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 September 25, 1999
-------------------------------------------------------
|_| 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 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
(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 -- 5,106,077 shares as of October 23, 1999.
PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL INFORMATION
WOLOHAN LUMBER CO.
CONSOLIDATED BALANCE SHEETS
(in thousands)
Sept. 25, DEC. 26,
1999 1998
--------- --------
(Unaudited) (Note)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 118 $ 3,166
Trade receivables, net 38,470 41,687
Builder Finance Program receivables 6,786 3,296
Inventories - at average cost 57,458 53,038
Reduction to LIFO cost (12,583) (12,135)
-------- --------
Inventories at the lower of
LIFO cost or market 44,875 40,903
Other current accounts 4,329 5,899
-------- --------
TOTAL CURRENT ASSETS 94,578 94,951
NET PROPERTIES 46,116 44,439
OTHER ASSETS 13,344 18,121
-------- --------
TOTAL ASSETS $154,038 $157,511
======== ========
LIABILITIES AND SHAREOWNERS' EQUITY
CURRENT LIABILITIES
Trade accounts payable $ 19,317 $ 20,123
Employee compensation and accrued expenses 16,187 15,867
Short-term debt 2,000 2,000
Current portion of long-term debt 4,200 3,759
-------- --------
TOTAL CURRENT LIABILITIES 41,704 41,749
LONG-TERM DEBT, net of current portion 12,627 17,091
-------- --------
TOTAL LIABILITIES 54,331 58,840
SHAREOWNERS' EQUITY
Common stock 5,252 5,548
Additional capital 3,251 6,694
Retained earnings 91,204 86,429
-------- --------
TOTAL SHAREOWNERS' EQUITY 99,707 98,671
-------- --------
TOTAL LIABILITIES AND SHAREOWNERS' EQUITY $154,038 $157,511
======== ========
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
---------------------
SEPT 25, SEPT 26,
1999 1998
------- --------
NET SALES $ 118,727 $ 143,117
Cost of sales 91,713 111,439
--------- ---------
Gross profit 27,014 31,678
Other operating income 1,022 914
--------- ---------
Total operating income 28,036 32,592
OPERATING EXPENSES:
Selling, general and administrative 21,114 25,046
Depreciation and amortization 1,798 2,111
--------- ---------
Total operating expenses 22,912 27,157
--------- ---------
INCOME FROM OPERATIONS 5,124 5,435
OTHER INCOME (EXPENSES):
Interest expense (365) (477)
Interest income 82 52
Gain on sale of properties 1,050 32
--------- ---------
Other income (expenses), net 767 (393)
--------- ---------
INCOME BEFORE INCOME TAXES 5,891 5,042
Income taxes 2,283 1,967
--------- ---------
NET INCOME $ 3,608 $ 3,075
========= =========
Average shares outstanding 5,269 6,502
Net income per share, basic $ .68 $ .46
Net income per share, assuming dilution $ .67 $ .46
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)
NINE MONTHS ENDED
----------------------
SEPT 25, SEPT 26,
1999 1998
------- --------
NET SALES $ 309,289 $ 329,168
Cost of sales 238,776 253,109
--------- ---------
Gross profit 70,513 76,059
Other operating income 2,707 1,957
--------- ---------
Total operating income 73,220 78,016
OPERATING EXPENSES:
Selling, general and administrative 60,032 63,156
Depreciation and amortization 5,296 6,209
--------- ---------
Total operating expenses 65,328 69,365
--------- ---------
INCOME FROM OPERATIONS 7,892 8,651
OTHER INCOME (EXPENSES):
Interest expense (1,160) (1,422)
Interest income 220 604
Gain on sale of properties 2,716 441
--------- ---------
Other income (expenses), net 1,776 (377)
--------- ---------
INCOME BEFORE INCOME TAXES 9,668 8,274
Income taxes 3,777 3,253
--------- ---------
NET INCOME $ 5,891 $ 5,021
========= =========
Average shares outstanding 5,331 6,708
Net income per share, basic $ 1.11 $ .75
Net income per share, assuming dilution $ 1.09 $ .74
Dividends per share $ .21 $ .21
See notes to condensed consolidated financial statements.
page 4
WOLOHAN LUMBER CO.
CONSOLIDATED STATEMENT OF SHAREOWNERS' EQUITY
(UNAUDITED)
(in thousands)
COMMON STOCK 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
Net income 3,608 3,608
Cash dividends -- $.07 per share (371) (371)
Shares repurchased and retired (31) (31) (366) (397)
----- ------ ------- ------- -------
Balances at Sept. 25, 1999 5,252 $5,252 $ 3,251 $91,204 $99,707
===== ====== ======= ======= =======
page 5
WOLOHAN LUMBER CO.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(in thousands)
NINE MONTHS ENDED
----------------------
SEPT 26, SEPT 27,
1999 1998
------- --------
OPERATING ACTIVITIES
Net income $ 5,891 $ 5,021
Adjustments to reconcile net income to
cash used in operating activities:
Depreciation 5,090 6,209
Amortization 206 66
Provision for losses on accounts receivable 149 749
Gain on sale of properties (2,716) (440)
Changes in operating assets & liabilities net
of effects of sale of stores to Stock Lumber
Accounts receivable (2,778) (15,601)
Builder Finance Program receivables (3,490) (2,449)
Other assets 1,527 (2,416)
Inventories (8,021) (9,470)
Accounts payable & accrued expenses (100) 12,920
-------- --------
NET CASH USED IN OPERATING ACTIVITIES (4,242) (5,411)
INVESTING ACTIVITIES
Additions to properties (6,336) (8,002)
Proceeds from sale of stores to Stock Lumber 9,956 --
Proceeds from the sale of properties 6,781 193
-------- --------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 10,401 (7,809)
FINANCING ACTIVITIES
Net short-term borrowings 7,000
Payments on long-term debt (4,023) (1,785)
Repurchase of common stock (4,068) (1,410)
Dividends paid (1,116) (12,296)
-------- --------
NET CASH USED IN FINANCING ACTIVITIES (9,207) (8,491)
-------- --------
DECREASE IN CASH AND CASH EQUIVALENTS (3,048) (21,711)
Cash and cash equivalents at beginning of period 3,166 25,333
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 118 $ 3,622
======== ========
See notes to condensed consolidated financial statements.
page 6
WOLOHAN LUMBER CO.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 25, 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 nine months ended
September 25, 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 $3.6 million for fiscal third-quarter 1999,
compared with $3.1 million for the third quarter of 1998, an
increase of 17 percent. The increase in net income was primarily
from gains on the sale of properties. This increase in net income
combined with a 19-percent decrease in average shares outstanding
page 7
resulted in per-share earnings of 68 cents for the third quarter
compared with 46 cents for the same period of 1998, an increase of
48 percent. Net income for the first nine months of 1999 also
increased 17 percent to $5.9 million ($1.11 per share), compared
with $5 million (75 cents per share) for the same period of 1998.
The increase in nine-month earnings resulted primarily from gains
on the sale of properties and the increase in earnings per share
resulted from the reduced number of shares outstanding.
Sales totaled $118.7 million for fiscal third-quarter 1999, a
decrease of 17 percent from fiscal third-quarter 1998 sales of
$143.1 million. The third quarter of 1998 includes sales of $26.3
million from seven stores closed in late 1998 and six stores sold
in January 1999. Sales for comparable stores increased 1 percent
in the third quarter of 1999. Sales were positively impacted by
approximately 20 percent higher selling prices for lumber and
structural-panel products in fiscal third-quarter 1999 compared
with 1998. Sales for the nine-month period ended September 25,
1999 were $309.3 million, a 6-percent decrease from the
corresponding period a year earlier. The absence of sales from the
13 closed or sold stores offset a 7-percent increase in
comparable-store sales for the nine-period of 1999. The higher
selling prices for lumber and structural-panel products accounted
for approximately 45 percent of the increase in comparable-store
sales for the nine-month period.
The sales mix for fiscal third-quarter 1999 was 60 percent
contractor-builder sales and 40 percent project-consumer sales
compared with a 61/39 mix for fiscal third-quarter 1998. For the
nine-month period, contractor sales accounted for approximately 63
percent of total sales in both years.
Gross margins in third-quarter 1999 were 70 basis points higher,
compared with 1998's third quarter. The third quarter 1998 gross
margin was negatively impacted (approximately 50 basis points) by
a writedown to net realizable value of slow-moving inventory.
Gross margins for the nine-month period ended September 25, 1999
were 30 basis points lower compared with the corresponding period
a year earlier.
The total operating expense factor was 19.3 percent for fiscal
third-quarter 1999 versus 19.0 percent for fiscal third-quarter
1998. For the 1999 nine-month period, the operating expense ratio
was 21.1 percent for both years.
Gains from the sale of properties totaled $1,050,000 in fiscal
third-quarter 1999, compared with $32,000 for third-quarter 1998.
For the 1999 nine-month period, gains from property sales totaled
$2.7 million compared with $441,000 for the same period of 1998.
The increase over 1998 reflects the Company's efforts to sell real
estate related to stores closed.
The effective income tax rate (federal and state) for the third
quarter and the nine-month period of 1999 was 38.8 and 39.1
percent, respectively, compared with 39.0 and 39.3 percent,
respectively, for the corresponding periods of 1998.
Financial Condition
At September 25, 1999, the Company's balance sheet remained
strong. Net working capital at September 25, 1999, totaled $52.9
million, compared with $53.2
page 8
million at December 26, 1998. The current ratio at September 25,
1999, was 2.3 to 1, the same as fiscal year-end 1998.
Cash and cash equivalents were $.1 million at September 25, 1999,
compared with $3.2 million at December 26, 1998. Cash and cash
equivalents decreased $3 million during the first nine months of
1999. Sources of cash in the first nine months of 1999 included
approximately $10 million from the sale of inventory, trade
receivables and equipment related to six stores sold to Stock
Lumber and $6.8 million from the sale of other properties. Uses of
cash in the first nine months of 1999 included $4.2 million used
in operating activities, $6.3 million for additions to properties,
$4 million for reduction of borrowings and $4.1 million used to
repurchase 321,000 shares of the Company's common stock at an
average of $12.79 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 $2 million of short-term
borrowings outstanding at the end of fiscal third-quarter 1999.
Unused lines of credit totaled $48 million at September 25, 1999.
Invested capital (long-term debt and shareowners' equity) was
equal to 73% of total assets at September 25, 1999, the same as
fiscal year-end 1998. At September 25, 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 .65:1 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 is on schedule 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.
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.
page 9
The total cost of the Company's Year 2000 compliance program is
estimated at $800,000 of which $788,000 has been paid. The costs
of the program are being funded through operating cash flows.
Outlook
The Company is realigning its operations into two operating
divisions in preparation for accelerated growth. The two divisions
comprise a core group of high-performing, contractor-focused
Wolohan stores and a CML Division targeting retail project sales
and sales to professional homebuilders. CML is the operating name
of Central Michigan Lumber, acquired by the Company in 1998. Up to
27 stores currently operating under the Wolohan Lumber name are
expected to be converted to the CML business model over the next
several years.
The Company has undertaken an internal management realignment to
support this new operating strategy. David Honaman, Vice President
and Chief Financial Officer, has been promoted to Senior Vice
President and Chief Financial Officer for the Company and has also
assumed the additional role of President of the Wolohan Division.
Dan Rogers, President of Central Michigan Lumber since 1998, will
continue as President of the CML Division following the
realignment. In addition, Mr. Rogers has been promoted to Senior
Vice President and General Merchandise Manager for Wolohan Lumber
Co. and will assume marketing and purchasing responsibility for
both divisions. Mr. Honaman, in his new capacity as President of
the Wolohan Division, and Mr. Rogers report to Executive Vice
President and Chief Operating Officer John Sieggreen. In his
capacity as CFO, Mr. Honaman will continue reporting to the CEO,
James Wolohan.
Curt LeMaster, formerly Vice President of Purchasing, Marketing
and Systems, has been promoted to Senior Vice President and Chief
Information Officer. Mr. LeMaster is spearheading the rollout of a
new point-of-sale operating system. He will also lead the
Company's foray into electronic commerce and other internet
applications. LeMaster will report to the CEO.
The creation of these two operating divisions and the
corresponding executive management assignments better position the
Company to accelerate its growth in the coming years. The new
structure will also allow the Company to more rapidly absorb
acquisitions, a key part of the Company's planned growth strategy.
PART II -- OTHER INFORMATION
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 10
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 8, 1999 David G. Honaman
-------------------------- -------------------------------------
David G. Honaman
Vice President - Administration
and Chief Financial Officer
Date: November 8, 1999 Edward J. Dean
-------------------------- -------------------------------------
Edward J. Dean,
Corporate Controller
(Principal Accounting Officer)