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United States
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the Fiscal Year Ended December 25, 1999
or
[ ] Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the Transition Period From ______ To ______
Commission File No. 1-14967
WICKES INC.
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(Exact name of registrant as specified in its charter)
Delaware 36-3554758
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(State of Incorporation) (IRS Employer Identification No.)
706 North Deerpath Drive, Vernon Hills, Illinois 60061
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(Address of principal executive offices)
(847) 367-3400
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(Registrant's telephone number, including area code)
Securities Registered Pursuant to Section 12 (b) of the Act:
None
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Securities Registered Pursuant to Section 12 (g) of the Act:
Common Stock, par value of $.01 per share
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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 by check mark if disclosure of delinquent filers pursuant to
item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this form
10-K or any amendment to this form 10-K. [ ]
As of February 29, 2000, the Registrant had 8,226,640 shares of Common
Stock, par value $.01 per share, outstanding, and the aggregate market
value of outstanding voting stock (based on the last sale price on the
Nasdaq National Market of Common Stock on that date) held by nonaffiliates
was approximately $25,800,000 (includes the market value of all such stock
other than shares beneficially owned by 10% stockholders, executive
officers and directors).
DOCUMENTS INCORPORATED BY REFERENCE
-----------------------------------
Portions of the Registrant's Proxy Statement in connection with its
Annual Meeting of Shareholders tentatively scheduled to be held on May 18,
2000, are incorporated by reference into Part III hereof, as more
specifically described herein.
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TABLE OF CONTENTS
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Page No.
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PART I
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Item 1. Business 3
Item 2. Properties 21
Item 3. Legal Proceedings 21
Item 4. Submission of Matters To a Vote
of Security Holders 23
PART II
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Item 5. Market For Registrant's Common Equity
and Related Stockholder Matters 24
Item 6. Selected Financial Data 24
Item 7. Management's Discussion and Analysis
of Financial Condition and Results
of Operations 28
Item 7A. Quantitative and Qualitative Disclosures
about Market Risk 40
Item 8. Financial Statements and Supplementary Data 42
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure 42
PART III
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Item 10. Directors and Executive Officers
of the Registrant 43
Item 11. Executive Compensation 43
Item 12. Security Ownership of Certain
Beneficial Owners and Management 43
Item 13. Certain Relationships and Related Transactions 43
PART IV
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Item 14. Exhibits, Financial Statement Schedules,
and Reports on Form 8-K 44
SIGNATURES 45
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PART I
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Item 1. BUSINESS.
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Wickes Inc. ("Wickes" or the "Company") is a leading supplier and
manufacturer of building materials in the United States. The Company sells
its products and services primarily to residential and commercial building
professionals, repair and remodeling ("R&R") contractors and, to a lesser
extent, project do-it-yourselfer consumers ("DIYers") involved in major
home improvement projects. At February 29, 2000, the Company operated 101
sales and distribution facilities in 23 states in the Midwest, Northeast,
and South and 25 component manufacturing facilities that produce and
distribute roof and floor trusses, framed wall panels, and pre-hung door
units.
Background
- ----------
The Company was formed in 1987 as a Delaware corporation named "Wickes
Lumber Company." In June 1997, the Company changed its corporate name to
"Wickes Inc." The Company continues to conduct its primary operations
under the "Wickes Lumber" name.
In April 1988, the Company completed the acquisition (the "1988
Acquisition") of operations that had commenced in 1952. These operations
consisted of 223 building centers and 10 component manufacturing
facilities.
On October 22, 1993, the Company completed a plan of recapitalization
pursuant to which the Company retired all outstanding indebtedness incurred
in connection with the 1988 Acquisition, restructured its previously
existing classes of capital stock, and completed the initial public
offering of 2,800,000 shares of its common stock.
Pursuant to a plan to reduce the number of under-performing building
centers and the corresponding overhead to support these building centers,
and to strengthen its capital structure, the Company consolidated or closed
21 building centers and three component manufacturing facilities from the
fourth quarter of 1995 through 1997. Also pursuant to this plan, in June
1996, the Company privately issued 2 million shares of its Common Stock.
In the fourth quarter of 1997, the Company announced and began to
implement a plan to streamline operations, to focus on the Company's core
professional builder business, and to eliminate overhead costs and programs
not directly supporting this core business. In addition to these actions,
in the first quarter of 1998, the Company closed eight additional building
centers and two component manufacturing facilities and sold two other
building centers, and implemented further headquarters staffing and expense
reductions (the "1998 Plan"). The Company's restructuring efforts were
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completed in 1998. For further information see "Business Strategy" and
Note 3 of Notes to Consolidated Financial Statements.
Industry Overview
- -----------------
According to the Home Improvement Research Institute ("HIRI") (an
independent research organization for manufacturers, retailers and
wholesalers allied to the home improvement industry), sales of home
improvement products (defined as lumber, building materials, hardware,
paint, plumbing, electrical, tools, floor coverings, glass, wallpaper, and
lawn and garden products) associated with the maintenance and repair of
residential housing and new home construction were estimated to be $248.6
billion in 1999. Despite some consolidation over the last ten years,
particularly in metropolitan areas, the building material industry remains
highly fragmented. The Company believes that no building material supplier
accounted for more than 15.4% of the total market in 1999.
In general, building material suppliers concentrate their marketing
efforts either on building professionals or consumers. Professional-
oriented building material suppliers, such as the Company, tend to focus on
single-family residential contractors, R&R contractors, project DIYers and,
to some extent, commercial contractors. These suppliers compete
principally on the basis of service, product assortment, price, scheduled
job-site delivery and trade credit availability. In contrast, consumer-
oriented building material retailers target the mass consumer market, where
competition is based principally on price, merchandising, location and
advertising. Consumer-oriented warehouse and home center retailers
typically do not offer as wide a range of services, such as specialist
advice, trade credit, manufactured components, and scheduled job-site
delivery, as do professional-oriented building material suppliers.
Industry sales are linked to a significant degree to the level of
activity in the residential building industry, which tends to be cyclical
and seasonal due to weather. New residential construction is determined
largely by household formations, interest rates, housing affordability,
availability of mortgage financing, regional demographics, consumer
confidence, job growth, and general economic conditions. According to the
U.S. Bureau of the Census, U.S. housing starts totaled 1.35 million in
1995, 1.48 million in 1996, 1.47 million in 1997, 1.62 million in 1998, and
increased to 1.66 million in 1999. The Blue Chip Economic Indicators
Consensus Forecast, dated March 10, 2000, projects 2000 housing starts to
be 1.58 million, down slightly from 1999. Housing starts in the Company's
primary geographical market, the Midwest, increased 7.9% in 1999. The
Company's two other geographical markets, the Northeast and South,
experienced increases in 1999 housing starts of 3.4% and 2.5%,
respectively. Nationally, single family housing starts, which generate the
majority of the Company's sales to building professionals, increased by
4.7% from 1.27 million starts in 1998 to 1.33 million starts in 1999.
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Repair and remodeling expenditures tend to be less cyclical than new
residential construction. These expenditures are generally undertaken with
less regard to economic conditions, but both repair and remodeling projects
(including projects undertaken by DIYers) tend to increase with increasing
sales of both existing and newly constructed residences. HIRI estimates
that sales of home improvement products to repair and remodeling
professionals represented $40.5 billion, or approximately 16.3% of total
1999 sales of the building material supply industry, while direct sales to
DIYers amounted to $122.4 billion.
Business Strategy
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General
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The Company's mission is to be the premier provider of building materials
and services and manufacturer of value-added building components to the
professional segments of the building and construction industry.
The Company is streamlined and goal-oriented, focusing on the
professional builder and contractor market. The Company targets five
customer groups: the production or volume builder; the custom builder; the
tradesman; the repair and remodeler; and the commercial developer. Its
marketing approach encompasses three channels of distribution: Major
Markets, Conventional Markets, and Wickes Direct. These channels are
supported by the Company's network of building components manufacturing
operations. In Major Markets, the Company serves the national, regional,
and large local builder in larger markets with a total solutions approach
and specialized services. In Conventional Markets, the Company provides
the smaller building professional in less-populous markets with tailored
products and services. Wickes Direct provides materials flow and logistics
management services to commercial customers. The Company also serves
building professionals through its network of 25 component manufacturing
facilities that produce value-added, wood framed wall panels, roof and
floor truss systems, and pre-hung interior and exterior doors.
The Company announced its "Build 2003" program in 1999 as part of the
Company's initiative to build public awareness of its corporate goals.
Using 1998 results as a performance baseline, management outlined seven
objectives it aims to achieve by the end of 2003: (1) Minimum sales growth
of 6% annually: the Company achieved a 19.2% sales gain in 1999 and same
store sales growth of 18.1%. (2) Internally manufacture 75% of wall panel,
roof truss, floor deck and prehung door needs: the Company made steady
progress in 1999, internally producing 46% of these building components in
1999, up from the 40% level achieved in 1998. (3) Increase EBITDA (see Part
II, Item 6 for definition) as a percentage of net sales by a minimum 25%:
the Company generated EBITDA as a percentage of net sales (before gains on
sale of fixed assets) of 3.80% in 1999, a strong improvement from the 3.34%
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achieved in 1988. (4) Improve debt-to-equity ratio and achieve 1:1 debt-to-
equity by year-end 2003: the Company improved this leverage ratio in 1999
to a 7.2:1 ratio from 8.3:1 at the end of 1998. (5) Generate a return on
capital in excess of its peer group: the Company's 14.4% return on capital
employed in 1999 was well above the estimated 8.5% average of its publicly
traded, building materials distribution peer group. (6) Extend its
earnings season: the Company achieved positive EBITDA of $1.6 million in
the first quarter 1999 after reporting slightly negative EBITDA in the same
period of 1998. (7) Provide consistency in earnings growth: the Company
has demonstrated seven consecutive quarters of earnings growth.
Major Markets
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The Company operates in 20 Major Markets, which are served by 31 sales
and distribution facilities. In this market group, the Company targets the
national top 400 builders, both regional and large local builders with
specialized services and a total solutions approach, including its unique
"Frame A Home in A Day" program. These facilities are designed, stocked
and staffed to meet the needs of the particular markets in which they are
located. Major Markets are also served by all of the Company's
manufacturing facilities.
Major Markets are generally large metropolitan areas with favorable
growth projections and are characterized by the active presence of
national, regional and large local builders. The Company believes that the
building supply industry in these Major Markets remains heavily fragmented.
The Company's Major Markets programs seek to provide the large builder with
specialized programs and services that integrate various methods of
distribution. The Company provides these programs and services on a
"virtual store" basis; that is, products and services may be provided from
multiple facilities serving the Major Market on a coordinated basis with
centralized customer contact and support. The Company invests significant
efforts to redefine and improve customer service with a comprehensive,
total solutions package of core building materials, supply chain
management, material flow and logistics management.
During 1997 and 1998, the company undertook the challenge of redefining
the levels and types of customer service it will provide as part of its
Major Market strategy by first understanding the cost drivers,
inefficiencies, and needs of the large builders who dominate the more
densely populated regions of the country. The outcome of that research was
addressing a clear opportunity to assist builders in reducing their total
cost of production by utilizing the Company's manufacturing and logistics
expertise.
After initiating Major Markets programs ("Target Major Markets") in four
markets in 1997, the Company added these programs in five additional
markets the following year. In 1999, Wickes commenced Target Major Markets
initiatives in two additional markets. Over the next four years, the
Company will progressively target additional Major Markets. In the
interim, management believes that these markets continue to offer
opportunities for growth as a traditional building materials supplier as
well as provide opportunities to grow and introduce new, value-added
service and product initiatives.
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The Company's value-added Manufacturing operations constitute an integral
component supporting the Target Major Markets strategy. This network
enables the Company to provide its customers with custom engineered, value-
added manufactured framing component systems. For instance, in six markets
the Company operates its "Frame a Home in a Day" concept. This initiative
allows builders significant cost savings by completely framing and
sheathing an average two-story residence in as little as one day, rather
than the substantially longer period involved in traditional stick framing
methods. In 2000, this program will be expanded to other Target Major
Markets.
The Company's operations in Major Markets contributed approximately 42.4%
of the Company's net sales in 1999, compared to 42.0% in 1998 and 35.0% in
1997. For the 11 Target Major Market programs in place at the end of 1999,
net 1999 sales increased approximately 27.7% over 1998 net sales.
Conventional Markets
--------------------
The Company operates 70 sales and distribution facilities in small, rural
Conventional Markets, where Wickes targets the smaller building
professionals such as single-family residential contractors and repair and
re-modeler contractors with tailored products and services. Wickes is
often the brand name of choice, as it provides a service offering mix that
includes tool rental, specialized delivery, and installation services. The
Company is typically the market leader in these fragmented, relatively slow
growth markets of populations generally below 100,000. The Company
believes it possesses a significant competitive advantage in rural markets
and small communities where it competes primarily with local, independent
lumberyards and regional building chains.
Since the beginning of 1997, the Company has completed remerchandising
and remarketing programs ("Resets") in 13 sales and distribution facilities
located in Conventional Markets. These programs include upgrading of the
showroom layout and product presentation, expansion of product assortments
(typically adding a significant number of stock keeping units, or "SKUs")
with a view towards achieving category dominance in the market, and
increasing service offerings such as installed sales, tool rental,
specialized delivery services and additional in-store sales specialists.
The 13 Conventional Market facilities that completed Resets have
experienced continued significant sales increases. The Company intends to
perform additional Resets in 2000 and future years. The Company's
manufacturing operations also provide significant support for the Company's
Conventional Market sales activities, particularly through the manufacture
of pre-hung interior and exterior doors.
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Wickes Direct/Wickes Construction Services
------------------------------------------
Wickes Direct focuses on the large volume needs of commercial builders,
much of which is to be shipped directly from the manufacturer to the
customer's job site. This marketing group concentrates on five specific
types of commercial, wood projects: assisted care facilities, extended care
facilities, hotels/motels (three stories and under), restaurants, and multi-
family. In addition to selling building materials and engineered
components, Wickes Direct provides building design, value-engineering
processes, estimating, logistics, and material delivery services to large
customers anywhere in the world, all accomplished without the need for a
physical facility close to the customer. Wickes Direct has project sales
specialists that focus exclusively on selling building solutions to the
commercial developers. Wickes Construction Services, a Wickes Direct unit
launched in 2000, is a hybrid construction group that provides turnkey
framing services, bids, contracts, and takeoffs, and provides installation
labor and general contractor services for Wickes Direct customers.
Manufacturing Operations
------------------------
The Company owns and operates 25 component manufacturing facilities that
supply the Company's customers with higher-margin, value-added products
such as framed wall panels, roof and floor trusses, and pre-hung interior
and exterior doors. These facilities include 17 stand-alone operations as
well as eight additional operations that exist at the Company's sales and
distribution facilities. Value-added manufacturing is an important
component supporting both the Company's Major Market and Conventional
Market strategies. In Target Major Markets, manufacturing provides key
support to Wickes' position as a value-added partner and its "Frame A Home
In A Day" concept. In Conventional Markets, trusses, panels, and pre-hung
doors are sold to local builders. The Company believes that these
engineered products improve customer service and provide an attractive
alternative to job-site construction. In 1999 and 1998, the Company
internally manufactured 46% and 40% respectively, by dollar volume, of
its total building components distributed. As resources permit, the
Company intends to expand its manufacturing facilities to supply a greater
number of its sales and distribution facilities with these value-added
products.
Other Initiatives
-----------------
Since 1997, the Company has also initiated several other programs to
supplement its Major Market and Conventional Market strategies.
The Company's tool rental program was developed to rent specialized,
professional quality tools and equipment to customers in need of equipment
for unique or short-term projects. The program is designed to attract new
customers as well as to provide the Company with an opportunity to supply
current customers with a greater portion of their total construction needs.
The program is currently in place in 29 sales and distribution facilities
and will be expanded to additional facilities in 2000.
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The Company's installed insulation program consists of specially trained
installation crews using specialized equipment and vehicles to install
blown and batt insulation in new construction or major renovations. The
installed insulation program is currently operating in 50 sales and
distribution facilities and is planned to be expanded to more locations in
2000. Installed insulation is one of the value-added services that the
Company believes it can cost-effectively provide to meet its customers'
needs. The Company is evaluating several other product installation
services, including installed siding, that may be initiated in 2000.
The Company currently has in place an internet strategy designed to provide
enhanced service levels to new and existing customers. The Company has entered
into several partnership agreements with companies providing internet based
services to the construction industry. Employed correctly and integrated
properly, internet technology will broaden the base of products offered and the
ability to service new and existing customers over the long-term.
Recent Restructurings and Operational Efforts
- ---------------------------------------------
The Company continuously reviews its assets and operations in an effort
to eliminate under-performing facilities and the corresponding overhead, to
reduce other costs, and to focus its efforts on its target customers.
In the fourth quarter of 1995, the Company undertook a significant
restructuring program. From that time through the end of 1997, the Company
closed or consolidated 21 building centers and consolidated three component
manufacturing facilities. Additionally, the Company also devoted
substantial efforts to control overhead costs. Beginning in early 1997,
the Company increased sales efforts and initiated the Major Market programs
and Conventional Market remerchandising programs discussed above.
During the first quarter of 1998, the Company implemented the 1998 Plan,
which resulted in the closing or consolidation of eight sales and
distribution and two manufacturing facilities in February, the sale of two
sales and distribution facilities in March, and further reductions in
headquarters staffing.
See "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations."
Acquisition Strategy
- --------------------
The Company intends to complement its existing manufacturing
operations by acquisitions from time to time as attractive opportunities
present themselves. The Company made four acquisitions of component
facilities during 1999. In January, the Company acquired the assets of a
wall panel manufacturer located in Cookeville, Tennessee. In March, the
Company acquired the assets of Porter Building Products, a manufacturer of
trusses and wall panels located in Bear, Delaware. In October, the Company
acquired the assets of Advanced Truss Systems, Inc. of Kings Mountain,
North Carolina. Advanced Truss Systems is a manufacturer of engineered
wood trusses servicing the greater Charlotte, North Carolina, market. In
November, the Company acquired the assets of United Building Systems, Inc.
of Lexington, Kentucky. United Building Systems is a manufacturer of wall
panels and roof and floor trusses in the Lexington, Kentucky, market.
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Markets
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The Company operates in 20 Major Markets, which are served by 31 sales
and distribution facilities and ten manufacturing facilities. The
Company also operates 70 building centers in less populous areas, or
Conventional Markets. For a further discussion of Major Markets and
Conventional Markets see "Business Strategy."
The following table sets forth the distribution of the Company's sales
and distribution facilities located in Conventional and Major Markets by
size of the local market:
Number of Sales and
Total Distribution Facilities
Households in Conventional Major
Thirty Mile Radius Markets Markets
------------------ ------- -------
Under 50,000 16 0
50,000-100,000 17 0
100,000-250,000 21 10
250,000-500,000 13 9
500,000 and over 3 12
-- --
Total 70 31
== ==
Geographical Distribution
-------------------------
The Company's 101 sales and distribution facilities are located in 23
states in the Midwest, Northeast and South. The Company believes that its
geographic diversity generally lessens the impact of economic downturns and
adverse weather conditions in any one of the Company's geographic markets.
The following table sets forth certain information with respect to the
locations of the Company's sales and distribution facilities as of February
29, 2000:
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Midwest Northeast South
- ------------------------- --------------------------- ----------------------
Number of Number of Number of
Sales and Sales and Sales and
Distribution Distribution Distribution
State Facilities State Facilities State Facilities
----- ---------- ----- ---------- ----- ----------
Michigan 30 Pennsylvania 6 Alabama 3
Wisconsin 14 New York 3 Kentucky 3
Indiana 11 Maine 2 Texas 2
Ohio 5 New Hampshire 2 Florida 2
Illinois 4 Connecticut 1 Mississippi 2
Colorado 3 New Jersey 1 North Carolina 2
Massachusetts 1 Georgia 1
Maryland 1 Louisiana 1
Tennessee 1
-- -- --
Total 67 Total 17 Total 17
== == ==
Facilities Opened, Closed and Consolidated
------------------------------------------
During the first quarter of 1998, as part of the 1998 Plan, the Company
closed or consolidated eight building centers and two component
manufacturing facilities and sold two other building centers, all in
Conventional Markets. For a further description of the 1998 Plan, see
"Business Strategy." In 1998, the Company also opened two new component
manufacturing facilities at existing sales and distribution sites, and
purchased a third component manufacturing facility in Indianapolis,
Indiana. The Company also acquired four manufacturing facilities in 1999.
See "Business Strategy - Acquisition Strategy."
The following table reconciles the number of sales and distribution
facilities and component manufacturing facilities operated by the Company
at December 31, 1994, December 30, 1995, December 28, 1996, December 27,
1997, December 26, 1998 and December 25, 1999.
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Sales and Component
Distribution Manufacturing
Facilities Facilities
---------- ----------
As of December 31, 1994 130 10
Acquisitions 5 2
Expansion 2 --
Closings (10) --
Consolidations (17) (1)
--- --
As of December 30, 1995 110 11
Expansion -- 1
Consolidations (2) --
--- --
As of December 28, 1996 108 12
Expansion 6 1
Closings (2) --
Consolidations (1) (2)
--- --
As of December 27, 1997 111 11
Expansion -- 2
Acquisition -- 1
Sold (2) --
Closings (7) (2)
Consolidations (1) --
--- --
As of December 26, 1998 101 12
Expansion 1
Acquisition -- 4
--- --
As of December 25, 1999 101* 17
=== ==
*Eight additional component manufacturing facilities are located in existing
Sales & Distribution facilities.
Customers
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The Company has a broad base of customers, with no single customer
accounting for more than 2.0% of net sales in 1999. In 1999, 93% (compared
with 89% in 1998) of the Company's sales were on trade credit, with the
remaining 7% as cash and credit card transactions.
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Home Builders
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The Company's primary customers are single-family home builders. In
1999, all home builder customers accounted for 62% of the Company's sales,
compared with 61% in 1998. The majority of the Company's sales to these
customers are of high-volume commodity items, such as lumber, building
materials, and manufactured housing components. The Company will continue
its intense focus on this customer segment, offering new products and
developing additional services to meet their needs.
Commercial / Multi-family Contractors
-------------------------------------
Wickes Direct and Wickes International concentrate on sales to commercial
contractors (primarily those engaged in constructing motels, restaurants,
nursing homes, extended stay facilities, and similar projects) and multi-
family residential contractors. Sales to these customers are made on a
direct ship basis as well as through the Company's sales and distribution
facilities. In 1999, sales to these customers accounted for approximately
19% of the Company's sales, compared with 17% in 1998. During 1999, the
Company integrated the Wickes Direct domestic program more closely with its
manufacturing operations.
Repair & Remodelers
-------------------
In 1999, R&R customers accounted for approximately 9% of the Company's
sales, compared with 10% in 1998. The R&R segment consists of a broad
spectrum of customers, from part-time handymen to large, sophisticated
business enterprises. Some R&R contractors are involved exclusively with
single product application, such as roofing, siding, or insulation, while
some specialize in remodeling jobs, such as kitchen or bathroom remodeling
or the construction of decks, garages, or full room additions. The Company
offers the product and project expertise, special order capability, design
assistance, and credit terms to serve the widely varying needs of this
diverse market.
DIYers
------
Sales to DIYers (both project and convenience) represented about 10% of
the Company's sales in 1999, compared with 12% in 1998. The percentage of
sales to DIYers varies widely from one sales and distribution facility to
another, based primarily on the degree of local competition from warehouse
and home center retailers. The Company's sales and distribution facilities
do not have the large showrooms or broad product assortments of the major
warehouse or home center retailers. For small purchases, the showrooms
serve as a convenience rather than a destination store. Consequently, the
Company's focus on consumer business is toward project DIYers -- customers
who are involved in major projects such as building decks or storage
buildings or remodeling kitchens or baths.
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Sales and Marketing
- -------------------
The Company employs a number of marketing initiatives designed to
increase sales and to support the Company's goal of being the dominant
force in the sale of lumber and other building materials to building
professionals in each of its markets.
Building Professional
---------------------
The Company seeks to establish long-term relationships with its
professional customers by providing a higher level of customer assistance
and services than are generally available at independently owned building
centers or large warehouse and home center retailers.
The Company provides a wide range of customer services to building
professionals, including expert assistance, technical support, trade
credit, scheduled job-site delivery, manufacture of customized components,
installed sales, specialized equipment, logistical and material flow design
and support, and other special services. Building professionals generally
select building material suppliers based on price, job-site delivery,
quality and breadth of product lines, reliability of inventory levels, and
the availability of credit.
For a description of the programs designed for and the emphasis being
applied to professional customers in Major Markets, see " Business Strategy
- - Major Markets."
In both Conventional and Major Markets, the Company's primary link to the
building professional market is its experienced sales staff. As of
February 29, 2000 the Company's approximately 407 outside sales
representatives ("OSRs") are commissioned sales persons who work with
professional customers on an on going basis at the contractors' job sites
and offices. Typically, a sale to a contractor is made through a
competitive bid prepared by the OSR from plans made available by the
contractor. From these plans, the OSR or sales support associate prepares
and provides to the contractor a bid and a complete list, or "take-off," of
the materials required to complete the project. Preparation of a take-off
requires significant time and effort by trained and experienced sales
representatives and support associates. The Company has equipped most of
its sales and distribution facilities with a computerized system which
significantly reduces the time required to prepare take-offs. In addition,
this system instantly recalculates changes and automatically includes add-
on products needed to complete the project, which generally improves
productivity, sales and margins. The ability of the sales representative
to provide prompt and accurate take-offs, to arrange timely deliveries, and
to provide additional products or services as necessary is an important
element of the Company's marketing strategy and distinguishes the Company
from many of its competitors.
As of February 29, 2000 the Company currently employs 128 specialty
salespeople in its sales and distribution facilities who provide expert
advice to customers in project design, product selection and applications.
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A staff of 40 trained R&R sales specialists offer special services to R&R
contractors equivalent to that accorded home builders. In many of its
sales and distribution facilities, the Company maintains separate R&R
offices. The Company currently has kitchen and bath departments in most of
its sales and distribution facilities and has a staff of 80 kitchen and
bath specialists. The Company also employs 8 specialists in other
departments.
The Company extends credit, generally due on the 10th day of the month
following the sale, to qualified and approved contractors. Approximately
93% of the Company's sales during 1999 were on credit, with the remaining
7% consisting of cash or credit card sales, including approximately 0.6% of
sales on the Company's private label credit card. Overall credit policy is
established at the corporate level, with each sales and distribution
facility manager and a district credit manager responsible for the
administration and collection of accounts. The accounts are generally not
collateralized, except to the extent the Company is able to take advantage
of the favorable materialmen's lien laws of most states applicable in the
case of delinquent accounts.
The Company operates a fleet of 859 delivery vehicles as of February 29,
2000, to provide job-site deliveries of building materials scheduled to
coordinate with project progress, including 87 specialized delivery trucks
equipped for roof-top or second story delivery, 102 specialized millwork
delivery vehicles, 47 vehicles designed for installation of blown
insulation, and 49 vehicles equipped with truck-mounted forklifts. The
Company will continue to add these specialized vehicles to other markets
where there is sufficient demand for such services.
Over the past several years, the Company has installed and will continue
to increase its base of computer-aided design hardware and software. These
systems include design and take-off software for kitchens, decks,
outbuildings, additions and houses. With these tools, sales
representatives and specialists are able to provide customers with
professional-quality plans more efficiently.
In 1997, the Company began an equipment rental program at 25 of its sales
and distribution facilities. Under this program, the Company rents
specialized, professional quality tools and equipment to customers in need
of equipment for unique or short-term projects. The program is currently
in place in 29 sales and production facilities and will be expanded to
additional facilities in 2000.
In 1997, the Company also began its installed insulation program.
Through the use of specialized equipment and vehicles and its specially
trained installation crews, the Company installs blown and batt insulation
in new or existing construction. There are currently 50 sales and
distribution facilities that offer this service.
The Company's internet site on the World Wide Web provides information
about Wickes' services and products, facilitates doing business with
customers, allows customers to look up their own transactional information,
15
16
and features extensive links to suppliers and other industry references.
The Company's home page can be found on the web at: http://www.wickes.com.
The Company advertises in trade journals and produces specialized direct
mail promotional materials designed to attract specific target customers.
The Company does some select newspaper advertising, which may include
circulars and run-of-press advertisements. It also has numerous product
displays in its sales and distribution facilities to highlight special
products and services.
To increase customer loyalty and strengthen customer relationships, the
Company, in many cases with vendor support, sponsors or participates in
numerous special marketing activities, such as trade show events,
informational product seminars, various outings, and professional builder
trips.
DIYers
------
Most sales and distribution facilities, primarily building centers
located in Conventional Markets, also pursue sales to project DIYers
through their staff of specially-trained inside sales representatives and
specialists. These representatives provide professional advice to
consumers for home improvement projects and assist these customers in
designing specific projects with sophisticated computer design software.
The sales representatives can also provide a comprehensive list of
materials and detailed drawings to assist customers in completing their
projects. The Company believes that project DIYers are attracted to its
sales and distribution facilities by this high level of service.
The Company's showrooms generally feature product presentations such as
kitchen, bath, door and window displays. The showrooms are regularly re-
merchandised to reflect product trends, service improvements and market
requirements. During 1997 and 1998 the Company completed Resets in five
and six, respectively, of its sales and distribution facilities' showrooms.
During 1999, the Company completed additional Resets in two facilities.
For those centers that completed Resets during 1997 and 1998, the Company
has experienced sales increases of approximately 22% and 9%, respectively,
in the 12-month period following completion of the Reset. Additional
showroom improvements are contemplated for 2000 and future years.
While the Company's product offerings in hardlines are generally more
limited than its consumer-oriented competitors, the Company stocks a larger
selection of commodity products and offers a special order program for
custom or specialty products. The Company emphasizes project packages,
which include all materials and detailed instructions for the assembly of
the larger projects frequently undertaken by project DIYers.
16
17
Products
- --------
To provide its customers with the quality products needed to build,
remodel and repair residential and commercial properties, the Company
offers a wide variety of building products, totaling approximately 63,000
SKUs Company wide and the ability to special order additional products. The
Company believes that these special order services are extremely important
to its customers, particularly the building professional. In 1999,
approximately 31% of the Company's sales were of special order items,
compared with 32% in 1998. Each of the Company's sales and distribution
facilities tailors its product mix to meet the demands of its local market.
Approximately 5,500 SKUs are typically stocked in a particular sales and
distribution facility.
The Company categorizes its products into four groups: Commodity Wood
Products -- lumber, plywood, treated lumber, sheathing, wood siding and
specialty lumber; Building Products -- roofing, vinyl siding, doors,
windows, mouldings, drywall and insulation; Hardlines -- hardware products,
paint, tools, kitchen and bathroom cabinets, plumbing products, electrical
products, light fixtures and floor coverings; and Manufactured Housing
Components -- roof and floor trusses, and interior and exterior wall
panels. Commodity Wood Products, Building Products, Hardlines, and
Manufactured Housing Components represented 37%, 34%, 10% and 19%,
respectively, of the Company's sales for 1999 and 44%, 36%, 10% and 10%,
respectively, of sales for 1998.
Manufacturing
- -------------
The Company owns and operates 25 component manufacturing facilities that
supply the Company's customers with higher-margin, value-added products
such as framed wall panels, roof and floor trusses, and pre-hung interior
and exterior doors. These facilities include 17 stand alone operations as
well as eight additional operations that exist at the Company's sales and
distribution facilities. These manufacturing operations enable the Company
to serve the needs of its professional customers for such quality, custom-
made products. In 1999, the Company's manufacturing operations supplied
approximately 46% of the pre-hung doors, roof trusses, wall panels, and
floor decks sold by the Company. The Company believes that these value-
added, engineered manufactured products improve customer service and
provide an attractive alternative to job-site construction. As resources
permit, the Company plans to expand its manufacturing facilities to take
advantage of these increased opportunities and to supply a greater number
of its sales and distribution facilities with these products.
17
18
Suppliers and Purchasing
- ------------------------
The Company purchases its products from numerous vendors. The great
majority of commodity items are purchased directly from manufacturers,
while the remaining products are purchased from a combination of
manufacturers, wholesalers and other intermediaries. No single vendor
accounted for more than 4.4% of the Company's purchases in 1999, and the
Company is not dependent upon any single vendor for any material product.
The Company believes that alternative sources of supply are readily
available for substantially all of the products it offers.
The great majority of the Company's commodity purchases are made on the
basis of individual purchase orders rather than supply contracts. In
certain product lines, though, the Company has negotiated some advantageous
volume pricing agreements for a portion of the product line's purchases.
Because approximately 34% of the Company's average inventory consists of
commodity wood products and manufactured housing components, which are
subject to price volatility, the Company attempts to match its inventory
levels to short-term demand in order to minimize its exposure to price
fluctuations. In addition, the Company enters into futures contracts to
hedge longer term pricing commitments. The Company has developed an
effective coordinated purchasing program that allows it to minimize costs
through volume purchases, and the Company believes that it has greater
purchasing power than many of its smaller, local independent competitors.
The Company seeks to develop close relationships with its suppliers in
order to obtain favorable pricing and service arrangements.
The Company's computerized inventory tracking and forecasting system, as
part of its inventory replenishment system, is designed to track and
maintain appropriate levels of products at each sales and distribution
facility. These systems have increased the Company's operating
efficiencies by providing an automated inventory replenishment system.
The Company has active rail sidings at 60 of its sales and distribution
and manufacturing facilities, enabling suppliers to ship products purchased
by the Company directly to these facilities by rail. The Company also
utilizes one distribution center owned by a third party, located in
Chicago, Illinois, through which approximately 2% of the Company's wood
products inventory is delivered.
Seasonality
- -----------
Historically, the Company's first quarter and, occasionally, its fourth
quarter are adversely affected by weather patterns in the Midwest and
Northeast, that result in seasonal decreases in levels of construction
activity in these areas. The extent of such decreases in activity is a
function of the severity of winter weather conditions. See "Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations."
18
19
Competition
- -----------
The building material industry is highly competitive. Due to the
fragmented nature of the industry, the Company's competitive environment
varies by location and by customer segment. Reduced levels of construction
activity have, in the past, resulted in intense price competition among
building material suppliers that has, at times, adversely affected the
Company's gross margins.
Within the building professionals market, the Company competes primarily
with local independent lumber yards and regional and local building
material chains. Building professionals generally select building material
suppliers based on price, job site delivery, quality and breadth of product
lines, reliability of inventory levels, and the availability of credit.
The Company believes that it competes favorably on each of these bases.
The Company believes that it has a significant competitive advantage in
rural markets and small communities, conventional markets, where it
competes primarily with local independent lumber yards, regional building
material chains, and, to a lesser extent, with national building center
chains and warehouse and home center retailers, which generally locate
their units in more densely populated areas. In Major Markets the Company
believes that its total package of services and ability to serve the large
builder provides it with a competitive advantage.
Environmental and Product Liability Matters
- -------------------------------------------
Many of the sales and distribution facilities presently and formerly
operated by the Company contained underground petroleum storage tanks.
Other than tanks at one acquired facility, recently installed and in
compliance with modern standards, all such tanks known to the Company
located on facilities owned or operated by the Company have been filled or
removed in accordance with applicable environmental laws in effect at the
time. As a result of reviews made in connection with the sale or possible
sale of certain facilities, the Company has found petroleum contamination
of soil and ground water on several of these sites and has taken remedial
actions with respect thereto. In addition, it is possible that similar
contamination may exist on properties no longer owned or operated by the
Company, the remediation of which the Company could, under certain
circumstances, be held responsible. Since 1988, the Company has incurred
approximately $2.0 million of costs, net of insurance and regulatory
recoveries, with respect to the filling or removing of underground storage
tanks and related investigatory and remedial actions. Insignificant
amounts of contamination have been found on excess properties sold over the
past five years.
The Company has been identified as a potential responsible party in two
Superfund landfill clean up sites. Based on the amounts claimed and the
Company's prior experience, it is expected that the Company's liability in
these two matters will not be material.
19
20
For information concerning certain litigation concerning products
containing asbestos or silica dust, see "Item 3. Legal Proceedings."
Although the Company has not expended material amounts in the past eleven
years with respect to the foregoing, and expenditures in the most recent
five years have been significantly reduced, there can be no assurances that
these matters will not give rise to additional compliance and other costs
that could have a material adverse effect on the Company.
Employees
- ---------
As of February 29, 2000, the Company had approximately 4,515 employees,
of whom 3,989 were employed on a full-time basis. The number of employees
generally fluctuates consistent with the seasonal nature of the Company's
business. The Company believes that it has maintained favorable relations
with its employees. None of the Company's employees are covered by a
collective bargaining agreement.
Trademarks and Patents
- ----------------------
The Company has no material patents, trademarks, licenses, franchises, or
concessions other than the name "Wickes Lumber" and the "Flying W"
trademark.
__________________________
Forward-looking statements in this Item 1 are made pursuant to the safe
harbor provisions of the Private Securities Litigation Reform Act of 1995.
There are certain important factors that could cause results to differ
materially from those anticipated by the forward-looking statements made
above. These statements are based on the current plans and expectations of
the Company and readers are cautioned that all forward-looking statements
involve risks and uncertainty. Among the factors that could cause actual
results to differ materially are the following: effects of seasonality and
cyclicality discussed under the headings "Industry Overview" and
"Seasonality"; effects of competition; interest rates and the Company's
ability to service and comply with the terms of its debt; lumber prices;
the success of the Company's operational inititiatives; and the outcome of
the contigencies discussed in Note 8 of the Company's Consolidated
Financial Statements included elsewhere herein.
20
21
Item 2. PROPERTIES.
- --------------------
The Company's 101 sales and distribution facilities are located in 23
states, with 67 in the Midwest, 17 in the Northeast and 17 in the South.
See "Item 1. Business - Markets." The Company believes that its
facilities generally are in good condition and will meet the Company's
needs in the foreseeable future.
The Company's Conventional Market building centers generally consist of a
showroom averaging 9,600 square feet and covered storage averaging 38,400
square feet. The Company's sales and distribution facilities located in
Major Markets tend to be more specialized. Since the beginning of 1997,
the Company has completed Resets in 13 sales and distribution facilities
located in Conventional Markets. The Company's sales and distribution
facilities are situated on properties ranging from 1.0 to 28.2 acres and
averaging 9.3 acres. The Company also operates 17 stand-alone component
manufacturing facilities, which have an average of 40,300 square feet under
roof on 6.9 acres.
The Company owns 84 of its sales and distribution facilities and 82 of
the sites on which such facilities are located. The remaining 17 sales and
distribution facilities and 19 sites are leased. As of December 25, 1999,
the Company also held for sale the assets of 7 closed facilities with an
aggregate book value of $2.5 million. In addition to its sales and
distribution facilities, the Company operates 17 stand-alone component
manufacturing plants, 12 of which are owned sites and 5 of which
are on leased sites. Eight additional plants are located on sales and
distribution facility sites.
The Company also owns or leases a large fleet of trucks and other
vehicles, including vehicles specialized for the delivery of certain of the
Company's products. As of February 29, 2000, the fleet included
approximately 194 heavy duty trucks, 87 of which provide roof-top or second
story delivery and 49 other vehicles equipped with truck mounted forklifts,
516 medium duty trucks, 568 light duty trucks and automobiles, 574
forklifts, 102 specialized millwork delivery vehicles, and 47 vehicles
equipped to install blown insulation.
The Company leases its corporate headquarters, a portion of which is
subleased, located at 706 North Deerpath Drive in Vernon Hills, Illinois.
Item 3. LEGAL PROCEEDINGS.
- ---------------------------
The Company has been identified as a potential responsible party in two
Superfund landfill clean up sites. In Browning-Ferris Industries, et al v.
------------------------------------
Richard Ter Maat, et al. v. Wickes Lumber Company, et al., Case No. 92 C
- ---------------------------------------------------------------------------
22059 filed in the United State District Court for the Northern District of
- -----
Illinois, Wickes has been named as a potentially responsible party for
cleanup of the MIG-DeWanne Landfill located in Boone County, Illinois. The
Company has also received notification from the United States Environmental
Protection Agency regarding cleanup of the Adams/Quincy Landfills #2 & #3
located in Quincy, Illinois. Based on the amounts claimed and the
Company's prior experience, it is expected that the Company's liability in
these two matters will not be material.
21
22
The Company is one of many defendants in two class action suits filed in
August of 1996 by approximately 200 claimants for unspecified damages as a
result of health problems claimed to have been caused by inhalation of
silica dust, a byproduct of concrete and mortar mix, allegedly generated by
a cement plant with which the Company has no connection other than as a
customer. Librado Amador, et al. v. Alamo Concrete Products Limited,
---------------------------------------------------------------
Wickes Lumber Company, et al., Case No. 16696, was filed in the 229th
- -----------------------------------------------
Judicial District Court of Duval County, Texas. Javier Benavides, et al.
-------------------------
v. Magic Valley Concrete, Inc., Wickes Lumber Company, et al., Case No. DC-
- ---------------------------------------------------------------------------
96-89 was filed in the 229th Judicial District Court of Starr County,
- -----
Texas. The Company has entered into a cost-sharing agreement with its
insurers, and any liability is expected to be minimal.
The Company is one of many defendants in approximately 145 actions, each
of which seeks unspecified damages, in various Michigan state courts
against manufacturers and building material retailers by individuals who
claim to have suffered injuries from products containing asbestos. Each of
the plaintiffs in these actions is represented by one of two law firms.
The Company is aggressively defending these actions and does not believe
that these actions will have a material adverse effect on the Company.
Since 1993, the Company has settled 16 similar actions for insignificant
amounts, and another 186 of these actions have been dismissed.
The Company is involved in various other legal proceedings which are
incidental to the conduct of its business. Certain of these proceedings
involve potential damages for which the Company's insurance coverage may be
unavailable. While the Company does not believe that any of these
proceedings will have a material adverse effect on the Company's financial
position, results of operations or liquidity, there can be no assurance of
this.
The Company's assessment of the matters described in this Item 3 are made
pursuant to the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995 and are inherently subject to uncertainty. The outcome
of the matters described in this Item 3 may differ from the Company's
assessment of these matters as a result of a number of factors including
but not limited to: matters unknown to the Company at the present time,
development of losses materially different from the Company's experience,
the Company's ability to prevail against its insurers with respect to
coverage issues to date, the financial ability of those insurers and other
persons from whom the Company may be entitled to indemnity, and the
unpredictability of matters in litigation.
22
23
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS.
- -------------------------------------------------------------
None.
23
24
PART II
-------
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
- ---------------------------------------------------------------------------
STOCKHOLDER MATTERS.
- --------------------
The Company's Common Stock is authorized for trading on the Nasdaq
National Market under the trading symbol "WIKS." As of February 29, 2000
there were 8,226,640 shares outstanding held by approximately 130
shareholders of record.
The following table sets forth for the periods indicated the high and low
sale prices for the Company's Common Stock as reported on the NASDAQ
National Market System. Prices do not include retail markups, markdowns or
commissions.
Three Months Ended High Low
------------------ ---- ---
Fiscal 1999
-----------
March 27 $ 5.188 $ 3.750
June 26 6.250 3.188
September 25 6.813 4.250
December 25 6.750 4.688
Fiscal 1998
-----------
March 28 $ 4.625 $ 3.000
June 27 10.250 3.938
September 26 6.438 2.500
December 26 5.000 2.500
The Company has not declared or paid any dividends on Common Stock in the
past three years and has no present intention to pay cash dividends on
Common Stock in the foreseeable future. The Company's revolving credit
facility prohibits cash dividends on Common Stock, and the trust indenture
related to the Company's 11-5/8% senior subordinated notes restricts cash
dividends on Common Stock. See "Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations."
Item 6. SELECTED FINANCIAL DATA.
- ---------------------------------
The following table presents selected financial data derived from the
audited consolidated financial statements of the Company for each of the
five years in the period ended December 25, 1999. The following selected
financial data should be read in conjunction with "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations"
and the Consolidated Financial Statements and Notes thereto contained
elsewhere in this report.
24
25
WICKES INC. AND SUBSIDIARIES
SELECTED CONSOLIDATED FINANCIAL DATA
(in thousands, except ratios and per share data)
Dec. 25, Dec. 26, Dec. 27, Dec. 28, Dec. 30,
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
Income Statement Data:
- ---------------------
Net sales $1,084,633 $ 910,272 $ 884,082 $ 848,535 $ 972,612
Gross profit 253,643 215,472 203,026 189,463 220,812
Selling, general and
administrative expense 214,581 186,853 185,385 162,329 194,629
Depreciation, goodwill and
trademark amortization 6,473 5,253 4,863 5,367 5,882
Provision for doubtful accounts 1,724 2,915 1,707 1,067 6,482
Other operating income 5,768 6,837 10,689 6,796 5,831
Restructuring and unusual items (1) - 5,932 (559) 745 17,798
Income from operations 36,633 21,356 22,319 26,751 1,852
Interest expense (2) 23,302 21,632 21,417 21,750 24,351
Equity in loss of affiliated company - - 1,516 3,183 3,543
Income (loss) before income taxes 13,331 (276) (614) 1,818 (26,042)
Income taxes 1,283 1,019 1,099 1,010 1,353
Deferred tax expense (benefit) 4,460 (330) (153) 300 (11,796)
Net income (loss) 7,588 (965) (1,560) 508 (15,599)
Ratio of earnings to fixed charges (3) 1.48 - - 1.08 -
Interest coverage (4) 1.97 1.32 1.36 1.61 0.35
Adjusted interest coverage (5) 1.97 1.61 1.33 1.65 1.15
Per Share Data:
- --------------
Earning (loss) per common share -
basic $0.92 ($0.12) (0.19) $0.07 ($2.54)
Weighted average common shares -
basic 8,216,265 8,197,542 8,168,257 7,207,761 6,135,610
Earning (loss) per common share -
diluted $0.91 ($0.12) ($0.19) $0.07 ($2.54)
Weighted average common shares -
diluted 8,330,571 8,197,542 8,168,257 7,221,082 6,135,610
Operating and Other Data:
- ------------------------
EBITDA (6) $43,106 $26,609 $27,182 $32,118 $ 7,734
Adjusted EBITDA (7) 43,106 32,541 26,623 32,863 25,532
Cash interest expense (8) 21,792 20,185 20,016 19,969 22,266
Depreciation and amortization 6,473 5,253 4,863 5,367 5,882
Deferred financing cost amortization 1,510 1,447 1,401 1,781 2,085
Capital expenditures 8,624 5,854 7,758 2,893 7,538
Same store sales growth (9) 18.1% 9.0% 4.7% (6.4%) (3.8%)
Building centers open at end of period 101 101 111 108 110
Net cash (used in) provided by
operating activities (11,245) 2,627 (24,554) 18,710 15,862
Net cash (used in) provided by
investing activities (17,597) (1,623) 6,040 2,410 (10,277)
Net cash provided by (used in)
financing activities 28,849 (1,018) 16,660 (19,274) (7,535)
Balance Sheet data (at period end):
- ----------------------------------
Working capital $ 162,523 $135,345 $ 134,459 $116,771 $ 139,622
Total assets 334,009 292,183 283,352 272,842 302,515
Total long-term debt, less
current maturities 220,742 191,961 193,061 176,376 205,221
Total stockholders' equity 30,819 23,148 24,001 25,499 15,129
25
26
Notes to Selected Consolidated Financial Data
---------------------------------------------
(1) During the first quarter of 1998, the Company implemented the
1998 Plan which resulted in the closing or consolidation of eight
sales and distribution and two manufacturing facilities in February,
the sale of two sales and distribution facilities in March, and
further reductions in headquarters staffing. As a result of the 1998
Plan, the Company recorded a restructuring charge of $5.4 million in
the first quarter and an additional charge of $0.5 million in the
third quarter. In 1997, the Company recorded a $0.6 million credit as
a result of finalizing the 1995 restructuring plan. In 1995, the
Company recorded a $17.8 million charge relating to a plan to reduce
the number of operating building centers, the corresponding overhead
to support those centers identified, strengthen its capital structure,
and other unusual items. The 1995 restructuring plan was adjusted in
1996 by an additional charge of $0.7 million. In 1994, the Company
recorded a $2.0 million charge primarily as a result of its
headquarters cost reduction plan.
(2) Interest expense includes cash interest expense and amortization
of deferred financing costs (see note 8 below).
(3) For purposes of computing this ratio, earnings consist of income
(loss) before income taxes and fixed charges. Fixed charges consist
of cash interest expense, amortization of deferred financing costs,
and a portion of operating lease rental expense that is representative
of the interest factor attributable to interest expense. Such
earnings were insufficient to cover fixed charges by $0.3 million,
$0.8 million, and $37.8 million for the years ended December 26, 1998,
December 27, 1997 and December 30, 1995, respectively.
(4) For purposes of computing this ratio, earnings consists of EBITDA
(as defined in note 6 below), which is divided by cash interest
expense (as defined in note 8 below).
(5) For purposes of computing this ratio, earnings consists of
Adjusted EBITDA (as defined in note 7 below), which is divided by cash
interest expense (as defined in note 8 below).
(6) EBITDA represents income (loss) before income taxes, equity in
loss of affiliated company, interest expense, depreciation and
amortization. EBITDA is not presented herein as an alternative
measure of operating results but rather to provide additional
information related to debt service capability, and does not represent
cash flow from operations, as defined by GAAP and may not be
comparable to similarly titled measures reported by other companies.
(7) Adjusted EBITDA represents EBITDA (as defined in note 6 above)
adjusted to exclude restructuring and unusual items and is used in the
26
27
adjusted interest coverage ratio to reflect debt service capability
before the effect of these restructuring and unusual items, and
provides an additional measure of debt service capability for ongoing
operations.
(8) Cash interest expense consists of interest expense less amortization
of deferred financing costs. The following table details interest
expense, cash interest expense, and interest paid for each of the five
years ended December 25, 1999 (in thousands).
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
Interest expense $23,302 $21,632 $21,417 $21,750 $24,351
Less:
Amortization of deferred
financing costs 1,510 1,447 1,401 1,781 2,085
------- ------- ------- ------- -------
Cash interest expense 21,792 20,185 20,016 19,969 22,266
Decrease (increase) in
accrued interest ( 289) 700 (225) 403 557
------- ------- ------- ------- -------
Interest paid $21,503 $20,885 $19,791 $20,372 $22,823
======== ======= ======= ======= =======
(9)Same store sales growth data reflects average sales for sales and
distribution facilities and other facilities that were operated by the
Company throughout both the current and previous year. The following
table lists, by year, the number of locations that were included in this
calculation:
Year No. of Facilities
---- -----------------
1999 101
1998 101
1997 107
1996 101
1995 101
The sixteen lumber centers closed on December 29, 1995 were excluded
from the 1995 same store figures, and two centers that were
consolidated with another Wickes center, in early 1995, were included
in 1995 same store results.
27
28
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
- ------- -------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS.
-----------------------------------
General
- -------
The following table sets forth, for the periods indicated, the percentage
relationship to net sales of certain expense and income items. The table
and subsequent discussion should be read in conjunction with the financial
statements and notes thereto appearing elsewhere herein.
Years Ended
-----------
Dec 25, Dec. 26, Dec. 27,
1999 1998 1997
---- ---- ----
Net sales 100.0% 100.0% 100.0%
Gross profit 23.4 23.7 23.0
Selling, general and
administrative expense 19.8 20.5 21.0
Depreciation, goodwill and
trademark amortization 0.6 0.6 0.6
Provision for doubtful accounts 0.2 0.3 0.2
Restructuring and unusual items 0.0 0.7 (0.1)
Other operating income (0.5) (0.7) (1.2)
Income from operations 3.4 2.3 2.5
The Company's operations, as well as those of the building material
industry generally, have reflected substantial fluctuations from period to
period as a consequence of various factors, including levels of
construction activity, general regional and local economic conditions,
weather, prices of commodity wood products, interest rates and the
availability of credit, all of which are cyclical in nature. The Company
anticipates that fluctuations from period to period will continue in the
future. Because a substantial percentage of the Company's sales are
attributable to building professionals, certain of these factors may have a
more significant impact on the Company than on companies more heavily
focused on consumers.
The Company's first quarter and, occasionally, its fourth quarter are
adversely affected by weather patterns in the Midwest and Northeast, which
result in seasonal decreases in levels of construction activity in these
areas. The extent of such decreases in activity is a function of the
severity of winter weather conditions. Weather conditions in 1997 and 1999
were relatively normal throughout the year. During the first quarter of
1998, the Company experienced mild winter weather conditions in the
28
29
Company's Midwest region, which was partially offset by increased
precipitation in the Northeast and South.
The following table contains selected unaudited quarterly financial data
for the years ended December 25, 1999, December 26, 1998 and December 27,
1997. Quarterly earnings/(loss) per share may not total to year-end
earnings/(loss) per share due to the issuance of additional shares of
Common Stock during the course of the year.
QUARTERLY FINANCIAL DATA
------------------------
Three Months Ended
------------------
(in millions, except per share data and percentages)
Basic / Diluted
Net Sales as a Net Earnings/
% of Annual Gross Net Income (Loss)per
Net Sales Net Sales Profit /(Loss) Common Share
--------- --------- ------ ------- ------------
1999
March 27 $191.1 17.6% $45.9 $(3.3) $(.40)/(.40)
June 26 288.7 26.6 66.3 3.6 .44 / .43
September 25 325.4 30.0 73.8 5.0 .61 / .61
December 25 279.4 25.8 67.6 2.2 .27 / .26
1998
March 28 $168.8 18.5% $41.0 $(6.8) $(.83)/(.83)
June 27 237.1 26.1 56.1 2.8 .34/.34
September 26 261.1 28.7 60.2 2.3 .28/.28
December 26 243.3 26.7 58.2 0.7 .09/.09
1997
March 29 $159.3 18.0% $36.9 $(5.2) $(.63)/(.63)
June 28 237.3 26.9 54.3 1.3 .16/.16
September 27 266.3 30.1 60.3 1.8 .22/.22
December 27 221.1 25.0 51.5 0.5 .06/.06
In 1998, the Company recorded a charge of $5.9 million for restructuring
and unusual items. In 1997, the Company recorded a benefit of $0.6 million
for restructuring and unusual items. For additional information on the
restructuring and unusual items charge, see Note 3 of Notes to Consolidated
Financial Statements included elsewhere herein. In the fourth quarter of
1997, the Company recorded a gain of $4.5 million on the sale of six pieces
of real estate. In the fourth quarter of 1998, two pieces of real estate
were sold for gains of $0.4 million. Gains or losses on the sale of real
estate are recorded under other operating income.
The Company has historically generated approximately 15% to 20% of its
annual revenues during the first quarter of each year, and the Company has
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historically recorded a significant net loss for this quarter. As a result
of these seasonal factors, the Company's inventories and receivables reach
peak levels during the second and third quarters and are generally lower
during the first and fourth quarters, depending on sales volume and lumber
prices.
___________________________
This Item 7 contains statements which, to the extent that they are not
recitations of historical fact, constitute Forward Looking Statements that
are made pursuant to the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995 and are inherently subject to uncertainty. A
number of important factors could cause the Company's business and
financial results and financial condition to be materially different from
those stated in the Forward Looking Statements. For a discussion of these
matters, see the last paragraph of Item 1 of this report.
1999 Compared with 1998
- -----------------------
Net Sales
---------
Net sales for 1999 increased $174.4 million, or 19.2%, to $1,084.6
million from $910.3 million in 1998. Sales for all facilities operated
throughout both years ("same store") increased 18.1%. During 1999, the
Company experienced a 22.1% increase in same store sales to its primary
customer segment, the professional home builder, and a 30.8% increase in
same store sales to commercial builders. Consumer sales declined 0.2% on
a same store basis.
Total housing starts in the United States increased 3.0% in 1999, and
starts in the Company's primary geographical market, the Midwest, increased
approximately 7.9%. The Company's two other geographical markets, the
Northeast and South, experienced increases of 3.4% and 2.5%, respectively.
Nationally, single family housing starts, which generate the majority of
the Company's sales to building professionals, experienced an increase of
4.7% in 1999, from 1.27 million starts in 1998 to 1.33 million starts in
1999.
Sales at its Target Major Markets increased 28% in 1999. Sales at
Conventional Resets completed in 1997 and 1998 increased 22% and 9%
respectively in the 12 month period following completion of the reset.
The Company estimates that inflation in lumber prices positively affected
1999 sales by approximately $44.3 million, when compared with lumber prices
during 1998.
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Gross Profit
------------
Gross profit increased $38.2 million to 23.4% of net sales for 1999
compared with 23.8% of net sales for 1998. The increase in gross profit
dollars is primarily due to increased sales, improved product costs and
increased margins on internally manufactured products. In the third
quarter of 1998, the Company recorded a charge of $0.8 million as a result
of an exchange of clearance merchandise for barter credits. The decline in
gross profit percentage was primarily the result of the effects of rapid
lumber inflation that occurred during the second and third quarters of 1999
as well as a continued shift in sales mix to professional builders.
The Company estimates that lumber inflation in 1999, when compared with
1998 price levels, increased gross profit dollars by approximately $7.1
million. The percent of Company sales attributable to professional builders
increased to 89.9% for 1999 compared with 87.9% for 1998. The Company
anticipates that its increased focus on internally manufactured building
components will likely offset the additional pressure on gross margin
created by the increased emphasis on sales to the professional builder.
Selling, General, and Administrative Expense
--------------------------------------------
In 1999, selling, general, and administrative expense ("SG&A") decreased
as a percent of net sales to 19.8% compared with 20.5% of net sales in
1998. Much of this improvement is attributable to expense reductions as a
result of the Company's 1998 Plan and the completion of most of the
Company's remerchandising programs during or prior to the end of the second
quarter of 1998. In addition, operating leverage achieved as a result of
significant sales growth also contributed to the decline as a percent of
sales.
The Company experienced decreases from 1998 to 1999, as a percent of
sales, in salaries and wages, travel, general office expenses, utilities,
rent, marketing, delivery and administrative expenses which were partially
offset by increased maintenance, employee benefits and other insurance
costs. Improvements in the administration of vacation pay resulted in a
$1.0 million, or 0.1% of sales, improvement in SG&A expenses for 1999. The
Company anticipates similar improvements during 2000 as a result to policy
changes related to hourly and salary vacation vesting.
Depreciation, Goodwill and Trademark Amortization
-------------------------------------------------
Depreciation, goodwill and trademark amortization costs increased $1.2
million in 1999 compared with 1998. This increase is primarily due to
depreciation on manufacturing facility acquisitions, rental equipment and
capital improvements made as a result of the Company's major market and
remerchandising programs.
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Provision for Doubtful Accounts
-------------------------------
The Company extends credit, generally due on the 10th day of the month
following the sale, to qualified and approved contractors. Provision for
doubtful accounts decreased to $1.7 million or 0.2% of sales from $2.9
million or 0.3% of sales for 1998. While the Company did experience
several large write-offs during 1998 and 1999, the results were in line
with its historical average of approximately 0.3% of sales.
Restructuring and Unusual Items
-------------------------------
During the first quarter of 1998 the Company implemented the 1998 Plan,
which resulted in the closing or consolidation of eight sales and
distribution and two manufacturing facilities in February, the sale of two
sales and distribution facilities in March, and further reductions in
headquarters staffing. As a result of the 1998 Plan, the Company recorded
a restructuring charge of $5.4 million in the first quarter of 1998 and an
additional charge of $0.5 million in the third quarter of 1998. The $5.9
million cumulative charge included $4.1 million in anticipated losses on
the disposition of closed facility assets and liabilities, $2.1 million in
severance and post employment benefits related to the 1998 plan, offset by
a benefit of $300,000 for adjustments to prior years' restructuring
accruals. The $4.1 million in anticipated losses included the write-down
of assets (excluding real estate), to their net realizable value of $3.4
million and $700,000 in real estate carrying costs. The $2.1 million in
severance and post employment benefits covered approximately 250 employees
that were released as a result of reductions in headquarters staffing and
the closing or consolidation of the ten operating facilities. The $300,000
benefit from prior years was a result of accelerated sales of previously
closed facilities during the fourth quarter of 1997 and first quarter of
1998. The acceleration of these sales resulted in a change in the estimate
of facility carrying costs for the sold facilities. At December 26, 1998
the accrued liability for restructuring had been reduced to zero.
Other Operating Income
----------------------
Other operating income decreased to $5.8 million in 1999 from $6.8
million in 1998. The decrease is primarily the result of a decrease in
gains reported on the sale of real estate of closed facilities, excess
vehicles and equipment, and a decrease in one-time insurance recoveries.
During 1999, the Company sold five pieces of real estate and recorded total
gains on the sale of fixed assets of $1.8 million compared with nine pieces
of real estate sold and total gains on the sale of fixed assets of $2.1
million during 1998. In addition, the Company recorded during 1998
approximately $1.0 million in gains as a result of the difference between
insured replacement cost and book value as a result of a fire and storm
damage at certain of the Company's sales and distribution facilities.
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Interest Expense
----------------
Interest expense increased to $23.3 million in 1999 from $21.6 million in
1998. This increase was the result of an increase in average outstanding
debt under the Company's revolving line of credit of $26 million partially
offset by a decrease in the overall effective borrowing rate of 40 basis
points. The increase in average outstanding debt was due primarily to
increases in working capital and increased investment in property, plant
and equipment used to support the Company's significant growth in sales
volume during 1999.
Provision for Income Taxes
--------------------------
In 1999 and 1998, the Company recorded income tax expense of $5.7 million
and $0.7 million, respectively. Net operating loss carryforwards were used
to substantially offset current income taxes payable in 1999.
Net Income
----------
The Company recorded net income of $7.6 million in 1999, compared with a
net loss of $1.0 million in 1998, an improvement of $8.6 million. The
primary components of this improvement include an increase in gross profit
dollars of $38.2 million, a $5.9 million decrease in restructuring and
unusual items, a 0.7% decrease in SG&A as a percentage of net sales and a
$1.2 million decrease in provision for doubtful accounts. These
improvements were partially offset by a $1.1 million increase in
depreciation, goodwill and trademark amortization, a $1.7 million increase
in interest expense, a $5.1 million increase in provision for income taxes
and a reduction in other income of $1.2 million.
1998 Compared with 1997
- -----------------------
Net Sales
---------
Net sales for 1998 increased $26.2 million, or 3.0%, to $910.3 million
from $884.1 million in 1997. Sales for all facilities operated throughout
both years ("same store") increased 9.0%. During 1998, the Company
experienced a 16.2% increase in same store sales to its primary customer
segment, the professional home builder, and a 1.2% increase in same store
sales to commercial builders. Consumer sales declined 3.5% on a same
store basis.
Total housing starts in the United States increased 9.6% in 1998, and
starts in the Company's primary geographical market, the Midwest, increased
approximately 9.2%. The Company's two other geographical markets, the
Northeast and South, experienced increases of 8.6% and 10.5%, respectively.
Nationally, single family housing starts, which generate the majority of
the Company's sales to building professionals, experienced an increase of
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12.0% in 1998, from 1.13 million starts in 1997 to 1.27 million starts in
1998.
The Company experienced significant sales increases (averaging in excess
of 20%) in its target major markets and at sales and distribution
facilities that completed showroom resets in 1997 and 1998.
During the first quarter, the Company experienced a sales benefit as a
result of mild winter weather conditions in the Company's Midwest region.
This was partially offset by increased precipitation in the Northeast and
South, during the same period. The Company, as a whole, benefited from
unseasonably warm weather during December of 1998. Weather conditions
during 1997 were closer to seasonal averages.
The Company estimates that deflation in lumber prices negatively affected
1998 sales by approximately $28.6 million, when compared with lumber prices
during 1997.
As a result of the 1998 Plan, the Company operated ten fewer sales and
distribution facilities at the end of 1998 than it operated at the end of
1997. The ten sales and distribution facilities that were closed, sold, or
consolidated, as a result of the 1998 Plan, contributed an aggregate of
$4.0 million to 1998 sales and $46.5 million to 1997 sales. See " Item 1.
Business - Business Strategy."
Gross Profit
------------
Gross profit increased $12.4 million to 23.7% of net sales for 1998
compared with 23.0% of net sales for 1997. The increase in gross profit is
primarily due to increased sales, improved product costs and increased
margins on internally manufactured products.
The increase in gross profit as a percent of sales is primarily
attributable to improved margins on internally manufactured products,
improved product costs and improved margins on installed sales. These
improvements were partially offset by the effects of lumber deflation and a
continued increase in the percent of sales attributable to professional
builders. The Company estimates that lumber deflation in 1998, when
compared with 1997 price levels, reduced gross profit by approximately $5.5
million. The percent of Company sales attributable to professional builders
increased to 87.9% for 1998 compared with 86.5% in 1997. The Company also
recorded a charge of $0.8 million in the third quarter of 1998 as the
result of an exchange of clearance merchandise for barter credits.
Selling, General, and Administrative Expense
--------------------------------------------
In 1998, SG&A decreased as a percent of net sales to 20.5% compared with
21.0% of net sales in 1997. Much of this reduction is attributable to
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expense reductions as a result of the Company's 1998 Plan and the
completion of most of the Company's remerchandising programs during or
prior to the end of the second quarter of 1998.
In the first quarter of 1998, the Company closed eight underperforming
building centers, and two component manufacturing facilities, and sold its
two sales and distribution facilities in Iowa. For further information,
including the charge taken by the Company in the first quarter of 1998, see
"Restructuring and Unusual Items" and Note 3 of the Notes to Consolidated
Financial Statements included elsewhere herein.
The Company experienced decreases from 1997 to 1998, as a percent of
sales, in maintenance, travel, professional fees, marketing, and general
office expenses which were partially offset by increased real estate rent
and salaries, wages and employee benefits. The Company experienced a
slight increase in salaries, wages and employee benefits as a percent of
sales by 0.2%. On a same store basis, the number of total employees at the
average sales and distribution facility increased approximately 8% from
1997.
Depreciation, Goodwill and Trademark Amortization
-------------------------------------------------
Depreciation, goodwill and trademark amortization costs increased $0.4
million in 1998 compared with 1997. This increase is primarily due to
depreciation on rental equipment and facilities implemented or improved as
a result of the Company's major market and remerchandising programs,
partially offset by reduced depreciation on vehicles. The Company's tool
rental program was initiated during 1997 and no depreciation on rental
equipment was recorded in the first half of 1997.
Provision for Doubtful Accounts
-------------------------------
The Company extends credit, generally due on the 10th day of the month
following the sale, to qualified and approved contractors. Provision for
doubtful accounts increased to $2.9 million or 0.3% of sales for 1998 from
$1.7 million or 0.2% of sales for 1997. While the Company did experience
several large write-offs during 1998, the results were in line with its
historical average of approximately 0.3% of sales.
Restructuring and Unusual Items
-------------------------------
For a description of the 1998 Plan and related charges, see the
discussion under the comparision of 1999 and 1998 results of operations set
forth above.
Other Operating Income
----------------------
Other operating income decreased to $6.8 million in 1998 from $10.7
million in 1997. The decrease is primarily the result of a decrease in
gains reported on the sale of real estate of closed facilities and excess
vehicles and equipment. In 1998 the company sold nine pieces of real
estate and recorded total gains on the sale of fixed assets of $2.1
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36
million, compared with total gains of $6.3 million recorded in 1997 and the
sale of 12 facilities. This decrease was partially offset by approximately
$1.0 million in gains as a result of the difference between insured
replacement cost and book value as a result of a fire and storm damage at
certain of the Company's sales and distribution facilities during 1998.
Interest Expense
----------------
Interest expense increased to $21.6 million in 1998 from $21.4 million in
1997. This increase was the result of an increase in average outstanding
debt under the Company's revolving line of credit of $9.1 million partially
offset by a decrease in the overall effective borrowing rate of 38 basis
points. The increase in average outstanding debt was due primarily to
increases in working capital and increased investment in property, plant
and equipment.
Equity in Loss of Affiliated Company
------------------------------------
The Company's net investment in Riverside International LLC was reduced
to zero as a result of the $1.5 million loss that was recorded in 1997.
Accordingly, the Company recorded no equity in loss of affiliated company
during 1998.
Provision for Income Taxes
--------------------------
In 1998 and 1997, the Company recorded current income tax expense of $0.7
million and $1.0 million, respectively. Current income tax provisions for
both years consist of state and local tax liabilities.
Net Income
----------
The Company recorded a net loss of $1.0 million in 1998, compared with a
net loss of $1.6 million in 1997, an improvement of $0.6 million. The
primary components of this improvement include an increase in gross profit
of $12.4 million and a decrease in losses attributable to Riverside
International LLC of $1.5 million. These improvements were partially
offset by a $6.5 million increase in restructuring and unusual items
expense, a reduction in other income of $3.9 million, and increases in SG&A
expense of $1.5 million and provision for doubtful accounts of $1.2
million.
Liquidity and Capital Resources
- -------------------------------
The Company's principal sources of working capital and liquidity are
earnings and borrowings under its revolving credit facility. The Company's
primary need for capital resources is to finance inventory and accounts
receivable.
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In 1999, net cash used in operating activities amounted to $11.2 million.
This compares with cash provided by operating activities of $2.6 million in
1998. The use of cash is primarily the result of increases in receivables
and inventory to support the Company's strong sales growth during 1999,
partially offset by improvements in earnings after adjustment for non-cash
expenses and increased current liabilities. In addition, the Company
increased its capital expenditures in 1999 to $7.7 million, net of the $.9
million in manufacturing equipment converted to operating leases, from $5.9
million in 1998. Both years were partially offset by proceeds on the sale
of fixed assets.
Accounts receivable at the end of 1999 were $110.1 million, an 18.5%
increase over year end 1998, primarily as a result of a 12.7% increase in
December 1999 credit sales compared with December 1998 and an increase in
accounts with extended terms. Inventory at the end of December 1999 was
$17.0 million higher than at the end of 1998, primarily as a result of
significantly higher sales and continued demand for lumber and building
materials during December, due in part to very favorable weather
conditions. The amount of the Company's accounts payable on any balance
sheet date may vary from the average accounts payable throughout the period
due to the timing of payments and will tend to increase or decrease in
conjunction with an increase or decrease in inventory.
The Company's capital expenditures consist primarily of the construction
of facilities for new and existing operations, the remodeling of sales and
distribution facilities and component manufacturing facilities, and the
purchase of equipment and management information systems. The Company may
also from time to time make expenditures to establish or acquire operations
to expand or complement its existing operations, especially in its major
markets and manufacturing. The Company made $7.7 million in capital
expenditures in 1999, net of the $0.9 million in manufacturing equipment
converted to operating leases. In addition, $0.2 million was funded by
insurance proceeds received as a result of 1998 insured casualty losses.
Under the Company's new bank revolving credit agreement, expenditures
capitalized for financial statement purposes, excluding acquisitions and the
portion of expenditures reimbursed by insurance proceeds as a result of
casualty losses, are limited to $8.5 million during 1999. The Company's
actual expenditures in 1999, as defined by the new revolving credit agreement,
were $7.5 million. In addition to capital expenditures, this revolving credit
agreement allows the Company to spend up to $30 million, subject to certain
restrictions, for acquisitions. The Company expects to fund capital
expenditures through borrowings and its internally generated cash flow.
In January of 1999, the Company acquired the assets of a wall panel
manufacturer located in Cookeville, Tennessee; in March, it acquired the
assets of Porter Building Products, a manufacturer of trusses and wall
panels located in Bear, Delaware; and in October, it acquired the assets of
Advanced Truss Systems, a manufacturer of trusses, located in Kings
Mountain, North Carolina. In November, the Company also acquired the
assets of United Building Systems, a manufacturer of wall panels in
Lexington, Kentucky. The Company will consolidate its existing panel
operations in Lexington with the new acquisition. The total purchase price
of these acquisitions was $14.3 million, of which $13.0 million was paid in
cash in 1999 with the remainder to be paid in 2000 and 2001, payable in
cash or stock at the option of the Company.
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In 1999, the Company began, or significantly expanded, the manufacturing
of wall components and/or trusses at seven manufacturing facilities located
with the Company's sales and distribution facilities in Hopedale, MA;
Elyria, OH; Lexington, KY; Denton, NC; Elletsville, IN; Grand Rapids, MI
and Jackson, TN. At December 25, 1999 the Company operated 101 sales and
distribution centers and 25 component manufacturing facilities compared
with 101 sales and distribution facilities and 20 component manufacturing
facilities at December 26, 1998. At December 25, 1999, there were no
material commitments for future capital expenditures.
The Company maintained excess availability under its revolving credit
facility throughout 1999. The Company's receivables and inventory
typically increase in the second and third quarters of the year due to
higher sales in the peak building season. In these same periods, the
Company typically reaches its peak utilization of its revolving credit
facility because of the increased inventory needed for the peak building
season.
On February 17, 1999, the Company entered into a new revolving credit
agreement and repaid all indebtedness under and terminated its old
revolving credit agreement. Among other things, the changes between the
old agreement and this new agreement include (i) an initial 25 basis point
reduction in the Company's LIBOR and prime borrowing rates to 200 basis
points over LIBOR and 50 basis points over prime, and further provisions
for additional decreases in the borrowing rate if certain interest coverage
levels are achieved, (ii) an increase in the maximum credit line from $130
million to $160 million, (iii) a decrease in the unused line fee from 50
basis points to 25 basis points, (iv) elimination of the fixed charge
coverage requirement, (v) extension of the term of the agreement to June of
2003, (vi) increases, subject to the permitted discretion of the agent for
the lenders, in the percent of eligible accounts receivable to 85% from a
range between 80% and 85% and the percent of eligible inventory to 60% from
a range between 50% and 60%. Covenants under the new agreement do require,
among other things, that the Company maintain unused availability (defined
as the amount by which the borrowing base exceeds outstanding loans and
credits) under the new revolving line of credit of at least $15 million
(subject to increase in certain circumstances) and maintain certain levels
of tangible capital funds.
Due primarily to significant increases in sales, on several occasions
during the third quarter of 1999, the Company did utilize nearly all the
borrowing available under its revolving line of credit. On September 9,
1999, in order to continue to support its significant sales growth and
related increase in working asset levels, the Company entered into a Second
Amendment to Credit Agreement with its bank lenders. This amendment
provides for a seasonal increase in the maximum borrowing under the
revolving line of credit from $160 million to $200 million, from May 15
through November 15. During this same period, the Company must maintain a
minimum unused availability of $20 million, compared with $15 million in
excess availability required from November 16 through May 14. On July 8,
1999, the Company entered into a First Amendment to Credit Agreement with
its bank lenders. Pursuant to this amendment, the definition of unused
availability contained in the Company's revolving line of credit agreement
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was modified. Formerly, "unused availability" was defined as the lesser of
$160 million or the borrowing base, less the total of outstanding loans and
credits. As modified, "unused availability" means the borrowing base less
the total of outstanding loans and credits. As a result, the maximum
applicable borrowing under the revolving credit agreement of $160 million
or $200 million can now be fully utilized. Under the former definition the
maximum was limited to $145 million. The Company believes this amended
agreement will provide sufficient funds for its anticipated operations and
capital expenditures.
At February 29, 2000, the Company had outstanding borrowings of $120.8
million and unused availability of $30.6 million under its new revolving
credit facility. The Company currently has excess availability under its
revolving credit facility and anticipates that funds provided by operations
and under this facility will be adequate for the Company's future needs.
On February 17, 1999, in conjunction with the new revolving credit
agreement, the Company terminated its interest rate swap agreement and
entered into a new interest rate swap agreement. This new agreement
effectively fixed the Company's borrowing cost at 7.75% (subject to
adjustments in certain circumstances), reduced from 8.11% under the old
agreement, for three years, on $40 million of the Company's borrowings
under its floating rate revolving line of credit. Unlike the prior
agreement, this interest rate swap has no provisions for termination based
on changes in the 30-day LIBOR borrowing rate. At February 29, 2000, the
30-day LIBOR borrowing rate was 5.92%.
The Company's new revolving credit facility and the trust indenture
relating to the Company's 11-5/8% Senior Subordinated Notes contain certain
covenants and restrictions. Among other things, the revolving credit
facility prohibits non-stock dividends, certain investments and other
"restricted payments" by the Company. The trust indenture generally
restricts non-stock dividends and other restricted payments by the Company
to 50% of "cumulative consolidated net income," or, if cumulative
consolidated net income is a loss, minus 100% of such loss, of the Company
earned subsequent to October 22, 1993, plus the proceeds of the sale of
certain equity securities after such date. In addition, the trust
indenture prohibits non-stock dividends and limits other restricted
payments while (as at present) the Company's fixed charge coverage ratio is
less than or equal to 2.0.
Net Operating Loss Carryforwards
- --------------------------------
At December 25, 1999, the Company and its subsidiaries had federal income
tax net operating loss carryforwards ("NOLs") of approximately $35.9
million. The NOLs will expire in the years 2006 to 2018 if not previously
utilized. See also Note 11 of Notes to Consolidated Financial Statements
included elsewhere herein.
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Year 2000
- ---------
The Year 2000 problem related to the inability of certain computer
programs and computer hardware to properly handle dates after December 31,
1999. Potentially, businesses were at risk for miscalculations and systems
failures. In response to the Year 2000 issue, the Company initiated a plan
in early 1997 to identify, evaluate and implement changes to its existing
computerized business systems. An inventory was developed of all items of
concern including vehicles, manufacturing equipment, and security, heating
and electrical systems. The plan also included steps to ensure the Company
was not at risk for problems that may occur at its suppliers or customers.
To-date the Company has not experienced any significant Year 2000 problems
and will continue to monitor its systems over the next few months.
The Company's total cost for the Year 2000 project was estimated at $2.7
million. Through December 25, 1999, approximately $2.5 million has been
spent, of which approximately $0.9 million is for the replacement of systems
and equipment which was accelerated due to the Year 2000 problem, and has
been capitalized over the systems estimated useful life.
Statements of Financial Accounting Standards
- --------------------------------------------
Recently Issued Accounting Pronouncements
-----------------------------------------
SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities," standardizes the accounting for derivative instruments by
requiring that all derivatives be recognized as assets and liabilities and
measured at fair value. In June 1999, SFAS No. 137, "Accounting for
Derivative Instruments and Hedging Activities-Deferral of the Effective
Date of SFAS No. 133," was issued amending SFAS No. 133 by deferring the
effective date for one year, to fiscal years beginning after June 15, 2000.
The Company is currently evaluating the effects of this pronouncement.
Item 7a. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
- -------- ----------------------------------------------------------
The Company is subject to market risk associated with changes in interest
rates and lumber futures contracts.
On February 17, 1999, the Company entered into a new revolving credit
agreement with a group of financial institutions. The new revolving line
of credit provides for, subject to certain restrictions, up to $200 million
of revolving credit loans on a seasonal basis and the issuance of up to $10
million of letters of credit. Until delivery to the lenders of the
Company's financial statements for the period ending June 26, 1999,
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interest on amounts outstanding under the new revolving line of credit
shall bear interest at a spread above the base rate of BankBoston, N.A. of
0.50%, or 2.00% above the applicable LIBOR rate. After that time,
depending upon the Company's rolling four-quarter interest coverage ratio,
amounts outstanding under the new revolving line of credit will bear
interest at a spread above the base rate from 0% to 0.75% or from 1.50% to
2.25% above the applicable LIBOR rate. With the delivery of the Company's
financial results as of September 25, 1999, borrowing speads were reduced
to 0.25% above the base rate of Bank Boston, N.A. and 1.75% above the
applicable LIBOR spread. Based on the Company's 1999 average borrowings
under its revolving credit agreement, subject to the effect of the interest
rate swap agreement described below, a 25 basis point movement in the base
rate or LIBOR rate would result in an approximate $227,285 annualized
increase or decrease in interest expense. See Note 12 of Notes to
Consolidated Financial Statements included elsewhere herein.
On February 17, 1999, in conjunction with the Company's new revolving
credit agreement, the Company terminated its interest rate swap agreement
and entered into a new interest rate swap agreement. This new agreement
effectively fixed the Company's borrowing cost at 7.75% (subject to
adjustments in certain circumstances) for three years, on $40 million of
the Company's borrowings under its floating rate revolving line of credit.
With the reduction in the Company's borrowing spreads to 0.25% above the
Bank Boston base rate and 1.75% above the applicable LIBOR rate on November
11, 1999, this swap currently fixes the Company's borrowing cost at 7.50%
on $40 million of the Company's borrowings under its floating rate
revolving line of credit. Unlike the prior agreement, this interest rate
swap has no provisions for termination based on changes in the 30-day LIBOR
borrowing rate. At February 29, 2000 the 30-day LIBOR borrowing rate
was 5.92%.
The Company enters into lumber futures contracts as a hedge against
future lumber price fluctuations. All futures contracts are purchased to
protect long-term pricing commitments on specific future customer
purchases. While lumber futures contracts are entered on a risk management
basis, the Company's hedge positions could show a net gain or loss
depending on prevailing market conditions. At December 25, 1999 the
Company had 15 lumber futures contracts outstanding with a total market
value of $552,000 and an immaterial net unrealized loss. These contracts
all mature in 2000.
The fair value of the Company's fixed rate debt was $85 million and $84
million at December 25, 1999 and December 26, 1998, respectively. Assuming
a 100 basis point decrease in the yield to maturity at December 25, 1999, the
fair value of the fixed rate debt would have increased by $2.4 million.
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Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
- ------- --------------------------------------------
Financial statements of the Company are set forth herein beginning on
page F-1.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
- ------- -----------------------------------------------------------
AND FINANCIAL DISCLOSURE.
-------------------------
The Company filed a Form 8-K report on December 7, 1999 reporting a
change in the Company's independent accountants.
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PART III
--------
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
- -------- ---------------------------------------------------
Information required by this Item is incorporated herein by reference
from the definitive proxy statement to be filed in connection with the
Company's Annual Meeting of Stockholders tentatively scheduled to be held
on May 18, 2000.
Item 11. EXECUTIVE COMPENSATION.
- -------- -----------------------
Information required by this Item is incorporated herein by reference
from the definitive proxy statement to be filed in connection with the
Company's Annual Meeting of Stockholders tentatively scheduled to be held
on May 18, 2000.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
- ---------- ---------------------------------------------------
MANAGEMENT.
-----------
Information required by this Item is incorporated herein by reference
from the definitive proxy statement to be filed in connection with the
Company's Annual Meeting of Stockholders tentatively scheduled to be held
on May 18, 2000.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
- -------- -----------------------------------------------
Information required by this Item is incorporated herein by reference
from the definitive proxy statement to be filed in connection with the
Company's Annual Meeting of Stockholders tentatively scheduled to be held
on May 18, 2000.
43
44
PART IV
-------
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
- -------- -----------------------------------------------------------------
(a) List of Documents Filed as a Part of this Report:
- --- -------------------------------------------------
(1) Financial Statements: Page No.
- --- --------------------- --------
Independent Auditors Report F-1
Report of Independent Accountants F-2
Consolidated balance sheets as of December 25, 1999
and December 26, 1998 F-3
Consolidated statements of operations for the years
ended December 25, 1999, December 26, 1998 and
December 27, 1997 F-4
Consolidated statements of changes in common
stockholders' equity for the years ended
December 25, 1999, December 26, 1998 and
December 27, 1997 F-5
Consolidated statements of cash flows for the years
ended December 25,1999, December 26, 1998
and December 27, 1997 F-6
Notes to consolidated financial statements F-7
(2) Financial Statement Schedules:
- --- ------------------------------
Schedule Description
- -------- -----------
Report of Independent Accountants S-1
II. Valuation and Qualifying Accounts S-2
(3) Exhibits
- --- --------
See Exhibit Index included elsewhere herein.
(b) Reports on Form 8-K
- --- -------------------
The Company filed a Form 8-K report on December 7, 1999 reporting a change
in the Company's independent accountants.
44
45
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
WICKES INC.
-----------
Date: March 23, 2000 By: /s/ J. Steven Wilson
--------------------
J. Steven Wilson
Chairman and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:
Signature Title Date
--------- ----- ----
/s/ J. Steven Wilson Chairman and Chief Executive Officer March 23, 2000
- --------------------
J. Steven Wilson (Principal Executive and Financial Officer)
Director
/s/ Harry T. Carneal Director March 23, 2000
- --------------------
Harry T. Carneal
/s/ Albert Ernest, Jr. Director March 23, 2000
- ----------------------
Albert Ernest, Jr.
/s/ William H. Luers Director March 23, 2000
- --------------------
William H. Luers
/s/ Robert E. Mulcahy III Director March 23, 2000
- -------------------------
Robert E. Mulcahy III
/s/ Frederick H. Schultz Director March 23, 2000
- ------------------------
Frederick H. Schultz
/s/ Robert T. Shaw Director March 23, 2000
- ------------------
Robert T. Shaw
/s/ Claudia B. Slacik Director March 23, 2000
- ---------------------
Claudia B. Slacik
/s/ James A. Hopwood Vice President-Finance March 23, 2000
- --------------------
James A. Hopwood (Principal Accounting Officer)
45
F-1
INDEPENDENT AUDITORS REPORT
---------------------------
To the Board of Directors and Stockholders of
Wickes Inc.
Vernon Hills, IL
We have audited the accompanying consolidated balance sheet of Wickes Inc.
and subsidiaries as of December 25,1999 and the related consolidated
statements of operations, changes in stockholders' equity, and cash flows
for the year then ended. Our audit also included the financial statement
schedule for the year ended December 25, 1999 listed in the Index at Item
14. These financial statements and the financial statement schedule are
the responsibility of the Company's management. Our responsibility is to
express an opinion on the financial statements and financial statement
schedule based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audit
provides a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Wickes Inc. and
subsidiaries as of December 25, 1999, and the results of their operations
and their cash flows for the year then ended in conformity with generally
accepted accounting principles. Also, in our opinion, such financial
statement schedule for the year ended December 25, 1999, when considered in
relation to the basic 1999 consolidated financial statements taken as a
whole, presents fairly in all material respects the information set forth
therein.
/s/ Deloitte & Touche LLP
Chicago, IL
February 22, 2000
F-1
F-2
REPORT OF INDEPENDENT ACCOUNTANTS
---------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and
Board of Directors of Wickes Inc.
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, changes in stockholders' equity and
cash flows present fairly, in all material respects, the financial position
of Wickes Inc. and its subsidiaries at December 26, 1998, and the results
of their operations and their cash flows for each of the two years ended
December 26, 1998 and December 27, 1997, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to
express an opinion on these financial statements based on our audits. We
conducted our audits of these statements in accordance with generally
accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant
estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable
basis for the opinion expressed above.
As discussed in Note 15 to the 1999 consolidated financial statements (Note
16 in the 1998 consolidated financial statements), Wickes Inc. has restated
previously issued consolidated financial statements to change its
accounting for a barter transaction.
/s/ PricewaterhouseCoopers LLP
Chicago, Illinois
February 23, 1999 except for Note 15 in the 1999 financial statements (Note
16 in the 1998 financial statements), as to which the date is August 31,
1999.
F-2
F-3
WICKES INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 25, 1999 and December 26, 1998
(in thousands, except share data)
1999 1998
ASSETS ---- ----
Current assets:
Cash $ 72 $ 65
Accounts receivable, less allowance for doubtful
accounts of $4,105 in 1999 and $4,393 in 1998 110,103 92,926
Notes receivable 481 1,095
Inventory 120,705 103,716
Deferred tax asset 7,184 8,857
Prepaid expenses 2,663 2,808
------- -------
Total current assets 241,208 209,467
------- -------
Property, plant and equipment, net 50,599 45,830
Trademark (net of accumulated amortization
of $10,718 in 1999 and $10,496 in 1998) 6,301 6,523
Deferred tax asset 14,695 17,482
Rental equipment (net of accumulated depreciation
of $1,010 in 1999 and $572 in 1998) 1,981 1,883
Other assets (net of accumulated amortization
of $11,463 in 1999 and $9,502 in 1998) 19,225 10,998
------- -------
Total assets $ 334,009 $ 292,183
======= =======
LIABILITIES & STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt $ - $ 16
Accounts payable 53,190 54,017
Accrued liabilities 25,495 20,089
------- -------
Total current liabilities 78,685 74,122
------- -------
Long-term debt, less current maturities 220,742 191,961
Other long-term liabilities 3,763 2,952
Commitments and contingencies (Note 8)
Stockholders' equity (Note 9):
Preferred stock (no shares issued)
Common stock, $0.01 par value
20,000,000 shares authorized
1999 - 8,224,888 shares issued
1998 - 8,207,268 shares issued 82 82
Additional paid-in capital 86,870 86,787
Accumulated deficit (56,133) (63,721)
------- -------
Total stockholders' equity 30,819 23,148
------- -------
Total liabilities and stockholders' equity $ 334,009 $ 292,183
======= =======
The accompanying notes are an integral part of the consolidated financial statements.
F-3
F-4
WICKES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended December 25, 1999, December 26, 1998, and December 27, 1997
(in thousands, except per share data)
1999 1998 1997
---- ---- ----
Net sales $1,084,633 $ 910,272 $ 884,082
Cost of sales 830,990 694,800 681,056
--------- --------- ---------
Gross profit 253,643 215,472 203,026
--------- --------- ---------
Selling, general and administrative
expenses 214,581 186,853 185,385
Depreciation, goodwill and trademark
amortization 6,473 5,253 4,863
Provision for doubtful accounts 1,724 2,915 1,707
Restructuring and unusual items - 5,932 (559)
Other operating income (5,768) (6,837) (10,689)
--------- --------- ---------
217,010 194,116 180,707
--------- --------- ---------
Income from operations 36,633 21,356 22,319
Interest expense 23,302 21,632 21,417
Equity in loss of affiliated company - - 1,516
--------- --------- ---------
Income (loss) before income taxes 13,331 (276) (614)
Provision (benefit) for income taxes:
Current 1,283 1,019 1,099
Deferred 4,460 (330) (153)
--------- --------- ---------
Net income (loss) $ 7,588 $ (965) $ (1,560)
========= ========= =========
Basic income (loss) per common share $ 0.92 $ (0.12) $ (0.19)
========= ========= =========
Diluted income (loss) per common share $ 0.91 $ (0.12) $ (0.19)
========= ========= =========
Weighted average common shares -
for basic 8,216,265 8,197,542 8,168,257
========= ========= =========
Weighted average common shares -
for diluted 8,330,571 8,197,542 8,168,257
========= ========= =========
The accompanying notes are an integral part of the consolidated financial statements.
F-4
F-5
WICKES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
For the Years Ended December 27, 1997, December 26, 1998 and December 25, 1999
(in thousands, except for share data)
Additional Total
Common Stock Paid-in Accumulated Stockholders'
Shares Amount Capital Deficit Equity
------ ------ ------- ------- ------
Balance at December 28, 1996 8,159,347 $ 82 $ 86,613 $(61,196) $ 25,499
Net loss - - (1,560) (1,560)
Issuance of common stock 16,858 - 62 - 62
--------- --- ------- --------
Balance at December 27, 1997 8,176,205 82 86,675 (62,756) 24,001
Net loss - - (965) (965)
Issuance of common stock 31,063 - 112 - 112
--------- --- ------- ------- ------
Balance at December 26, 1998 8,207,268 82 86,787 (63,721) 23,148
Net income - - 7,588 7,588
Issuance of common stock 17,620 - 83 - 83
--------- --- ------- -------- -------
Balance at December 25, 1999 8,224,888 $ 82 $ 86,870 $ (56,133) $ 30,819
========= === ======= ======== =======
The accompanying notes are an integral part of the consolidated financial statements.
F-5
F-6
WICKES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 25, 1999, December 26, 1998, and December 27, 1997
(in thousands)
1999 1998 1997
---- ---- ----
Cash flows from operating activities:
Net income (loss) $ 7,588 $ (965) $ (1,560)
Adjustments to reconcile net income (loss) to
net cash (used in) provided by operating activities:
Equity in loss of affiliated company - - 1,516
Depreciation expense 5,852 4,785 4,395
Amortization of trademark 222 222 222
Amortization of goodwill 399 246 246
Amortization of deferred financing costs 1,510 1,447 1,401
Provision for doubtful accounts 1,724 2,915 1,707
Gain on sale of assets (1,458) (1,834) (6,180)
Deferred tax (benefit) provision 4,460 (330) (153)
Changes in assets and liabilities, excluding effects
of acquisitions:
Increase in accounts receivable (16,904) (14,053) (12,285)
Decrease (increase) in notes receivable 614 2,105 (3,200)
Increase in inventory (15,831) (1,010) (2,034)
Increase (decrease) in accounts payable and accrued
liabilities 3,539 10,814 (4,590)
Increase in deferred gain - - (670)
Increase in prepaids and other assets (2,960) (1,715) (3,369)
------- -------- -------
NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES (11,245) 2,627 (24,554)
------- -------- -------
Cash flows from investing activities:
Purchases of property, plant and equipment (8,624) (5,854) (7,758)
Payments for acquisitions (12,999) - -
Proceeds from sales of property, plant and equipment 4,026 4,231 13,798
------- ------ ------
NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES (17,597) (1,623) 6,040
------- ------ ------
Cash flows from financing activities:
Net borrowing (repayments) under revolving line of credit 28,782 (1,084) 16,732
Reductions of note payable (16) (46) (134)
Net proceeds from issuance of common stock 83 112 62
------ ------ ------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 28,849 (1,018) 16,660
------ ------ ------
NET INCREASE (DECREASE) IN CASH 7 (14) (1,854)
Cash at beginning of period 65 79 1,933
------ ------ ------
CASH AT END OF PERIOD $ 72 $ 65 $ 79
======== ======== ========
Supplemental schedule of cash flow information:
Interest paid $ 21,503 $ 20,885 $ 19,791
Income taxes paid 1,524 987 1,344
Supplemental schedule of non-cash investing
and financing activities
The Company purchased capital stock and assets
in conjunction with acquisitions made during the
period. In connection with these acquisitions,
liabilities were assumed as follows:
Assets acquired $ 14,850 $ - $ -
Liabilities assumed $ 529 $ - $ -
Purchase price payable $ 1,322 $ - $ -
The accompanying notes are an integral part of the consolidated financial statements.
F-6
F-7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Description of Business
- -- -----------------------
Wickes Inc. (formerly Wickes Lumber Company), through its sales and
distribution facilities, markets lumber, building materials and services
primarily to professional contractors, repair and remodelers, and do-it-
yourself home owners, principally in the Midwest, Northeast and Southern
United States. Wickes Inc.'s wholly-owned subsidiaries are: Lumber
Trademark Company ("LTC"), a holding company for the "Flying W" trademark;
and GLC Division, Inc. ("GLC"), which subleases certain real estate to
Wickes Inc.
2. Accounting Policies
- -- -------------------
Principles of Consolidation
- ---------------------------
The consolidated financial statements present the results of operations,
financial position, and cash flows of Wickes Inc. and all its wholly-owned
subsidiaries (the "Company"). All significant intercompany balances have
been eliminated.
Fiscal Year
- -----------
The Company's fiscal year ends on the last Saturday in December. All
periods presented represent 52-week years.
Cash and Cash Equivalents
- -------------------------
The Company considers all highly liquid investments with a maturity date of
three months or less to be cash equivalents.
Accounts Receivable
- -------------------
The Company extends credit primarily to qualified professional contractors
and professional repair and remodelers, generally on a non-collateralized
basis.
Inventory
- ---------
Inventory consists principally of finished goods. The Company utilizes the
first-in, first-out (FIFO) cost flow assumption for valuing its inventory.
Inventory is valued at the lower of cost or market, but not in excess of
net realizable value.
Property, Plant and Equipment
- -----------------------------
Property, plant and equipment are stated at cost and are depreciated under
the straight-line method. Estimated useful lives range from 15 to 39 years
F-7
F-8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
for buildings and improvements. Leasehold improvements are depreciated
over the life of the lease. Machinery and equipment lives range from 3 to
10 years. Expenditures for maintenance and repairs are charged to
operations as incurred. Gains and losses from dispositions of property,
plant, and equipment are included in the Company's statement of operations
as other operating income.
Rental Equipment
- ----------------
Rental equipment consists of hand tools and power equipment held for
rental. This equipment is depreciated under the straight-line method over
a 5-to-10 year life.
Other Assets
- ------------
Other assets consist primarily of deferred financing costs and goodwill
which are being amortized on the straight-line method, goodwill over 20 to
35 years and deferred financing costs over the expected terms of the
related debt agreements.
The Company's investment in an international operation was recorded under
the equity method. The Company's share of losses is reflected as equity in
loss of affiliated company on the Consolidated Statements of Operations.
As of December 27, 1997, the Company's investment had been reduced to zero
and there is no obligation to make additional investments.
Amortization expense for deferred financing costs is reflected as interest
expense on the Company's Consolidated Statements of Operations.
Trademark
- ---------
The Company's "Flying W" trademark is being amortized over a 40-year
period.
Postretirement Benefits Other Than Pensions
- -------------------------------------------
The Company provides certain health and life insurance benefits for
eligible retirees and their dependents. The Company accounts for the costs
of these postretirement benefits over the employees' working careers in
accordance with Statement of Financial Accounting Standards ("SFAS") No.
106, "Employers' Accounting for Postretirement Benefits Other Than
Pensions."
Postemployment Benefits
- -----------------------
The Company provides certain other postemployment benefits to qualified
former or inactive employees. The Company accounts for the costs of these
postemployment benefits in the period when it is probable that a benefit
will be provided in accordance with SFAS No. 112, "Employers' Accounting
for Postemployment Benefits."
F-8
F-9
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Income Taxes
- ------------
The Company accounts for income taxes in accordance with SFAS No. 109,
"Accounting for Income Taxes." Tax provisions and credits are recorded at
statutory rates for taxable items included in the consolidated statements
of operations regardless of the period for which such items are reported
for tax purposes. Deferred income taxes are recognized for temporary
differences between financial statement and income tax bases of assets and
liabilities. Deferred tax assets are reduced by a valuation allowance when
the Company cannot make the determination that it is more likely than not
that some portion of the related tax asset will be realized.
Earnings Per Common Share
- -------------------------
Earnings per common share are calculated in accordance with SFAS No. 128,
"Earnings Per Share." Weighted average shares outstanding have been
adjusted for dilution using the treasury stock method.
Use of Estimates in the Preparation of Financial Statements
- -----------------------------------------------------------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from the
estimates reported.
Impairment of Long-Lived Assets
- -------------------------------
The Company evaluates assets held for use and assets to be disposed of in
accordance with SFAS No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of." This statement
requires that long-lived assets and certain identifiable intangibles held
and used by an entity be reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset may not be
recoverable. The Company has historically reviewed excess property held for
sale, and when appropriate, recorded these assets at the lower of their
carrying amount or fair value (see Note 5).
Stock-Based Compensation
- ------------------------
SFAS No. 123, "Accounting for Stock-Based Compensation," encourages, but
does not require, companies to recognize compensation expense for grants of
stock, stock options, and other equity instruments to employees based on
the fair value of such instruments. The pronouncement requires companies
that choose not to adopt the fair value method of accounting to disclose
the pro forma net income and earnings per share under the fair value
method. As permitted by SFAS 123, the Company elected to continue the
F-9
F-10
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
intrinsic value method of accounting prescribed by APB Opinion 25. As
required, the Company has disclosed the pro forma net income and pro forma
earnings per share as if the fair value based accounting methods had been
used to account for stock-based compensation cost (see Note 9).
Segment Reporting
- -----------------
In June 1997, the FASB issued SFAS Statement No. 131, "Disclosures about
Segments of an Enterprise and Related Information." This statement,
effective for financial statements for fiscal years beginning after
December 15, 1997, requires that a public business enterprise report
financial and descriptive information about its reportable operating
segments. Generally, financial information is required to be reported on
the basis that it is used internally for evaluating segment performance and
deciding how to allocate resources to segments. Based on this criteria,
the Company has determined that it operates in one business segment, that
being the supply and distribution of lumber and building materials to
building professionals and do-it-yourself customers, primarily in the
Midwest, Northeast, and South. Thus, all information required by SFAS No.
131 is included in the Company's financial statements. No single customer
represented more than 10% of the Company's total sales in 1999, 1998, and
1997.
Recently Issued Accounting Pronouncements
- -----------------------------------------
SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities," standardizes the accounting for derivative instruments by
requiring that all derivatives be recognized as assets and liabilities and
measured at fair value. In June 1999, SFAS No. 137, "Accounting for
Derivative Instruments and Hedging Activities-Deferral of the Effective
Date of SFAS No. 133," was issued amending SFAS No. 133 by deferring the
effective date for one year, to fiscal years beginning after June 15, 2000.
The Company is currently evaluating the effects of this pronouncement.
3. Restructuring and Unusual Charge
- -- --------------------------------
During 1997, the Company recorded a $1.5 million restructuring charge for
discontinued programs and reductions in its corporate headquarters
workforce. The $1.5 million included approximately $0.9 million for
severance and postemployment benefits for approximately 25 headquarters
employees. The discontinued programs included the Company's mortgage
lending, utilities marketing and certain internet programs. This charge
was offset by a $2.1 million reduction in accrued costs for a restructuring
plan formulated by the Company in late 1995, which was completed in 1997.
The $2.1 million reversal included four centers identified for closure that
had significantly improved market conditions and would remain open, as well
as a change in the estimate of facility carrying costs for sold facilities
and those remaining to be sold.
F-10
F-11
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
During the first quarter of 1998, the Company implemented a restructuring
plan (the "1998 Plan") which resulted in the closing or consolidation of
eight sales and distribution and two manufacturing facilities in February,
the sale of two sales and distribution facilities in March, and further
reductions in headquarters staffing. As a result of the 1998 Plan, the
Company recorded a restructuring charge of $5.4 million in the first
quarter and an additional charge of $0.5 million in the third quarter. The
$5.9 million cumulative charge included $4.1 million in estimated losses on
the disposition of closed facility assets and liabilities, $2.1 million in
severance and postemployment benefits related to the 1998 plan, offset by a
benefit of $300,000 for adjustments to prior years' restructuring accruals.
The $4.1 million in estimated losses included the write-down of assets
(excluding real estate), to their net realizable value, of $3.4 million and
$700,000 in real estate carrying costs. The $2.1 million in severance and
postemployment benefits covered approximately 250 employees, 25 of which
were headquarters employees, that were released as a result of reductions
in headquarters staffing and the closing or consolidation of the ten
operating facilities. The $300,000 benefit from prior years was a result
of accelerated sales of previously closed facilities during the fourth
quarter of 1997 and first quarter of 1998. The acceleration of these sales
resulted in a change in the estimate of facility carrying costs for the
sold facilities. At December 26, 1998, the accrued liability for
restructuring had been reduced to zero.
For further information regarding the sale of closed center real estate see
Note 5.
4. Acquisitions
- -- ------------
The Company made four acquisitions during 1999, all component facilities.
The total purchase price of these acquisitions was $14.3 million, of which
$13.0 million was paid in cash in 1999 with the remainder to be paid in
2000 and 2001, payable in cash or stock at the option of the Company. In
January, the Company acquired the assets of a wall panel manufacturer
located in Cookeville, Tennessee. In March, the Company acquired the
assets of Porter Building Products, a manufacturer of trusses and wall
panels, located in Bear, Delaware. In October, the Company acquired the
assets of Advanced Truss Systems, Inc. of Kings Mountain, North Carolina.
Advanced Truss Systems is a manufacturer of engineered wood trusses,
servicing the greater Charlotte, North Carolina, market. In November, the
Company acquired the assets of United Building Systems, Inc. of Lexington,
Kentucky. United Building Systems is a manufacturer of wall panels and
roof and floor trusses, in the Lexington, Kentucky, market.
The costs of these acquisitions have been allocated on the basis of the
fair value of the assets acquired and the liabilities assumed. The excess
of the purchase price over the fair value of the net assets acquired for
three of the acquisitions resulted in goodwill, which is being amortized
over a 20-year period on a straight-line basis. All acquisitions have been
accounted for as purchases. Operations of the companies acquired have been
F-11
F-12
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
included in the accompanying consolidated financial statements from their
respective acquisition dates.
During 1998, the Company acquired the operating assets of Eagle Industries
Inc., a component manufacturer, for a total cost of $1.8 million. The
acquisition was accounted for as a purchase and the cost has been allocated
on the basis of the fair value of the assets acquired and liabilities
assumed. This operation has been included in the accompanying consolidated
financial statements from its date of acquisition. The Company had no
acquisitions in 1997.
The results of all acquisitions were not material to the Company's
consolidated operations.
5. Property, Plant, and Equipment
- -- ------------------------------
Property, plant and equipment is summarized as follows:
December 25, December 26,
1999 1998
----------- -----------
(in thousands)
Land and improvements $13,607 $12,115
Buildings 29,634 26,341
Machinery and equipment 36,905 32,257
Leasehold improvements 3,118 3,059
Construction in progress 1,301 846
------- -------
Gross property, plant, and equipment 84,565 74,618
Less: accumulated depreciation (36,443) (32,661)
------- -------
Property, plant, and equipment
in use, net 48,122 41,957
Assets held for sale, net 2,477 3,873
------- -------
Property, plant, and equipment, net $50,599 $45,830
======= =======
Sale of Real Estate
- -------------------
Except for the sale/leaseback of the Company's Succasunna, NJ sales and
distribution facility in 1997, which included a $3,000,000 note receivable
that was collected within 60 days, all sales of real estate have been for
cash.
In 1999, the Company sold five pieces of real estate, all of which were
sales and distribution facilities, for a net gain of $1.4 million. One
F-12
F-13
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
property, which had been held for sale since the first quarter of 1990, had
been previously written down by $200,000 from its original net book value
and sold at a net loss of $23,000. The other four properties, one held for
sale since 1992 and the others since 1998, had not been previously written
down and each were sold for net gains.
In 1998, the Company sold nine pieces of real estate, eight of which were
sales and distribution facilities and one, an excess parcel of land, for a
net gain of $1.6 million. Eight of the properties sold had been held for
sale since the first quarter of 1998 and had not been previously written
down from their original net book value. The ninth property, which had
been held for sale since 1989, had been previously written down by $709,000
from its original net book value and sold at a net loss of $59,000.
In 1997, the Company sold 12 pieces of real estate for a net gain of $6.0
million. These transactions included the sale/leaseback of the Company's
headquarters and the Succasunna sales and distribution facility and the
sale of nine sales and distribution facilities and one excess parcel of
land. Of the properties sold, one sales and distribution facility was held
for sale since 1989, had been previously written down $99,600 from its
original net book value, and sold at a loss of $100,400. The other 11
properties had not been previously written down from book value and had
been held for sale since 1992 (2 properties), 1995 (4 properties), 1996 (2
properties) and 1997 (3 properties).
The Company reviews assets held for sale in accordance with SFAS No. 121.
At December 25, 1999, the Company held seven properties for resale which
had been written down to their estimated fair market values in 1997 and
prior. In 1997, the Company recorded a loss of $156,000 to report land,
land improvements and buildings held for sale at their fair value. The
Company did not record any impairment to the cost of assets held for sale
in 1999 or 1998. Certain of these properties are leased to others until
such time that appropriate disposition can be affected. These charges are
included in the caption "restructuring and unusual items" on the
Consolidated Statement of Operations.
6. Accrued Liabilities
- -- -------------------
Accrued liabilities consist of the following:
December 25, December 26,
1999 1998
----------- ------------
(in thousands)
Accrued payroll $ 11,401 $ 9,498
Accrued liability insurance 5,844 4,966
Other 8,250 5,625
------- ------
Total accrued liabilities $25,495 $20,089
======= =======
F-13
F-14
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. Long-Term Debt
- -- --------------
Long-term debt obligations are summarized as follows:
December 25, December 26,
1999 1998
----------- -----------
(in thousands)
Revolving line of credit $ 120,742 $ 91,961
Senior subordinated notes 100,000 100,000
Other - 16
-------- --------
Total long-term debt 220,742 191,977
Less current maturities - (16)
-------- --------
Total long-term debt less
current maturities $220,742 $191,961
======== ========
Revolving Line of Credit
- ------------------------
At December 26, 1998, the Company had a revolving line of credit, which was
to expire on March 31, 2001. Under this line of credit the Company could
borrow against certain levels of accounts receivable and inventory, up to a
maximum credit limit of $130,000,000.
On February 17, 1999, the Company entered into a new revolving credit
agreement with a group of financial institutions with an expiration date of
June 30, 2003. The new revolving line of credit provided for, subject to
restrictions and modifications discussed below, up to $160 million of
revolving credit loans and credits.
A commitment fee of 0.25% is payable on the unused amount of the new
revolving line of credit. Until delivery to the lenders of the Company's
financial statements for the period ending June 26, 1999, interest on
amounts outstanding under the new revolving line of credit will bear
interest at a spread above the base rate of BankBoston, N.A. of 0.50%, or
2.00% above the applicable LIBOR rate. After that time, depending upon the
Company's rolling four-quarter interest coverage ratio, amounts outstanding
under the new revolving line of credit will bear interest at a spread above
the base rate of from 0% to 0.75% or from 1.50% to 2.25% above the
applicable LIBOR rate.
On July 8, 1999, the revolving credit agreement was amended to clarify the
definition of unused availibilty to allow the full amount of the Company's
borrowing base to be included in the unused availibilty calculation.
F-14
F-15
NOTES TO CONCOLIDATED FINANCIAL STATEMENTS
On September 9, 1999, the revolving credit agreement was amended to
increase the total commitment from $160 million to $200 million from May 15
through November 15 of each year. At December 25, 1999, the amount
available for additional borrowing was $38.8 million. The weighted-average
interest rate for the years ending December 25, 1999 and December 26, 1998
was approximately 7.72% and 8.22%, respectively.
With delivery to the lenders of the Company's financial statements for the
period ending September 25, 1999, the Company's borrowing spreads were
reduced to 1.75% above the applicable LIBOR and to 0.25% above the base
rate.
Substantially all of the Company's accounts receivable, inventory and
general intangibles are pledged as collateral for the revolving line of
credit. Availability is limited to 85% of eligible accounts receivable
plus 60% of eligible inventory, with these percentages subject to change in
the permitted discretion of the agent for the lenders. Covenants under the
related debt documents require, among other things, that the Company
maintain unused availability under the revolving line of credit of at least
$15 million (subject to increase in certain circumstances) and maintain
certain levels of tangible capital funds, as defined in the loan and credit
agreement. In addition, these documents restrict, among other things,
capital expenditures, the incurrence of additional debt, asset sales,
dividends, investments, and acquisitions.
In conjunction with the revolving credit agreement, the Company terminated
its existing interest rate swap agreement and entered into a new interest
rate swap agreement (see Note 12).
Senior Subordinated Notes
- -------------------------
On October 22, 1993, the Company issued $100,000,000 principal amount of 10-
year unsecured senior subordinated notes, due December 15, 2003. Interest
on the notes is 11-5/8%, payable semi-annually. Covenants under the
related indenture restricts, among other things, the payment of dividends,
the prepayment of certain debt, the incurrence of additional debt if
certain financial ratios are not met, and the sale of certain assets unless
the proceeds are applied to the notes. In addition, the notes require
that, upon a change in control of the Company, the Company must offer to
purchase the notes at 101% of the principal thereof, plus accrued interest.
Aggregate Maturities
- --------------------
The aggregate amount of long-term debt of $220.7 million matures in fiscal
year 2003.
F-15
F-16
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. Commitments and Contingencies
- -- -----------------------------
At December 25, 1999, the Company had accrued approximately $132,000 for
remediation of certain environmental and product liability matters,
principally underground storage tank removal.
Many of the sales and distribution facilities presently and formerly
operated by the Company contained underground petroleum storage tanks. All
such tanks known to the Company located on facilities owned or operated by
the Company have been filled or removed in accordance with applicable
environmental laws in effect at the time. As a result of reviews made in
connection with the sale or possible sale of certain facilities, the
Company has found petroleum contamination of soil and ground water on
several of these sites and has taken, and expects to take, remedial actions
with respect thereto. In addition, it is possible that similar
contamination may exist on properties no longer owned or operated by the
Company, the remediation of which the Company could under certain
circumstances be held responsible. Since 1988, the Company has incurred
approximately $2.0 million of costs, net of insurance and regulatory
recoveries, with respect to the filling or removing of underground storage
tanks and related investigatory and remedial actions. Insignificant amounts
of contamination have been found on excess properties sold over the past
five years. The Company has accrued $43,000 for estimated clean-up costs
at 11 of its locations.
The Company has been identified as having used two landfills which are now
Superfund clean up sites, for which it has been requested to reimburse a
portion of the clean up costs. Based on the amounts claimed and the
Company's prior experience, the Company has accrued $28,000 for these
matters.
The Company is one of many defendants in two class action suits filed in
August of 1996 by approximately 200 claimants for unspecified damages as a
result of health problems claimed to have been caused by inhalation of
silica dust, a byproduct of concrete and mortar mix, allegedly generated by
a cement plant with which the Company has no connection other than as a
customer. The Company has entered into a cost-sharing agreement with its
insurers, and any liability is expected to be minimal.
The Company is one of many defendants in approximately 145 actions, each of
which seeks unspecified damages, in various Michigan state courts against
manufacturers and building material retailers by individuals who claim to
have suffered injuries from products containing asbestos. Each of the
plaintiffs in these actions is represented by one of two law firms. The
Company is aggressively defending these actions and does not believe that
these actions will have a material adverse effect on the Company. Since
1993, the Company has settled 30 similar actions for insignificant amounts,
and another 224 of these actions have been dismissed. None of these suits
have made it to trial.
Losses in excess of the $132,000 reserved as of December 25, 1999 are
possible but an estimate of these amounts cannot be made.
F-16
F-17
NOTES TO CONCOLIDATED FINANCIAL STATEMENTS
The Company is involved in various other legal proceedings which are
incidental to the conduct of its business. Certain of these proceedings
involve potential damages for which the Company's insurance coverage may be
unavailable. While the Company does not believe that any of these
proceedings will have a material adverse effect on the Company's financial
position, annual results of operations or liquidity, there can be no
assurance of this.
Leases
- ------
The Company has entered into operating leases for corporate office space,
retail space, equipment and other items. These leases provide for minimum
rents. These leases generally include options to renew for additional
periods. Total rent expense under all operating leases was $13,640,000,
$12,193,000, and $10,616,000 for the years ended December 25, 1999,
December 26, 1998, and December 27, 1997, respectively.
Future minimum commitments for noncancelable operating leases are as
follows:
Year Amount
---- ------
(in thousands)
2000 $10,316
2001 8,684
2002 7,555
2003 5,612
2004 3,404
Thereafter 23,884
------
Subtotal 59,455
Less sublease income ( 7,489)
------
Total $51,966
======
9. Stockholders' Equity
- -- --------------------
Preferred Stock
- ---------------
As of December 25, 1999, the Company had authorized 3,000,000 shares of
preferred stock, none of which were issued or outstanding.
Common Stock
- ------------
The Company currently has one class of common stock: Common Stock, par
value $.01 per share. At December 25, 1999, there were 20,000,000 shares
of Common Stock authorized and 8,224,888 shares issued and outstanding. In
F-17
F-18
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
addition, at December 25, 1999, 895,369 shares of Common Stock were
reserved for issuance under the Company's 1993 Long-Term Incentive Plan and
1993 Director Incentive Plan.
Warrants
- --------
The Company's unexercised outstanding warrants for 3,068 shares of Common
Stock expired in May 1998, and, as of December 25, 1999, there were no
warrants outstanding or Common Stock reserved for issuance under warrants.
Stock Compensation Plans
- ------------------------
As of December 25, 1999, the Company has two stock-based compensation plans
(both fixed option plans), which are described below. Under the 1993 Long-
Term Incentive plan as amended on November 30, 1994, the Company may grant
options and other awards to its employees for up to 835,000 shares of
common stock. Under the 1993 Director Incentive plan, the Company may
grant options and other awards to directors with for up to 75,000 shares.
The exercise price of grants equals or exceeds the market price at the date
of grant. The options have a maximum term of 10 years. For non-officers,
the options generally become exercisable in equal installments over a three-
year period from the date of grant. For officers the vesting periods can
vary by grant.
Since the Company applies APB Opinion 25 and related interpretations in
accounting for its plans, no compensation cost has been recognized in
conjunction with these plans. Had compensation cost for the Company's
stock-based compensation plans been determined consistent with SFAS 123,
the Company's net income and earnings per share would have been reduced to
the pro forma amounts indicated below (in thousands, except per share
data):
Year 1999 1998 1997
- ---- ---- ---- ----
Net income (loss) As reported $7,588 $(965) $(1,560)
Pro forma $7,357 $(1,082) $(1,772)
Basic income As reported $.92 $(.12) $(.19)
(loss) per share Pro forma $.90 $(.12) $(.19)
Diluted income As reported $.91 $(.12) $(.19)
(loss) per share Pro forma $.88 $(.12) $(.19)
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants in 1999, 1998, and 1997, respectively:
dividend yield of 0% for all years, expected volatility of 49%, 48%, and
43%; risk-free interest rates of 5.1%, 5.6%, and 6.6%; and expected lives
of 5.6, 5.6, and 6.6 years.
F-18
F-19
NOTES TO CONCOLIDATED FINANCIAL STATEMENTS
A summary of the status of the Company's fixed stock option plans as of
December 25, 1999, December 26, 1998, and December 27, 1996 and changes
during the years ended on those dates is presented as follows:
1999 1998 1997
---- ---- ----
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Fixed Options Shares Price Shares Price Shares Price
- ------------- ------ ----- ------ ----- ------ -----
Outstanding beginning
of year 734,263 $ 7.67 668,283 $10.09 612,282 $10.94
Granted 121,475 $ 4.85 238,750 $ 3.45 108,350 $ 5.12
Exercised (3,617) $ 3.91 (11,014) $ 4.55 - n/a
Forfeited-nonvested (33,290) $ 4.33 (97,070) $ 9.71 (46,981) $ 8.22
Forfeited-exercisable (30,759) $12.33 (64,686) $ 9.71 (5,168) $ 22.36
Expired - n/a - n/a - n/a
Canceled - n/a - n/a (200) $15.00
------ ----- ------ ---- ----- -----
Outstanding end
of year 788,072 $ 7.22 734,263 $ 7.67 668,283 $10.09
Options exercisable
at year end 384,720 $10.23 256,627 $ 11.39 214,402 $14.26
Options available for
future grant at
year end 107,297 164,723 241,717
Weighted-average fair value of options granted during the year where:
1999 1998 1997
---- ---- ----
Exercise price equals market price $2.51 $1.62 $2.77
Exercise price exceeds market price n/a n/a n/a
Exercise price is less than market price n/a n/a n/a
The following table summarizes information about fixed stock options
outstanding at December 25, 1999:
F-19
F-20
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Options Outstanding Options Exercisable
------------------------------------ -----------------------
Weighted-
Average Weighted- Weighted-
Range of Number Remaining Average Number Average
Exercise Outstanding Contractual Exercise Exercisable Exercise
Prices at 12/25/99 Life Price at 12/25/99 Price
------ ----------- ---- ------ ----------- -----
$ 3.06 - $ 5.75 584,749 7.80 years $ 4.34 181,397 $ 4.34
$10.95 - $23.25 203,323 4.70 years $15.48 203,323 $15.48
Earnings Per Share
- ------------------
The Company calculates earnings per share in accordance with SFAS No. 128.
The following is the reconciliation of the numerators and denominators used
for basic and diluted earnings per share:
1999 1998 1997
---- ---- ----
Numerators:
Net income (loss) - for basic
and diluted EPS $7,588,000 $(965,000) $(1,560,000)
========= ======== ==========
Denominators:
Weighted average common
shares - for basic EPS 8,216,265 8,197,542 8,168,257
Common shares from options 32,115 - -
Other common stock equivalents 82,191 - -
--------- --------- ---------
Weighted average common
shares - for diluted EPS 8,330,571 8,197,542 8,168,257
========= ========= =========
In years where net losses are incurred, diluted weighted-average common
shares are not used in the calculation of diluted EPS as it would have an
anti-dilutive effect on EPS. In addition, options to purchase 227,000
weighted-average shares of common stock during 1999 were not included in
the diluted EPS as the options' exercise prices were greater than the
average market price.
10. Employee Benefit Plans
- --- ----------------------
401(k) Plan
- -----------
The Company sponsors a defined contribution 401(k) plan covering
substantially all of its full-time employees. Additionally, the Company
provides matching contributions up to a maximum of 2.5% of participating
employees' salaries and wages. Total expenses under the plan for the years
F-20
F-21
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ended December 25, 1999, December 26, 1998, and December 27, 1997 were
$1,754,000, $1,480,000, and $1,606,000, respectively.
Postretirement Benefits Other Than Pensions
- -------------------------------------------
The Company provides life and health care benefits to retired employees.
Generally, employees who have attained an age of 60, have rendered 10 years
of service and are currently enrolled in the medical benefit plan are
eligible for postretirement benefits. The Company accrues the estimated
cost of retiree benefit payments during the employee's active service
period.
The following tables reconcile the postretirement benefit, the plan's
funded status and actuarial assumptions, as required by Statement of
Financial Accounting Standard No. 132, "Employers' Disclosures about
Pensions and Other Postretirement Benefits."
December 25, December 26,
1999 1998
----------- -----------
(in thousands)
Change in accumulated postretirement
benefit obligation:
Benefit obligation at beginning
of year $2,749 $2,578
Service cost 244 233
Interest cost 151 170
Participant contributions - -
Claims paid (241) (216)
Actuarial gains (761) (16)
Plan amendments - -
------ ------
Benefit obligation at year end $2,142 $2,749
====== ======
Change in plan assets:
Fair value of plan assets - -
Reconciliation of funded status:
Funded status $(2,142) $(2,749)
Unrecognized transition obilgation - -
Unrecognized prior service cost (39) (49)
Unrecognized actuarial gain (876) (154)
------- -------
Net amount recognized as other
long-term liabilities $(3,057) $(2,952)
======= =======
Weighted-average assumptions as of year-end:
Discount rate 8.00% 6.75%
Expected return on assets n/a n/a
Medical cost trend 6.00% 6.00%
F-21
F-22
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 25, December 26, December 27,
1999 1998 1997
----------- ----------- -----------
(in thousands)
Components of net periodic
benefit cost:
Service cost $ 244 $ 233 $ 197
Interest cost 151 171 176
Expected return on
plan assets n/a n/a n/a
Amortization of transition
obligation - - -
Amortization of prior
service cost (10) (10) (10)
Amortization of actuarial
loss (39) - -
----- ----- -----
Net periodic benefit cost $ 346 $ 394 $ 363
===== ===== =====
December 25, December 26, December 27,
1999 1998 1997
----------- ----------- -----------
(in thousands)
Weighted average assumptions
used in computing net
periodic benefit cost:
Discount rate 6.75% 7.25% 7.75%
Expected return on
plan assets n/a n/a n/a
Medical cost trend 6.00% 6.00% 6.00%
Health care cost trend sensitivity: 1% Increase 1% Decrease
----------- -----------
Effect on total service cost and
interest cost components $ 18 $ (17)
Effect on postretirement benefit obligation 47 (44)
Postemployment Benefits
- -----------------------
The Company provides certain postemployment benefits to qualified former or
inactive employees who are not retirees. The Company had accrued $161,000
and $165,000 at December 25, 1999 and December 26, 1998, respectively.
These benefits include salary continuance, severance, and healthcare.
Salary continuance and severance pay are based on normal straight-line
compensation and calculated based on years of service. Additional
severance pay is granted to eligible employees who are 40 years of age or
older and have been employed by the Company five or more years. The
Company accrues the estimated cost of benefits provided to former or
inactive employees who have not yet retired over the employees' service
period or as an expense at the date of the event triggering the benefit.
F-22
F-23
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
11. Income Taxes
- --- ------------
The Company and its subsidiaries file a consolidated federal income tax
return. As of December 25, 1999, the Company has net operating loss
carryforwards available to offset income of approximately $35.9 million
expiring in the years 2006 through 2018.
The income tax provision consists of both current and deferred amounts.
The components of the income tax provision are as follows:
December 25, December 26, December 27,
1999 1998 1997
----------- ----------- -----------
(in thousands)
Taxes currently payable:
State income tax $ 1,122 $ 1,019 $ 1,099
Federal income tax 161 - -
Deferred expense (benefit) 4,460 (330) (153)
------- ------ ------
Total income tax expense $ 5,743 $ 689 $ 946
======= ======= =======
Tax provision and credits are recorded at statutory rates for the taxable
items included in the consolidated statements of operations regardless of
the period for which such items are reported for tax purposes. Deferred
income taxes reflect the net effects of temporary differences between the
carrying amounts of assets and liabilities for financial reporting purposes
and the amounts used for income tax purposes. The valuation allowance
primarily relates to losses incurred on certain investments which the
Company believes may not be fully deductible for tax purposes. Management
has determined, based on the Company's positive earnings in 1999 and its
expectations for the future, that operating income of the Company will more
likely than not be sufficient to fully recognize its remaining net deferred
tax assets. The components of the deferred tax assets and liabilities at
December 25, 1999, December 26, 1998 and December 27, 1997, respectively,
are as follows:
F-23
F-24
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 25, December 26, December 27,
1999 1998 1997
----------- ------------ -----------
(in thousands)
Deferred income tax assets:
Trade accounts receivable $ 1,591 $ 1,727 $ 1,469
Inventories 2,016 1,813 1,895
Accrued personnel cost 1,671 2,037 2,013
Other accrued liabilities 4,515 6,051 6,743
Net operating loss 13,917 17,151 16,164
Other 3,483 3,337 3,348
-------- -------- --------
Gross deferred income tax assets 27,193 32,116 31,632
Less: valuation allowance (1,132) (1,542) (1,542)
-------- -------- --------
Total deferred income tax assets 26,061 30,574 30,090
Deferred income tax liabilities:
Property, plant and equipment 1,244 1,312 1,394
Goodwill and trademark 2,938 2,923 2,687
------- -------- --------
Total deferred income tax 4,182 4,235 4,081
-------- -------- --------
Net deferred tax assets $ 21,879 $ 26,339 $ 26,009
======== ======== ========
The following table summarizes significant differences between the
provision for income taxes and the amount computed by applying the
statutory federal income tax rates to income before taxes:
December 25, December 26, December 27,
1999 1998 1997
----------- ----------- -----------
(in thousands)
Tax/ (benefit) computed at
U.S. statutory tax rate $ 4,666 $ (96) $ (215)
State and local taxes 1,159 662 714
Alternative minimum tax
Differential 161 - -
Other (243) 123 447
-------- -------- --------
Total tax provision $ 5,743 $ 689 $ 946
======== ======== ========
F-24
F-25
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
12. Financial Instruments
- --- ---------------------
The Company uses financial instruments in its normal course of business as
a tool to manage its assets and liabilities. The Company does not hold or
issue financial instruments for trading purposes. Gains and losses
relating to hedging contracts are deferred and recorded in income or as an
adjustment to the carrying value of the asset at the time the transaction
is complete. Payments or receipts of interest under interest rate swap
arrangements are accounted for as an adjustment to interest expense. The
fair value of such financial instruments is determined through dealer
quotes. For cash and cash equivalents, accounts receivable, accounts
payable and notes payable, the carrying amount approximates fair value due
to the short maturity of these instruments.
The estimated fair values of the Company's material financial instruments
are as follows:
Long-Term Debt
- --------------
The fair value of the Company's long-term debt, is estimated based on the
quoted market prices for the same or similar issues or on the current rates
offered to the Company for debt of the same remaining maturities.
Fair Carrying
Value Value
----- -----
(in thousands)
1999 Financial Liabilities:
Long-term Debt
Revolver $ 120,742 $ 120,742
Senior Subordinated Notes 85,000 100,000
1998 Financial Liabilities:
Long-term Debt
Revolver $ 91,961 $ 91,961
Senior Subordinated Notes 84,000 100,000
Lumber Futures Contracts
- ------------------------
The Company enters into lumber futures contracts as a hedge against future
lumber price fluctuations. All futures contracts are purchased to protect
long-term pricing commitments on specific future customer purchases. At
December 25, 1999, the Company had 15 lumber futures contracts outstanding
with a total market value of $552,000 and an immaterial net unrealized
loss. These contracts all mature in 2000.
F-25
F-26
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Interest Rate Swap
- ------------------
At December 26, 1998, the Company had in place an interest rate swap
agreement which effectively fixed the interest rate on $40 million of the
Company's borrowings under its floating rate revolving line of credit at
8.11% (subject to adjustments in certain circumstances), for three years.
This interest rate swap was operative while the 30-day LIBOR borrowing rate
remained below 6.7%. The agreement also included a floor LIBOR rate at
4.6%. At December 23, 1998 the 30-day LIBOR borrowing rate was 5.625%.
The fair value of the interest rate swap agreement, in accordance with SFAS
No. 107, at December 26, 1998 was a negative $400,000.
On February 17, 1999, in conjunction with the Company's new revolving
credit agreement (see Note 7), the Company terminated its interest rate
swap agreement and entered into a new interest rate swap agreement. This
new agreement effectively fixed the Company's borrowing cost at 7.75%
(based on the LIBOR plus 2.00% pricing in effect on February 17, 1999),
reduced from 8.11% under the old agreement, for three years, on $40 million
of the Company's borrowings under its floating rate revolving line of
credit. At September 25, 1999, the Company's performance reduced the rate
charged to LIBOR plus 1.75%, fixing the Company's borrowing cost on $40
million at 7.50% through December 25, 1999. Unlike the prior agreement,
this interest rate swap has no provisions for termination based on changes
in the 30-day LIBOR borrowing rate.
13. Related Party Transactions
- -------------------------------
In February 1998, as part of the determination made by the Company to
discontinue or sell non-core programs, the Company sold certain operations
to its majority stockholder for a three-year $870,000 unsecured promissory
note and 10% of future net income of these operations (subject to a maximum
of $429,000 plus interest). At December 25, 1999 this stockholder had made
payments of $545,046 under the promissory note and was delinquent with
respect to required payments of approximately $82,486 of principal and
interest. The Company and the stockholder have reached an agreement that
requires all accrued interest to be paid by March 31, 2000 and that extends
the terms for repayment of principal.
In 1999, the Company paid approximately $660,000 in reimbursements
primarily to affiliates of the Company's chairman, for costs related to
services provided to the Company during 1999 by certain employees of the
affiliated company and use of a corporate aircraft. Total payments in 1998
and 1997 for similar services were approximately $730,000 and $1,289,000,
respectively.
In June of 1996, the Company entered into a mortgage lending agreement with
an affiliate of the Company's chairman. In exchange for providing home
construction loans to the Company's customers the Company reimbursed this
affiliate for certain start-up expenses. Reimbursements in 1998 and 1997
F-26
F-27
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
were approximately $115,000 and $1,045,000, respectively, and were expensed
as incurred. In late 1997, this affiliate's involvement in the program
ceased. No reimbursements were made in 1999.
A former director and executive officer of the Company was, during most of
1998 and all of 1997, a shareholder of the law firm that is general counsel
to the Company. The Company paid this firm $741,000 and $665,000 for legal
services provided to the Company during 1998 and 1997, respectively.
14. Other Operating Income
- --------------------------
Other operating income on the Company's Statement of Operations includes
primarily the sale or disposal of property, plant and equipment, service
charges assessed customers on past due accounts receivables and casualty
gains/losses. The sale of property, plant and equipment includes the sale
of 5, 9, and 12 pieces of real estate in 1999, 1998 and 1997, respectively.
In 1998, casualty gains of $1.0 million were recorded as a result of the
differences between insured replacement cost and net book value resulting
from fire and storm damage at certain of the Company's sales and
distribution facilities. The following table summarizes the major
components of other operating income by year.
Other Operating Income
Gain/(Loss)
1999 1998 1997
---- ---- ----
(in thousands)
Sale of property, plant
and equipment $ 1,821 $ 2,111 $ 6,180
Accounts receivable service charges 2,460 2,331 2,170
Casualties (556) 670 (284)
Other 1,927 1,725 2,623
------ ------ ------
Total $ 5,652 $ 6,837 $10,689
====== ====== ======
15. Barter Transaction
- -----------------------
At any given time approximately 1% to 2% of the Company's total inventory
will be classified as delete or obsolete merchandise. Delete or
obsolete merchandise consists of inventory that, while in good sellable
condition, will be discontinued for one of several business reasons. This
inventory, which may consist of items from any of the Company's product lines,
historically has been marked down in value by approximately 20% to 30% of
its original cost.
In September of 1998, the Company entered into a transaction in which it
exchanged delete/obsolete merchandise, with an impaired book value of
F-27
F-27
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
$1.2 million, for barter credits at a stated value of $1.6 million. As part
of the barter transaction the Company had agreed to sell the merchandise for
the new owner, on a clearance basis, and remit the proceeds, up to $350,000,
to the owner. The Company entered into the transaction to free valuable
showroom and storage space for new merchandise. The value of this merchandise
had been previously reduced from its original cost of approximately $1.6
million to $1.2 million, based on the Company's most recent sales information.
Initially the exchange was considered to be a non-monetary exchange, as
outlined under APB 29 and EITF 93-11, and no further impairment was recorded
at that time. The barter credits were recorded as a prepaid expense with a
value of $1.2 million.
Subsequent to the second quarter of 1999, the Company restated its September
1998 financial statements to account for the barter transaction as a
monetary transaction, upon receiving written confirmation from a second
"Big Five" accounting firm and after careful review and concurrence of
its Board of Directors Audit Committee. A non-cash charge of $844,000 has
now been recorded to reduce the value of the inventory exchanged, and the
resulting book value of the barter credits, from approximately $1.2 million
to $350,000. As a result of this change, the Company will also record
increased future earnings for each dollar of barter credits used in excess
of $350,000.
The following table reconciles the amounts previously reported to the
amounts currently being reported in the condensed consolidated statements of
operations for the year ended December 26, 1998 (amounts in thousands, except
per share data).
Restatement
Previously for Barter
Reported Transaction As Restated
-------- ----------- -----------
Income (loss) before income taxes $ 568 $ (844) $ (276)
Provision for income taxes 1,019 (330) 689
------- ------- -------
Net loss $ (451) $ (514) $ (965)
Basic and diluted loss
per common share $ (0.06) $ (0.06) $ (0.12)
16. Selected Quarterly Financial Data (unaudited)
- --------------------------------------------------
The following table contains selected unaudited quarterly financial data
for the years ended December 25, 1999, December 26, 1998 and December 27,
1997. Quarterly earnings/(loss) per share may not total to year end
earnings/(loss) per share due to the issuance of additional shares of
Common Stock during the course of the year.
F-28
F-29
NOTES TO CONSOLIDATED FINANACIAL STATEMENTS
QUARTERLY FINANCIAL DATA
Three Months Ended
(in millions, except per share data and percentages)
Basic / Diluted
Net Sales as a Net Earnings/
% of Annual Gross Net Income (Loss) per
Net Sales Net Sales Profit /(Loss) Common Share
--------- --------- ------ ------- ------------
1999
March 27 $191.1 17.6% $45.9 $(3.3) $(.40)/(.40)
June 26 288.7 26.6 66.3 3.6 .44 / .43
September 25 325.4 30.0 73.8 5.0 .61 / .61
December 25 279.4 25.8 67.6 2.2 .27 / .26
1998
March 28 $168.8 18.5% $41.0 $(6.8) $(.83)/(.83)
June 27 237.1 26.1 56.1 2.8 .34/.34
September 26 261.1 28.7 60.2 2.3 .28/.28
December 26 243.3 26.7 58.2 0.7 .09/.09
1997
March 29 $159.3 18.0% $36.9 $(5.2) $(.63)/(.63)
June 28 237.3 26.9 54.3 1.3 .16/.16
September 27 266.3 30.1 60.3 1.8 .22/.22
December 27 221.1 25.0 51.5 0.5 .06/.06
F-29
S-1
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and
Board of Directors of Wickes Inc.
Our report on the consolidated financial statements of Wickes Inc. is
included as page F-2 of this Form 10-K. In connection with our audits of
such financial statements, we have also audited the related financial
statement schedule listed in Item 14 of this Form 10-K for the years ended
December 26, 1998 and December 27, 1997. In our opinion, the information
pertaining to the years ended December 26, 1998 and December 27, 1997 in
this financial statement schedule presents fairly, in all material
respects, the information set forth therein when read in conjunction with
the related consolidated financial statements.
/s/ PricewaterhouseCoopers LLP
Chicago, Illinois
February 23, 1999
S-1
S-2
WICKES INC. AND SUBSIDIARIES
Schedule II - Valuation and Qualifying Accounts
For the Years Ended December 25, 1999, December 26, 1998, and
December 27, 1997
(in thousands)
Col. A Col. B Col. C Col. D Col. E
------ ------ ------ ------ ------
Additions
(1) (2) Balance
Balance at Charged to Charged to at
Beginning Costs and Other End of
Description of Period Expenses Accounts(a) Deductions(b) Period
----------- --------- -------- ----------- ------------- ------
1999:
Allowance for doubtful
accounts $4,393 $1,724 ($ 40) $1,972 $4,105
1998:
Allowance for doubtful
accounts $3,765 $2,915 ($103) $2,184 $4,393
1997:
Allowance for doubtful
accounts $4,289 $1,707 ($190) $2,041 $3,765
(a) Allowance for doubtful accounts charged to restructuring reserve in 1997
& 1998, and to other operating income 1999.
(b) Reserved accounts written-off.
S-2
S-2
Exhibit Index
-------------
Exhibit
Number Description
- ------ -----------
3.1(a)* Amended and Restated Certificate of Incorporation of the
Registrant (incorporated by reference to Exhibit 3.1 to the
Registrant's Registration Statement on Form S-1 (the "Form S-1"),
Commission File No. 2-67334).
(b)* First Amendment to Second Amended and Restated Certificate
of Incorporation (incorporated by reference to Exhibit 3.01 to
the Registrant's Quarterly Report on Form 10-Q for the period
ended June 1994).
(c)* Second Amendment to Second Amended and Restated Certificate
of Incorporation (incorporated by reference to Exhibit 3.1 to the
Registrant's Quarterly Report on Form 10-Q for the period ended
June 1997).
3.2* By-laws of the Registrant, as amended and restated (incorporated
by reference to Exhibit 3.2 to the Registrant's Annual Report on
Form 10-K (the "1993 Form 10-K") for the year ended December 25,
1993).
4.1(a)* Credit Agreement dated February 17, 1999, among the Registrant,
as Borrower, each of the financial institutions signatory
thereto, BankBoston Business Credit as Administrative Agent and
Issuing Bank, BancBoston Robertson Stephens Inc. as Syndication
Agent, and Nationsbank, N.A. as Documentation Agent (incorporated
by reference to Exhibit 4.1 of the Registrant's Annual Report on
From 10-K for the year ended December 26, 1998).
4.1(b)* First Amendment dated July 8, 1999 (incorporated by reference to
Exhibit 4.1 to the Registrant's Report on Form 10-Q for the
period ended June 26, 1999).
4.1(c)* Second Amendment dated September 14, 1999 (incorporated by
reference to Exhibit 4.1 to the Registrant's Quarterly Report on
Form 10-Q for the period ended September 25, 1999).
4.2* Indenture dated as of October 15, 1993 between the Registrant and
Marine Midland Bank, N.A. (incorporated by reference to Exhibit
4.2 to the 1993 Form 10-K).
10.1* Agreement, dated July 21, 1993, between Collins & Aikman Group,
Inc. and the Registrant (incorporated by reference to Exhibit
10.12 to the Form S-1).
10.2(a)* Amended and Restated 1998 Long-Term Incentive Plan of the
Registrant (incorporated by reference to Exhibit 10.8 to the
Registrant's Annual Report on Form 10-K for the year ended
December 1994 (the "1994 Form 10-K")).
(b)* Amendment No. 1 (incorporated by reference to Exhibit
10.8(b) to the Registrant's Annual Report on Form 10-K for the
year ended December 1996).
(c)* Form of Option Agreement (incorporated by reference to
Exhibit 10.22 to the Form S-1).
(d)* Form of Option Agreement (incorporated by reference to
Exhibit 10.8 to the 1994 Form 10-K).
(e)* Form of Long-Term Stock Option Agreement (incorporated by
reference to Exhibit 10.8 to the 1994 Form 10-K).
(f)* Form of Long-Term Performance Bonus Agreement (incorporated
by reference to Exhibit 10.8 to the 1994 Form 10-K).
(g)* Amendment No. 2 (incorporated by reference to Exhibit 10.4
to the 1997 Form 10-K).
(h)* Form of Option Agreement (incorporated by reference to
Exhibit 10.4 to the 1997 Form 10-K).
10.3(a)* Amended and Restated 1993 Director Incentive Plan of
Registrant (incorporated by reference to Exhibit 10.03 to the
Registrant's Quarterly Report on Form 10-Q for the period ended
March 26, 1994).
(b)* Form of Option Agreement (incorporated by reference to
Exhibit 10.24 to the Form S-1).
10.4* Special Severance and Stay Incentive Bonus Plan (incorporated by
reference to Exhibit 10.7 to the Registrant's Annual Report on
Form 10-K for the year ended December 1997 (the "1997 Form 10-
K")).
10.5(a)* Agreement dated November 4, 1997 between the Registrant and
Riverside Group, Inc. (incorporated by reference to Exhibit 10.1
to the Registrant's Quarterly Report on Form 10-Q for the period
ended September 1997).
(b)* Amendment and Closing Agreement to Agreement dated November
4, 1997 between the Registrant and Riverside Group, Inc.
(incorporated by reference to Exhibit 10.9 to the 1997 Form 10-
K).
10.6** Agreement between the Registrant and Buildscape, Inc.
21.1** List of Subsidiaries of the Registrant.
23.1** Consent of PricewaterhouseCoopers LLP.
23.2** Consent of Deloitte & Touche LLP.
27.1** Financial data schedule (SEC use only).
* Incorporated by reference.
** Filed herewith.
There have been omitted certain instruments with respect to long-term debt
not in excess of 10% of the consolidated total assets of the Company. The
Company agrees to furnish copies of any such instruments to the Commission
upon request.
Exhibit 21.1
- ----------------------------------------------------------------------------
LIST OF SUBSIDIARIES OF REGISTRANT
Name State of Incorporation
- ---- ----------------------
Lumber Trademark Company Illinois
GLC Division, Inc. Delaware
Exhibit 23.1
- ----------------------------------------------------------------------------
CONSENT OF INDEPENDENT ACCOUNTANTS
----------------------------------
We consent to the incorporation by reference in the registration statements
of Wickes Inc. on Form S-8 (File Nos. 33-85380, 33-88010 and 33-90240) of
our report dated February 23, 1999 (except for Note 15 in the 1999
financial statements and Note 16 in the 1998 financial statements as to
which the date is August 31, 1999), on our audits of the consolidated
financial statements and financial statement schedule of Wickes Inc. and
Subsidiaries as of December 26, 1998 and for the two years then ended,
which reports are included in this 1999 Annual Report on Form 10-K.
/s/PRICEWATERHOUSECOOPERS LLP
Chicago, Illinois
March 22, 2000
Exhibit 23.2
- ----------------------------------------------------------------------------
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in the Registration Statements
of Wickes Inc. and Subsidiaries on Form S-8 (File Nos. 33-85380, 33-88010,
33-90240) of our report dated February 22, 2000, appearing and incorporated
by reference in the Annual Report on Form 10-K of Wickes Inc. and
Subsidiaries for the year ended December 25, 1999.
/s/ DELOITTE & TOUCHE LLP
Chicago, IL
March 23, 2000