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 30, 2001
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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)
(989) 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 -- 2,027,449 shares as of October 31, 2001.
PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL INFORMATION
WOLOHAN LUMBER CO.
CONSOLIDATED BALANCE SHEETS
(in thousands)
SEPT. 30, DEC. 31,
2001 2000
---- ----
(Unaudited) (Note)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 18,273 $ 1,705
Certificates of deposit -- 10,000
Trade receivables, net 21,818 17,457
Builder Finance Program receivables 57 1,478
Inventories - at average cost 29,193 32,524
Reduction to LIFO cost (9,397) (9,397)
--------- ---------
Inventories at the lower of LIFO cost or market 19,796 23,127
Other current accounts 2,476 2,765
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TOTAL CURRENT ASSETS 62,420 56,532
NET PROPERTIES AND EQUIPMENT 27,810 36,557
OTHER ASSETS 15,055 13,468
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TOTAL ASSETS $ 105,285 $ 106,557
========= =========
LIABILITIES AND SHAREOWNERS' EQUITY
CURRENT LIABILITIES
Trade accounts payable $ 11,032 $ 6,318
Tendered shares payable 18,875 --
Employee compensation and accrued expenses 10,958 9,882
Current portion of long-term debt 3,703 7,482
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TOTAL CURRENT LIABILITIES 44,568 23,682
LONG-TERM DEBT, less current portion 333 5,111
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TOTAL LIABILITIES 44,901 28,793
SHAREOWNERS' EQUITY
Common stock 3,322 3,388
Shares to be purchased (1,258 shares) (18,875) --
Retained earnings 75,703 74,376
Additional capital 234 --
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TOTAL SHAREOWNERS' EQUITY 60,384 77,764
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TOTAL LIABILITIES AND SHAREOWNERS' EQUITY $ 105,285 $ 106,557
========= =========
Note: The consolidated balance sheet at December 31, 2000, 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.
2
WOLOHAN LUMBER CO.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(in thousands, except per-share amounts)
THREE MONTHS ENDED
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SEPT. 30, SEPT. 23,
2001 2000
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NET SALES $ 72,250 $ 90,321
Cost of sales 55,621 68,788
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Gross profit 16,629 21,533
Other operating income 864 849
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Total operating income 17,493 22,382
OPERATING EXPENSES
Selling, general and administrative 12,854 17,742
Store closing costs 356 1,138
Depreciation and amortization 1,497 1,799
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Total operating expenses 14,707 20,679
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INCOME FROM OPERATIONS 2,786 1,703
OTHER INCOME (EXPENSES)
Interest expense (87) (267)
Interest income 108 207
Gain on sale of properties 308 --
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Other income (expense), net 329 (60)
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INCOME BEFORE INCOME TAXES 3,115 1,643
Income taxes 1,059 558
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NET INCOME $ 2,056 $ 1,085
======== ========
Average shares outstanding 3,175 4,680
Net income per share, basic $ .63 $ .23
Net income per share, assuming dilution $ .60 $ .22
Dividends per share $ .07 $ .07
See notes to condensed consolidated financial statements.
3
WOLOHAN LUMBER CO.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(in thousands, except per-share amounts)
NINE MONTHS ENDED
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SEPT. 30, SEPT. 23,
2001 2000
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NET SALES $ 184,887 $ 248,174
Cost of sales 142,368 189,281
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Gross profit 42,519 58,893
Other operating income 2,293 2,492
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Total operating income 44,812 61,385
OPERATING EXPENSES
Selling, general and administrative 36,513 52,231
Store closing costs 855 1,623
Depreciation and amortization 4,760 5,423
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Total operating expenses 42,128 59,277
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INCOME FROM OPERATIONS 2,684 2,108
OTHER INCOME (EXPENSES)
Interest expense (378) (796)
Interest income 375 407
Gain on sale of properties 1,464 312
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Other income (expense), net 1,461 (77)
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INCOME BEFORE INCOME TAXES 4,145 2,031
Income taxes 1,409 690
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NET INCOME $ 2,736 $ 1,341
========= =========
Average shares outstanding
3,285 4,830
Net income per share, basic $ .83 $ .28
Net income per share, assuming dilution $ .80 $ .27
Dividends per share $ .21 $ .21
See notes to condensed consolidated financial statements.
4
WOLOHAN LUMBER CO.
CONSOLIDATED STATEMENT OF SHAREOWNERS' EQUITY
(UNAUDITED)
(in thousands)
COMMON STOCK SHARES TO BE TOTAL
------------ PURCHASED ADDITIONAL RETAINED SHAREOWNERS'
SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS EQUITY
------ ------ ------ ------ ------- -------- ------
Balances at Dec. 31, 2000 3,388 $ 3,388 -- $ -- $ -- $ 74,376 $ 77,764
Net loss (615) (615)
Cash dividends--$.07 per share (237) (237)
Shares issued under Long-Term
Incentive Plan 10 10 129 139
Shares repurchased and retired (47) (47) -- -- (129) (314) (490)
-------- -------- ------ ----------- -------- -------- --------
Balances at Mar. 31, 2001 3,351 3,351 -- -- -- 73,210 76,561
Net income 1,295 1,295
Cash dividends--$.07 per share (231) (231)
Shares issued under Long-Term
Incentive Plan 3 3 30 -- 33
Shares repurchased and retired (49) (49) -- -- (30) (394) (473)
-------- -------- ------ ----------- -------- -------- --------
Balances at June 30, 2001 3,305 3,305 -- -- -- 73,880 77,185
Net income 2,056 2,056
Cash dividends - $.07 per share (233) (233)
Shares issued under Long-Term
Incentive Plan 17 17 234 -- 251
Shares to be repurchased -- -- (1,258) (18,875) -- -- (18,875)
-------- -------- ------ ----------- -------- -------- --------
Balances at Sept. 30, 2001 3,322 $ 3,322 (1,258) $ (18,875) $ 234 $ 75,703 $ 60,384
======== ======== ====== =========== ======== ======== ========
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WOLOHAN LUMBER CO.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(in thousands)
NINE MONTHS ENDED
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SEPT. 30, SEPT. 23,
2001 2000
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OPERATING ACTIVITIES
Net income $ 2,736 $ 1,341
Adjustments to reconcile net income to net
cash provided by operating activities
Depreciation 4,531 5,194
Amortization 229 229
Provision for losses on accounts receivable 225 744
Effect of LIFO -- (1,500)
Gain on sale of properties (1,464) (312)
(Gain) loss on sale of equipment (176) 153
Changes in operating assets & liabilities
Accounts receivable (4,586) 5,363
Builder Finance Program receivables 1,421 3,393
Other assets 381 1,992
Inventories 3,331 11,408
Accounts payable and accrued expenses 6,213 (1,936)
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NET CASH PROVIDED BY OPERATING ACTIVITIES 12,841 26,069
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INVESTING ACTIVITIES
Proceeds from maturities of certificates of deposit, net 10,000 --
Purchases of property and equipment (425) (4,053)
Proceeds from the sale of properties and equipment 4,373 1,825
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NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 13,948 (2,228)
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FINANCING ACTIVITIES
Net credit lines borrowings -- 2,500
Payments on long-term debt (8,557) (4,154)
Purchases of common stock (963) (4,702)
Dividends paid (701) (1,010)
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NET CASH USED IN FINANCING ACTIVITIES (10,221) (7,366)
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INCREASE IN CASH AND CASH EQUIVALENTS 16,568 16,475
Cash and cash equivalents at beginning of period 1,705 3,217
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CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 18,273 $ 19,692
======== ========
See notes to condensed consolidated financial statements.
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WOLOHAN LUMBER CO.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 2001
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, subject to general
economic conditions and outside factors, and the timing of store
closings, accordingly, its operating results for the three months and
nine months ended September 30, 2001 are not necessarily indicative of
the results that may be expected for the entire year ending December
31, 2001.
The Company recognizes revenues when product, ordered by the customer,
is either delivered to the customer or the customer picks up the
product at one of the Company's retail locations.
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 31, 2000.
NOTE B - PRONOUNCEMENTS ISSUED NOT YET ADOPTED
In July, 2001, the Financial Accounting Standards Board issued two
statements - Statement 141, Business Combinations, and Statement 142,
Goodwill and Other Intangible Assets, which will potentially impact the
Company's accounting for its reported goodwill and other intangible
assets. The Company has not yet completed its full assessment of the
effects of these new pronouncements on its financial statements and so
is uncertain as to the impact. The standards generally are required to
be implemented by the Company in its 2002 financial statements.
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.
7
Results Of Operations
Net income totaled $2,056,000 (63 cents per share) for the quarter
ended Sept. 30, 2001, compared with $1,085,000 (23 cents per share) for
third-quarter 2000, an increase of 89 percent. For the 2001 nine-month
period, net income increased 104 percent to $2,736,000 (83 cents per
share), compared with $1,341,000 (28 cents per share) for the same
period of 2000. In addition to higher reported net income, earnings per
share for the third quarter and nine-month period of 2001 were
positively impacted by a reduction in shares outstanding due to the
Company's ongoing share-repurchase program and stock tender offers.
Average shares outstanding were 32-percent lower for the 2001 third
quarter and nine-month period, compared with the corresponding periods
in 2000.
The increase in net income for the quarter ended September 30, 2001,
compared with the third quarter of the prior year reflects: (1) Gains
on sale of real estate properties of $.3 million recorded in third-
quarter 2001, compared with no such gains in third-quarter 2000. (2) No
LIFO adjustment was recorded in 2001 compared with a LIFO credit of
$1.5 million recorded in the third quarter of 2000. (3) Store closing
costs of $.4 million in third-quarter 2001, compared with $1.7 million
in third-quarter 2000 ($.6 million of the costs in 2000 were charged to
cost of sales).
The increase in year-to-date net income for the period ended September
30, 2001, compared with the same period in 2000 reflects: (1) Gains on
sale of real estate properties of $1.5 million recorded in 2001,
compared with $.3 million of such gains in 2000. (2) No LIFO adjustment
was recorded in 2001 compared with a LIFO credit of $1.5 million
recorded in 2000. (3) Store-closing costs of $.9 million in 2001,
compared with $2.2 million in 2000 ($.6 million of the costs in 2000
were charged to cost of sales).
Sales totaled $72.2 million for third-quarter 2001, falling 20.0
percent from third-quarter 2000 sales of $90.3 million. Sales for
comparable stores showed no change, compared with third-quarter 2000.
Sales for the nine-month period ended September 30, 2001 were $184.9
million, a 25.5-percent decrease from the corresponding period a year
earlier. Sales for comparable stores declined 7 percent for the 2001
nine-month period from the same period in 2000. Sales in core product
categories showed modest improvement in the 2001 third quarter as
deflationary pressure on commodity wood products eased somewhat
compared to the first half of the year and construction activity
remained steady. The Company continues to eliminate or reduce certain
products previously sold to the do-it-yourself home improvement market
which negatively impacted sales comparisons for the third quarter and
year-to-date periods.
The sales mix for the third-quarter 2001 was approximately 58 percent
contractor-builder sales and 42 percent project-consumer sales, the
same as the third-quarter 2000. For the nine-month period,
contractor-builder sales accounted for approximately 60 percent of
total sales in 2001 and 62 percent in 2000.
Gross margins were 23.0 percent for the third-quarter and nine-month
period of 2001, compared with 23.8 percent and 23.7 percent for the
comparable periods of 2000. The lower margins in 2001 reflect no LIFO
adjustment, compared with a LIFO credit of $1.5 million recorded in the
third quarter and nine-month period of 2000.
Store-closing costs totaled $.4 million for the third quarter of 2001
and $.9 million for the nine-month period, compared with $1.7 million
and $2.2 million for the comparable
8
periods of 2000. A portion of the closing costs ($.6 million) in the
third quarter and nine-month period of 2000 was charged to cost of
sales.
The operating expense ratio, excluding store-closing costs, was 19.9
percent in third-quarter 2001, compared with 21.6 percent in
third-quarter 2000. The reduction reflects the emphasis placed on
improving operating efficiencies combined with the closure of
non-productive store locations. The ratio also showed improvement for
the nine-month period, declining from 23.2 percent in 2000 to 22.3
percent in 2001.
In the Company's continuing effort to redeploy investments which do not
meet its strategic profit model, the Company has closed eight stores in
the first nine months of 2001 (eight stores were closed during the full
year 2000). Two additional stores have been closed in the fourth
quarter of 2001. Gains from the sale of real estate properties related
to closed stores totaled $.3 million in the third-quarter 2001,
compared with no such gains for third-quarter 2000. For the nine-month
period, gains from property sales totaled $1.5 million in 2001,
compared with $.3 million in 2000. The Company currently operates 30
stores, compared with 40 stores at year-end 2000.
The effective federal income tax rate for the third quarter and
nine-month period of 2001 and 2000 was 34 percent. Previous to 2001,
the Company had included certain state taxes with federal income taxes.
Such taxes have been reclassified as operating expenses in 2000. The
reclassification has no impact on net income. The reclassification
increased operating expenses for the third-quarter and nine-month
period of 2000 by $154,000 and $190,000, respectively, and reduced
income tax expense by the same amounts.
Financial Condition
The balance sheet at Sept. 30, 2001 reflects the Company's repurchase
of 1.3 million shares of its common stock on Sept. 21, 2001 in a stock
tender offer at a price of $15 per share. Payment for the tender offer
($18.9 million) was made on Oct. 3, 2001 from available cash on hand of
$16.4 million plus utilization of a bank line of credit for $2.5
million.
At Sept. 30, 2001, net working capital totaled $17.9 million, compared
with $32.9 million at Dec. 31, 2000. The current ratio at Sept. 30,
2001, was 1.4 to 1, compared with 2.4 to 1 at Dec. 31, 2000.
Cash and cash equivalents were $18.3 million at Sept. 30, 2001,
compared with $1.7 million at Dec. 31, 2000. The liquidity ratio at
Sept. 30, 2001, was .41 to 1, compared with .49 to 1 at Dec. 31, 2000.
Cash and cash equivalents increased $16.6 million during the first nine
months of 2001. Operating activities provided net cash of $12.8 million
in the first nine months of 2001, primarily from reductions in net
working capital and earnings. Investing activities in the nine months
of 2001 included $4.4 million of proceeds from the sale of properties
and equipment (primarily closed facilities) and $10.0 million of
proceeds from maturities of certificates of deposit. Financing
activities in nine months of 2001 used net cash of $10.2 million and
included $8.6 million for payments on long-term debt, $1.0 million for
the purchase of 96,000 shares of Company common stock at an average
price of $10.02 per share and $.7 million for dividend payments.
The Company expects that net cash from operating activities and
available lines of credit should be adequate to meet future working
capital needs.
9
Invested capital (long-term debt and shareowners' equity) was equal to
58% of total assets at Sept. 30, 2001, compared with 78% at year-end
2000. At Sept. 30, 2001, the total long-term debt-to-asset ratio was
.003:1, versus .05:1 at year-end 2000 and the ratio of equity to total
assets was .57:1, versus .73:1 at year-end 2000.
Outlook
The Company expects revenues to continue to lag behind last year's
levels for the remainder of the year due to the impact of store
closings The Company plans to continue to focus on revenue growth and
operating improvement at existing stores through the advancement of
services to its target customers and development of operating
efficiencies. The Company plans to work to further strengthen its
balance sheet by improving management of working capital at existing
operations and redeploying investments which do not meet its strategic
profit model. The Company has consistently utilized its strategic
profit model to evaluate overall performance of its assets and will
continue to do so. Adherence to this model may result in additional
store closings or other asset redeployments.
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.
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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: November 14, 2001 James L. Wolohan
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James L. Wolohan
President and Chief Executive Officer
Date: November 14, 2001 Edward J. Dean
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Edward J. Dean,
Corporate Controller
(Principal Accounting Officer)
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