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 30, 2002
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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
- ------------------------------------ --------------------------------
(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 -- 2,097,975 shares as of July 31, 2002
PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL INFORMATION
WOLOHAN LUMBER CO.
CONSOLIDATED BALANCE SHEETS
(in thousands)
<Table>
<Caption>
JUNE 30, DEC. 31,
2002 2001
---- ----
(Unaudited) (Note)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 5,090 $ 4,798
Trade receivables, net 18,780 18,796
Inventories - at average cost 27,443 25,667
Reduction to LIFO cost (7,943) (8,168)
-------- --------
Inventories at the lower of LIFO cost or market 19,500 17,499
Other current accounts 1,978 2,048
-------- --------
TOTAL CURRENT ASSETS 45,348 43,141
NET PROPERTIES AND EQUIPMENT 23,041 25,477
OTHER ASSETS 16,533 15,397
-------- --------
TOTAL ASSETS $ 84,922 $ 84,015
======== ========
LIABILITIES AND SHAREOWNERS' EQUITY
CURRENT LIABILITIES
Trade accounts payable $ 12,979 $ 7,431
Employee compensation and accrued expenses 9,227 12,476
Current portion of long-term debt 103 2,104
-------- --------
TOTAL CURRENT LIABILITIES 22,309 22,011
LONG-TERM DEBT, net of current portion 256 307
-------- --------
TOTAL LIABILITIES 22,565 22,318
SHAREOWNERS' EQUITY
Common stock 2,098 2,027
Additional capital 862 --
Retained earnings 59,397 59,670
-------- --------
TOTAL SHAREOWNERS' EQUITY 62,357 61,697
-------- --------
TOTAL LIABILITIES AND SHAREOWNERS' EQUITY $ 84,922 $ 84,015
======== ========
</Table>
Note: The consolidated balance sheet at December 31, 2001, has been derived from
the audited financial statements at that date but does not include all of the
information and footnotes required by accounting principles generally accepted
in the United States of America 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)
<Table>
<Caption>
THREE MONTHS ENDED
------------------
JUNE 30, JUNE 30,
2002 2001
---- ----
NET SALES $ 56,690 $ 68,281
Cost of sales 43,614 52,751
-------- --------
Gross profit 13,076 15,530
Other operating income 652 669
-------- --------
Total operating income 13,728 16,199
OPERATING EXPENSES
Selling, general and administrative 11,202 12,804
Reversal of store closing costs -- (62)
Depreciation and amortization 1,178 1,576
-------- --------
Total operating expenses 12,380 14,318
-------- --------
INCOME FROM OPERATIONS 1,348 1,881
OTHER INCOME (EXPENSE)
Interest expense (24) (101)
Interest income 27 99
Gain on sale of properties -- 83
-------- --------
Other income, net 3 81
-------- --------
INCOME BEFORE INCOME TAXES 1,351 1,962
Income taxes 459 667
-------- --------
NET INCOME $ 892 $ 1,295
======== ========
Average shares outstanding 2,098 3,306
Net income per share, basic $ .44 $ .38
Net income per share, assuming dilution $ .39 $ .38
Dividends per share $ .07 $ .07
</Table>
See notes to condensed consolidated financial statements.
3
WOLOHAN LUMBER CO.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(in thousands, except per-share amounts)
<Table>
<Caption>
SIX MONTHS ENDED
----------------
JUNE 30, JUNE 30,
2002 2001
---- ----
NET SALES $ 94,560 $ 112,627
Cost of sales 73,150 86,654
--------- ---------
Gross profit 21,410 25,973
Other operating income 1,228 1,346
--------- ---------
Total operating income 22,638 27,319
OPERATING EXPENSES
Selling, general and administrative 20,452 24,261
Reversal of store closing costs (7) (103)
Depreciation and amortization 2,442 3,263
--------- ---------
Total operating expenses 22,887 27,421
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LOSS FROM OPERATIONS (249) (102)
OTHER INCOME (EXPENSE)
Interest expense (82) (291)
Interest income 58 267
Gain on sale of properties 299 1,156
--------- ---------
Other income, net 275 1,132
--------- ---------
INCOME BEFORE INCOME TAXES 26 1,030
Income taxes 9 350
--------- ---------
NET INCOME $ 17 $ 680
========= =========
Average shares outstanding 2,077 3,339
Net income per share, basic $ .01 $ .20
Net income per share, assuming dilution $ .01 $ .20
Dividends per share $ .14 $ .14
</Table>
See notes to condensed consolidated financial statements.
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 Dec. 31, 2001 2,027 $ 2,027 $ -- $ 59,670 $ 61,697
Net loss (875) (875)
Cash dividends--$.07 per share (145) (145)
Shares issued under Long-Term
Incentive Plan 15 15 209 224
Shares issued related to stock
options 65 65 813 878
Shares repurchased and retired (9) (9) (160) -- (169)
-------- -------- -------- -------- --------
Balances at Mar. 31, 2002 2,098 2,098 862 58,650 61,610
Net Income 892 892
Cash dividends--$.07 per share -- -- -- (145) (145)
-------- -------- -------- -------- --------
Balances at June 30, 2002 2,098 $ 2,098 $ 862 $ 59,397 $ 62,357
======== ======== ======== ======== ========
See notes to condensed consolidated financial statements.
5
WOLOHAN LUMBER CO.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(in thousands)
SIX MONTHS ENDED
----------------
JUNE 30, JUNE 30,
2002 2001
---- ----
OPERATING ACTIVITIES
Net income $ 17 $ 680
Adjustments to reconcile net income to net
cash provided by operating activities
Depreciation 2,342 3,113
Amortization 100 150
Provision for losses on accounts receivable 116 150
Effect of LIFO (225) --
Gain on sale of properties (299) (1,156)
(Gain) loss on sale of equipment (238) 124
Common stock based compensation 34 60
Changes in operating assets and liabilities
Accounts receivable (100) (4,048)
Builder Finance Program receivables -- 900
Other assets (50) 50
Inventories (1,776) 382
Accounts payable and accrued expenses 2,610 5,627
------- -------
NET CASH PROVIDED BY OPERATING ACTIVITIES 2,531 6,032
------- -------
INVESTING ACTIVITIES
Proceeds from maturities of certificates of deposit, net -- 3,000
Purchases of property and equipment (1,084) (340)
Proceeds from the sale of properties and equipment 475 3,634
------- -------
NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES (609) 6,294
------- -------
FINANCING ACTIVITIES
Payments on long-term debt (2,052) (8,531)
Repurchases of common stock (169) (963)
Proceeds from exercise of stock options 878 112
Dividends paid (287) (556)
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NET CASH USED IN FINANCING ACTIVITIES (1,630) (9,938)
------- -------
INCREASE IN CASH AND CASH EQUIVALENTS 292 2,388
Cash and cash equivalents at beginning of period 4,798 1,705
------- -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 5,090 $ 4,093
======= =======
See notes to condensed consolidated financial statements.
6
WOLOHAN LUMBER CO.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 2002
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, and
accordingly, its operating results for the three months and six months
ended June 30, 2002 are not necessarily indicative of the results that may
be expected for the entire year ending December 31, 2002.
The Company recognizes revenues when products, ordered by the customer, are
either delivered to the customer or the customer picks up the products 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, 2001.
NOTE B - NEW ACCOUNTING PRONOUNCEMENTS ADOPTED
The Company adopted Statement of Financial Accounting Standards No. 142,
Goodwill and Other Intangible Assets, in the first quarter of 2002. The
Company no longer amortizes goodwill and intangible assets with indefinite
useful lives but will test these assets periodically for impairment in
accordance with the provisions of Statement No. 142. Amortization expense
reported during the quarter ended June 30, 2002 was $26,000 ($52,000 for
the six-month period of 2001).
The FASB issued Statement of Financial Accounting Standards No. 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets", dated
August 2001. This statement supercedes Statement No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed of", and the accounting and reporting provisions of APB Opinion
No. 30, "Reporting Results of Operations - Reporting the Effects of
Disposal of a Segment of a Business, and Extraordinary, Unusual and
Infrequently Occurring Events and Transactions". Statement No. 144 requires
that one accounting model be used for long-lived assets to be disposed of
by sale, whether previously held and used or newly acquired, and it
broadens the presentations of discontinued operations to include more
disposal
7
transactions. The Company adopted the provisions of Statement No. 144 on
January 1, 2002. As of June 30, 2002, the Company determined that no
long-lived assets are impaired.
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
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 $892,000 (44 cents per share) for the second quarter ended
June 30, 2002, compared with $1.3 million (38 cents per share) for the same
period of 2001. For the six-month period ended June 30, 2002, net income
totaled $17,000 (1 cent per share), compared with $680,000 (20 cents per
share) for the similar period of 2001.
Net income per share for the second quarter and six month periods of 2002
was impacted by a 37-percent reduction in average shares outstanding from
the same periods in 2001. Average shares outstanding were 2.1 million for
second quarter and the six-month period of 2002, compared with 3.3 million
for the same periods in 2001. The reduction in average shares outstanding
was primarily a result of the Company repurchasing 1.3 million shares in a
stock tender offer in September 2001 at a price of $15 per share.
Net sales in 2002 were $56.7 million for the second quarter and $94.6
million for the first six months, compared with $68.3 million and $112.6
million for the comparable periods of 2001. Compared with 2001, same-store
sales in 2002 declined 4 percent for the second quarter and 2 percent for
the six-month period.
Second quarter 2002 sales and gross margin dollars were negatively impacted
by significant price deflation in lumber and structural panel products as
well as a reduction in the number of operating stores compared with 2001.
At June 30, 2002, the Company had 29 stores compared with 33 at the end of
the second quarter of 2001. In addition, with the Company's strategic focus
on the professional builder and the large project-oriented consumer, it
continues to eliminate or reduce certain products previously sold to the
do-it-yourself home-improvement market, which in turn, has a negative
impact on sales comparisons.
The lower net income in the second quarter and six month-period of 2002,
compared with similar periods in 2001 reflects:
8
1) Lower net gains recorded on the sale of real estate properties in 2002
versus 2001 ($83,000 less for the second quarter and $857,000 less for
the six-month period).
2) Inventory shrinkage recorded at one store negatively impacted gross
margins for the second quarter and the six-month period of 2002,
compared with 2001.
3) A Lifo credit of $225,000 in the second quarter of 2002, compared with
no Lifo adjustment recorded in the first six months of 2001 partially
offset these negative factors.
Gross margins for the second quarter and six-month period of 2002 were 23.1
percent and 22.6 percent, respectively, compared with 22.7 percent and 23.1
percent for the comparable periods in 2001.
The operating expense ratio for the second quarter of 2002 was 21.8 pecent,
compared with 21.0 percent for the same period in 2001. For the 2002
six-month period, the ratio was 24.2 percent compared with 24.3 percent in
2001.
In the Company's continuing effort to redeploy investments which do not
meet its strategic profit model, the Company has closed one store in the
first half of 2002 (six stores were closed during the first half of 2001).
Store closing costs related to the stores closed in the first half of both
years have been accrued in the corresponding prior year.
The expansion of the Company's Marne, MI facility to include a new
showroom, an enlarged lumber yard area and improvements to increase
manufacturing capabilities for wall-panelization, roof trusses and millwork
should be completed in the third quarter 2002. This facility will serve
professional builders and project-oriented consumers in the greater Grand
Rapids, MI market.
The effective federal income tax rate for the second quarter and six month
period of 2002 and 2001 was 34 percent.
Financial Condition
At June 30, 2002, the Company's balance sheet remained strong. Net working
capital at June 30, 2002, totaled $23.0 million, compared with $32.8
million at June 30, 2001, and $21.1 million at Dec. 31, 2001. The current
ratio at June 30, 2002, was 2.0 to 1, compared with 2.3 to 1 at June 30,
2001, and 2.0 to 1 at Dec. 31, 2001.
Cash and cash equivalents totaled $5.1 million at June 30, 2002, compared
with $4.1 million at June 30, 2001, and $4.8 million at Dec. 31, 2001. The
liquidity ratio at June 30, 2002, was .23 to 1, compared to .44 to 1 at
June 30, 2001, and .22 to 1 at Dec. 31, 2001.
Cash and cash equivalents increased $.3 million during the first half of
2002. Operating activities provided net cash of $2.5 million during the
first half of 2002, primarily from reductions in net working capital plus
depreciation.
9
Investing activities in the first half of 2002 included $1.1 million in
capital expenditures, primarily related to the expansion of the Company's
Marne, MI facility, and offset in part by $.5 million of proceeds from the
sale of properties and equipment. Financing activities in the first half of
2002 used net cash of $1.6 million and included $2.1 million for payments
on long-term debt and $.3 million for dividend payments, offset in part by
$.9 million of proceeds from the exercise of stock options.
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 74%
of total assets at June 30, 2002, compared with 74% at year-end 2001. At
June 30, 2002, the total long-term debt-to-asset ratio was .003, versus
.004 at year-end 2001 and the ratio of equity to total assets was .73:1,
the same as year-end 2001.
Outlook
The Company's strategic direction continues to be: (1) revenue growth and
operating improvement at existing stores through the advancement of
services to its target customers and development of operating efficiencies,
and (2) strengthening 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.
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 May 2002:
(a) A meeting was held on May 2, 2002 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:
<Table>
<Caption>
Votes to Withhold
Votes for Authority to Vote
Nominee Nominee for the Nominee
------- ------- ---------------
Hugo E. Braun, Jr. 1,944,324 12,253
James L. Wolohan 1,939,494 17,083
Charles R. Weeks 1,944,349 12,228
Lee A. Shobe 1,944,349 12,228
John Sieggreen 1,939,336 17,241
</Table>
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.
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, 2002 /s/ James L. Wolohan
--------------------------- --------------------------------------
James L. Wolohan
President and Chief Executive Officer
Date: August 9, 2002 /s/ Edward J. Dean
--------------------------- --------------------------------------
Edward J. Dean
Corporate Controller
(Principal Accounting Officer)
12
CERTIFICATION
The undersigned, James L. Wolohan, President and Chief Executive Officer, and
Edward J. Dean, Corporate Controller (Principal Accounting Officer), of Wolohan
Lumber Co., a Michigan corporation (the "Company") do hereby certify that the
periodic report on Form 10-Q of the Company for the quarterly period ended June
30, 2002 containing financial statements of the Company fully complies with the
requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934
(15 U.S.C. 78m or 78o(d)) and that information contained in the periodic report
fairly presents, in all material respects, the financial condition and results
of operations of the Company.
IN WITNESS WHEREOF, we have signed this Certification as of the 9th day of
August, 2002.
/s/ James L. Wolohan
----------------------------------------
James L. Wolohan
President and Chief Executive Officer
/s/ Edward J. Dean
----------------------------------------
Edward J. Dean
Corporate Controller
(Principal Accounting Officer)
13