EXHIBIT 13
Wolohan
Lumber Co.
1997
Annual
Report
The Professional Edge
Building relationships on a solid foundation is what Wolohan Lumber is all
about.
Complete Selection Of Building Materials
Wolohan Lumber is committed to being the premier building-material supplier
in the Midwest for single-family home builders, residential remodelers and
project-oriented consumers.
A Partnership
We're also committed to making the relationships with our suppliers equally
beneficial, with each partner in the relationship providing the other with an
invaluable service and in turn providing benefits to the customer.
Company Profile
Wolohan Lumber Co., is a full-line retailer of lumber, building
materials and related products used primarily for new-home construction and
home-improvement and maintenance projects.
Headquartered in Saginaw, Mich., the Company was founded in 1964
with three stores and has grown to 56 stores in the Midwest. Each store
provides a wide variety of quality materials (10,000 to 15,000 items),
competitive prices and expert and personal service. Each location includes a
retail sales area (with most stores ranging from 20,000 to 45,000 square
feet) and an outside lumberyard area. Total under-roof storage area averages
56,000 square feet. In addition, the Company has a truss plant, two
wall-panel facilities and several stores with door assembly capabilities.
The Company services both the consumer/do-it-yourself customer and
the contractor trade with its primary customer focus being the
project-oriented consumer, single-family homebuilder and remodeler.
Table Of Contents
Corporate and Financial Highlights ............... 3
Shareowners' Address ............................. 4
Common Stock Data ................................ 6
Quarterly Summaries .............................. 6
Sales Mix ........................................ 7
5-Year Performance ............................... 8
Management's Discussion and Analysis ............. 9
Reports of Management and Independent Auditors ... 12
Financial Statements
Balance Sheets .......................... 13
Statements of Income .................... 14
Statements of Shareowners' Equity ....... 14
Statements of Cash Flows ................ 15
Notes to Financial Statements ........... 16
Wolohan Services ................................. 22
Corporate Information ............................ 24
2
Corporate Highlights
o The Company adopted the EVA(TM) (Economic Value Added) concept in 1997 to
better evaluate overall company and individual market performance. The
Company intends to develop future strategies for growth, market
performance and incentive compensation based on the principle of EVA(TM).
o The Company ended 1997 with a strong balance sheet highlighted by a sound
liquidity position and a low debt ratio.
o Six underperforming stores were closed in 1997 and their assets
redeployed.
o The Company continued its transformation to put maximum emphasis and
resources on sales and marketing efforts to its target customers.
o Capital expenditures of $3.7 million included the addition of a truss
plant.
o Store leadership was strengthened with the addition of John Sieggreen as
Vice President of Operations.
o The Company expanded programs related to the training and development of
its associates.
o The infrastructure to support project-related selling was further
strengthened in 1997.
o The Company increased its ability to provide "value-added" services by
making additional investments in boom trucks and by adding more
installed-sales options for its customers.
FINANCIAL HIGHLIGHTS
(In thousands, except per-share amounts, ratios and percentages)
1997 1996
vs vs
1997 1996 1995 1996 1995
---- ---- ---- ---- ----
Income Statistics
Net sales $424,503 $430,358 $418,058 (1%) + 3%
Gross profits 101,583 103,375 99,989 (2%) + 3%
Income before income taxes 7,247 10,511 6,498 (31%) +62%
Net income 4,332 6,171 3,735 (30%) +65%
Per share, basic:
Net income .63 .89 .53 (29%) +68%
Dividends .28 .28 .28 -- --
Balance Sheet Statistics
Working capital $ 72,070 $ 61,689 $ 60,631 +17% + 2%
Total assets 157,463 162,709 162,440 (3%) --
Long-term debt, net of current portion 20,443 19,883 26,674 + 3% (25%)
Total liabilities 47,284 54,916 58,084 (14%) (5%)
Shareowners' equity 110,179 107,793 104,356 + 2% + 3%
Book value per share 15.94 15.60 14.93 + 2% + 4%
Key Ratios and Percentages
Current ratio 3.7:1 2.8:1 2.9:1 +32% (3%)
Liquidity ratio .94:1 .44:1 .44:1 +114% --
Gross profit margin 23.9% 24.0% 23.9% -- --
Pre-tax profit margin 1.7% 2.4% 1.6% (29%) +50%
Return on sales 1.0% 1.4% 0.9% (29%) +56%
Return on average assets 2.7% 3.7% 2.2% (27%) +68%
Return on beginning shareowners' equity 4.0% 5.9% 3.6% (32%) +64%
3
[ PHOTO ]
James L. Wolohan, Chairman of the Board,
President and Chief Executive Officer
SHAREOWNERS'
ADDRESS
"Quality Home Builders and Remodelers
Build with Wolohan"
The year 1997 was a year of lower profitability, but a year in which
significant progress was made toward repositioning the Company for future
growth and profitability.
Net income in 1997 was a disappointing $4.3 million, or 63 cents per
share, a 30 percent decline from 1996 income of $6.2 million, or 89 cents per
share. The decrease in net income in 1997 was due to a slight decline in
sales and margins and the effect of closing six stores. Expenses and
write-offs associated with these closings totaled $3.8 million. Sales in 1997
totaled $424.5 million, a 1-percent decline from 1996. On a comparable-store
basis, 1997 sales increased 1 percent.
Despite the drop in net income in 1997 compared with 1996, our
balance sheet remains strong. Cash and equivalents increased $9.8 million
during 1997 and totaled $25.3 million at year-end. Our modest debt level was
reduced by $4 million from prior year-end. Year-end 1997 shareowners' equity
of $110.2 million was 84 percent of invested capital.
Guided by our strong balance sheet, we took significant steps in
1997 to reposition the Company. We developed and are implementing a five-year
strategic plan that provides the framework for building a highly competitive
and profitable company. We closed six poorly performing stores that did not
fit our strategic profile and had little prospect for improvement. We
strengthened the leadership of our Company with the promotion of John
Sieggreen to vice-president of operations, Mark Hershberger to vice-president
and regional manager and Curt LeMaster to vice-president responsible for
purchasing, marketing and systems.
In our strategic plan, we identify three key elements: (1) create
value for shareholders, (2) become market driven, focusing on building and
remodeling customers, and (3) develop industry-leading managers and
salespeople. All of our efforts and activities at Wolohan Lumber are focused
on these key elements as we strive to satisfy the requirements of our
customers, associates and shareholders. Our Company's vision statement,
"Quality Home Builders and Remodelers Build with Wolohan", reinforces our
desire to focus on these customers.
To create value for shareholders, the Company adopted the EVA(TM)
(Economic Value Added) concept in 1997 to better evaluate Company and
individual market performance. We intend to develop future strategies for
growth, market performance, capital invest-
[ PHOTO ]
John A. Sieggreen,
Vice President--Operations
4
[ PHOTO ]
Curtis J. LeMaster,
Vice President--Marketing,
Purchasing and Systems
ment and incentive compensation based on the principle of EVA(TM).
Our focus on building and remodeling was further strengthened in
1997 as we more closely aligned our product assortment to support our
identified three types of customers: project-oriented consumer, the
single-family builder and the remodeler. We have made it clear that Wolohan
is not a general merchant. We have developed sales efficiency and
competitive-advantage teams to further identify areas where Wolohan can
improve customer service and thereby gain market share.
To help us develop industry-leading managers, we have defined
required competencies in areas of sales, people management and financial
knowledge and will use these identified competencies to train and test our
management associates going forward. We are working hard to reduce turnover
rates among all Wolohan associates. We continue to have a strong bonus
program which rewards managers, based on profits in relation to capital
employed. To strengthen our salespeople, our district trainers are working
with store management to ensure required competencies are met, and sales
standards are being met and exceeded as we strive to raise the bar on
expectations.
We continue to be responsive to customers' needs and wants. In 1997
we added a truss plant in the rapidly growing Grand Rapids, Mich. market and
added seven boom trucks to our fleet of delivery equipment. We also increased
our installed services with equipment added at two stores to install blown-in
fiberglass insulation.
In 1997, we closed five stores that did not produce a return on
investment consistent with our long-term EVA(TM) strategy. Stores in Madison,
Wisc.; Muskegon, Mich.; Shelbyville, Ind.; and Woodstock and Freeport, Ill.
were closed. In addition, we closed one store and consolidated our operations
in the Traverse City, Mich. market. We had serviced the Traverse City market
from two locations and we will continue to be a major player in this market
as we operate out of a larger, more-productive facility. The redeployment of
assets from these closed stores has strengthened our balance sheet and better
positions the Company to take advantage of future opportunities.
Looking to 1998, we expect a business environment similar to 1997.
Strong construction activity, low interest rates and a high level of consumer
confidence are all positive contributors to our business success. We expect
housing starts and material sourcing to be about the same as 1997. We also
know that predatory pricing will become more severe and competition more
intense in our markets, which will keep pressure on gross margins. The real
strengths we see in the coming year are the quality of our associates, our
strategic plan and our ability to execute.
Our challenge is to differentiate ourselves from our competition on
the basis of our quality products, customer service and niche marketing. We
intend to build on current areas of expertise and marketing strength and
de-emphasize or eliminate products and programs that do not give us a
competitive advantage. In this manner, we believe we can increase market
share in key niche sectors where we have strong and growing core
competencies. We will continue to consolidate our buying efforts to take
advantage of volume buying incentives and will continue to consistently focus
on providing the quality and type of material our three target customer
groups desire. We continue to narrow the breadth of our product lines and
increase the depth of our inventory. The number of vendors supplying our
Company will decrease, which will provide us with a stronger relationship
with remaining vendors and greater administrative efficiencies.
We will focus on the key elements of our strategic plan in 1998 and
expect to see positive results from the focus we are putting on the
sales-efficiency and associate-improvement areas. We have in place a strong
district- and regional- supervision structure which will support the
achievement of these strategic goals. We have a very strong balance sheet as
we enter 1998 and will apply EVA(TM) principles as we continually evaluate
investments in inventory, equipment, accounts receivable and facilities to
achieve our required return on these investments. We will aggressively target
attractive acquisitions of existing businesses within our Midwest markets.
I would also like to make special mention that Herb Wardlow will be
retiring from our Board of Directors. We would particularly like to thank
Herb for his valuable contributions to our Company as a Director for the past
16 years. Herb's presence and counsel have been greatly valued and
appreciated and his contributions will be missed.
Each year brings with it the challenges for creativity and
innovation to meet the demands of the changing marketplace. We look forward
to the challenges and opportunities 1998 will bring, knowing that with the
extraordinary dedication of our Wolohan team of associates, the counsel of
our Board of Directors, and the continued support of our shareowners, we will
make great strides toward growth in sales and profitability for our Company.
/s/ James L. Wolohan
James L. Wolohan, Chairman of the Board,
President and Chief Executive Officer
[ PHOTO ]
David G. Honaman,
Vice President--Administration,
Secretary and Chief
Financial Officer
5
COMMON STOCK DATA
1997 1996
---------------------------- -------------------------------
Cash Cash
Market Range Dividends Market Range Dividends
High Low Declared High Low Declared
---- --- --------- ---- --- ---------
First Quarter $15-3/4 $11-3/4 $ .07 $10-1/4 $ 9-1/4 $ .07
Second Quarter 12-3/4 11-7/8 .07 11-1/8 9-5/8 .07
Third Quarter 14-1/2 11-5/8 .07 10-5/8 9-7/8 .07
Fourth Quarter 14-1/2 12-7/8 .07 13-1/8 10-5/8 .07
Total Year 15-3/4 11-5/8 $ .28 13-1/8 9-1/4 $ .28
The Company's common stock trades on The Nasdaq Stock Market under
the symbol WLHN. The approximate number of record holders of the Company's
common stock at Dec. 27, 1997 was 850.
QUARTERLY SUMMARIES
(in thousands,
except per-share First Second Third Fourth Total
amounts) Quarter Quarter Quarter Quarter Year
------- ------- ------- ------- -----
1997
- ----
Net sales $ 77,354 $ 126,827 $ 124,119 $ 96,203 $ 424,503
Gross profit 18,723 30,026 28,368 24,466 101,583
Net income:
Amount (931) 2,989 599 1,675(1) 4,332
Per share,
basic (.13) .43 .08 .25(1) .63
1996
- ----
Net sales $ 73,453 $ 119,193 $ 132,850 $ 104,862 $ 430,358
Gross profit 17,784 29,794 31,222 24,575 103,375
Net income:
Amount (1,570) 3,096 3,486 1,159 6,171
Per share,
basic (.22) .44 .50 .17 .89
<FN>
(1) Includes a pre-tax LIFO credit of $1.7 million, which increased earnings
per share by 14 cents (a pre-tax LIFO charge of $1.3 million in 1996
reduced earnings per share by 11 cents and a pre-tax LIFO credit of $1.2
million in 1995 increased earnings per share by 10 cents).
6
SALES MIX
BY CUSTOMER SEGMENT
(in thousands, except percentages) 1997 MIX 1996 MIX
---- --- ---- ---
Consumer/DIY $164,909 39% $179,747 42%
Contractor Builder and Remodeler 259,594 61% 250,611 58%
-------- --- -------- ---
Total Sales $424,503 100% $430,358 100%
======== === ======== ===
Project selling is the Company's focus regarding the consumer/DIY
customer, with less emphasis on general home-improvement merchandise.
Single-family home builders, remodelers and commercial/industrial accounts
are all part of the contractor builder and remodeler segment of the Company's
sales.
BY PRODUCT CATEGORY
(PERCENT OF TOTAL SALES)
1997 1996
---- ----
Dimension Lumber 18.5 17.3
Sheathing Plywood 8.6 9.6
Other Forest Products 11.5 11.1
Building Materials 16.8 16.8
Hardware 5.3 5.6
Home Decorations 2.4 2.7
Millwork 17.3 17.1
Kitchen Cabinets and Vanities 5.9 6.0
Plumbing, Heating and Electrical 5.9 6.5
Trusses and Components 6.1 5.4
Lawn and Garden 1.7 1.9
---- ----
Total Sales 100 100
==== ====
Project-oriented sales, such as doors and windows, kitchens and
baths, decks, fences and storage buildings, continue to be the focus of the
Company for its DIY customers. Knowledgeable sales associates are utilizing
up-to-date displays, computerized drawings and special financing programs to
enhance and improve the market share of this segment of the Company's sales.
Wolohan Lumber Co. will focus on selling more product to its large
base of homebuilders and remodelers while also expanding market share by
developing new customers. The Company continues to invest in value-added
services such as computer design, door and window assembly,
wall-panelization, truss manufacturing and specialized equipment such as boom
trucks. These capabilities will help increase market share of builder and
remodeler sales. These value-added services demonstrate the Company's
commitment to the professional builder.
7
5-YEAR PERFORMANCE
(In thousands, except per-share amounts, ratios and percentages)
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
Income Statistics
Net sales $ 424,503 $ 430,358 $ 418,058 $ 448,840 $ 380,693
Gross profit 101,583 103,375 99,989 108,029 90,820
Store closing costs 3,800 921 3,317 -- --
Interest expense 2,212 2,457 2,919 3,082 3,391
Income before income taxes 7,247 10,511 6,498 18,268 12,558
Income taxes 2,915 4,340 2,763 7,206 4,074
Net income 4,332 6,171 3,735 11,062 8,484(1)
Net income per share, basic .63 .89 .53 1.55 1.19(1)
Cash dividends declared:
Amount per share .28 .28 .28 .28 .28
Percent of net income 44.7% 31.6% 53.2% 18.1% 23.6%
Average shares outstanding 6,912 6,968 7,100 7,146 7,142
Balance Sheet Statistics
Current assets $ 98,911 $ 96,722 $ 92,041 $ 100,871 $ 100,999
Other assets 7,544 2,311 2,149 2,174 1,341
Properties (net) 51,008 63,676 68,250 68,002 64,127
Total assets 157,463 162,709 162,440 171,047 166,467
Working capital 72,070 61,689 60,631 64,767 64,131
Long-term debt, net of current portion 20,443 19,883 26,674 30,035 33,503
Total liabilities 47,284 54,916 58,084 66,836 71,379
Shareowners' equity:
Amount 110,179 107,793 104,356 104,211 95,088
Book value per share 15.94 15.60 14.93 14.58 13.31
Key Operating Percentages
Gross profit margin 23.9% 24.0% 23.9% 24.1% 23.9%
Pre-tax profit margin 1.7% 2.4% 1.6% 4.1% 3.3%
Return on sales 1.0% 1.4% 0.9% 2.5% 2.2%
Return on average assets 2.7% 3.7% 2.2% 6.4% 4.9%
Return on average working capital 6.5% 10.1% 6.0% 17.2% 12.5%
Return on beginning shareowners' equity 4.0% 5.9% 3.6% 11.6% 9.6%
Return on average total invested capital 3.4% 4.8% 2.8% 8.4% 6.7%
Key Financial Ratios and Measures
Sales to average working capital 6.3:1 7.0:1 6.7:1 7.0:1 5.6:1
Sales to average shareowners' equity 3.9:1 4.1:1 4.0:1 4.5:1 4.1:1
Sales to average total invested capital 3.3:1 3.3:1 3.2:1 3.4:1 3.0:1
Current ratio 3.7:1 2.8:1 2.9:1 2.8:1 2.7:1
Quick ratio 2.1:1 1.4:1 1.3:1 1.3:1 1.3:1
Liquidity ratio .94:1 .44:1 .44:1 .61:1 .60:1
Debt to total assets ratio .13:1 .12:1 .16:1 .18:1 .20:1
Capitalization ratio .16:1 .16:1 .20:1 .22:1 .26:1
Shareowners' equity to total assets ratio .70:1 .66:1 .64:1 .61:1 .57:1
Inventory turnover 6.73 6.30 5.89 5.73 5.54
Asset turnover 2.62 2.58 2.47 2.60 2.21
Stores
Number of stores at end of year 56 62 61 60 54
<FN>
(1) Includes the cumulative effect of a change in the method of
accounting for income taxes of $516,000, or 7 cents per share.
8
Management's Discussion and
Analysis of Results of Operations
and Financial Condition
Results of Operations
The 30 percent decline in 1997 net income from 1996 reflects a
slight decline in sales and margins and the effect of closing six stores,
which resulted in costs (before tax) of $3.8 million. The improvement in net
income in 1996 (65 percent) from 1995 was due to increased sales, a slight
improvement in margins and a $2.4-million reduction in store-closing costs.
Sales in 1997 declined 1 percent from 1996 because of a 4-percent
improvement in contractor builder and remodeler (contractor) sales, offset by
an 8-percent decline in consumer/do-it-yourself (DIY) sales. Contractor sales
in 1997 were spurred by a continuation of strong construction activity and
slightly higher average selling prices of lumber products (up approximately 2
percent from 1996 on a weighted average basis for lumber and structural panel
products). The consumer sales decline in 1997 was due primarily to increased
competition and the Company's strategy to focus more on project-related
products versus general home-improvement merchandise. Contractor builder and
remodeler sales accounted for 61 percent of total sales for 1997, compared
with 58 percent in 1996.
Sales in 1996 exceeded 1995 sales by 3 percent, with contractor
sales increasing 16 percent and consumer sales falling 11 percent. Average
selling prices of lumber and structural panels rose 4 percent in 1996
compared with 1995 and accounted for approximately 40 percent of the total
sales increase from 1995.
Comparable-store consumer sales declined 6 percent in 1997 and 12
percent in 1996; comparable-store contractor sales rose 6 percent in 1997 and
12 percent in 1996. Total comparable-store sales increased 1 percent in both
1997 and 1996.
The gross profit margin in 1997 was 23.9 percent, compared with 24
percent in 1996 and 23.9 percent in 1995. Increased competition and some
change in sales mix had a negative effect on margins in 1997, and were
offset, in part, by a lower LIFO provision compared with 1996. The LIFO
provision was a credit of $1,281,000 in 1997, compared with a charge of
$1,866,000 in 1996 and a credit of $1,713,000 in 1995. The gross margin in
1997, excluding the provision for LIFO, was 23.6 percent versus 24.5 percent
in 1996 and 23.5 percent in 1995.
Other operating income increased to $2.7 million from $2.1 million
in 1996 and $2.2 million in 1995, resulting from additional installed labor
income.
Selling, general and administrative expenses (excluding
store-closing costs) decreased 1 percent in 1997 from 1996, resulting in an
expense factor of 19.3 percent of sales in 1997 compared with 19.2 percent
and 19.4 percent in 1996 and 1995, respectively. The slightly higher 1997
expense factor was primarily due to an increase in bad-debt expense. The
lower 1996 expense factor compared with 1995 was primarily a result of
more-productive marketing expenditures. Included in 1996 expenditures was
approximately $1 million related to a major computer-technology upgrade the
Company completed that year.
The closing of six stores in 1997 resulted in costs of $3.8 million,
compared with a $900,000 expense recorded
[GRAPHIC OMITTED] [GRAPHIC OMITTED] [GRAPHIC OMITTED] [GRAPHIC OMITTED]
9
in 1996 and $3.3 million in 1995 related to the closing of two and four
stores, respectively. The closing costs are primarily related to expensing
portions of future lease payments on longer-term leases, the write-off of
leasehold improvements, the write-down of certain owned properties and the
costs of liquidating inventories. Excluding store closing costs, net
operating expenses were reduced $1 million from 1996. The Company will
continue to evaluate performances of stores in terms of meeting minimum
return on investment criteria, and additional store closings may result from
this on-going review.
Interest expense was reduced 10 percent to $2.2 million from $2.5
million in 1996. The decrease reflects the reductions made in long-term debt
and lower average short-term borrowings compared with 1996.
The effective income tax rate (federal and state combined) was 40.2
percent in 1997, compared with 41.3 percent in 1996 and 42.5 percent in 1995.
The decrease in the effective tax rate in 1997 resulted primarily from an
increase in tax-exempt interest income.
Financial Condition -
Liquidity and Capital Resources
Cash and cash equivalents totaled $25.3 million at Dec. 27, 1997,
compared with $15.5 million at Dec. 28, 1996. The liquidity ratio improved
from .44 to 1 at year-end 1996, to nearly 1 to 1 at year-end 1997. Net cash
provided by operating activities totaled $19.1 million in 1997, resulting
primarily from net income plus depreciation and a $5.5 million reduction in
inventory, offset, in part, by a reduction in accounts payable and accrued
expenses. Major uses of cash in 1997 were: (1) a $4 million reduction in
long-term debt, (2) additions to properties of $3.7 million, and (3) dividend
payments of $1.9 million.
Working capital was $72.1 million at the end of 1997, compared with
$61.7 million at year-end 1996. The Company expects that net cash provided
from operating activities and available lines of credit will be adequate to
meet working-capital needs and capital expenditures for 1998 (estimated to be
$2.2 million).
The Company has $50 million available in lines of credit
arrangements for short-term debt. There were no borrowings under these
arrangements at year-end 1997 and 1996.
The long-term debt-to-asset ratio was .13:1 at Dec. 27, 1997,
compared with .12:1 for year-end 1996.
Capital expenditures totaled $3.7 million in 1997 and included: (1)
the addition of a roof-truss plant facility and (2) replacements and
additions of equipment at existing stores. Capital expenditures have totaled
$54 million over the last five years.
Invested capital (long-term debt and shareowners' equity) was 83
percent of total assets at Dec. 27, 1997, compared with 78 percent at Dec.
28, 1996.
Shareowners' equity has been the principal financing source over the
years, accounting for more than 84 percent of invested capital at year-end
1997 and 1996.
[GRAPHIC OMITTED] [GRAPHIC OMITTED] [GRAPHIC OMITTED] [GRAPHIC OMITTED]
10
Effect of inflation
The Company does not measure precisely the effect of inflation on
its operations; however, it does not believe inflation had a material effect
on sales or results of operations.
Environmental
The Company is subject to laws and regulations relating to the
protection of the environment. While it is not possible to quantify with
certainty the potential impact of actions regarding environmental matters,
particularly any future remediation and other compliance effects, in the
opinion of management, compliance with the present environmental-protection
laws will not have a material adverse effect on the financial condition of
the Company or on operating results or cash flows in any one year.
Year 2000 Issue
The Company is aware of the current concerns throughout the business
community of reliance upon computer software programs that do not properly
recognize the year 2000 in date formats, often referred to as the "Year 2000
Problem." The Year 2000 Problem is the result of software being written using
two digits rather than four digits to define the application year (i.e., "98"
rather than "1998"). A failure by a business to properly identify and correct
a Year 2000 Problem in its operations could result in system failures or
miscalculations. In turn, this could result in disruption of operations,
including among others things a temporary inability to process transactions,
send invoices or otherwise engage in routine business transactions on a
day-to-day basis.
Operations of the Company depend upon the successful operation on a
daily basis of its computer software programs. The Company relies upon
software purchased from third-party vendors as well as internally-generated
software, and based upon its ongoing discussions with these vendors and with
its internal systems group, the Company believes that most of its software
already reflects changes necessary to avoid the Year 2000 Problem. The
Company expects to update during 1998 any remaining software that could be
affected by the Year 2000 Problem to eliminate remaining concerns. The cost
of this update is not expected to have a material adverse effect on the
Company's operating results or cash flows.
Outlook
The Company enters 1998 with a strong balance sheet and looks
forward to the challenges and opportunities present in each of its markets.
The Company is committed to expanding market share by building on its
strengths in wood products, building materials, millwork and kitchens, and by
being focused on its target customers (project-oriented consumers, remodeling
contractors and new-home construction contractors). The Company will continue
to place strong emphasis on buying and distribution strategies to improve its
competitive position and will work aggressively to lower its
operating-expense ratios by focusing on training and more-efficient systems.
By proper execution of these strategies, the Company expects to improve
profitability in 1998.
[GRAPHIC OMITTED] [GRAPHIC OMITTED] [GRAPHIC OMITTED] [GRAPHIC OMITTED]
WOLOHAN LUMBER CO.
GRAPH TITLE 1993 1994 1995 1996 1997
- ----------- ---- ---- ---- ---- ----
SALES ($ in millions) 380.7 448.8 418.1 430.4 424.5
NET INCOME ($ in millions) 8.5 11.1 3.7 6.2 4.3
EARNINGS PER SHARE (in dollars) 1.19 1.55 0.53 0.89 0.63
NET RETURN ON SALES % 2.2 2.5 0.9 1.4 1.0
GROSS MARGIN % (LIFO) 23.9 24.1 23.9 24.0 23.9
WORKING CAPITAL ($ in millions) 64.1 64.8 60.6 61.7 72.1
DEBT TO EQUITY RATIO % 35% 29% 26% 18% 19%
SHAREOWNERS' EQUITY ($ in millions) 95.1 104.2 104.4 107.8 110.2
EQUITY PER SHARE in dollars 13.31 14.58 14.93 15.60 15.94
TOTAL ASSETS ($ in millions) 166.5 171.0 162.4 162.7 157.5
PROPERTIES (NET) ($ in millions) 64.1 68.0 68.3 63.7 51.0
EQUITY TO ASSET RATIO % 57% 61% 64% 66% 70%
11
Reports of Management and Independent Auditors
Report of Management
The accompanying financial statements of Wolohan Lumber Co., together
with the other financial information included in the Annual Report, were
prepared by management.
The responsibility for the integrity of the financial statements, and
other financial information included in this report, rests with management.
The financial statements have been prepared in accordance with generally
accepted accounting principles appropriate in the circumstances and, of
necessity, include certain amounts which are based on our best estimates and
judgments. The other financial information included herein is consistent with
that reported in the financial statements.
Wolohan Lumber Co. maintains internal accounting-control systems that
are designed to provide reasonable assurance that assets are safe-guarded
from loss or unauthorized or illegal use and that transactions are executed
and recorded in accordance with management authorization. There are limits
inherent in all systems of internal control, based on the recognition that
costs of such a system should not exceed the benefits to be derived. We
believe the Company's system provides an appropriate balance.
The Board of Directors, through the Audit Committee of the Board, is
responsible for assuring that management fulfills its responsibilities in the
preparation of the financial statements. The Audit Committee meets
periodically with the independent auditors and representatives of management
to ensure that each is discharging its responsibilities. To ensure complete
independence, Rehmann Robson, P.C. has full and free access to meet with the
Audit Committee to discuss the results of their audit, the adequacy of
internal controls, the quality of financial reporting and other matters of
mutual interest.
/s/ David G. Honaman
David G. Honaman
Vice President--Administration, Secretary
and Chief Financial Officer
/s/ E. Dean
Edward J. Dean
Corporate Controller
Report of Independent Auditors
Board of Directors and Shareowners
Wolohan Lumber Co.
Saginaw, Michigan
We have audited the accompanying balance sheet of Wolohan Lumber Co.
as of December 27, 1997, and the related statements of income, changes in
shareowners' equity and cash flows for the year then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based
on our audit. The balance sheet of Wolohan Lumber Co. as of December 28,
1996, and the related statements of income, shareowners' equity and cash
flows for the years ended December 28, 1996 and December 31, 1995 were
audited by other auditors whose report dated February 14, 1997, expressed an
unqualified opinion on those statements.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Wolohan Lumber
Co. as of December 27, 1997, and the results of its operations and its cash
flows for the year then ended in conformity with generally accepted
accounting principles.
/s/ Rehmann Robson, P.C.
Rehmann Robson, P.C.
Saginaw, Michigan
February 5, 1998
12
BALANCE SHEETS
(in thousands except per-share amounts) December 27, December 28,
1997 1996
------------ ------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 25,333 $ 15,485
Trade receivables, less allowances for doubtful
accounts of $1,933 ($1,250 in 1996) 30,064 32,722
Inventories 39,209 44,753
Other current assets 4,305 3,762
-------- --------
TOTAL CURRENT ASSETS 98,911 96,722
PROPERTIES - NOTE D
Land 8,411 10,124
Land improvements 13,697 15,588
Buildings 46,929 53,451
Equipment 43,819 43,352
-------- --------
TOTAL PROPERTIES 112,856 122,515
Less allowances for depreciation (61,848) (58,839)
-------- --------
PROPERTIES, NET 51,008 63,676
OTHER ASSETS - NOTE F 7,544 2,311
-------- --------
TOTAL ASSETS $157,463 $162,709
======== ========
LIABILITIES AND SHAREOWNERS' EQUITY
CURRENT LIABILITIES
Trade accounts payable $ 10,814 $ 15,565
Employee compensation and accrued expenses 13,787 12,678
Current portion of long-term debt 2,240 6,790
-------- --------
TOTAL CURRENT LIABILITIES 26,841 35,033
LONG-TERM DEBT, less current portion - NOTE D 20,443 19,883
-------- --------
TOTAL LIABILITIES 47,284 54,916
SHAREOWNERS' EQUITY - NOTE C
Common stock, $1 par value:
Authorized - 20,000 shares;
issued and outstanding - 6,910 shares (6,912 in 1996) 6,910 6,912
Additional capital 21,819 21,828
Retained earnings 81,450 79,053
-------- --------
TOTAL SHAREOWNERS' EQUITY 110,179 107,793
-------- --------
TOTAL LIABILITIES AND SHAREOWNERS' EQUITY $157,463 $162,709
======== ========
BOOK VALUE PER SHARE $ 15.94 $ 15.60
======== ========
<FN>
See notes to financial statements.
13
STATEMENTS OF INCOME
FOR THE YEAR ENDED
--------------------------------------------
(in thousands except per-share amounts) December 27, December 28, December 31,
1997 1996 1995
------------ ------------ ------------
NET SALES $ 424,503 $ 430,358 $ 418,058
Cost of sales 322,920 326,983 318,069
--------- --------- ---------
Gross profit 101,583 103,375 99,989
Other operating income 2,711 2,066 2,155
OPERATING EXPENSES
Selling, general and administrative 81,920 82,718 81,229
Store closing costs--Note F 3,800 921 3,317
Depreciation 9,616 9,834 9,160
--------- --------- ---------
Net operating expenses 95,336 93,473 93,706
--------- --------- ---------
Income from operations 8,958 11,968 8,438
OTHER EXPENSES ( INCOME)
Interest expense 2,212 2,457 2,919
Interest income (562) (417) (670)
Loss (gain) from sale of properties 61 (583) (309)
--------- --------- ---------
Other expenses, net 1,711 1,457 1,940
--------- --------- ---------
INCOME BEFORE INCOME TAXES 7,247 10,511 6,498
Income taxes--Note E 2,915 4,340 2,763
--------- --------- ---------
NET INCOME $ 4,332 $ 6,171 $ 3,735
========= ========= =========
NET INCOME PER SHARE, basic $ 0.63 $ 0.89 $ 0.53
========= ========= =========
NET INCOME PER SHARE, assuming dilution $ 0.62 $ 0.88 $ 0.52
========= ========= =========
STATEMENTS OF SHAREOWNERS' EQUITY
(in thousands except per-share amounts)
Common Stock Total
------------------ Additional Retained Shareowners'
Shares Amount Capital Earnings Equity
------ ------ ---------- -------- ------------
BALANCES AT JANUARY 1, 1995 7,146 $ 7,146 $ 23,979 $ 73,086 $104,211
Net income for 1995 3,735 3,735
Cash dividends - $.28 per share (1,988) (1,988)
Shares issued under Long-Term
Incentive Plan, including related
tax benefit 11 11 92 103
Shares purchased and retired (168) (168) (1,537) (1,705)
----- -------- -------- -------- --------
BALANCE AT DECEMBER 31, 1995 6,989 6,989 22,534 74,833 104,356
Net income for 1996 6,171 6,171
Cash dividends - $.28 per share (1,951) (1,951)
Shares issued under Long-Term
Incentive Plan, including
related tax benefit 23 23 237 260
Shares purchased and retired (100) (100) (943) (1,043)
----- -------- -------- -------- --------
BALANCES AT DECEMBER 28, 1996 6,912 6,912 21,828 79,053 107,793
Net income for 1997 4,332 4,332
Cash dividends - $.28 per share (1,935) (1,935)
Shares issued under Long-Term
Incentive Plan, including
related tax benefit 8 8 104 112
Shares purchased and retired (10) (10) (113) (123)
----- -------- -------- -------- --------
BALANCES AT DECEMBER 27, 1997 6,910 $ 6,910 $ 21,819 $ 81,450 $110,179
===== ======== ======== ======== ========
<FN>
See notes to financial statements.
14
STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED
-----------------------------------------
(In thousands) December 27, December 28, December 31,
1997 1996 1995
------------ ------------ ------------
OPERATING ACTIVITIES
Net Income $ 4,332 $ 6,171 $ 3,735
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 9,616 9,834 9,160
Provision for losses on accounts receivable 1,502 735 662
Deferred income tax credit (633) (202) (1,009)
Loss (gain) on sale of properties 61 (583) (309)
Store closing costs 1,699 500 2,389
Changes in operating assets and liabilities
which provided (used) cash:
Accounts receivable 1,156 (6,986) (1,172)
Other assets (365) (610) 54
Inventories 5,544 3,786 1,467
Accounts payable and accrued expenses (3,813) 943 (7,962)
-------- -------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 19,099 13,588 7,015
INVESTING ACTIVITIES
Additions to properties (3,680) (5,968) (11,157)
Proceeds from the sale of properties 477 1,283 671
-------- -------- --------
NET CASH USED IN INVESTING ACTIVITIES (3,203) (4,685) (10,486)
FINANCING ACTIVITIES
Proceeds from long-term debt -- -- 1,000
Payments on long-term debt (3,990) (4,343) (1,989)
Dividends paid (1,935) (1,951) (1,988)
Purchases of common stock (123) (1,043) (1,705)
-------- -------- --------
NET CASH USED IN FINANCING ACTIVITIES (6,048) (7,337) (4,682)
-------- -------- --------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 9,848 1,566 (8,153)
Cash and cash equivalents at beginning of year 15,485 13,919 22,072
-------- -------- --------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 25,333 $ 15,485 $ 13,919
======== ======== ========
<FN>
See notes to financial statements.
15
Notes to Financial Statements
Note A--Nature of Business and
Significant Accounting Practices
Organization. Wolohan Lumber Co. (the "Company") is engaged in the retail
sale of a full line of lumber and building materials and related items
through a chain of 56 (62 in 1996) building supply stores in Illinois,
Indiana, Kentucky, Michigan, Ohio and Wisconsin.
The Company sells to contractor builders and remodelers and to the
"do-it-yourself" market consisting principally of homeowners. The volume of
residential construction can be volatile and is highly dependent on general
economic conditions. A significant decrease in residential construction could
have an adverse effect on the Company's operating results.
Change in Fiscal Year. Effective with the third quarter of fiscal 1996, the
Company adopted a"4-5-4" fiscal calendar wherein each fiscal quarter contains
two four-week periods and one five-week period, with each period beginning on
a Sunday and ending on a Saturday. Previously, the Company used calendar
months for its fiscal periods. Although the change in fiscal calendar
resulted in three fewer days in fiscal 1996 as compared to a calendar year,
the effect of this calendar change on fiscal 1996 and 1997 was not material.
Use of Estimates. The preparation of the financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
Concentrations of Credit Risk. Financial instruments that potentially subject
the Company to significant concentrations of credit risk consist principally
of cash investments and trade accounts receivable.
The Company maintains cash and cash equivalents including bank money
market funds and short-term tax exempt securities. Bank money market funds
are on deposit with financial institutions located primarily in Michigan, and
Company policy is designed to limit exposure to any one institution. The
Company has deposits with financial institutions which exceed federally
insured limits. The Company performs periodic evaluations of the relative
credit standing of those financial institutions that are considered in the
Company's investment strategy. In management's opinion, the Company is not
subject to undue credit risk as a result of these concentrations.
Concentrations of credit risk with respect to trade accounts
receivable are limited because of the large number of entities and
individuals comprising the Company's customer base. As of December 27, 1997,
the Company's receivables are primarily from customers in the residential
construction industry.
Cash and Cash Equivalents. The Company considers all highly liquid
investments with a maturity of three months or less when purchased to be cash
equivalents. Cash equivalents consist principally of money market funds and
short-term tax-exempt securities.
Inventories. Inventories are stated at the lower of cost, determined by the
last-in, first-out method ("LIFO"), or market. Current cost exceeded the LIFO
value of inventories by approximately $13,421,000 at December 27, 1997 and
$14,702,000 at December 28, 1996.
Properties. Properties are stated at cost. Depreciation is provided on a
straight-line basis over the estimated useful life of the property for
financial reporting purposes and on different lives and methods as required
for income tax purposes. Management reviews these assets quarterly to
determine whether carrying values have been impaired.
Start-Up Expenses. Expenses associated with the opening of new stores are
charged against income as incurred.
Advertising Expenses. The cost of advertising is expensed as incurred. The
Company incurred $4,428,000, $3,690,000 and $4,277,000 in advertising costs
during 1997, 1996 and 1995, respectively.
Reclassifications. Certain amounts as originally reported have been
reclassified to conform with their 1997 presentation.
16
Impact of Recently Issued Accounting Standards. In October 1996, the
Accounting Standards Executive Committee of the American Institute of
Certified Public Accountants issued Statement of Position 96-1 "Environmental
Remediation Liabilities", which provides guidance on the recognition,
measurement, display, and disclosure of environmental remediation
liabilities. The Company adopted Statement of Position 96-1 in the first
quarter of 1997 and the adoption of this statement did not have a material
effect on the Company's financial position or results of operations.
Employee Benefit Plans. The Company has a 401(k) retirement savings and
profit sharing plan under which eligible employees may contribute up to 10%
of their salaries. The Company contributes up to a maximum of $500 per
employee per year. In addition, the Company makes profit-sharing
contributions to the plan annually at an amount based on a percentage of the
Company's pre-tax profits. Profit-sharing contributions approximated
$722,000, $900,000 and $525,000 for 1997, 1996 and 1995, respectively, and
contributions to the 401(k) plan were approximately $486,000, $548,000 and
$414,000 for 1997, 1996 and 1995, respectively.
Earnings Per Share. During 1997, the Company adopted the provisions of
Statement of Financial Accounting Standards No. 128. Earnings-per-share
information is based on the weighted average number of shares outstanding for
the year. The assumed issuance of the performance-based incentive share
awards and the assumed exercise of outstanding stock options have an
insignificant effect on earnings per share. The following table presents a
reconciliation of the denominator used in the calculation of basic net income
per share and net income per share assuming dilution:
FOR THE YEAR ENDED
-------------------------------------------
(in thousands) DECEMBER 27, DECEMBER 28, DECEMBER 31,
- -------------- 1997 1996 1995
------------ ------------ ------------
Weighted average number of common
shares outstanding used for
basic calculation 6,912 6,968 7,100
Dilutive effect of assumed issuance
of performance-based incentive
share awards and assumed
exercise of common stock options 108 79 94
----- ----- -----
Number of shares outstanding
assuming dilution 7,020 7,047 7,194
===== ===== =====
Note B--Accounts Receivable Valuation Account
The following table presents a summary of the changes in the
allowance for doubtful accounts receivable for each of the years in the
three-year period ended December 27, 1997:
(in thousands) 1997 1996 1995
- -------------- ---- ---- ----
Balance at beginning of year $1,250 $ 862 $ 935
Provisions for doubtful accounts 1,502 735 662
Amounts charged off (819) (347) (735)
------ ------ -----
Balance at end of year $1,933 $1,250 $ 862
====== ====== =====
17
Notes to Financial Statements (Continued)
Note C--Shareowners' Equity and
Related Matters
The Company's Long-Term Incentive Plan was established to enable key
employees to participate in the future growth and profitability of the
Company by offering them long-term performance-based incentive compensation
through issuance of stock options and performance share awards, which are
vested based on achievement of performance goals. Performance shares awarded
are earned and vested at the rate of 20% per year and become issuable 10
years after date of award. During 1997, 21,000 performance shares (18,200
shares in 1996 and 1,800 in 1995) were awarded. At December 27, 1997, there
were 98,100 performance shares awarded but unissued. The Company adopted a
stock option plan for non-employee directors during 1995 in addition to the
Long-Term Incentive Plan for key employees. Stock option transactions and
prices are summarized as follows:
Number of Option
Options Price
--------- ------
Options outstanding at January 1, 1995 87,000 $14.38
Options granted 49,000 9.25 - 14.50
Options expired or canceled (10,000) 14.38
Options outstanding at December 31, 1995 126,000 9.25 - 14.50
Options granted 14,300 9.25 - 12.75
Options expired or canceled (17,700) 9.25 - 14.38
Options outstanding at December 28, 1996 122,600 9.25 - 14.50
Options granted 16,800 12.00 - 13.38
Option exercised (200) 9.25
Options expired or canceled (21,700) 9.25 - 14.50
Options outstanding at December 27, 1997 117,500 9.25 - 14.50
All options expire 10 years after the date of grant. There are
344,000 shares reserved for future use under the Long-Term Incentive Plan and
36,000 shares reserved for future use under the stock option plan for
non-employee directors.
Holders of common shares received a distribution of one right for
each common share held on February 15, 1990. The rights become exercisable
ten days after a person or group acquires or commences a tender or exchange
offer that could result in the acquisition of 25% of the Company's common
shares (except pursuant to an offer for all shares determined by the
non-officer Directors to be fair and in the best interest of the Company and
its shareowners). The rights also become exercisable 10 days after an
acquisition of 10% of the Company's common shares or more by a person or
group deemed by the Board of Directors to have interests adverse to those of
the Company and its shareowners. Each right would, subject to certain
adjustments and alternatives, entitle the rightholder to purchase common
shares of the Company having a market value of $180 at a price equal to 50%
of the fair market value of the shares. The rights are nonvoting, may
generally be redeemed by the Company at a price of 1 cent per right and
expire on February 15, 2000. The Company has reserved 6.6 million shares for
this stock rights plan.
The Company has elected to continue to apply the provisions of
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees", and, accordingly, stock options do not constitute compensation
expense in the determination of net income. Had stock option compensation
expense been determined pursuant to the methodology provided in Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation", the proforma effect on results of operations for each of the
years in the three year period ended December 27, 1997 would have been a
reduction in the Company's earnings per share of less than 1 cent per share,
which would not have been material.
18
Note D--Debt and Lease Transactions
The Company has available, under lines of credit arrangements with
several banks, $50 million in unsecured short-term borrowings. The interest
rate applicable when using these lines is dependent upon a variety of
formulae which utilize different money rate pricing indexes. In no case does
the interest rate exceed the Prime Rate. There are no commitment fees;
however, a compensating balance is required for a portion of the total credit
lines. These credit arrangements are reviewed annually for change and/or
renewal. At year-end 1997 and 1996, there were no borrowings outstanding
under these arrangements.
Long-term debt consisted of the following obligations:
December 27, December 28,
1997 1996
------------ ------------
Unsecured notes to insurance company,
due in annual installments ranging
from $1,430 to $4,060 with the
final payment in 2002. Interest is
payable quarterly at 8.65% $10,000 $11,500
Unsecured notes to insurance company,
due in annual installments of
$2,000 with the final payment in
2002. Interest is payable
semi-annually at 8.99% 8,000 9,250
Michigan Strategic Fund limited
obligation revenue bonds, payable
in 2001. Interest varies weekly
at prevailing market rates for
similar tax exempt securities
(average of 3.84% for 1997) and is
paid quarterly 3,300 3,300
Industrial revenue bonds, payable
in annual installments ranging
from $140 to $160 with the final
payment in 2001. Interest payable
quarterly at 83% of the Prime Rate 600 740
Other 783 1,883
------- -------
Total long-term debt 22,683 26,673
Less amount due in one year 2,240 6,790
------- -------
Total long-term debt
net of current maturities $20,443 $19,883
======= =======
Properties at December 27, 1997 with a net carrying value of
approximately $4,594,000 are pledged as collateral for the revenue bonds.
Maturities of long-term debt for each of the four years following
1998 approximate the following: $3,680,000 in 1999; $4,310,000 in 2000;
$7,610,000 in 2001 and $4,560,000 in 2002. During the year ended December 27,
1997 the Company was able to renew $3,300,000 of the $6,790,000 shown as due
in 1997 with payment now due in 2001. The Company made interest payments of
$2,029,000 in 1997, $2,452,000 in 1996 and $2,925,000 in 1995.
The Company leases certain facilities under various operating
leases. Lease expense for such facilities totaled approximately $522,000 in
1997, $620,000 in 1996 and $650,000 in 1995. Future minimum lease payments
for each of the next five years approximate $480,000 and aggregate $2,548,000
thereafter.
19
Notes to Financial Statements (Continued)
Note E--Income Taxes
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax purposes.
Significant components of the Company's deferred tax liabilities and assets
are as follows:
(in thousands) December 27, December 28,
1997 1996
------------ ------------
Deferred tax liabilities:
Tax and book basis difference
in properties $ -- $ 279
Other 81 82
------- -------
Total deferred tax liabilities 81 361
Deferred tax assets:
Tax and book basis difference in properties 540 --
Compensation and employee benefits 437 500
Allowance for doubtful accounts 754 483
Inventory 176 154
Store closings 961 712
Insurance claims accrual 219 --
Other 52 125
------- -------
Total deferred tax assets 3,139 1,974
------- -------
Net deferred tax assets $ 3,058 $ 1,613
======= =======
The provisions for income taxes consist of:
(in thousands) For the Year Ended
----------------------------------------
December 27, December 28, December 31,
1997 1996 1995
------------ ------------ ------------
Current:
Federal $2,364 $3,253 $2,605
State 1,184 1,289 1,167
Deferred federal and state credit (633) (202) (1,009)
------ ------ ------
Total provision for income taxes $2,915 $4,340 $2,763
====== ====== ======
A reconciliation of the income tax provision and the amount computed
by applying the statutory federal income tax rate of 34% to income before
income taxes, is as follows:
For the Year Ended
(in thousands) -------------------------------------------
December 27, December 28, December 31,
1997 1996 1995
------------ ------------ ------------
Computed amount $ 2,464 $ 3,574 $ 2,209
State income taxes, net
of federal income tax 725 833 681
Tax exempt investment income (111) (74) (161)
Other (163) 7 34
------- ------- -------
Total provision for income taxes $ 2,915 $ 4,340 $ 2,763
======= ======= =======
The Company made income tax payments of $4,497,000 in 1997, $5,148,000 in
1996 and $4,407,000 in 1995.
20
Note F--Store-Closing Costs
During 1997, the Company closed six stores. The costs associated
with these closings primarily related to expensing portions of future lease
payments on longer-term leases, the write-off of leasehold improvements and
the write-down of real property values and were approximately $3,800,000. Two
stores were closed in 1996 and four stores were closed in 1995 with related
costs totaling $921,000 and $3,317,000, respectively. Real estate owned
related to these closed stores is held for sale and included with other
assets on the accompanying balance sheets.
Note G--Fair Value of Financial
Instruments
The following methods and assumptions were used by the Company in
estimating fair value disclosures for financial instruments.
Cash and Cash Equivalents. The carrying amount reported in the balance sheet
for cash and cash equivalents approximates its fair value.
Accounts Receivable and Accounts Payable. The carrying amounts reported in
the balance sheet for accounts receivable and accounts payable approximate
their fair value.
Long-Term Debt. The fair value of the Company's long-term debt is estimated
using discounted cash flow analyses, based on the Company's current borrowing
rates for similar types of borrowing arrangements. The carrying amounts and
fair values of the Company's financial instruments are as follows:
(in thousands) December 27, December 28,
1997 1996
---------------------- -------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
-------- ----- -------- -----
Cash and Cash Equivalents $25,333 $25,333 $15,485 $15,485
Accounts Receivable 30,064 30,064 32,722 32,722
Accounts Payable 10,814 10,814 15,565 15,565
Long-Term Debt including current portion 22,683 23,555 26,673 27,769
======= ======= ======= =======
Note H--Contingencies
Various lawsuits arising during the normal course of business are
pending against the Company. In the opinion of management the ultimate
liability, if any, resulting from these matters will have no significant
effect on the Company's results of operations, liquidity or financial
position.
21
Wolohan Customer Services
Computer-Design Services
In addition to computerized kitchen and deck design, the Company offers
custom-designed floor plans for its package-home program and has computerized
estimating systems.
[ PHOTO ]
Assembly And Manufacturing Services
Several Wolohan stores have an in-house door shop to assemble exterior steel
door systems and pre-hung interior door packages. The Company has a millshop
to perform custom millwork, two wall-panelization facilities and a roof-truss
facility.
[ PHOTO ]
Delivery Services
Wolohan has a fleet of nearly 300 delivery trucks including 19 boom trucks.
The boom trucks provide more capabilities to better serve the customer.
[ PHOTO ]
Installation Services
Wolohan offers installation of decks, sheds, playsets, windows, doors, garage
doors and operators, kitchens, fencing, baths and more.
[ PHOTO ]
22
Contractor Services
Wolohan offers its contractors substantial savings and premium services with
quality materials, value pricing, on-time delivery, job-site contractor sales
representatives and experienced store support coordination.
[ PHOTO ]
Financing Options
Wolohan offers in-house credit to its contractor customers. For the consumer,
the Company offers a private-label credit card for small to medium purchases
and a loan program for larger projects.
[ PHOTO ]
Customer-Service Guarantees
The cornerstone of our strategic plan is the customer-service
mission. Our purpose is to assure that the customer remains Number One in our
plans and in our actions. Our satisfaction guarantees are among the strongest
in our industry. If for any reason a customer is dissatisfied, we offer two
vehicles to let him share his concern. The first is an in-store
self-addressed comment card. The second is a published Customer Hotline that
lets the customer get directly in touch with Wolohan's Marketing Department.
We provide a strong product offering and many special services to
accommodate our customers. We back these products and services with
satisfaction guarantees-- guarantees we are proud to offer because we are
committed to providing what our customers expect and deserve. These
customer-satisfaction guarantees are offered in every Wolohan store.
o 100-Percent Satisfaction Guarantee
In the unlikely event that you are not satisfied with your purchase, just
bring it back, along with your proof of purchase, and we'll make it right
with a product exchange or refund.
o 30-Day Lower Price Refund Guarantee
If an item is advertised and sold by us at a lower price within 30 days of
the date you purchased the item, we will honor the lower price and gladly
refund the difference to you.
o Customer-Service Satisfaction Guarantee
We promise friendly, knowledgeable sales associates... Guaranteed!
23
Corporate Information
Annual Meeting
The Annual Meeting of shareowners of Wolohan Lumber Co. will be held
April 23, 1998, 2 p.m. at the Citizens Bank Building, 101 N. Washington
Avenue, Saginaw, Mich. You are cordially invited.
Form 10-K
Shareowners may obtain a copy of the Form 10-K annual report filed with
the Securities and Exchange Commission (SEC) free of charge by writing to Mr.
Edward J. Dean, Corporate Controller, Wolohan Lumber Co., P.O. Box 3235,
Saginaw, MI 48605.
Headquarters
Wolohan Lumber Co. Administrative Offices
1740 Midland Road
P.O. Box 3235, Saginaw, MI 48605
(517) 793-4532
Common Stock
Wolohan's common stock trades on The Nasdaq Stock Market under the symbol
WLHN.
Transfer Agent
State Street Bank and Trust Company
c/o Boston EquiServe
P.O. Box 8200, Boston, MA 02266-8200
(800) 426-5523
General Counsel
Dickinson Wright PLLC
500 Woodward Avenue, Suite 4000, Detroit, MI 48226
Independent Auditors
Rehmann Robson, P.C.
5800 Gratiot, Saginaw, MI 48603
Board of Directors
Leo B. Corwin
James L. Wolohan President, Txcor, Inc.;
Chairman of the Board, Director since 1992
President and Chief Executive Officer;
Director since 1986
Hugo E. Braun, Jr. Charles R. Weeks
Partner, Braun Kendrick Finkbeiner, Chairman and formerly Chief
Attorneys-at-Law; Executive Officer of Citizens
Director since 1984 Banking Corp.;
Director since 1996
F. R. Lehman Lee A. Shobe
formerly Vice President of formerly President and Chief
Dow Chemical U.S.A., Executive Officer of Dow Brands, Inc.;
General Manager of the Director since 1996
Michigan Division;
Director since 1989
Committees
Management Review Committee Audit Committee
F. R. Lehman, Chairman Hugo E. Braun, Jr., Chairman
Hugo E. Braun, Jr. Leo B. Corwin
Leo B. Corwin F. R. Lehman
Lee A. Shobe Lee A. Shobe
Charles R. Weeks Charles R. Weeks
Compensation Committee
F. R. Lehman, Chairman
Hugo E. Braun, Jr.
Charles R. Weeks
Officers
James L. Wolohan James R. Krapohl
Chairman of the Board, Treasurer and
President and Chief Executive Assistant Secretary
Officer
Curtis J. LeMaster
Edward J. Dean Vice President-Marketing,
Corporate Controller Purchasing and Systems
Mark H. Hershberger John A. Sieggreen
Vice President and Regional Vice President-Operations
Manager
David G. Honaman
Vice President-Administration,
Secretary and Chief Financial
Officer
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[ LOGO ] Serving customers in 6 states
throughout the Midwest...
Wolohan Lumber Co. - 1740 Midland Road - P.O. Box 3235 -
Saginaw, MI 48605 - (517) 793-4532