<INCOME-CONTINUING> 311
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 311
<EPS-BASIC> 0.04
<EPS-DILUTED> 0.04
</TABLE>
