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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 24, 2000
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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
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Commission file number 0-6169
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WOLOHAN LUMBER CO.
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(Exact name of registrant as specified in its charter)
Michigan 38-1746752
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(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 -- 4,690,693 shares as of July 31, 2000.
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PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL INFORMATION
WOLOHAN LUMBER CO.
CONSOLIDATED BALANCE SHEETS
(in thousands)
JUNE 24, DEC. 25,
2000 1999
---- ----
(Unaudited) (Note)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 7,628 $ 3,217
Trade receivables, net 29,975 33,741
Builder Finance Program receivables 2,468 5,220
Inventories - at average cost 46,346 48,796
Reduction to LIFO cost (12,943) (12,943)
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Inventories at the lower of LIFO cost or market 33,403 35,853
Other current accounts 4,868 5,385
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TOTAL CURRENT ASSETS 78,342 83,416
NET PROPERTIES 41,978 43,344
OTHER ASSETS 13,755 13,886
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TOTAL ASSETS $ 134,075 $ 140,646
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LIABILITIES AND SHAREOWNERS' EQUITY
CURRENT LIABILITIES
Trade accounts payable $ 16,261 $ 12,467
Employee compensation and accrued expenses 11,124 14,458
Short-term bank borrowings 1,000 -
Current portion of long-term debt 4,179 4,189
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TOTAL CURRENT LIABILITIES 32,564 31,114
LONG-TERM DEBT, less current portion 8,478 12,593
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TOTAL LIABILITIES 41,042 43,707
SHAREOWNERS' EQUITY
Common stock 4,717 5,031
Additional capital - 673
Retained earnings 88,316 91,235
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TOTAL SHAREOWNERS' EQUITY 93,033 96,939
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TOTAL LIABILITIES AND SHAREOWNERS' EQUITY $ 134,075 $ 140,646
=========== ==========
Note: The consolidated balance sheet at December 25, 1999, 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.
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WOLOHAN LUMBER CO.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(in thousands, except per-share amounts)
THREE MONTHS ENDED
--------------------------------
JUNE 24, JUNE 26,
2000 1999
---- ----
NET SALES $ 91,019 $ 117,414
Cost of sales 69,461 90,937
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Gross profit 21,558 26,477
Other operating income 770 920
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Total operating income 22,328 27,397
OPERATING EXPENSES:
Selling, general and administrative 18,075 20,596
Store closing costs 40 -
Depreciation and amortization 1,787 1,757
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Total operating expenses 19,902 22,353
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INCOME FROM OPERATIONS 2,426 5,044
OTHER INCOME (EXPENSES):
Interest expense (262) (370)
Interest income 141 92
Gain on sale of properties 112 559
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Other income, net (9) 281
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INCOME BEFORE INCOME TAXES 2,417 5,325
Income taxes 955 2,110
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NET INCOME $ 1,462 $ 3,215
========= ==========
Average shares outstanding 4,829 5,302
Net income per share, basic $ .29 $ .60
Net income per share, assuming dilution $ .29 $ .59
Dividends per share $ .07 $ .07
See notes to condensed consolidated financial statements.
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WOLOHAN LUMBER CO.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(in thousands, except per-share amounts)
SIX MONTHS ENDED
----------------
JUNE 24, JUNE 26,
2000 1999
---- ----
NET SALES $ 157,853 $ 190,562
Cost of sales 120,493 147,065
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Gross profit 37,360 43,497
Other operating income 1,414 1,647
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Total operating income 38,774 45,144
OPERATING EXPENSES:
Selling, general and administrative 34,453 38,916
Store closing costs 485 --
Depreciation and amortization 3,624 3,498
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Total operating expenses 38,562 42,414
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INCOME FROM OPERATIONS 212 2,730
OTHER INCOME (EXPENSES):
Interest expense (529) (795)
Interest income 236 176
Gain on sale of properties 505 1,666
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Other income, net 212 1,047
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INCOME BEFORE INCOME TAXES 424 3,777
Income taxes 168 1,494
--------- ---------
NET INCOME $ 256 $ 2,283
========= =========
Average shares outstanding 4,905 5,362
Net income per share, basic $ .05 $ .43
Net income per share, assuming dilution $ .05 $ .42
Dividends per share $ .14 $ .14
See notes to condensed consolidated financial statements.
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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, 1999 5,031 $ 5,031 $ 673 $ 91,235 $ 96,939
Net loss (1,206) (1,206)
Cash dividends--$.07 per share (347) (347)
Shares issued under Long-Term
Incentive Plan 10 10 126 136
Shares repurchased and retired (103) (103) (799) (362) (1,264)
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Balances at March 25, 2000 4,938 4,938 0 89,320 94,258
Net income 1,462 1,462
Cash dividends--$.07 per share (337) (337)
Share issued under Long-Term
Incentive Plan 2
2
Shares repurchased and retired (221) (221) (2) (2,129) (2,352)
-------- -------- -------- -------- --------
Balances at June 24, 2000 4,717 $ 4,717 $ 0 $ 88,316 $ 93,033
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WOLOHAN LUMBER CO.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(in thousands)
SIX MONTHS ENDED
----------------
JUNE 24, JUNE 26,
2000 1999
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OPERATING ACTIVITIES
Net income $ 256 $ 2,283
Adjustments to reconcile net income to
cash provided by (used in) operating activities:
Depreciation 3,474 3,361
Amortization 150 137
Provision for losses on accounts receivable 277 86
Gain on sale of properties (505) (1,666)
Changes in operating assets & liabilities net of effects
in 1999 of sale of stores to Stock Lumber
Accounts receivable 3,489 (1,736)
Builder Finance Program receivables 2,752 (3,293)
Other assets 262 (35)
Inventories 2,450 (9,544)
Accounts payable & accrued expenses 598 7,977
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NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 13,203 (2,430)
INVESTING ACTIVITIES
Additions to properties (3,063) (4,091)
Proceeds from sale of stores to Stock Lumber -- 9,956
Proceeds from the sale of properties 1,696 3,886
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NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES (1,367) 9,751
FINANCING ACTIVITIES
Net credit lines borrowings (repayments) 1,000 (1,500)
Payments on long-term debt (4,125) (3,978)
Repurchase of common stock (3,616) (3,671)
Dividends paid (684) (745)
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NET CASH USED IN FINANCING ACTIVITIES (7,425) (9,894)
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INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 4,411 (2,573)
Cash and cash equivalents at beginning of period 3,217 3,166
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CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 7,628 $ 593
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See notes to condensed consolidated financial statements.
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WOLOHAN LUMBER CO.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 24, 2000
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 24, 2000 are not
necessarily indicative of the results that may be expected for the
entire year ending December 31, 2000.
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 25, 1999.
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 $1.5 million (29 cents per share) for fiscal
second-quarter 2000, compared with $3.2 million (60 cents per share)
for the second quarter of 1999. The earnings decline in second quarter
2000 resulted from a 22.5 percent decrease in sales which was offset,
in part, by a 110 basis-point increase in the gross margin percentage
and an 11-percent decline in operating expenses. Net income for the
first half of 2000 totaled $256,000 (5 cents per share), compared with
$2.3 million (43 cents per share) for the similar period of 1999. The
1999 first-half results
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included 18 cents per share from gains on the sale of properties,
compared with 4 cents per share in the 2000 period.
Sales totaled $91 million for fiscal second-quarter 2000, falling 22.5
percent from fiscal second-quarter 1999 sales of $117.4 million. Sales
for comparable stores declined 19.9 percent in the second quarter of
2000 from the second quarter of 1999. Sales for the six-month period
ended June 24, 2000 were $157.9 million, a 17.2-percent decrease from
the corresponding period a year earlier. Sales for comparable stores
declined 13.5 percent for the 2000 six-month period from the same
period in 1999. The sales decline in both the second quarter and
six-month period was due, in part, to an overall slowdown of housing
and other construction activity for the industry in general, as well as
the Company's decision to reduce or eliminate certain product
categories which are inconsistent with the Company's long-term
strategies.
The sales mix for fiscal second-quarter 2000 was 60 percent
contractor-builder sales and 40 percent project-consumer sales, the
same as fiscal second-quarter 1999. For the six-month period,
contractor sales accounted for approximately 65 percent of total sales
in both periods.
Gross margins for the second-quarter and six-month period of 2000 were
23.7 percent, 110 basis points higher than 1999's second quarter and 90
basis points higher than the six-month period of 1999. The higher gross
margins were achieved primarily from the effect of lower lumber prices.
Work has progressed on the plan to convert several Wolohan stores to
the CML format. The CML format is a cost-efficient operating model
focused on servicing project customers and large building contractors.
Three stores have been converted so far in 2000 (Burton, Kalamazoo and
Battle Creek, Mich.) with one more scheduled for the second half. Costs
incurred in the second quarter related to these conversions totaled
approximately $93,000 (approximately $163,000 for the six-month
period). The Company's operating-expense ratio, including the
conversion costs, was 21.9 percent in second quarter 2000, compared
with 19.0 percent in 1999's second quarter. For the 2000 six-month
period, the operating expense ratio was 24.4 percent compared with 22.3
percent for the same period of 1999.
Gains from the sale of properties totaled $112,000 in fiscal
second-quarter 2000, compared with $559,000 for second-quarter 1999.
For the 2000 six-month period, gains from property sales totaled
$505,000, compared with $1.7 million in the first half of 1999.
The effective income tax rate (Federal and state) for the second
quarter and the six-month period of 2000 was 39.5 percent and 39.6
percent, respectively, compared with 39.6 percent for the corresponding
periods of 1999.
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Financial Condition
At June 24, 2000, the Company's balance sheet remained strong. Net
working capital at June 24, 2000, totaled $45.8 million, compared with
$52.3 million at Dec. 25, 1999. The current ratio at June 24, 2000, was
2.4 to 1, compared with 2.7 to 1 at Dec. 25, 1999.
Cash and cash equivalents were $7.6 million at June 24, 2000, compared
with $3.2 million at Dec. 25, 1999. The liquidity ratio at June 24,
2000, was .23 to 1, compared with .1 to 1 at Dec. 25, 1999. Cash and
cash equivalents increased $4.4 million during the first half of 2000.
Operating activities provided net cash of $13.2 million in the first
half of 2000, primarily from reductions in accounts receivable, Builder
Finance Program receivables and inventories plus depreciation.
Investing activities in the first half of 2000 included $1.7 million of
proceeds from the sale of fixed assets (primarily closed facilities)
and offset, in part, $3.1 million of additions to properties. Financing
activities in the first half of 2000 used net cash of $7.4 million and
included $4.1 million for payments on long-term debt, $3.6 million for
the purchase of 324,000 shares of Company common stock at an average
price of $11.17 per share (which included 221,000 shares in the second
quarter at an average price per share of $10.64), $.7 million for a
dividend payment and net borrowings of $1 million under the Company's
credit lines.
The Company expects that net cash from operating activities and
available lines of credit should be adequate to meet future working
capital needs.
Invested capital (long-term debt and shareowners' equity) was equal to
76% of total assets at June 24, 2000, compared with 78% at fiscal
year-end 1999. At June 24, 2000, the total debt-to-asset ratio was .06,
versus .09 at fiscal year-end 1999 and the ratio of equity to total
assets was .69:1, the same as fiscal year-end 1999.
In 1997, the Company began testing a Builder Finance Program as a way
of improving market share and product mix of builder sales. The program
started out with Wolohan Lumber being the licensed mortgage
broker/lender. The Company utilized its working capital to fund the
loans. The average mortgage loan is for a six-month period, carries a
competitive interest rate and generally has a lower administrative fee
for the builder when compared to a commercially-offered construction
loan. A first mortgage is obtained as security for each loan. The
program has grown from financing three homes in 1997 to over 100 homes
in 1999. Because of the growth of the program, the Company has
partnered with a financial institution to fund the needs of qualified
Michigan builders. In 2000, most of the funding for loans to the
Company's customers in Michigan is being done through the independent
financial institution. The Company continues to be the mortgage lender
for the program in Ohio and Indiana. At the end of the second quarter
2000, the balance of receivables in the Builder Finance Program totaled
$2.5 million, compared with $5.2 million at year-end 1999.
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Outlook
The Company expects revenues to continue to lag behind last year's
levels in the second half of the year. Factors contributing to lower
sales expectations include lower demand for housing and significantly
lower prices for commodity wood products. Given these factors, the
Company will focus on improving market share to its target customers.
The Company uses Economic Value Added (EVA) as its primary measurement
of return on investment. EVA measures the profitability of an
existing or potential investment relative to the Company's cost of
capital. The Company will continue to analyze its existing and future
investments according to this criteria.
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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 May 2000:
(a) A meeting was held on May 4, 2000 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
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Hugo E. Braun, Jr. 3,851,463 17,622
James L. Wolohan 3,851,256 17,829
Leo B. Corwin 3,851,479 17,606
Lee A. Shobe 3,851,479 17,606
John Sieggreen 3,843,454 25,631
Charles R. Weeks 3,851,479 17,606
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.
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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 8, 2000 David G. Honaman
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David G. Honaman
Vice President - Administration
and Chief Financial Officer
Date: August 8, 2000 Edward J. Dean
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Edward J. Dean,
Corporate Controller
(Principal Accounting Officer)
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Exhibit Index
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Exhibit No. Description
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27 Financial Data Schedule