SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934.
For the quarter ended September 27, 1997
Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from to
Commission file number 0-6169
WOLOHAN LUMBER CO.
(Exact name of registrant as specified in its charter)
Michigan 38-1746752
(State or other jurisdiction (I.R.S. Employer
incorporation or organization) Identification Number)
1740 Midland Road, Saginaw, Michigan 48603
(Address of principal executive offices)
(517) 793-4532
(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 (or for such shorter period
that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
Yes No
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practical date.
Common stock, $1 par value -- 6,906,308 shares as of October 25, 1997.
PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL INFORMATION
WOLOHAN LUMBER CO.
CONDENSED BALANCE SHEETS
SEPT. 27, DEC. 28,
1997 1996
(Unaudited) (Note)
ASSETS (000's omitted)
CURRENT ASSETS
Cash and cash equivalents $ 16,562 $ 15,485
Trade receivables 39,586 32,722
Inventories - at current cost 58,029 59,455
Reduction to LIFO cost (15,082) (14,702)
Inventories at the lower of last in,
first out cost or market 42,947 44,753
Other current accounts 2,768 3,762
TOTAL CURRENT ASSETS 101,863 96,722
OTHER ASSETS 2,759 2,311
NET PROPERTIES 58,568 63,676
TOTAL ASSETS $ 163,190 $162,709
LIABILITIES AND SHAREOWNERS' EQUITY
CURRENT LIABILITIES
Trade accounts payable $ 16,989 $ 15,565
Employee compensation and accrued expenses 14,565 12,678
Current portion of long-term debt 6,040 6,790
TOTAL CURRENT LIABILITIES 37,594 35,033
LONG-TERM DEBT, less current portion 16,668 19,883
SHAREOWNERS' EQUITY
Common stock 6,906 6,912
Additional capital 21,764 21,828
Retained earnings 80,258 79,053
TOTAL SHAREOWNERS' EQUITY 108,928 107,793
TOTAL LIABILITIES AND SHAREOWNERS' EQUITY $ 163,190 $162,709
<FN>
Note: The balance sheet at Dec. 28, 1996, has been derived from the
audited financial statements at that date but does not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements.
See notes to condensed financial statements.
</FN>
WOLOHAN LUMBER CO.
CONDENSED STATEMENTS OF INCOME (UNAUDITED)
THREE MONTHS ENDED
SEPT. 27, SEPT. 28,
1997 1996
(000's omitted, except per share data)
NET SALES $ 124,119 $ 132,850
Cost of sales 95,751 101,628
Gross Profit 28,368 31,222
OPERATING EXPENSES:
Selling, general and administrative 22,812 22,803
Store closing costs 2,575 364
Depreciation 2,413 2,505
Total operating expenses 27,800 25,672
OPERATING INCOME 568 5,550
OTHER EXPENSES (INCOME):
Interest expense 459 583
Gain from sale of properties (27) (47)
Other (1,002) (796)
(570) (260)
INCOME BEFORE INCOME TAXES 1,138 5,810
Income taxes 539 2,324
NET INCOME $ 599 $3,486
Average shares outstanding 6,910 6,953
Net income per share $.08 $.50
Dividends per share $.07 $.07
<FN>
See notes to condensed financial statements.
</FN>
WOLOHAN LUMBER CO.
CONDENSED STATEMENTS OF INCOME (UNAUDITED)
NINE MONTHS ENDED
SEPT. 27, SEPT. 28,
1997 1996
(000's omitted, except per share data)
NET SALES $ 328,300 $ 325,496
Cost of sales 251,183 246,696
Gross Profit 77,117 78,800
OPERATING EXPENSES:
Selling, general and administrative 63,524 63,509
Store closing costs 2,575 364
Depreciation 7,374 7,323
Total operating expenses 73,473 71,196
OPERATING INCOME 3,644 7,604
OTHER EXPENSES (INCOME):
Interest expense 1,571 1,907
Gain from sale of properties (85) (676)
Other (2,415) (1,983)
(929) (752)
INCOME BEFORE INCOME TAXES 4,573 8,356
Income taxes 1,916 3,344
NET INCOME $ 2,657 $ 5,012
Average shares outstanding 6,913 6,983
Net income per share $.38 $.72
Dividends per share $.21 $.21
<FN>
See notes to condensed financial statements.
</FN>
WOLOHAN LUMBER CO.
CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
NINE MONTHS ENDED
SEPT. 27, SEPT. 28,
1997 1996
(000's omitted, except per share data)
NET CASH FROM OPERATING ACTIVITIES $ 9,472 $ 6,025
NET CASH USED IN INVESTING ACTIVITIES (2,978) (4,709)
NET CASH USED IN FINANCING ACTIVITIES (5,417) (6,031)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 1,077 (4,715)
CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD 15,485 13,919
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 16,562 $ 9,204
<FN>
See notes to condensed financial statements.
</FN>
WOLOHAN LUMBER CO.
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 27, 1997
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements have
been prepared in accordance with generally accepted accounting
principles for interim financial information and with the
instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for
complete financial statements. In the opinion of management, all
adjustments (consisting only of normal recurring accruals)
considered necessary for a fair presentation have been included.
The Company's business is seasonal in nature and subject to
general economic conditions and outside factors and, accordingly,
its operating results for the three months and nine months ended
Sept. 27, 1997 are not necessarily indicative of the results that
may be expected for the entire year ending Dec. 27, 1997.
For further information, refer to the financial statements and
footnotes included in the Company's annual report on Form 10-K for
the year ended Dec. 28, 1996.
NOTE B - EARNINGS PER SHARE
The Company calculates earnings per share based on the average
number of shares outstanding for the period. Common stock
equivalents had no material dilutive effect for the periods
presented.
In February 1997, the Financial Accounting Standards Board (FASB)
issued Statement of Financial Accounting Standards (SFAS) No. 128,
Earnings Per Share. SFAS 128 simplifies the standards for
computing earnings per share and makes them comparable to
international EPS standards. It also replaces the presentation of
primary EPS with a presentation of basic EPS. Implementation of SFAS
128 is not expected to have an impact on the Company's reporting of
EPS. SFAS 128 is required to be implemented for periods ending after
Dec. 15, 1997.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
Results Of Operations
Net income for the third quarter of 1997 was $.6 million (8 cents
per share), versus $3.5 million (50 cents per share) for the same
period of 1996. The decline in third-quarter earnings resulted
primarily from costs related to store closings and lower sales.
Net income for the first nine months of 1997 was $2.7 million (38
cents per share) compared with $5 million (72 cents per share) for
the same period of 1996.
During the quarter, four stores were closed and asset impairment
losses were recorded for certain other stores, resulting in pre-tax
costs of $3.0 million (25 cents per share). The majority of the
store-closing costs were non-cash expenses and related primarily to
termination of leases and continuing lease costs, writing off
leasehold improvements and reduction of the net book value of real
estate.
The four stores closed during the quarter did not conform to the
Company's strategic direction which focuses the Company's efforts
on "project-type customers", including professional builders,
remodelers, and project oriented consumers.
Sales totaled $124.1 million in the third quarter of 1997, a 7-
percent decline from third-quarter 1996. The sales decline in the
1997 third quarter resulted from a 3-percent drop in contractor
(builder and remodeler) sales and an 11 percent decline in
consumer (DIY) sales. Comparable-store sales in third quarter
1997 declined 4 percent from the same period of 1996.
Approximately 16 percent of the overall sales decline in 1997's
third quarter was a result of lower average selling prices of
lumber (primarily panels) compared with the same period of 1996.
Sales for the nine-months ended Sept. 27, 1997 were $328.3
million, a 1-percent increase from the corresponding period a year
earlier. Comparable-store sales were 2 percent higher for the
1997 nine-month period.
The sales mix for the third quarter of 1997 was 60-percent
contractor (builder and remodeler) sales and 40-percent consumer
sales compared with a 58/42 mix for the third quarter of 1996.
For the nine-month period, contractor sales accounted for 60
percent of total sales in 1997 versus 56 percent for 1996.
Gross margins declined 60 basis points to 22.9 percent in the
third quarter of 1997, compared with the third quarter of 1996.
The lower gross margin resulted primarily from liquidating
inventory at the closed stores.
Total operating expenses of $25.2 million for the third quarter of
1997 (excluding the costs related to store closings) were $.1
million lower compared with the same period of 1996.
The effective tax rate (federal and state) for third quarter 1997
was 47.4 percent, versus 40 percent for third quarter 1996. The
increase in the effective tax rate in third quarter 1997 was due
to adjusting the nine-month rate which includes a higher effective
state rate compared with 1996. For the nine-month period, the
effective tax rate was 41.9 percent compared with 40 percent for
the same period of 1996.
Financial Condition
At Sept. 27, 1997, the Company's balance sheet remains strong.
Net working capital at Sept. 27, 1997, totaled $64.3 million,
compared with $62.2 million at Sept. 28, 1996, and $61.7 million
at Dec. 28, 1996. The current ratio at Sept. 27, 1997, was 2.7 to
1, compared with 2.6 to 1 at Sept. 28, 1996, and 2.8 to 1 at Dec.
28, 1996.
Cash and cash equivalents were $16.6 million at Sept. 27, 1997,
compared to $9.2 million at Sept. 28, 1996, and $15.5 million at
Dec. 28, 1996. The liquidity ratio at Sept. 27, 1997, was .44 to
1, compared to .24 to 1 at Sept. 28, 1996, and .44 to 1 at Dec.
28, 1996. Cash and cash equivalents increased $9.7 million during
the 1997 third quarter with operating activities producing $11.7
million of cash.
The major use of cash in the 1997 third quarter was for net
property additions, $.5 million, reduction of long-term debt of
$1.4 million and $.5 million for dividend payments.
The Company expects that net cash from operating activities and
available lines of credit should be adequate to meet future
working capital needs. The Company continues to seek
opportunities for growth through acquisitions of additional stores
which conform to the Company's strategic direction.
Invested capital (long-term debt and shareowners' equity) was
equal to 77% of total assets at Sept. 27, 1997, the same as Sept.
28, 1996, and 78% at year-end 1996. The total debt-to-asset ratio
was lowered to .10:1 at Sept. 27, 1997, from .12:1 at year-end
1996. The ratio of equity to total assets was .67 to 1 at Sept.
27, 1997, compared to .66 to 1 at year-end 1996.
Outlook
The Company expects pressure on sales and gross margins to
continue as "big box" retailers take market share of consumer sales,
which, in turn, intensifies the competition for new-home
construction and remodeler sales.
The Company has set its strategic direction to focus on the
project-type customer (professional builders, remodelers and project-
oriented consumers) and is committed to improving market-share by
developing a stronger associate sales team combined with a more
efficient operation. In addition the Company will closely analyze the
profitabilty of all locations from a economic value-added perspective,
which may result in additional store closings. The Company has
made several organizational changes to facilitate the achievement of
its plans.
PART II -- OTHER INFORMATION
ITEM 3. EXHIBITS AND REPORTS ON FORM 8-K
(a) Reports on Form 8-K
The Company filed no reports on Form 8-K
during the quarter for which this Report is filed.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf
by the undersigned thereto duly authorized.
WOLOHAN LUMBER CO.
Registrant
Date: November 6, 1997 David G. Honaman
David G. Honaman
Vice President - Administration
and Chief Financial Officer
Date: November 6, 1997 Edward J. Dean
Edward J. Dean,
Corporate Controller
(Principal Accounting Officer)
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf
by the undersigned thereto duly authorized.
WOLOHAN LUMBER CO.
Registrant
Date: November 6, 1997
David G. Honaman
Vice President - Administration
and Chief Financial Officer
Date: November 6, 1997
Edward J. Dean,
Corporate Controller
(Principal Accounting Officer)