WICKES INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File
For the Quarterly Period Ended June 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
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 12
Item 3. Quantitative and Qualitative Disclosures about
Market Risk 25
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 26
</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 3,784 3,652
------- -------
Total current assets 272,645 210,311
------- -------
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 17,205 17,205
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 $ 362,219 $ 292,750
======= =======
LIABILITIES & STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt $ 4 $ 16
Accounts payable 71,072 54,017
Accrued liabilities 20,259 20,142
------- -------
Total current liabilities 91,335 74,175
------- -------
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 (62,896) (63,207)
------- -------
Total stockholders' equity 24,004 23,662
------- -------
Total liabilities & stockholders' equity $ 362,219 $ 292,750
======= =======
</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 8,240,533
========= ========= ========= =========
</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
------------------------------------------
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.
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.
11
<PAGE> 12
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 26, 1998.
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 Six Months Ended
------------------ ----------------
June 26 June 27, June 26, June 27,
1999 1998 1999 1998
------ ------ ------ ------
<S> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0%
Gross profit 23.0% 23.6% 23.4% 23.9%
Selling, general and
administrative expense 19.0% 19.3% 20.7% 21.3%
Depreciation, goodwill
and trademark amortization 0.6% 0.5% 0.6% 0.6%
Provision for doubtful 0.0% 0.0% 0.1% 0.3%
accounts
Restructuring and -- -- -- 1.3%
unusual items
Other operating income (0.8)% (0.6)% (0.6)% (0.9)%
Income from operations 4.2% 4.4% 2.6% 1.3%
</TABLE>
Net Earnings
- ------------
Weather conditions during the first six months of 1999 were relatively
close to seasonal averages. In the first quarter of 1998 the Company's
largest region, the Midwest, experienced a very mild winter, which allowed
for favorable building conditions, which was partially offset by increased
precipitation in the Northeast and South. The second quarter and first
half of 1999 had favorable economic conditions for the building materials
supply industry. Single family housing starts in 1999 were 4.4% and 8.5%
higher during the second quarter and first six months of 1999, than during
the comparable periods of 1998.
12
<PAGE> 13
Net income for the three months ended June 26, 1999 was $3.6 million
compared with a net income of $2.8 million for the three months ended June
27, 1998. The increase in net income for the three-month period is
primarily the result of increased sales and gross profit, and other
operating income. The positive impact of these changes was partially
offset by increases in selling, general and administrative ("SG&A"),
interest and depreciation expenses.
Net income for the first six months of 1999 was $311,000 compared with
a loss of $4.0 million for the first six months of 1998. The increase in
net income for the six-month period is primarily the result of increased
sales and gross profit, and reductions in restructuring charges and the
provision for doubtful accounts. The positive impact of these changes was
partially offset by increases in SG&A, depreciation and interest expenses
as well as a reduction in other operating income.
Three Months Ended June 26, 1999 Compared
-----------------------------------------
with the Three Months Ended June 27, 1998
-----------------------------------------
Net Sales
- ---------
Net sales for the second quarter of 1999 increased 21.8% to $288.8
million from $237.1 million for the second quarter of 1998. Same store
sales increased 20.1% compared with the same period last year. Same store
sales to the Company's primary customers, building professionals, also
increased 22.0% when compared with the second quarter of 1998. Consumer
same store sales increased by 5.2% for the quarter. As of June 26, 1999
the Company operated 101 sales and distribution facilities, the same number
it operated at the end of the second quarter of 1998.
The Company estimates that inflation in lumber prices increased total
sales for the quarter by approximately $8.7 million, compared with the 1998
comparable period.
The Company believes that the sales increase results primarily from its
recent investments in its target major markets, re-merchandised
conventional market sales and distribution facilities, recent acquisitions
of several component manufacturing facilities as well as favorable economic
conditions. Same store sales increased 27.6% in the Company's nine target
major markets, while same store sales increased 26.7% in the eleven
conventional market building centers the Company remerchandised during 1997
and 1998. Component manufacturing facilities acquired since the second
quarter of 1998 account for $4.4 million of the second quarter 1999 sales
increase. Single family housing starts were 4.4% higher, nationally, in
the second quarter of 1999 than in the comparable period of 1998. In the
Company's primary geographical market, the Midwest, single family housing
starts were 7.8% higher.
13
<PAGE> 14
Gross Profit
- ------------
1999 second quarter gross profit increased to $66.3 million from $56.1
million for the second quarter of 1998, a 18.2% increase. Gross profit as
a percentage of sales decreased to 23.0% for the second quarter of 1999
from 23.6% in 1998. The decrease in gross profit as a percentage of sales
is primarily attributable to rising lumber prices, increased percentage of
sales to building professionals, and the expansion of the Company's
installed sales programs, partially offset by increased sales and gross
profit margins on internally manufactured products.
The Company believes that while inflation in lumber prices did increase
gross profit by approximately $1.2 million in the quarter, gross profit as
a percent of sales decreased due to significant and rapid cost increases
over the quarter, which cannot be passed on to customers as quickly.
Lumber and related products accounted for 57.3% of sales in the second
quarter of 1999, compared with 56.2% for the second quarter of 1998. Sales
to building professionals as a percentage of sales increased to 89.2% in
the second quarter of 1999 compared with 87.7% in 1998.
Selling, General and Administrative Expense
- -------------------------------------------
SG&A expense decreased to 19.0% of net sales in the second quarter of
1999 compared with 19.3% of net sales in the second quarter of 1998. Much
of the decrease is attributable to operating leverage achieved through
increased sales volume and reduced spending on major market expansion
programs in 1999.
Decreases as a percentage of sales in salaries, wages and benefits,
equipment rental and headquarters administrative expense were partially
offset by increases in professional fees and maintenance expense.
Salaries, wages and employee benefits decreased as a percentage of sales by
0.3%. As of June 26, 1999, the Company had 4,380 full time and part time
employees, an increase of 13.3% from June 27, 1998.
Depreciation, Goodwill and Trademark Amortization
- -------------------------------------------------
Depreciation, goodwill and trademark amortization increased to $1.6
million for the second quarter of 1999 compared with $1.3 million for the
same period in 1998. This increase is primarily due to depreciation on
three component manufacturing facilities acquired since the second quarter
of 1998 as well as capital additions as a result of the Company's major
market program.
14
<PAGE> 15
Provision for Doubtful Accounts
- -------------------------------
The provision for doubtful accounts was relatively unchanged between the
second quarters of 1999 and 1998. The Company recorded a $42,000 benefit
from the provision for doubtful accounts in the second quarter of 1999,
compared with a benefit of $124,000 in the second quarter of 1998.
Other Operating Income
- ----------------------
Other operating income for the second quarter of 1999 was $2.2 million
compared with $1.4 million for the second quarter of 1998. During the
second quarter of 1999 the Company sold four pieces of excess real estate
and recorded gains of $1.4 million. There were no sales of excess real
estate in the second quarter of 1998. The Company also recorded $347,000
in expenses related to casualty losses during the second quarter of 1999,
including a fire at one of its component manufacturing facilities. In the
second quarter of 1998 the Company recorded a gain of approximately
$180,000 on the difference between insured replacement cost and book value
of inventory, as a result of a fire at one of its sales and distribution
facilities.
Interest Expense
- ----------------
In the second quarter of 1999 interest expense increased to $6.0 million
from $5.5 million during the second quarter of 1998, resulting primarily
from an increase in average total long term debt of approximately $23.0
million. This was partially offset by a decrease in the effective
borrowing rate on total long term debt of approximately 33 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 as a
result of decreases in the average prime and LIBOR rates as well as a 25
basis point reduction in the Company's borrowing spreads, effective with
the Company's new revolving credit agreement in February of 1999.
Approximately 92% of the Company's second quarter average borrowings on its
revolving credit facility were LIBOR-based.
Provision for Income Tax Benefit
- --------------------------------
The Company recorded income tax expense of $2.6 million for the second
quarter of 1999 compared with expense of $2.2 million in the second quarter
of 1998. An effective federal and state income tax rate of 38.2% was used
to calculate income taxes for the second quarter of 1999, compared with an
effective rate of 39.0% for the second quarter of 1998. In addition to the
effective income tax rate, state franchise taxes were calculated separately
and are included in the provision reported for both years.
15
<PAGE> 16
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, 1997, and 1998
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.
Six Months Ended June 26, 1999 Compared
---------------------------------------
with the Six Months Ended June 27, 1998
---------------------------------------
Net Sales
- ---------
Net sales for the first six months of 1999 increased 18.2% to $479.9
million from $405.9 million for the first six months of 1998. Same store
sales increased 18.1% compared with the same period last year. Same store
sales to the Company's primary customers, building professionals, increased
19.7% when compared with the first six months of 1998. Consumer same store
sales increased 2.2% for the same period. As of June 26, 1999 the Company
operated 101 sales and distribution facilities, the same number it operated
at the end of the first six months of 1998. Sales of approximately $4.0
million were recorded, in the first quarter of 1998, for the 10 sales and
distribution facilities that were sold or closed during that quarter.
The Company estimates that inflation in lumber prices increased total
sales for the first six months by approximately $7.7 million, compared with
the 1998 comparable period.
The Company believes that the sales increase results primarily from its
recent investments in its target major market, re-merchandised conventional
market sales and distribution facilities, recent acquisitions of several
component manufacturing facilities as well as favorable economic
conditions. Same store sales increased 22.8% in the Company's nine target
major markets, while same store sales increased 21.9% in the eleven
conventional market building centers the Company remerchandised during 1997
and 1998. Component manufacturing facilities acquired since the second
quarter of 1998 account for $5.4 million of the six month 1999 sales
increase. Single family housing starts were 8.5% higher, nationally, in
the first six months of 1999 than in the comparable period of 1998. In the
Company's primary geographical market, the Midwest, single family housing
starts were 8.8% higher.
16
<PAGE> 17
Gross Profit
- ------------
Gross profit for to the first six months of 1999 increased to $112.2
million from $97.1 million for the first six months of 1998, a 15.6%
increase. Gross profit as a percentage of sales decreased to 23.4% for the
first six months of 1999 from 23.9% in 1998. The decrease in gross profit
as a percentage of sales is primarily attributable to rising lumber prices,
increased percentage of sales to building professionals, and the expansion
of the Company's installed sales programs, partially offset by increased
sales and gross profit margins on internally manufactured products.
The Company believes that while inflation in lumber prices did increase
gross profit by approximately $1.1 million in the first six months of 1999,
gross profit as a percent of sales decreased due to significant and rapid
cost increases, primarily during the second quarter, which could not be
passed on to customers as quickly. Lumber and related products accounted
for 55.6% of sales in the first six months of 1999, compared with 54.4% for
the same period in 1998. Sales to building professionals as a percentage
of sales increased to 90.2% in the first six months of 1999 compared with
88.5% in 1998.
Selling, General and Administrative Expense
- -------------------------------------------
SG&A expense decreased to 20.7% of net sales in the first six months of
1999 compared with 21.3% of net sales in the first six months of 1998.
Much of the decrease is attributable to operating leverage achieved through
increased sales volume, expense reductions achieved as a result of the 1998
first quarter restructuring and reduced spending on major market expansion
programs in 1999.
Decreases as a percentage of sales in salaries, wages and benefits,
employee relocation, equipment rental and headquarters administrative
expense were partially offset by increases in professional fees, marketing
and maintenance expense. Salaries, wages and employee benefits decreased as
a percentage of sales by 0.5%.
Depreciation, Goodwill and Trademark Amortization
- -------------------------------------------------
Depreciation, goodwill and trademark amortization increased to $3.0
million for the first six months of 1999 compared with $2.6 million for the
same period in 1998. This increase is primarily due to depreciation on
three component manufacturing facilities acquired since the second quarter
of 1998 as well as capital additions as a result of the Company's major
market program.
17
<PAGE> 18
Provision for Doubtful Accounts
- -------------------------------
The provision for doubtful accounts decreased to $0.4 million for the
first six months of 1999 from $1.2 million in the first six months of 1998.
The primary reasons for the decrease are improved delinquency on 1999
outstanding accounts and increased expense in the first quarter of 1998 as
a result of the delinquency of a major account.
Restructuring and Unusual Items
- -------------------------------
In February of 1998, the Company announced and completed a plan for
additional restructuring activities, 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 six months of 1999.
Other Operating Income
- ----------------------
Other operating income for the first six months of 1999 was $3.1 million
compared with $3.8 million for the first six months of 1998. In both of
the first six months of 1999 and 1998 the Company recorded gains of
approximately $1.6 million on the sale of excess real estate and equipment.
In 1999, the Company recorded costs of $269,000 for carrying costs of
closed operations and $317,000 for casualty losses, including a fire at one
of its component manufacturing facilities. In 1998 the Company recorded no
closed operation carrying costs and recorded a gain of $118,000 for
casualty losses. The gain on casualty losses was a result of a $180,000
gain on the difference between insured replacement cost and book value of
inventory, as a result of a fire at one of its sales and distribution
facilities.
Interest Expense
- ----------------
In the first six months of 1999 interest expense increased to $11.3
million from $10.9 million during the first six months of 1998, resulting
primarily from an increase in average total long term debt of approximately
$15.4 million. This was partially offset by a decrease in the effective
borrowing rate on total long term debt of approximately 29 basis points.
The decrease in the effective borrowing rate is primarily due to a
18
<PAGE> 19
reduction in interest rate on the Company's revolving line of credit as a
result of decreases in the average prime and LIBOR rates as well as a 25
basis point reduction in the Company's borrowing spreads, effective with
the Company's new revolving credit agreement in February of 1999.
Approximately 90% of the Company's average borrowings on its revolving
credit facility, during the first six months of 1999, were LIBOR-based.
Provision for Income Tax Benefit
- --------------------------------
The Company recorded income tax expense of $844,000 for the first six
months of 1999 compared with a benefit of $1.6 million in the first six
months of 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,
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 for both
years.
For a discussion of the Company's deferred tax assets and valuation
allowance, see "Provision for Income Tax Benefit" in the discussion above
of the comparative results for the three months.
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.
Year 2000
- ---------
The Year 2000 problem relates to the inability of certain computer
programs and computer hardware to properly handle dates after December 31,
1999. As a result businesses may be at risk for miscalculations and
systems failures.
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. An inventory was developed of all items of
concern including vehicles, manufacturing equipment, and security, heating
and electrical systems. Upon completion of the inventory a plan was
developed to evaluate the importance of each item, the remediation
necessary to make the item compliant (either modification or replacement),
19
<PAGE> 20
the resources necessary to complete the remediation, and a time frame for
completion. The plan was then reviewed by an outside party for
completeness. The plan also includes the steps the Company is taking to
ensure it is not at risk for problems that may occur at its suppliers or
customers. The Company has surveyed 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. Management is currently reviewing their responses and
evaluating alternatives for those that are not sufficiently addressing the
Year 2000 issue.
The Company is addressing its software, hardware, and equipment issues
through a combination of modifications to existing programs and conversions
to Year 2000 compliant software and equipment. The Company believes that
it is currently 95% complete with hardware and equipment related
remediation or replacement efforts, and 90% complete in software
remediation or replacement. The Company's plan is to be totally compliant
by September of 1999. Certain systems, which have critical dates prior to
September, are scheduled for earlier completion dates or have been
completed. At the present time the remediation process is proceeding as
planned and there are no significant delays expected. The company also
expects to spend significant amounts to implement pre-event contingency
plans as well as post-event testing.
The estimated total cost of the project is expected to be $2.7 million.
$600,000 of this cost is for the replacement of systems and equipment which
was accelerated due to the Year 2000 problem, and which will be capitalized
over the systems estimated useful life. Through June of 1999 the Company
has expended a total of $1.7 million on Year 2000 remediation.
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 Company's greatest risk at this
time is with its store operating and accounts receivable systems and its
inventory suppliers. If the store operating system has problems the
Company could experience disruption in its basic distribution operations.
A problem with the Company's accounts receivable system could cause some
short term working capital and cash flow problems until the issue is
resolved. While the Company has extended efforts to receive assurances
that its product suppliers are adequately addressing this issue, the
Company expects there will be some minimal interruptions in replenishment
from some suppliers, but these should be addressed quickly through
alternative sources.
The Company has evaluated each problem area for various contingency
responses to mitigate any disruption should remediation be incomplete. At
present senior management is reviewing critical items to ensure there is at
least one workable alternative to each of its key processes including
inventory replenishment, sales and accounts receivable, payroll, and
manufacturing and delivery equipment. Milestones for completion of
20
<PAGE> 21
critical systems are being closely monitored to minimize the chances of a
Year 2000 failure in the key processes. In addition, a plan is being
developed to produce backup documents and reports, of critical information,
at December 31, 1999 and for process and system testing to occur on January
1 and 2, to identify and address any unforeseen issues prior to the opening
of business on January 3.
The most reasonably likely worst case scenario for a Year 2000 failure
would involve a brief interruption of the Company's primary field systems
application. Given the high level of in-house expertise in the development
and maintenance of this system, the expectation is that any such failure
would involve at worst a several day delay in processing. The Company
has, and will continue to spend a great deal of resources to ensure that
this system is compliant and will not be impacted by a Year 2000 failure.
As a contingency for a failure scenario, though, the Company has arranged
for the printing of key documents (sales orders scheduled for the next
week, special orders placed with suppliers, pricing masters, etc.) on
December 31, at each location, which would allow the operations to continue
to operate, on a manual basis, for at least two weeks before there would be
a serious impairment to the business. In addition, key systems and
operating staff will be brought in on January 1 and 2, days on which the
operating facilities are scheduled to be closed, to perform system testing
of the field applications and check operating equipment, utilities and
other systems. The Company can and has applied program changes to all sales
and distribution facilities in a matter of hours.
21
<PAGE> 22
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 six months of 1999 net cash used in operating
activities was $43.0 million, $21.9 million more than the $21.1 million
used in the first six months of 1998. The first six 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,
and in the second quarter increases in accounts receivable occur as a
result of the increased sales activity.
The Company's accounts receivable balance at the end of the second
quarter of 1999 increased $26.6 million when compared to the end of the
second quarter of 1998, an increase of 26.8%. This increase is the result
of increased credit sales in June of 1999, when compared with June 1998.
Inventory at the end of the second quarter of 1999 was $16.6 million, or
14.2%, higher than at the end of the second quarter of 1998. This increase
is largely attributable to the additional inventory necessary to support
the 21.8% increase in second quarter sales. Significant inflation in
lumber, drywall and insulation has also had a significant impact on
increasing inventory in 1999. Accounts payable at the end of the second
quarter of 1999 increased approximately $12.3 million, or 20.8% from the
second quarter of 1998. The increase is primarily attributable to the
increase in total inventory.
The Company's capital expenditures consist primarily of the construction
of storage facilities, the remodeling and reformatting of sales and
distribution facilities and component manufacturing facilities, and the
purchase of vehicles, equipment and management information systems for both
existing and new operations. The Company may also from time to time make
expenditures to establish or acquire operations to expand or complement its
existing operations, especially in its major markets. In the first six
months of 1999 the Company spent $4.2 million on capital expenditures for
existing operations as compared to $2.0 million for the same period in
1998. The Company expects to spend approximately $7.0 million for all of
1999. In addition, $7.2 million was spent for the acquisition of two
component manufacturing facilities. Under the Company's new bank revolving
credit agreement, capital expenditures during 1999 are limited to $8.5
million. In addition to capital expenditures, this revolving credit
agreement allows the Company to spend up to $30 million, subject to certain
restrictions, for acquisitions. The Company expects to fund capital
expenditures through borrowings and its internally generated cash flow.
22
<PAGE> 23
In January of 1999, the Company acquired the 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. In 1999, the Company
began, or significantly expanded, the manufacturing of wall components at
seven manufacturing facilities located with the Company's sales and
distribution facilities in Hopedale, MA, Elyria, OH, Lexington, KY, Denton,
NC, Ellettsville, IN, Grand Rapids, MI and Jackson, TN. At August 1, 1999
the Company operated 101 sales and distribution centers and 21 component
manufacturing facilities compared with 101 sales and distribution
facilities and 10 component manufacturing facilities at August 1, 1998. In
addition, the Company does a small amount of door and window assembly out
of three sales and distribution facilities. The following table reconciles
the number of sales and distribution facilities and component manufacturing
facilities operated by the Company, through August 1, 1999:
<TABLE>
<CAPTION>
Sales and Component
Distribution Manufacturing
Facilities Facilities
---------- ----------
<S> <C> <C>
As of December 26, 1998 101 12
Expansion - 7
Acquisition - 2
Closings - -
Consolidation - -
--- ---
As of August 1, 1999 101 21
=== ===
</TABLE>
The Company maintained excess availability under its revolving line of
credit throughout the first six months of 1999. At the end of the second
quarter total borrowings under the revolving line of credit were $31.4
million higher than at the end of the second quarter of 1998. Because of the
significant increase in the Company's sales during the second quarter and
continuing into the third quarter of 1999, the Company anticipates that it
may from time to time during the remainder of 1999 utilize all the borrowing
availability under the current terms of the Company's bank revolving credit
agreement. Nevertheless, the Company believes that it will be able to manage
its liquidity during this time period and that it will continue to have
sufficient funds available for its anticipated operations and capital
expenditures. To support is sales growth and the related increase in working
asset levels, the Company may consider obtaining an increase in the maximum
permitted borrowing under its bank revolving credit agreement. At June 26,
1999, $143.9 million was outstanding under the Company's revolving line of
credit, and the unused availability was approximately $16.1 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 February 17, 1999 the Company entered into a new revolving credit
agreement and repaid all indebtedness under and terminated its old
revolving credit agreement. Among other things, the changes between the
old agreement and this new agreement include (i) an initial 25 basis point
reduction in the Company's LIBOR and prime borrowing rates to 200 basis
points over LIBOR and 50 basis points over prime, and further provisions
23
<PAGE> 24
for additional decreases in the borrowing rate if certain interest coverage
levels are achieved, (ii) an increase in the maximum credit line from $130
million to $160 million, (iii) a decrease in the unused line fee from 50
basis points to 25 basis points, (iv) elimination of the fixed charge
coverage requirement, (v) extension of the term of the agreement to June of
2003, (vi) increases, subject to the permitted discretion of the agent for
the lenders, in the percent of eligible accounts receivable to 85% from a
range between 80% and 85% and the percent of eligible inventory to 60% from
a range between 50% and 60%. Covenants under the new agreement do require,
among other things, that the Company maintain unused availability (defined
as the amount by which the borrowing base exceeds outstanding loans and
credits) under the new revolving line of credit of at least $15 million
(subject to increase in certain circumstances) and maintain certain levels
of tangible capital funds.
In conjunction with the new revolving credit agreement, the Company
terminated its interest rate swap agreement and entered into a new interest
rate swap agreement. This new agreement effectively fixed the interest rate
at 7.75%, reduced from 8.11% under the old agreement, for three years, on
$40 million of the Company's borrowings under its floating rate revolving
line of credit. Unlike the prior agreement, this interest rate swap has no
provisions for termination based on changes in the 30-day LIBOR borrowing
rate.
24
<PAGE> 25
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
----------------------------------------------------------
The Company is subject to market risk associated with changes in interest
rates and lumber futures contracts. The following discussion includes
"forward-looking statements" that involve risk and uncertainties. Actual
results could differ materially from those projected in the forward-looking
statements.
The Company's revolving line of credit provides for, subject to certain
restrictions, up to $160 million of revolving credit loans and the issuance
of up to $10 million of letters of credit. Depending upon the Company's
rolling four-quarter interest coverage ratio, amounts outstanding under the
new revolving line of credit will bear interest at a spread above the base
rate of from 0% to 0.75% or from 1.50% to 2.25% above the applicable LIBOR
rate. The rate is adjusted quarterly upon delivery to the lenders of the
Company's most recent quarterly financial statements. Interest on amounts
outstanding under the new revolving line of credit will bear interest, during
the third quarter of 1999, at a spread above the base rate of BankBoston, N.A.
of 0.50%, or 2.00% above the applicable LIBOR rate. This is unchanged from
the rate that has been in effect since the inception of the line of credit in
February of 1999. Based on the Company's average borrowings for the first six
months of 1999 under it's revolving credit agreement, subject to the effect of
the interest rate swap agreement described below, a 25 basis point movement
in the base rate or LIBOR rate would result in an approximate $195,000
annualized increase or decrease in interest expense.
In conjunction with the Company's revolving credit agreement, the
Company entered into an interest rate swap agreement. This agreement
effectively fixed the interest rate at 7.75% (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. At August 1,
1999 the 30-day LIBOR borrowing rate was 5.19%.
The Company enters into lumber futures contracts as a hedge against
future lumber price fluctuations. All futures contracts are purchased to
protect long-term pricing commitments on specific future customer
purchases. While lumber futures contracts are entered on a risk management
basis, the Company's hedge positions could show a net gain or loss
depending on prevailing market conditions. At June 26, 1999 the Company
had 72 lumber futures contracts outstanding with a total market value of
$2,198,454 and a net unrealized gain of $121,141. These contracts mature
at various times through March of 2000.
25
<PAGE> 26
PART II
OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
4.1 First Amendment to the Credit Agreement dated July 8,
1999 among the Company, Bank Boston, N.A. and Nationsbank,
N.A. as agents, and the lenders set forth therein.
27.1 Financial data schedule (SEC use only).
(b) Reports on Form 8-K
None.
26
<PAGE> 27
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
(Principal Executive and Financial Officer)
By: /s/ John M. Lawrence
--------------------
John M. Lawrence
Controller and Principal Accounting
Officer
Date: August 9, 1999
27
Exhibit 4.1
FIRST AMENDMENT TO CREDIT AGREEMENT
This First Amendment to Credit Agreement (this "Amendment") is
entered into as of July 8, 1999, among Wickes Inc. (the "Borrower"), Bank
Boston, N.A., as Administrative Agent (the "Agent"), as Issuing Bank and as
a Lender, NationsBank, N.A., as Documentation Agent and as a Lender, and
the other Lenders set forth on the signature pages hereto.
W I T N E S S E T H
WHEREAS, the parties hereto are parties to that certain Credit
Agreement dated as of February 17, 1999 (the "Credit Agreement";
capitalized terms used herein and not otherwise defined herein shall have
the meanings ascribed to such terms in the Credit Agreement);
WHEREAS, the Borrower has requested that the Credit Agreement be
amended in certain respects.
NOW, THEREFORE, in consideration of the mutual agreements,
provisions and covenants contained herein, the parties hereto agree as
follows:
1. Amendments to Credit Agreement. Subject to the satisfaction
-------------------------------
of the conditions set forth in Section 2 below, the Credit Agreement is
amended as follows:
(a) Section 1.1 of the Credit Agreement is amended by amending
and restating the definition of "Unused Availability" to read as follows:
Unused Availability shall mean, on any date, the
--------------------
Borrowing Base, less the sum of (i) the Letter of
Credit Obligations on such date and (ii) the aggregate
outstanding principal balance of the Revolving Loans on
such date.
(b) Section 4.5 of the Credit Agreement is amended and restated to
read as follows:
Promptly following the last Business Day of each
calendar month hereafter and on the Expiration Date,
the Borrower shall pay to the Agent for the pro rata
benefit of each of the Lenders a non-refundable fee
equal to the weighted average amount during such month
by which the Total Commitments exceed the sum of
(a) the aggregate face amount of outstanding Letters of
Credit and (b) the aggregate outstanding principal
balance of the Revolving Loans, multiplied by one-
quarter of one percent (0.25%) per annum (the "Unused
Line Fee").
2. Conditions. The effectiveness of this Amendment is
----------
conditioned on the prior satisfaction of the following conditions:
(a) Borrower and each other Person listed on the signature pages
hereto shall have executed and delivered a counterpart of this Amendment to
the Agent; and
(b) No Default or Event of Default shall exist or will be caused
by the consummation of the transactions contemplated hereby.
3. Miscellaneous.
-------------
(a) Governing Law. This Amendment shall be a contract made
--------------
under and governed by the internal laws of the State of Massachusetts.
(b) Counterparts. This Amendment may be executed in any number
------------
of counterparts, and by the parties hereto on the same or separate
counterparts, and each such counterpart, when executed and delivered, shall
be deemed to be an original, but all such counterparts shall together
constitute one and the same Amendment.
(c) Reference to Credit Agreement. Each reference in the Credit
-----------------------------
Agreement to "this Agreement," "hereunder," "hereof," "herein" or words of
like import, and each reference to the Credit Agreement in any other Credit
Documents, or other agreements, documents or other instruments executed and
delivered pursuant to the Credit Agreement, shall mean and be a reference
to the Credit Agreement, as amended by this Amendment.
(d) Costs and Expenses. The Borrower agrees to pay on demand
-------------------
all costs and expenses (including the reasonable fees and disbursements of
counsel and other professionals) paid or incurred by the Agent in
connection with this Amendment.
2
IN WITNESS WHEREOF, the parties hereto have caused this Credit
Agreement to be duly executed and delivered by their duly authorized
officers as of the day and year first above written.
BORROWER:
WICKES INC.,
a Delaware corporation
By /s/ James Hopwood
------------------
Its Vice President
--------------
AGENT:
BANKBOSTON, N.A.,
as Agent
By /s/ Michael J. McDermott
-------------------------
Its Managing Director
-----------------
DOCUMENTATION AGENT:
BANK OF AMERICA, N.A.
(formerly NationsBank, N.A.),
as Documentation Agent
By /s/ R.J. Walker
----------------
Its Senior Vice President
---------------------
ISSUING BANK:
BANKBOSTON, N.A.
By /s/ Michael J. McDermott
------------------------
Its Managing Director
-----------------
3
LENDERS:
BANKBOSTON, N.A.
By /s/ Michael J. McDermott
-------------------------
Its Managing Director
-----------------
FOOTHILL CAPITAL CORPORATION
By /s/ Todd Nakamoto
-----------------
Its Vice President
--------------
BANK OF AMERICA, N.A.
(formerly NationsBank, N.A.)
By /s/ R.J. Walker
---------------
Its Senior Vice President
---------------------
LASALLE NATIONAL BANK
By /s/ Christopher S. Clifford
---------------------------
Its Senior Vice President
---------------------
THE CIT GROUP/BUSINESS CREDIT, INC.
By /s/ Bond Harberts
-----------------
Its Assistant Vice President
------------------------
FLEET CAPITAL CORPORATION
By /s/ Art Pesavento
-----------------
Its Vice President
--------------
CONGRESS FINANCIAL CORPORATION
(CENTRAL)
By /s/ Brett Mook
--------------
Its Vice President
--------------
4
AMERICAN NATIONAL BANK AND TRUST
COMPANY OF CHICAGO
By /s/ Dawn M. Dieter
------------------
Its Vice President
--------------
5
<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> 272,645
<PP&E> 83,715
<DEPRECIATION> 35,124
<TOTAL-ASSETS> 362,219
<CURRENT-LIABILITIES> 91,334
<BONDS> 100,000
0
0
<COMMON> 82
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 362,219
<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>
