SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
|X| Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934.
For the quarter ended June 26, 1999
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|_| 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
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WOLOHAN LUMBER CO.
- -----------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Michigan 38-1746752
- -------------------------------- ----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
1740 Midland Road, Saginaw, Michigan 48603
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(Address of principal executive offices)
(517) 793-4532
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(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 |X| 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 -- 5,277,012 shares as of July 31, 1999.
PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL INFORMATION
WOLOHAN LUMBER CO.
CONSOLIDATED BALANCE SHEETS
(in thousands)
JUNE 26, DEC. 26,
1999 1998
(Unaudited) (Note)
----------- --------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 593 $ 3,166
Trade receivables, net 37,491 41,687
Builder Finance Program receivables 6,589 3,296
Inventories - at average cost 58,763 53,038
Reduction to LIFO cost (12,365) (12,135)
--------- ---------
Inventories at the lower of LIFO cost or market 46,398 40,903
Other current accounts 5,485 5,899
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TOTAL CURRENT ASSETS 96,556 94,951
NET PROPERTIES 44,985 44,439
OTHER ASSETS 16,335 18,121
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TOTAL ASSETS $ 157,876 $ 157,511
========= =========
LIABILITIES AND SHAREOWNERS' EQUITY
CURRENT LIABILITIES
Trade accounts payable $ 25,364 $ 20,123
Employee compensation and accrued expenses 18,273 15,867
Short-term debt 500 2,000
Current portion of long-term debt 4,213 3,759
--------- ---------
TOTAL CURRENT LIABILITIES 48,350 41,749
LONG-TERM DEBT, net of current portion 12,659 17,091
--------- ---------
TOTAL LIABILITIES 61,009 58,840
SHAREOWNERS' EQUITY
Common stock 5,283 5,548
Additional capital 3,617 6,694
Retained earnings 87,967 86,429
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TOTAL SHAREOWNERS' EQUITY 96,867 98,671
--------- ---------
TOTAL LIABILITIES AND SHAREOWNERS' EQUITY $ 157,876 $ 157,511
========= =========
<FN>
Note: The consolidated balance sheet at December 26, 1998, 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 consolidated financial statements.
page 2
WOLOHAN LUMBER CO.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(in thousands, except per-share amounts)
THREE MONTHS ENDED
-------------------------
JUNE 26, JUNE 27,
1999 1998
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NET SALES $ 117,414 $ 112,856
Cost of sales 90,937 85,650
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Gross profit 26,477 27,206
Other operating income 920 617
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Total operating income 27,397 27,823
OPERATING EXPENSES:
Selling, general and administrative 20,596 21,079
Depreciation and amortization 1,757 2,005
--------- ---------
Total operating expenses 22,353 23,084
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INCOME FROM OPERATIONS 5,044 4,739
OTHER INCOME (EXPENSES):
Interest expense (370) (475)
Interest income 92 228
Gain on sale of properties 559 164
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Other income (expenses), net 281 (83)
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INCOME BEFORE INCOME TAXES 5,325 4,656
Income taxes 2,110 1,856
--------- ---------
NET INCOME $ 3,215 $ 2,800
========= =========
Average shares outstanding 5,302 6,759
Net income per share, basic $ .60 $ .41
Net income per share, assuming dilution $ .59 $ .41
Dividends per share $ .07 $ .07
See notes to condensed consolidated financial statements.
page 3
WOLOHAN LUMBER CO.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(in thousands, except per-share amounts)
SIX MONTHS ENDED
-----------------------
JUNE 26, JUNE 27,
1999 1998
-------- --------
NET SALES $ 190,562 $ 186,051
Cost of sales 147,065 141,670
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Gross profit 43,497 44,381
Other operating income 1,647 1,149
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Total operating income 45,144 45,530
OPERATING EXPENSES:
Selling, general and administrative 38,916 38,110
Depreciation and amortization 3,498 4,098
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Total operating expenses 42,414 42,208
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INCOME FROM OPERATIONS 2,730 3,322
OTHER INCOME (EXPENSES):
Interest expense (795) (945)
Interest income 176 446
Gain on sale of properties 1,666 409
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Other income (expenses), net 1,047 (90)
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INCOME BEFORE INCOME TAXES 3,777 3,232
Income taxes 1,494 1,286
--------- ---------
NET INCOME $ 2,283 $ 1,946
========= =========
Average shares outstanding 6,812 5,362
Net income per share, basic $ .43 $ .29
Net income per share, assuming dilution $ .42 $ .28
Dividends per share $ .14 $ .14
See notes to condensed consolidated financial statements.
page 4
WOLOHAN LUMBER CO.
CONSOLIDATED STATEMENT OF SHAREOWNERS' EQUITY
(UNAUDITED)
(in thousands)
COMMON SHARES TOTAL
--------------------- ADDITIONAL RETAINED SHAREOWNERS'
SHARES AMOUNT CAPITAL EARNINGS EQUITY
------ ------ ---------- -------- ------------
Balances at December 26, 1998 5,548 $ 5,548 $ 6,694 $ 86,429 $ 98,671
Net loss (932) (932)
Cash dividends--$.07 per share (375) (375)
Shares repurchased and retired (218) (218) (2,600) (2,818)
Shares issued under Long-Term
Incentive Plan 19 19 271 -- 290
----- -------- -------- -------- --------
Balances at March 27, 1999 5,349 5,349 4,365 85,122 94,836
Net income 3,215 3,215
Cash dividends--$.07 per share (370) (370)
Shares repurchased and retired (69) (69) (784) (853)
Shares issued under Long-Term
Incentive Plan 3 3 36 -- 39
----- -------- -------- -------- --------
Balances at June 26, 1999 5,283 $ 5,283 $ 3,617 $ 87,967 $ 96,867
===== ======== ======== ======== ========
page 5
WOLOHAN LUMBER CO.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(in thousands)
SIX MONTHS ENDED
------------------------
JUNE 26, JUNE 27,
1999 1998
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Operating Activities
Net income $ 2,283 $ 1,946
Adjustments to reconcile net income to
cash used in operating activities:
Depreciation 3,361 4,098
Amortization 137 --
Provision for losses on accounts receivable 86 394
Gain on sale of properties (1,666) (409)
Changes in operating assets & liabilities net of
effects of sale of stores to
Stock Lumber
Accounts receivable (1,736) (6,299)
Builder Finance Program receivables (3,293) (1,935)
Other assets (35) 2,472
Inventories (9,544) (5,303)
Accounts payable & accrued expenses 7,977 4,281
-------- --------
NET CASH USED IN OPERATING ACTIVITIES (2,430) (755)
INVESTING ACTIVITIES
Additions to properties (4,091) (1,212)
Proceeds from sale of stores to Stock Lumber 9,956 --
Proceeds from the sale of properties 3,886 165
-------- --------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 9,751 (1,047)
FINANCING ACTIVITIES
Net short-term (repayments) borrowings (1,500) 2,000
Payments on long-term debt (3,978) (2,190)
Purchase of common stock (3,671) (2,493)
Dividends paid (745) (954)
-------- --------
NET CASH USED IN FINANCING ACTIVITIES (9,894) (3,637)
-------- --------
DECREASE IN CASH AND CASH EQUIVALENTS (2,573) (5,439)
Cash and cash equivalents at beginning of period 3,166 25,333
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 593 $ 19,894
======== ========
<FN>
See notes to condensed consolidated financial statements.
page 6
WOLOHAN LUMBER CO.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 26, 1999
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated 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 six months ended June 26,
1999 are not necessarily indicative of the results that may be
expected for the entire year ending December 25, 1999.
For further information, refer to the consolidated financial
statements and footnotes included in the Company's annual report on
Form 10-K for the year ended December 26, 1998.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Certain information contained in Management's Discussion and
Analysis of Financial Condition and Results of Operations may be
deemed to be forward-looking statements within the meaning of The
Private Securities Litigation Reform Act of 1995 and are subject to
the Act's safe harbor provisions. These statements are based on
current expectations and involve a number of risks and
uncertainties. Actual results could differ materially and adversely
from those described in the forward-looking statements as a result
of various factors outside the control of the Company, including,
but not limited to the following: fluctuations in customer demand
and spending, expectations of future volumes and prices for the
Company's products, prevailing economic conditions affecting the
retail lumber and building materials markets and seasonality of
operating results.
Results Of Operations
Net income was $3.2 million for fiscal second-quarter 1999, compared
with $2.8 million for the second quarter of 1998, an increase of 15
percent. The increase in net income was the result of higher sales,
a lower operating expense ratio, and a gain from the sale of
properties. These factors were offset, in part, by lower gross
margins. This increase in net income combined with a 22-percent
decrease in
page 7
average shares outstanding resulted in per-share earnings of 60
cents for the second quarter compared with 41 cents for the same
period of 1998, an increase of 46 percent. Net income for the first
six months of 1999 increased 17 percent to $2.3 million (43 cents
per share), compared with $1.9 million (29 cents per share) for the
same period of 1998. The increase in six-month earnings resulted
from higher sales, a slightly lower operating expense ratio, and
gains from sale of properties. These factors were offset, in part,
by lower gross margins.
Sales totaled $117.4 million for fiscal second-quarter 1999, an
increase of 4 percent from fiscal second-quarter 1998 sales of
$112.9 million. The second quarter of 1999 includes sales of $22.5
million from Central Michigan Lumber Company (CML), which was
acquired at the start of the third quarter of 1998. The second
quarter of 1998 includes sales of $26.1 million from seven stores
closed in late 1998 and six stores sold in January 1999. Sales for
comparable stores increased 12 percent in the second quarter of
1999. Higher selling prices for lumber and structural-panel products
in fiscal second-quarter 1999 compared with 1998 accounted for
approximately 20 percent of the improvement in comparable-store
sales. Sales for the six-month period ended June 26, 1999 were
$190.6 million, a 2-percent increase from the corresponding period a
year earlier. The combination of a 9-percent increase in
comparable-store sales and the sales contribution made by CML,
offset the absence of first half 1998 sales from the 13 stores
closed or sold.
The sales mix for fiscal second-quarter 1999 was 60 percent
contractor-builder sales and 40 percent project-consumer sales
compared with a 63/37 mix for fiscal second-quarter 1998. For the
six-month period, contractor sales accounted for 65 percent of total
sales in both years.
Gross margins in second-quarter 1999 were 150 basis points lower,
compared with 1998's second quarter. The lower gross margins
reflect, to some extent, the transition the Company is making to
concentrate on more project selling and builder and remodeler sales
with less emphasis on general-home improvement merchandise. In
addition, the Company has been unable to fully pass cost increases
for lumber, plywood and structural panels to the customer. Gross
margins for the six-month period ended June 26, 1999 were 110 basis
points lower compared with the corresponding period a year earlier.
The total operating expense factor was 19.0 percent for fiscal
second-quarter 1999 versus 20.5 percent for fiscal second-quarter
1998. For the 1999 six-month period, the operating expense ratio was
22.3 percent compared with 22.7 percent for the same period of 1998.
Gains from the sale of properties totaled $600,000 in fiscal
second-quarter 1999, compared with $200,000 for second-quarter 1998.
For the 1999 six-month period, gains from property sales totaled
$1.7 million compared with $400,000 in the first half of 1998.
The effective income tax rate (federal and state) for the second
quarter and the six-month period of 1999 was 39.6 percent, compared
with 39.9 and 39.8 percent, respectively, for the corresponding
periods of 1998.
page 8
Financial Condition
At June 26, 1999, the Company's balance sheet remained strong. Net
working capital at June 26, 1999, totaled $48.2 million, compared
with $53.2 million at Dec. 26, 1998. The current ratio at June 26,
1999, was 2.0 to 1, compared with 2.3 to 1 at Dec. 26, 1998.
Cash and cash equivalents were $.6 million at June 26, 1999,
compared with $3.2 million at Dec. 26, 1998. The liquidity ratio at
June 26, 1999, was .01 to 1, compared with .08 to 1 at Dec. 26,
1998. Cash and cash equivalents decreased $2.6 million during the
first half of 1999. Sources of cash in the first half of 1999
included approximately $10 million from the sale of inventory, trade
receivables and equipment related to six stores sold to Stock Lumber
and $3.9 million from the sale of other properties. Uses of cash in
the first half of 1999 included $2.4 million used in operating
activities, $4 million for additions to properties, $5.5 million for
reduction of borrowings and $3.7 million was used to purchase
287,000 shares of the Company's common stock at an average price of
$12.77 per share.
The Company expects that net cash from operating activities and
available lines of credit should be adequate to meet future working
capital needs. There was $500,000 of short-term borrowings
outstanding at the end of fiscal second-quarter 1999. Unused lines
of credit totaled $49.5 million at June 26, 1999.
Invested capital (long-term debt and shareowners' equity) was equal
to 69% of total assets at June 26, 1999, compared with 73% at fiscal
year-end 1998. At June 26, 1999, the total debt-to-asset ratio was
.08, versus .11 at fiscal year-end 1998 and the ratio of equity to
total assets was .61:1 versus .63:1 at fiscal year-end 1998.
YEAR 2000
As is more fully described in the Company's annual report on Form
10-K for the fiscal year ended December 26, 1998, the Company's Year
2000 compliance program is progressing as planned. The Company is on
schedule to have all corporate financial systems including inventory
replenishment Year 2000 compliant by December 31, 1999. The Company
is in the process of changing its store point-of-sale system to a
new system which is Year 2000 compliant. The Company began to
install the new point-of-sale system in stores during the first
quarter of 1999 and plans to have the final installation complete by
early November 1999.
The Company has continued its communication with significant
suppliers to obtain additional assurance about their Y2K plans. Most
of these vendors have stated their ability to supply the Company
will not be affected by the Year 2000 issue. However, the Company
cannot assure timely compliance of third parties and may be
adversely affected by failure of a significant third party to become
Year 2000 compliant.
page 9
Total costs of modifying the Company's current systems are not
expected to have a material adverse impact on the Company's
financial position, results of operations or cash flows in future
periods. Should the Company not successfully complete a significant
portion of its Year 2000 compliance program its financial condition
may be materially adversely impacted; however, management does not
consider the possibility of such an occurrence to be reasonably
likely. Should the outlook for completion of the compliance program
change, management will develop appropriate contingency plans to
address any non-compliance issues.
The total cost of the Company's Year 2000 compliance program is
estimated at $800,000 of which $760,000 has been paid. The costs of
the program are being funded through operating cash flows.
Outlook
The Company's strategic focus continues to be on gaining market
share and developing industry-leading managers and salespeople. The
Company is committed to improving consumer sales with strategies to
increase sales of kitchens and baths, decks, sheds, garages, pole
barns and major remodeling projects. The Company continues to
provide more value-added services to improve market share of
contractor business. A structural-wall-panel manufacturing facility
to service the Dayton, Ohio market is under construction and should
be operational in the fourth quarter of 1999.
The Company continues to seek opportunities for growth through
acquisitions of businesses aligned with the Company's target
customers (single-family builder, remodeler and project-oriented
consumer). Its strong balance sheet will allow the Company to take
advantage of growth and profit opportunities as they arise.
The Company is committed to improving its return-on-investment
ratios and will continue to analyze the profitability of all
locations from an economic value-added perspective.
page 10
PART II -- OTHER INFORMATION
ITEM 3. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The following information is furnished with respect to the Annual
Meeting of security holders of the Registrant held during April
1999:
(a) A meeting was held on April 29, 1999 and was an Annual Meeting.
(b) Not Applicable
(c) At such meeting the following nominees for election as directors
were elected to hold office until the next annual meeting of
stockholders or until their successors are elected and
qualified. The votes cast with respect to each nominee for
director are as follows:
Votes to Withhold
Votes for Authority to Vote
Nominee Nominee for the Nominee
- ------- ------- ---------------
Hugo E. Braun, Jr. 4,958,792 26,129
James L. Wolohan 4,958,695 26,226
Leo B. Corwin 4,958,968 25,953
Lee A. Shobe 4,958,968 25,953
Charles R. Weeks 4,959,034 25,887
Item 4. Exhibits and Reports on Form 8-K
(a) Reports on Form 8-K
The registrant filed no reports on Form 8-K during
the quarter for which this Report is filed.
page 11
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.
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Registrant
Date: August 9, 1999 David G. Honaman
----------------- --------------------------------
David G. Honaman
Vice President - Administration
and Chief Financial Officer
Date: August 9, 1999 Edward J. Dean
----------------- --------------------------------
Edward J. Dean,
Corporate Controller
(Principal Accounting Officer)
page 12