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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 29, 2001
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 28, 2002, the Registrant had 8,285,026 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
$8,800,000 (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 Stockholders tentatively scheduled to be held on May 21, 2002, 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...................................................................................20
Item 3. Legal Proceedings............................................................................21
Item 4. Submission of Matters To a Vote
of Security Holders.....................................................................22
PART II
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Item 5. Market For Registrant's Common Equity
and Related Stockholder Matters.........................................................23
Item 6. Selected Financial Data......................................................................23
Item 7. Management's Discussion and Analysis
of Financial Condition and Results
of Operations...........................................................................27
Item 7A. Quantitative and Qualitative Disclosures
About Market Risk.......................................................................42
Item 8. Financial Statements and Supplementary Data..................................................43
Item 9. Changes In and Disagreements With Accountants
On Accounting and Financial Disclosure..................................................43
PART III
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Item 10. Directors and Executive Officers
of the Registrant.......................................................................44
Item 11. Executive Compensation........................................................................44
Item 12. Security Ownership of Certain Beneficial Owners
and Management and Related Stockholder Matters..........................................44
Item 13. Certain Relationships and Related Transactions................................................44
PART IV
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Item 14. Exhibits, Financial Statement Schedules,
and Reports on Form 8-K.................................................................45
SIGNATURES..............................................................................................46
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PART I
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Item 1. BUSINESS.
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Wickes Inc. ("Wickes") and its subsidiaries (Wickes and its subsidiaries
are collectively referred to as "the Company") are a leading supplier of
building materials and manufacturer of building components 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-yourself consumers ("DIY's") involved in
major home improvement projects. At December 29, 2001, the Company operated 98
sales and distribution facilities, as well as 26 component manufacturing
facilities that produce and distribute roof and floor trusses, framed wall
panels, and pre-hung door units principally in the Midwest, Northeast, and
Southern regions of the United States.
Background
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The Company was formed in 1987 as a Delaware corporation. In June 1997, the
Company changed its corporate name to "Wickes Inc." The Company has and
continues to conduct its primary operations under the "Wickes Lumber" name.
In April 1988, the Company completed the acquisition of the Wickes Lumber
Company, which opened its first lumber and building materials operations in
1952, from Wickes Companies, Inc. The acquisition included 223 sales and
distribution centers and 10 component manufacturing facilities. In subsequent
periods the Company modified its operations to reduce its number of sales and
distribution centers to the current 98 and to strategically grow its component
manufacturing capabilities to 26 locations.
For further information see "Business Strategy".
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 $275.6 billion in 2001. 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 19.5% of the total market
in 2001.
In general, building material suppliers concentrate their marketing efforts
either on building professionals or consumers. Professional-oriented building
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material suppliers, such as the Company, tend to focus on single-family
residential contractors, R&R contractors, project DIY's and, to some extent,
commercial contractors. These suppliers compete principally on the basis of
price, service, product assortment, scheduled job-site delivery, manufactured
building components and trade credit availability. In contrast,
consumer-oriented building material retailers target the mass consumer market,
where competition is based principally on price, merchandising, product
assortment, 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 building components, and scheduled
job-site delivery, as do professional-oriented building material suppliers.
Industry sales are significantly linked 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 were 1.47 million in 1997, 1.62 million in 1998, 1.66 million in 1999,
1.57 million in 2000 and 1.60 million in 2001. The Blue Chip Economic Indicators
Consensus Forecast, dated March 10, 2002, projects 2002 housing starts to be
1.58 million, down slightly from housing starts in 2001. In 2001, housing starts
in the Company's primary geographical market, the Midwest, increased 4.0% over
housing starts in that region in 2000. The Company's two other geographical
markets, the Northeast and South, experienced a decrease in 2001 housing starts
of 3.2% and an increase of 2.5%, respectively, from housing starts in the prior
fiscal year. Nationally, single family housing starts, which generate the
majority of the Company's sales to building professionals, increased by 3.6% to
1.27 million starts in 2001 from 1.23 million starts in 2000.
Repair and remodeling expenditures tend to be less cyclical than new
residential construction. These expenditures generally are undertaken with less
regard to economic conditions, but both repair and remodeling projects
(including projects undertaken by DIY's) 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
$52.7 billion, or approximately 19.1% of total 2001 sales of the building
material supply industry, while direct sales to DIY's amounted to $133.1 billion
or 48.3% of such sales.
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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 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;
large metropolitan areas or "Major Markets", smaller rural and semi-rural areas
or "Conventional Markets", and commercial, direct ship and turnkey construction
or "Wickes Direct". In Major Markets, the Company serves the national, regional,
and large local builder with a total solutions approach and specialized
services. In Conventional Markets, the Company provides the smaller builder with
tailored products and services. In Wickes Direct, the Company provides materials
flow and logistics management services to commercial customers. The Company also
serves building professionals through its network of 26 component manufacturing
facilities that produce value-added, wood framed wall panels, roof and floor
truss systems, and pre-hung interior and exterior doors.
In 1999, the Company introduced its "Build 2003" program that outlined its
seven corporate objectives, using 1998 results as a performance baseline. These
are: (1) generate a compounded annual sales growth rate of at least 6%; (2)
internally manufacture 75% of the Company's wall panels, roof and floor trusses,
and pre-hung doors distributed; (3) increase EBITDA (see Part II, Item 6 for the
definition of "EBITDA") as a percentage of net sales to a minimum of 4.2%; (4)
improve debt-to-equity ratio and achieve 1:1 debt-to-equity by year-end 2003;
(5) generate a return on capital employed in excess of the Company's peer group;
(6) extend its earnings season; and (7) provide consistency in earnings growth.
In 2001, the Company's management developed a plan to reorganize and
improve productivity and performance. The results have shown and are expected to
continue to show reductions in administrative expense, marketing expense,
headcount and the elimination of non-strategic operating units. As part of this
reorganization, the Company has and intends to relaunch a number of its previous
initiatives including tool rental, installed products and manufactured
components throughout 2002. In addition, the Company will work to implement
sales planning tools and technology to support efforts to retain and grow
customer relations. Also, management is requiring the operating units to adhere
to stricter standards in customer profitability, labor productivity and working
asset turnover, that management believes will form the basis for a successful
building materials business.
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6
Major Markets
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The Company operates in 22 Major Markets, which are served by 32 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 in six markets. These facilities are designed, stocked and staffed
to meet the needs of the particular markets in which they are located. Major
Markets also are served by all of the Company's manufacturing facilities.
Major Markets generally are 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 products 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 researched the levels and types of
customer service it would provide as part of its Major Markets 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
Company could focus its strategy on meeting their needs. The outcome of that
research was to restructure our Major Markets programs to address a clear
opportunity to assist builders in reducing their total cost of production by
utilizing the Company's manufacturing and logistics expertise.
The Company initiated a "Target Major Markets" program in 1997. Target
Major Markets are those Major Markets that the Company aggressively promotes
with updated sales and distribution centers, targeted high volume builders, and
concentrated component manufacturing support. Since then, the Company has
developed Target Major Markets programs in 14 Major Markets. Management believes
that these markets continue to offer opportunities for growth as a traditional
building materials supplier, as well as to provide opportunities to grow and
introduce new, value-added services and product initiatives.
The Company's value-added manufacturing operations constitute an integral
element supporting the Target Major Markets strategy. This support 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 framing methods.
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The Company's operations in Major Markets contributed approximately 42.7%
of the Company's net sales in 2001, compared to 42.6% in 2000 and 44.3% in 1999.
Conventional Markets
--------------------
At December 29, 2001, the Company operates 66 sales and distribution
facilities in small, rural Conventional Markets, where Wickes targets the
smaller building professionals such as single-family residential contractors and
R&R contractors with tailored products and services. Wickes provides a service
offering mix that includes tool rental, specialized delivery, and installation
services. The Company typically is 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 primarily competes with local,
independent lumberyards and regional building chains.
Since the beginning of 1997, the Company has completed re-merchandising and
re-marketing programs ("Resets") in 16 sales and distribution facilities located
in Conventional Markets. These programs typically include upgrading of the
showroom layout and product presentation; expansion of product assortments,
typically adding a significant number of stock keeping units ("SKU's") 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 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.
The Company's operations in Conventional Markets contributed approximately
57.3% of the Company's net sales in 2001, compared to 57.4% in 2000 and 55.7% in
1999.
Wickes Direct
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Wickes Direct focuses on the large volume needs of commercial builders,
much of which are 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 housing selling from
both Major Markets and Conventional Markets facilities. In addition to selling
building materials and engineered wood components, Wickes Direct provides
building design, value-added 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,
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.
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Manufacturing Operations
------------------------
At December 29, 2001, the Company owned and operates 26 component
manufacturing facilities that supplied 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. One location was closed in
2001. These facilities include 17 stand-alone operations as well as nine
additional operations that exist at the Company's sales and distribution
facilities. Value-added component manufacturing is an important element
supporting the Company's Major Markets, Conventional Markets and Wickes Direct.
In Major Markets, manufacturing provides key support to Wickes' position as a
value-added partner, including its "Frame A Home In A Day" concept. In
Conventional Markets, trusses, panels, and pre-hung doors are sold to local
builders. For Wickes Direct, manufactured components, particularly framed wall
panels, provide an important value-added element. The Company believes that
these engineered products improve customer service and provide an attractive
alternative to job-site construction. In 2001, 2000 and 1999, the Company
internally manufactured approximately 58.2%, 56.7% and 50.9%, respectively, of
its total building components distributed.
Other Initiatives
-----------------
Since 1997, the Company has also initiated several other programs to
supplement its Major Markets and Conventional Markets.
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 and to
enhance building materials sales from new customers interested in the tool
rental program. The program is in place in 30 sales and distribution facilities,
and the Company is relaunching this program in 2002 with new operating standards
and income benchmarks to enhance profitability.
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. Installed insulation
is one of the value-added services that the Company believes it provides on a
cost-effective basis to meet its customers' needs. The installed insulation
program is operating in 55 sales and distribution facilities at the end of 2001.
Also relaunching this program in 2002, the Company will require consistent
operating standards and high-income contribution from this value-added program.
In 2000, the Company initiated installed siding and gutter programs to
further service its Major Markets and Conventional Markets strategies. Like the
installed insulation program, siding and gutters are installed with specially
trained crews equipped with specialized tools and vehicles. At the end of 2001,
the Company had 11 installed siding and 5 installed gutter locations in
operation
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The Company currently has in place an Internet and software strategy
designed to provide enhanced service levels to its customers. Employed correctly
and integrated properly, Internet and software technology will broaden the base
of products offered and the ability to service new and existing customers over
the long-term. The Company has entered into several agreements with companies
providing Internet based services to the construction industry. In addition, in
2000 the Company acquired Tres-Ark Enterprises, Inc., the developer of a
software package ("BuilderCentral 2000(TM)") designed to provide professional
building contractors an enterprise system to manage their construction projects.
(See also Note 4 to the Consolidated Financial Statements).
BuilderCentral 2000 is an integrated software system designed to assist the
professional builder in managing its construction business. It consists of four
integrated modules representing: (1) construction management, (2) accounting and
finance, (3) project estimating capabilities, and (4) on-site hand-held
applications. The Company continues to develop and improve interfaces that allow
BuilderCentral 2000 to streamline information from the builder to the Wickes
distribution facility. In 2001 a new application was introduced to provide a
direct Internet link to the builders' customized Wickes bill of materials,
pricing and trade account for online ordering.
In March 2000, the Company entered into an agreement with Buildscape, Inc.,
an entity affiliated with Riverside Group, Inc. and Imagine Investments, Inc.,
each of which may be deemed an affiliate of the Company. Pursuant to this
agreement, the Company and Buildscape, Inc. are jointly conducting an Internet
distribution program. Buildscape(R) is an Internet service designed for builders
that allows the Company's customers to buy products and materials from Wickes
and other suppliers. It provides real-time online access to the professional
builders' specific Wickes price list, bill of materials and trade account. It
also provides job management tools to help keep projects on time and on budget.
Additionally, the system is accessible by wireless devices. Wickes' sales
through the Buildscape site were $23.8 million in 2001.
Acquisition Strategy
--------------------
The Company intends to complement its existing operations through
acquisitions, 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 market.
There were no acquisitions of component manufacturing operations in 2000.
However, there was one plant addition to supplement the Wisconsin market that
went into operation at the end of 2000 and the development of wall panel
production capabilities at a distribution center earlier in the year.
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In addition, in 2000 the Company acquired Tres-Ark Enterprises, Inc., the
developer of a software package ("BuilderCentral 2000(TM)") designed to provide
professional building contractors with an enterprise system to manage their
construction projects.
During 2001, the Company acquired the real estate and other assets of a
local lumber distributor in Kenvil, New Jersey. The purpose of the acquisition
was to relocate an existing lumber and distribution center from a nearby leased
location. In addition, the Company acquired JWatt Construction, a framing
contractor for construction of residential and commercial real property. (See
also Note 4 to the Consolidated Financial Statements).
Markets
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The Company operates in 22 Major Markets, which are served by 32 sales and
distribution facilities and 12 manufacturing facilities. The Company also
operates 66 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, as of
December 29, 2001 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 15 2
100,000-250,000 20 10
250,000-500,000 12 9
500,000 and over 3 11
-- --
Total 66 32
== ==
Geographical Distribution
-------------------------
The Company's 98 sales and distribution facilities are located in 23 states
in the Midwest, Northeast and South. The Company's 26 component manufacturing
operations also are located in certain of these states and in Delaware. 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 December 29, 2001:
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Midwest Northeast South
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Number of Number of Number of
Sales and Sales and Sales and
Distribution Distribution Distribution
State Facilities State Facilities State Facilities
----- ---------- ----- ---------- ----- ----------
Michigan 29 Pennsylvania 5 Alabama 3
Wisconsin 14 New York 3 Kentucky 3
Indiana 11 Maine 2 Texas 2
Ohio 5 New Hampshire 2 Florida 2
Illinois 3 Connecticut 1 Mississippi 2
Colorado 3 New Jersey 1 North Carolina 2
-- Massachusetts 1 Georgia 1
Maryland 1 Louisiana 1
-- Tennessee 1
--
Total 65 Total 16 Total 17
== == ==
Facilities Opened, Closed and Consolidated
------------------------------------------
During 1999 the Company acquired four manufacturing facilities. See
"Business Strategy -Acquisition Strategy." There were no acquisitions of
component manufacturing operations in 2000. However, there was one plant
addition to supplement our Wisconsin market that went into operation at the end
of 2000 and the development of wall panel production capabilities at a
distribution center earlier in the year. During 2001 the Company closed
distribution centers in Allentown, PA and Aurora, IL, closed a plant in
Cookeville, TN, closed and consolidated its Niles, MI distribution center into
its Mishawauka, IN distribution center and acquired a distribution center in
Kenvil, NJ to relocate its Succasunna, NJ distribution center. Through February
28, 2002 the Company has sold 3 distribution centers; Pearl, MS, Pascagoula, MS,
Baton Rouge, LA. and one manufacturing plant, Ocean Springs, MS, as well as
closed one distribution center in Wilkes Barre, PA.
The following table reconciles the number of sales and distribution
facilities and component manufacturing facilities operated by the Company from
December 26, 1998 through February 28, 2002.
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Sales and Component
Distribution Manufacturing
Facilities Facilities
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As of December 26, 1998 101 12
Expansion 1
Acquisition -- 4
--- ---
As of December 25, 1999 101* 17
Expansion 1
Acquisition -- --
--- ---
As of December 30, 2000 101* 18
=== ===
Acquisition 1 --
Closings (2) (1)
Consolidations (2) --
--- ---
As of December 29, 2001 98 17
Sold (3) (1)
Closings (1) --
Consolidations (--) --
--- ---
As of February 28, 2002 94 16
*As of the fiscal year-end for 2001, 2000 and 1999, respectively, there were
nine, nine and eight additional component manufacturing facilities located in
existing sales and distribution facilities.
Customers
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The Company has a broad base of customers, with no single customer
accounting for more than 1.9% of net sales in 2001. In 2001, 87.1% (compared
with 86.9% in 2000) of the Company's sales were on trade credit, with the
remaining 12.9% as cash and credit card transactions.
Home Builders
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The Company's primary customers are single-family home builders. In 2001,
all home builder customers accounted for 63.1% of the Company's sales, compared
with 61.8% in 2000. 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.
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Commercial / Multi-family Contractors
-------------------------------------
Wickes Direct concentrates 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 2001, sales to these customers
accounted for approximately 18.6% of the Company's sales, compared with 19.3% in
2000. The Wickes Direct program is closely integrated with the Company's
component manufacturing operations.
Repair & Remodelers
-------------------
In 2001, R&R customers accounted for approximately 9.2% of the Company's
sales, compared with 9.1% in 2000. 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.
DIY's
-----
Sales to DIY's (both project and convenience) represented about 9.1% of the
Company's sales in 2001, compared with 9.7% in 2000. The percentage of sales to
DIY's 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
retail selling spaces or broad product assortments of the major warehouse or
home center retailers. For small purchases, the facilities' showrooms serve as a
convenience rather than a destination store. Consequently, the Company's focus
on consumer business is toward project DIY's -- customers who are involved in
major projects such as building decks and storage buildings or remodeling
kitchens and baths.
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.
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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 28,
2002 the Company's 332 outside sales representatives ("OSR's") 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 that 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 OSR 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 28, 2002 the Company employed 107 specialty salespeople in
its sales and distribution facilities who provide expert advice to customers in
project design, product selection and applications. A staff of 30 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 72 kitchen and bath specialists. The Company also employs 5 sales
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 87.1%
of the Company's sales during 2001 were on credit, with the remaining 12.9%
consisting of cash or credit card sales. 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 generally are 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.
14
15
The Company operates a large fleet of trucks and other vehicles, including
vehicles specialized for the delivery of certain of the Company's products. As
of February 28, 2002, the fleet included approximately 197 heavy duty trucks, 89
of which provide roof-top or second story delivery and 56 other vehicles
equipped with truck mounted forklifts. In addition, the Company's fleet includes
448 medium duty trucks, 502 light duty trucks and automobiles, 538 forklifts,
109 specialized millwork delivery vehicles, and 62 vehicles equipped to install
blown insulation. 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, in an efficient
manner.
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 in place in 30 sales and
distribution facilities and the Company is relaunching this program in 2002 with
new operating standards and income benchmarks to enhance profitability.
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 55 sales and distribution facilities that offer
this service. Also relaunching this program in 2002, the Company will require
consistent operating standards and high-income contribution from this
value-added program.
In 2000, the Company initiated its installed aluminum siding and gutter
programs in several of its sales and distribution centers. Currently, it is
operating 11 installed siding and five installed gutter programs with continued
plans for expansion.
DIY's
-----
Most sales and distribution facilities, primarily building centers located
in Conventional Markets, also pursue sales to project DIY's 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 also can
provide a comprehensive list of materials and detailed drawings to assist
customers in completing their projects. The Company believes that project DIY's
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
15
16
requirements. During 1999, the Company completed Resets in two facilities; in
2000, two facilities, and in 2001 one facility was completed. Since the
beginning of 1997, the Company has completed Resets in 16 sales and distribution
facilities located in Conventional Markets. Additional showroom improvements are
contemplated for 2002 and future years.
While the Company's product offerings in hardlines generally are 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 DIY's.
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, 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.
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 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 2001,
approximately 37% of the Company's sales were of special order items, compared
with 35% in 2000. Each of the Company's sales and distribution facilities
tailors its product mix to meet the demands of its local market.
The Company categorizes its product sales (excluding Tool Rental, Installed
Programs and other service-related revenues), which aggregate approximately 95%,
96% and 97% of the Company's net sales in 2001, 2000 and 1999, respectively,
into four groups. These include Wood Products (lumber, plywood, treated lumber,
sheathing, wood siding and specialty lumber); Building Products (roofing, vinyl
siding, doors, windows, mouldings, and insulation); Hardlines (hardware
16
17
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). Wood Products, Building Products, Hardlines, and Manufactured Housing
Components represented 34.8%, 36.8%, 10.4% and 18.0% of the Company's product
sales respectively, for 2001 and 36.7%, 35.6%, 10.5% and 17.2% for 2000,
respectively.
Manufacturing
- -------------
The Company operates 26 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 nine 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 2001, the
Company's manufacturing operations supplied approximately 58.2% of the framed
wall panels, roof and floor trusses, and pre-hung doors 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.
Suppliers and Purchasing
- ------------------------
The Company purchases its products from numerous vendors. The great
majority of commodity items are purchased directly from mills and manufacturers,
while the remaining products are purchased from a combination of manufacturers,
wholesalers and other intermediaries. No single vendor accounted for more than
4.7% of the Company's purchases in 2001 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 majority of the Company's commodity purchases are made on the basis of
individual purchase orders rather than longer-term 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 54% of the Company's annual sales consist of commodity wood
products, drywall and manufactured housing components, all of 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.
17
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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 receives its product by truck and rail. 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."
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 (i.e. Conventional Markets), where it primarily competes with local
independent lumber yards and regional building material chains. To a lesser
extent, the Company also competes in these markets 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 products and services and its ability to serve the
large builder provide it with a competitive advantage.
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Environmental and Product Liability Matters
- -------------------------------------------
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 decommissioned or removed. 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 six years.
The Company previously had been identified as a potential responsible party
in two Superfund landfill clean up sites. Both of these actions were settled for
immaterial amounts.
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 with
respect to the foregoing and expenditures in the most recent six years have been
significantly reduced, there can be no assurances that these matters will not
give rise to additional compliance or other costs that could have a material
adverse effect on the Company.
Employees
- ---------
As of February 28, 2002, the Company had 3,222 employees, of whom 2,935
were employed on a full-time basis. The number of employees generally fluctuates
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.
Safety
- ------
Wickes Lumber is committed to the safety and well being of our employees,
customers and the communities we serve. One of the cornerstones of our safety
program is "Build on Safety," an innovative employee training and awareness
program conceived by Wickes' Corporate Safety Committee. "Build on Safety" was
launched in April 2001 and has established safety standards and processes for
all aspects of our business. It has also provided critical safety training for
every manager and employee. "Build on Safety" fosters an environment where
responsibility for safety is shared amongst all employees, with each individual
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having a duty and responsibility for his or her own safety, as well as for the
safety of others. "Build on Safety" has helped integrate safety into our
corporate culture, and we believe our commitment to the highest safety standards
will be reflected in our overall corporate performance
Trademarks and Patents
- ----------------------
The Company has no material patents, trademarks, licenses, franchises, or
concessions other than the name "Wickes Lumber" , the "Flying W" trademark,
"BuilderCentral2000" and "Frame-A-Home-In-A-Day".
_________________________
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
effects of seasonality and cyclicality discussed under the headings "Industry
Overview" and "Seasonality". Also, there are the 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 initiatives;
and the outcome of the contingencies discussed in Note 8 to the Consolidated
Financial Statements included elsewhere herein.
Item 2. PROPERTIES.
- -------------------
As of December 29, 2001 the Company's 98 sales and distribution facilities
are located in 23 states, with 65 in the Midwest, 16 in the Northeast and 17 in
the South. When combined with its 26 component manufacturing operations, the
Company operates in 24 states. 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 Markets sales and distribution 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 16 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 18 stand-alone component manufacturing facilities,
which have an average of 40,300 square feet under roof on 6.9 acres.
The Company owns 82 of its sales and distribution facilities and 80 of the
sites on which such facilities are located. The remaining 16 sales and
distribution facilities and 18 sites are leased. As of December 29, 2001, the
Company also held for sale the assets of 3 closed facilities with a net book
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21
value of $1.5 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. Nine additional plants are
located on sales and distribution facility sites. All of the owned properties
are pledged as collateral under the Company's Amended and Restated Revolving
Credit Agreement.
For further information see "Item 7. Management's Discussion and Analysis
of Financial Condition and Results of Operations - Liquidity and Capital
Resources" and Note 7 to the Consolidated Financial Statements.
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 28, 2002, the fleet included approximately 197 heavy
duty trucks, 89 of which provide roof-top or second story delivery and 56 other
vehicles equipped with truck mounted forklifts. In addition, the Company's fleet
includes 448 medium duty trucks, 502 light duty trucks and automobiles, 538
forklifts, 109 specialized millwork delivery vehicles, and 62 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 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 by the Company's customer, claimed to have
been caused by inhalation of silica dust, a byproduct of concrete and mortar
mix, which the Company acquired from a cement plant with which the Company has
no connection other than as a customer making purchases for resale. 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 not expected to
be material.
The Company is one of many defendants in approximately 424 actions, each of
which seeks unspecified damages, in various state courts against manufacturers
and building material retailers by individuals who claim to have suffered
injuries from products containing asbestos. 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 68
similar actions for insignificant amounts, and another 262 of these actions have
been dismissed. None of these suits have made it to trial.
The Company also 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
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material adverse effect on the Company's financial position, annual results of
operations or liquidity, there can be no assurance of this result.
The Company is the defendant in an arbitration claim filed with the
American Arbitration Association on July 17, 2001 by David T. Krawczyk, the
former President and Chief Operating Officer of the Company. Mr. Krawczyk claims
he was constructively terminated by the Company as the result of certain actions
and directions given to him which were inconsistent with his position, duties
and responsibilities. Mr. Krawczyk claims that as a result of this alleged
constructive termination, he is entitled to receive a Special Severance Bonus of
$1,000,000 pursuant to the Company's Special Severance and Stay Incentive Bonus
Plan (the"Plan"). The Company has defended the action and although it believes
that Mr. Krawscyk was not entitled to any Special Severance Bonus, the Company
has elected to pay the Special Severance Bonus to Mr. Krawczyk because it
believes that the cost associated with the obligation of the Company to pay Mr.
Krawczyk's attorneys fees with respect to such litigation could equal or exceed
his claim.
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.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS.
- ------------------------------------------------------------
None.
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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 28, 2002 there were
8,285,026 shares outstanding held by approximately 118 stockholders of record.
In addition, the Company believes approximately 2,000 additional stockholders
hold their shares in street name at various brokerage houses.
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 2001
-----------
March 31 $5.000 $3.000
June 30 4.570 4.000
September 29 4.440 2.670
December 29 3.080 2.370
Fiscal 2000
-----------
March 25 $7.500 $5.000
June 24 6.500 4.656
September 23 6.375 4.125
December 30 6.188 3.375
The Company does not declare or pay any dividends on Common Stock due to
restrictions included in its revolving credit facility and trust indenture
related to the Company's 11-5/8% senior subordinated notes. See "Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations" and Note 7 to the Consolidated Financial Statements.
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 29, 2001. 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.
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WICKES INC. AND SUBSIDIARIES
SELECTED CONSOLIDATED FINANCIAL DATA
(in thousands, except ratios and per share data)
Dec. 29, Dec. 30, Dec. 25, Dec. 26, Dec. 27,
2001 2000 1999 1998 1997
---- ---- ---- ---- ----
Income Statement Data:
Net sales $1,000,999 $1,027,604 $1,087,402 $ 912,190 $ 885,901
Gross profit 211,553 223,092 224,604 195,119 186,006
Selling, general and administrative expense 194,608 199,889 185,884 166,420 167,790
Depreciation, goodwill and trademark
amortization 6,508 5,877 5,295 4,513 4,422
Provision for doubtful accounts 1,470 983 1,724 2,915 1,707
Other operating income 4,344 3,292 4,932 6,017 9,673
Restructuring and unusual items (1) - - - 5,932 (559)
Severance and other items (2) 1,744 - - - -
Income from operations 11,567 19,635 36,633 21,356 22,319
Interest expense (3) 21,787 24,322 23,302 21,632 21,417
Equity in loss of affiliated company - - - - 1,516
(Loss) income before income taxes (10,220) (4,687) 13,331 (276) (614)
Income tax (benefit) provision (3,146) (735) 5,743 689 946
(Loss) income before extraordinary gain (7,074) (3,952) 7,588 (965) (1,560)
Extraordinary gain, net of taxes (4) - 6,806 - - -
Net (loss) income (7,074) 2,854 7,588 (965) (1,560)
Ratio of earnings to fixed charges (5) - - 1.48 - -
Interest coverage (6) 0.98 1.17 1.97 1.32 1.36
Adjusted interest coverage (7) 0.98 1.17 1.97 1.61 1.33
Per Share Data:
Net (loss) income before extraordinary gain per
common share - basic and diluted ($0.85) ($0.48) $0.92 ($0.12) ($0.19)
Net (loss) income per common share - basic ($0.85) $0.35 $0.92 ($0.12) ($0.19)
Net (loss) income per common share - diluted ($0.85) $0.34 $0.91 ($0.12) ($0.19)
Weighted average common shares -basic 8,277,190 8,249,774 8,216.265 8,197,542 8,168,257
Weighted average common shares -diluted 8,277,190 8,466,383 8,330,571 8,197,542 8,168,257
Operating and Other Data:
EBITDA (8) $ 20,024 $ 26,982 $ 43,106 $ 26,609 $ 27,182
Adjusted EBITDA (9) 21,768 26,982 43,106 32,541 26,623
Cash interest expense (10) 20,338 23,048 21,792 20,185 20,016
Depreciation and amortization 6,508 5,877 5,295 4,513 4,422
Deferred financing cost amortization 1,449 1,274 1,510 1,447 1,401
Capital expenditures 10,269 9,734 8,624 5,854 7,758
Same store sales growth (11) (1.5%) (6.1)% 18.1% 9.0% 4.7%
Sales & distribution centers open at end of period 98 101 101 101 111
Net cash provided by (used in) operating activities 12,775 14,669 (9,565) 522 (20,455)
Net cash (used in) provided by investing activities (8,001) ( 9,243) (17,597) (1,623) 6,040
Net cash (used in) provided by financing activities (4,818) (5,255) 27,169 1,087 12,561
Balance Sheet data (at period end):
Working capital $ 123,210 $ 141,901 $ 162,523 $ 135,345 $ 134,459
Total assets 295,170 300,936 334,009 292,183 283,352
Total long-term debt, less current maturities 193,253 200,403 220,742 191,961 193,061
Total stockholders' equity 26,771 33,896 30,819 23,148 24,001
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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.
(2) During 2001, the Company incurred severance and other items related to
managements' reorganization initiative that resulted in a $1.7 million
charge primarily relating to severance pay and distribution center closing
costs. (See additional discussion in Item 7. Management's Discussion and
Analysis)
(3) Interest expense includes cash interest expense and amortization of
deferred financing costs (see note 10 below).
(4) As further explained in Note 7 to the Consolidated Financial Statements, on
November 21, 2000 the Company commenced a cash tender offer for its
outstanding 11-5/8% Senior Subordinated Notes due 2003, at a substantial
discount from face value. The offer expired on December 20, 2000, and on
December 26, 2000, the Company redeemed $36.0 million of notes tendered. As
a result of this transaction, the Company recorded a pre-tax gain of $11.1
million, net of costs associated with the transaction. The net gain, after
appropriate state and federal income taxes was $6.8 million.
(5) For purposes of computing this ratio, earnings consist of pre-tax income
(loss) before income taxes adjusted for 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 $10.2 million, $4.7 million, $0.3
million and $0.8 million for the years ended December 29, 2001, December
30, 2000, December 26, 1998 and December 27, 1997, respectively.
(6) For purposes of computing this ratio, earnings consist of EBITDA (as
defined in note 8 below), which is divided by cash interest expense (as
defined in note 10 below).
(7) For purposes of computing this ratio, earnings consist of Adjusted EBITDA
(as defined in note 9 below), which is divided by cash interest expense (as
defined in note 10 below).
(8) 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
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26
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.
(9) Adjusted EBITDA represents EBITDA (as defined in note 8 above) adjusted to
exclude restructuring and unusual items, severance and other items and is
used in the adjusted interest coverage ratio to reflect debt service
capability before the effect of these items, and provides an additional
measure of debt service capability for ongoing operations.
(10) 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 29, 2001 (in thousands).
2001 2000 1999 1998 1997
---- ---- ---- ---- ----
Interest expense $21,787 $24,322 $23,302 $21,632 $21,417
Less:
Amortization of deferred
financing costs 1,449 1,274 1,510 1,447 1,401
----- ----- ----- ----- -----
Cash interest expense 20,338 23,048 21,792 20,185 20,016
Decrease (increase) in
accrued interest (880) 155 (289) 700 (225)
---- --- ---- --- ----
Interest paid $19,458 $23,203 $21,503 $20,885 $19,791
======= ======= ======= ======= =======
(11) 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. In addition to sales
and distribution facilities, component manufacturing plants also make some
direct sales. The following table lists, by year, the number of locations
that were included in this calculation:
Year No. of Facilities
---- ------------------
2001 98
2000 101
1999 101
1998 101
1997 107
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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. All material
intercompany balances and transactions have been eliminated. The table and
subsequent discussion should be read in conjunction with the consolidated
financial statements and notes thereto appearing elsewhere herein.
Years Ended
-----------
Dec 29, Dec. 30, Dec. 25,
2001 2000 1999
---- ---- ----
Net sales 100.0% 100.0% 100.0%
Gross profit 21.1 21.7 20.7
Selling, general and administrative
expense 19.4 19.5 17.1
Depreciation, goodwill and trademark
amortization 0.7 0.6 0.5
Provision for doubtful accounts 0.1 0.1 0.2
Severance and other items 0.2 0.0 0.0
Other operating income (0.4) (0.3) (0.5)
Income from operations 1.2 1.9 3.4
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, weather, prices of commodity wood products, general regional and local
economic conditions, interest rates and the availability of credit, all of which
are cyclical or seasonal in nature. The Company anticipates that fluctuations
from period to period will continue in the future. Due to a substantial
percentage of the Company's sales being 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. In December of 2001, the Midwest and Northeast recorded
above normal to record warm temperatures with normal to below normal
precipitation, while during the second quarter of 2001, the Midwest and South
experienced unusually wet conditions. During 2000, the Midwest and Northeast
experienced mild winter weather but significant precipitation in the first
quarter, and in the fourth quarter these regions experienced a more severe
winter with respect to cold temperatures and snow than in the previous four
years.
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The following table contains selected unaudited quarterly financial data
for the years ended December 29, 2001 and December 30, 2000. 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
(Unaudited)
Fiscal Quarters
---------------
(in millions, except per share data and percentages)
Income (loss) Basic / Diluted
Net Sales as a before Net income (loss)
% of Annual Gross Extraordinary Net Income per share before
Net Sales Net Sales Profit Item (Loss) Extraordinary Item
--------- --------- ------ ---- ------ ------------------
2001
- ----
Quarter 1 $184.8 18.5% $42.0 $(6.5) $(6.5) $(.78)/(.78)
Quarter 2 274.1 27.4 58.6 1.0 1.0 .12 / .12
Quarter 3 295.3 29.5 61.3 0.7 0.7 .08 / .08
Quarter 4 246.8 24.6 49.7 (2.3) (2.3) (.27)/(.27)
2000
Quarter 1 $216.5 21.1% $46.0 $(3.2) $(3.2) $(.39)/(.39)
Quarter 2 280.4 27.3 60.1 1.5 1.5 .19 / .18
Quarter 3 282.7 27.5 62.6 2.1 2.1 .26 / .25
Quarter 4 248.0 24.1 54.4 (4.4) 2.4 (.53)/(.53)
Each fiscal quarter in the table above represents a thirteen-week period,
with the exception of Quarter 4 in 2000, which was a fourteen-week period.
In the fourth quarter of 2000, the Company recorded an extraordinary gain
on the early extinguishment of $36.0 million of its 11-5/8% Senior Subordinated
Notes due in 2003. See Note 7 to the Consolidated Financial Statements included
elsewhere herein for further description.
The Company historically generates approximately 15% to 20% of its annual
revenues during the first quarter of each year and records 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 generally are 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.
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2001 Compared with 2000
- -----------------------
Net Sales
---------
Net sales for 2001 decreased $26.6 million, or 2.6%, to $1,001.0 million
from $1,027.6 million in 2000. Sales for all facilities operated throughout both
years ("same store sales") decreased 1.5%. During 2001, the Company experienced
a 0.2% increase in same store sales to its primary customer, the professional
home builder, and a 4.8% decrease in same store sales to commercial builders.
Consumer sales declined 7.2% on a same store basis.
Sales to building professionals as a percentage of total sales were 63.1%
in 2001 compared to 61.8% in 2000. Lumber and building materials accounted for
85.3% of total sales in 2001, compared with 86.2% in 2000.
Total housing starts in the United States increased 2.2% in 2001, and
starts in the Company's primary geographical market, the Midwest, increased
approximately 4.0%, from such starts in 2000. The Company's two other
geographical markets, the Northeast and South, experienced a decrease in 2001
housing starts of 3.2% and an increase of 2.5%, respectively, from such starts
in 2000. Nationally, single family housing starts, which generate the majority
of the Company's sales to building professionals, increased by 3.6% to 1.27
million starts in 2001 from 1.23 million starts in 2000.
The Company estimates that deflation in lumber and drywall prices
negatively impacted 2001 net sales by approximately $10.1 million, when compared
with lumber and drywall prices during 2000. Dimensional lumber, panel products
and, to an extent, drywall are commodities which cause the Company's costs to
fluctuate with changing market conditions, generally tracked using the Random
Lengths Framing Composite Average and the Random Lengths Panel Index for
dimensional lumber and panel products, respectively. Drywall prices generally
fluctuate based on availability and are tracked using producer prices. Increases
in commodity prices ("lumber inflation") generally are passed on to the customer
with certain lag effects, resulting in higher selling prices, or are fixed in
the futures market for dimensional lumber and panel products for a small
percentage of longer-term sales contracts. In periods of decreasing commodity
prices ("lumber deflation"), selling prices decrease, with certain lag effects.
Products that exhibited the greatest change in sales for the year ended
December 29, 2001 versus sales of such products in 2000 were lumber and plywood
(down 10.5%), drywall (down 32.5%), windows (up 5.0%), trusses (up 3.2%), and
roofing (up 8.0%).
Sales of internally manufactured building components increased to 58.2% of
total distributed building components from 56.7% in the prior year. Sales of
internally manufactured building components increased in 2001 3.3% from
approximately $96.5 million in 2000 to approximately $99.7 million in 2001. As
with dimensional lumber, sales of internally manufactured building components
are impacted by the effects of lumber deflation.
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Gross Profit
------------
Gross profit decreased $11.5 million to $211.6 million or 21.1% of net
sales for 2001 compared with $223.1 million or 21.7% of net sales for 2000. The
Company believes that deflation in lumber and drywall prices decreased the
dollar value of gross profit by approximately $2.6 million for the fiscal year
ended December 29, 2001. Commodity wood products, drywall and manufactured
building components accounted for approximately 54.0% of sales for the year,
compared with 56.1% for 2000. The gross margin for these products declined to
19.0% in 2001 from 19.1% in 2000.
Selling, General, and Administrative Expense
--------------------------------------------
Total selling, general, and administrative expense ("SG&A") decreased $5.3
million or 2.6% to $194.6 million in 2001 compared with $199.9 million in 2000.
SG&A decreased slightly as a percent of net sales to 19.4% compared with 19.5%
of net sales in 2000.
The decrease in SG&A primarily is attributable to reductions in labor that
reduced salaries and management incentives by 1.4%, and an increase in
co-operative marketing and cost recovery programs of 26.8%. These benefits were
partially offset by increases in employee benefits, specifically medical and
workers' compensation insurances of 31.4%, and increases in marketing of 60.6%.
The Company's believes the management plan developed and put in place in the
last half of 2001 to reorganize and improve productivity and performance, has
resulted and should continue to result in reductions to administrative expenses,
marketing expenses, insurance expenses and other SG&A expense.
Depreciation, Goodwill and Trademark Amortization
-------------------------------------------------
Depreciation, goodwill and trademark amortization costs increased
approximately $0.6 million or 10.7% to $6.5 million in 2001, compared with $5.9
million in 2000. The increase in depreciation primarily is due to investments in
machinery and equipment at the Company's manufacturing facilities and delivery
vehicles.
Provision for Doubtful Accounts
-------------------------------
Provision for doubtful accounts increased to approximately $1.5 million or
0.1% of sales in 2001 from approximately $1.0 million or 0.1% of sales for 2000.
The Company extends credit, generally due on the 10th day of the month following
the sale, to qualified and approved contractors.
Severance and Other Items
-------------------------
In 2001, the Company's management developed a plan to reorganize and
improve productivity and performance. The results have shown and are expected to
continue to show reductions in administrative expense, marketing expense,
headcount and the elimination of non-strategic operating units. The Company
incurred severance and other items of $1.7 million, primarily relating to
severance pay and distribution center closing costs. As part of this
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31
reorganization, the Company has and intends to relaunch a number of its previous
initiatives including tool rental, installed products and manufactured
components throughout 2002. In addition, the Company will work to implement
sales planning tools and technology to support efforts to retain and grow
customer relations. Also, management is requiring the operating units to adhere
to stricter standards in customer profitability, labor productivity and working
assets turnover, that management believes will form the basis for a successful
building materials business.
Other Operating Income
----------------------
Other operating income increased approximately $1.1 million or 32.0% to
$4.3 million in 2001, compared with $3.3 million in 2000. Other operating income
primarily includes the sale or disposal of property, plant and equipment,
service charges assessed customers on past due accounts receivable, closed
center expenses and casualty losses. During 2001, the Company sold four pieces
of real estate and various fixed assets for a net gain of approximately $1.2
million. This is compared with three real estate sales and various fixed asset
disposals in 2000, for a net gain of approximately $0.3 million.
Interest Expense
----------------
Interest expense decreased to $21.8 million in 2001 from $24.3 million in
2000. The Company's weighted-average interest rate on all outstanding
borrowings, excluding amortization of debt issue costs, for the years ended
December 29, 2001, December 30, 2000 and December 25, 1999 was approximately
8.87%, 9.96% and 9.34%, respectively.
Income Tax Benefit before Extraordinary Item
--------------------------------------------
In 2001, the Company recorded a net income tax benefit of $3.1 million
versus a net income tax benefit before extraordinary item of $0.7 million in
2000. An effective federal and state income tax rate of 38.9% was used to
calculate income taxes for 2001 and 38.8% for 2000. In addition to the effective
income tax rate, state franchise taxes of $1.1 million and $1.4 million were
calculated for 2001 and 2000, respectively, and are included in the provision
reported.
The Company continues to review future earnings projections to determine
that there is sufficient support for its deferred tax assets and valuation
allowance. Management believes that it is more likely than not that the Company
will receive full benefit of its net deferred tax asset and that the valuation
allowance is properly stated.
Net loss before extraordinary item
----------------------------------
The Company recorded a net loss in 2001 of $7.1 million versus a net loss
before extraordinary item of $4.0 million in 2000, a decline of $3.1 million.
Net loss was negatively impacted by a decrease in gross profit of 5.2%,
increased employee benefits, specifically workers compensation and medical costs
which rose $5.0 million or 33.2%, as well as additional marketing expenditures,
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up $2.2 million. Results were positively impacted by a decrease in management
incentives of $1.7 million, decrease in interest expense of $2.5 and an increase
in the income tax benefit of $2.4 million.
Extraordinary item
------------------
As further explained in Note 7 to the Consolidated Financial Statements, on
November 21, 2000 the Company commenced a cash tender offer for its outstanding
11-5/8% Senior Subordinated Notes due 2003, at a substantial discount from face
value. The offer expired on December 20, 2000, and on December 26, 2000, the
Company redeemed $36.0 million of notes tendered. As a result of this
transaction, the Company recorded a pre-tax gain of $11.1 million, net of costs
associated with the transaction. The net gain, after appropriate state and
federal income taxes, was $6.8 million.
2000 Compared with 1999
- -----------------------
Net Sales
---------
Net sales for 2000 decreased $59.8 million, or 5.5%, to $1,027.6 million
from $1,087.4 million in 1999. Sales for all facilities operated throughout both
years ("same store sales") decreased 6.1%. During 2000, the Company experienced
a 6.6% decrease in same store sales to its primary type of customer, the
professional home builder, and a 0.3% increase in same store sales to commercial
builders. Consumer sales declined 10.6% on a same store basis.
Sales to building professionals as a percentage of total sales were 61.8%
in 2000 compared to 62.3% in 1999. Lumber and building materials accounted for
86.1% of total sales in 2000 compared with 87.8% in 1999.
Total housing starts in the United States decreased 4.5% in 2000, and
starts in the Company's primary geographical market, the Midwest, decreased
approximately 7.8%. The Company's two other geographical markets, the Northeast
and South, experienced decreases of 1.4% and 4.9%, respectively. Nationally,
single family housing starts, which generate the majority of the Company's sales
to building professionals, experienced a decrease of 5.5% in 2000, from 1.33
million starts in 1999 to 1.26 million starts in 2000.
Sales for 2000 were positively impacted by investments in new initiatives
such as Tool Rental and Installed Programs, sales of which increased 38.8% in
2000 over sales in 1999. However, these increases were offset for the year by
the effects of lumber deflation and by weather-related issues in the first and
fourth quarters. Dimensional lumber, panel products and, to an extent, drywall
are commodities which cause the Company's costs to fluctuate with changing
market conditions, generally tracked using the Random Lengths Framing Composite
Average and the Random Lengths Panel Index for dimensional lumber and panel
products, respectively. Drywall prices generally fluctuate based on availability
and are tracked using producer prices. Increases in commodity prices ("lumber
32
33
inflation") generally are passed on to the customer with certain lag effects,
resulting in higher selling prices, or are fixed in the futures market for
dimensional lumber and panel products for a small percentage of longer-term
sales contracts. In periods of decreasing commodity prices ("lumber deflation"),
selling prices decrease, with certain lag effects. The Company estimates that
deflation in lumber and drywall prices negatively impacted 2000 net sales by
approximately $74.3 million, when compared with lumber and drywall prices during
1999.
Products that exhibited the greatest change in sales for the year ended
December 30, 2000 versus sales of such products in 1999 were lumber and plywood
(down 16.0%), drywall (down 19.0%), treated wood (down 7.8%), roofing (down
4.8%), and kitchen and bath (up 6.2%).
For the year, sales of internally manufactured building components
increased to 56.7% of total distributed building components from 50.9% in the
prior year. The dollar value of sales of internally manufactured building
components increased 10.4% from approximately $87.4 million in 1999 to
approximately $96.5 million in 2000. As with dimensional lumber, sales of
internally manufactured building components are impacted by the effects of
lumber deflation.
Gross Profit
------------
Gross profit decreased $1.5 million to $223.1 million or 21.7% of net sales
for 2000 compared with $224.6 million or 20.7% of net sales for 1999. The
Company believes that deflation in lumber and drywall prices decreased the
dollar value of gross profit by approximately $15.2 million for the fiscal year
ended December 30, 2000. Commodity wood products, drywall and manufactured
building components accounted for approximately 56.1% of sales for the year,
compared with 58.9% for 1999. The gross margin for these products improved to
19.1% for 2000 versus 17.5% last year.
The increase in gross profit as a percentage of sales resulted from
increased sales and gross profit margins relating to internally manufactured
products, improved buying leverage, and the expansion of the Company's other
initiatives. These substantially offset the effects of lumber deflation.
As previously noted, sales of internally manufactured building components
improved during the fiscal year. The Company's margins from sales of internally
manufactured building components typically are higher than the margins on sales
of purchased components.
Selling, General, and Administrative Expense
--------------------------------------------
In 2000, selling, general, and administrative expense ("SG&A") increased as
a percent of net sales to 19.5% compared with 17.1% of net sales in 1999. Total
SG&A expense increased $14.0 million or 7.5% from $185.9 million in 1999 to
$199.9 million in 2000. Much of this increase is attributable to costs
associated with new initiatives such as Tool Rental and Installed Programs.
These programs increased salaries, wages and benefits; delivery expense; and
other fixed charges. In addition, higher fuel and natural gas prices caused
delivery expense and utility costs to increase.
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34
Salaries, wages and benefits increased approximately $7.8 million or 6.1%
over the prior year. Higher unit sales volumes, initiatives such as Tool Rental
and Installed Programs, and higher administrative compensation and benefits,
increased compensation and benefits by approximately $9.6 million or 7.8%.
Offsetting these increases was a $1.4 million decrease in management incentives.
In addition, the culmination of changes in the administration of vacation pay
resulted in a $1.3 million improvement in SG&A expenses for 2000, following a
comparable $1.0 million improvement in 1999.
Delivery expense for the year increased approximately $2.4 million or 17.4%
over the prior year. The increase was driven by various Company initiatives and
by the significant increase in fuel prices over last year. With regard to
initiatives, the expansion of Installed Programs, such as insulation, siding and
gutters, has caused the Company to incur additional delivery expense through the
trucks involved in these programs. As a result, vehicle repair and maintenance,
lease costs, and licensing increased approximately $1.4 million or 14.1%.
Finally, the effects of increased fuel costs nationwide in 2000, plus expansion
of the fleet resulted in additional fuel expense of approximately $1.1 million,
a 25.4% increase over the prior year.
Promotional expenses, including travel and entertainment, increased
approximately $0.9 million or 12.0%. Fixed expenses, other than depreciation,
associated with the operation of the Company's sales and distribution and its
headquarters facilities increased approximately $0.8 million or 10.8%.
Depreciation, Goodwill and Trademark Amortization
-------------------------------------------------
Depreciation, goodwill and trademark amortization costs increased
approximately $0.6 million or 11.0% in 2000, compared with 1999. This increase
primarily is due to depreciation on delivery vehicles, equipment used in the
Tool Rental program and capital improvements made as a result of the Company's
Major Markets and re-merchandising programs, as well as its other initiatives.
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 approximately $1.0 million or 0.1% of sales in
2000 from approximately $1.7 million or 0.2% of sales for 1999.
Other Operating Income
----------------------
Other operating income decreased approximately $1.6 million or 33.3% in
2000 as compared to 1999. The decrease primarily is the result of a reduction in
gains reported on the sale of excess property and various fixed assets of
approximately $1.5 million. During 1999, the Company sold five pieces of real
estate and recorded total gains on the sale of real estate and various fixed
assets of approximately $1.8 million. This is compared with three real estate
sales and various fixed asset disposals in 2000, resulting in total gains of
approximately $0.3 million.
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35
Interest Expense
----------------
Interest expense increased to $24.3 million in 2000 from $23.3 million in
1999. This increase was the result of an increase in the overall effective
borrowing rate of 72 basis points as floating interest rates increased over the
course of fiscal 2000 compared to 1999, partially offset by a $4.5 million
decrease in average outstanding debt.
Income Tax Benefit before Extraordinary Item
--------------------------------------------
In 2000, the Company recorded a net income tax benefit before extraordinary
item of $0.7 million versus an income tax expense of $5.7 million in 1999. Net
operating loss carryforwards were used to substantially offset current income
taxes payable in 1999. An effective federal and state income tax rate of 38.8%
was used to calculate income taxes for 2000, compared with an effective rate of
38.7% for 1999. In addition to the effective income tax rate, state franchise
taxes of $1.4 million and $1.1 million were calculated for 2000 and 1999,
respectively, and are included in the provision reported.
The Company continues to review future earnings projections to determine
that there is sufficient support for its deferred tax assets and valuation
allowance. Management believes that it is more likely than not that the Company
will receive full benefit of its net deferred tax asset and that the valuation
allowance is properly stated.
Net(loss) income before extraordinary item
-------------------------------------------
The Company recorded a net loss before extraordinary item in 2000 of $4.0
million versus net income of $7.6 million in 1999, a decline of $11.5 million.
The loss primarily resulted from a reduction of gross profit dollars of
approximately $1.5 million; increased salaries, wages and benefits of $7.8
million; increased vehicle maintenance, lease and licensing costs of $1.4
million; a $1.1 million increase in fuel costs; a $1.0 million increase in
interest expense and a $1.7 million decline in other income. These decreases
were partially offset by a $0.7 million decrease provision for doubtful
accounts.
Extraordinary item
------------------
As further explained in Note 7 to the Consolidated Financial Statements, on
November 21, 2000 the Company commenced a cash tender offer for its outstanding
11-5/8% Senior Subordinated Notes due 2003, at a substantial discount from face
value. The offer expired on December 20, 2000, and on December 26, 2000, the
Company redeemed $36.0 million of notes tendered. As a result of this
transaction, the Company recorded a pre-tax gain of $11.1 million, net of costs
associated with the transaction. The net gain, after appropriate state and
federal income taxes, was $6.8 million.
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Critical Accounting Policies
----------------------------
Management's Discussion and Analysis discusses the results of operations
and financial condition as reflected in the Company's consolidated financial
statements, which have been prepared in accordance with accounting principles
generally accepted in the United States of America. As discussed in Note 2 to
the Company's Consolidated Financial Statements, the preparation of financial
statements in conformity with accounting principles generally accepted in the
United States 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 reported
amounts of revenues and expenses during the reporting period. On an ongoing
basis, management evaluates its estimates and judgments, including those related
to inventory valuation; the allowance for uncollectible accounts; depreciation,
amortization and recoverability of long-lived assets, including intangible
assets; self-insurance and other reserves; the calculation of retirement
benefits and revenue recognition. Management bases its estimates and judgments
on its substantial historical experience and other relevant factors, the results
of which form the basis for making judgments about the carrying values of assets
and liabilities that are not readily apparent from other sources. See Note 2 to
the Company's Consolidated Financial Statements for a discussion of the
Company's significant accounting policies. While the Company believes that the
historical experience and other factors considered provide a meaningful basis
for the accounting policies applied in the preparation of the consolidated
financial statements, the Company cannot guarantee that its estimates and
assumptions will be accurate, which could require the Company to make
adjustments to these estimates in future periods.
36
37
Liquidity and Capital Resources
- -------------------------------
The Company's principal sources of working capital and liquidity are cash
flows from operations and borrowings under its revolving credit facility. The
Company's primary need for capital resources is to finance accounts receivable,
inventory, capital expenditures and collateral for self insurance programs.
In 2001, net cash provided by operating activities was $13.2 million. This
compares with net cash provided by operating activities of $14.9 million in
2000. The net cash provided by operations in 2001 primarily is due to a decrease
in inventory and increases in accounts payables and accrued liabilities,
partially offset by an increase in accounts receivable.
Accounts receivable at the end of 2001 were $83.4 million, an increase of
$6.7 million or 8.8% from 2000, primarily due to an increase in product sales of
11.9% in the month of December 2001 over last year. Inventory at the end of 2001
was $17.6 million or 14.9% lower than at the end of 2000, primarily as a result
of better inventory management. Accounts payable at the end of 2001 was $44.0
million, an increase of $8.7 million or 24% from 2000, primarily due to improved
terms with vendors.
During 2001, the Company increased its capital expenditures to $10.3
million compared to $9.7 million. Investing cash flows in both years were
partially offset by proceeds on the sale of fixed assets. Net cash used in
investing activities in 2001 was $8.0 million compared to $9.2 million in 2000.
The Company's capital expenditures consist primarily of the construction
and maintenance of facilities for new and existing operations, the purchase of
machinery and equipment for component manufacturing facilities, the remodeling
of sales and distribution 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. The 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.
During 2001, the Company acquired the real estate and other assets of a
local lumber distributor in Kenvil, New Jersey for approximately $1.6 million,
of which $650,000 was paid in cash and $950,000 in a three-year purchase money
mortgage. The purpose of the acquisition is to relocate an existing lumber and
distribution center from a nearby leased location. In addition, the Company
acquired JWatt Construction, a framing contractor for construction of
residential and commercial real property, for an immaterial purchase price. The
Company has accrued a liability for payments to be paid over a three-year
period.
The Company made one acquisition during 2000, acquiring TresArk
Enterprises, Inc. TresArk Enterprises, Inc. is a producer of construction
management software designed for lumberyards and their professional contractors
and was acquired for $0.8 million, paid for in cash in 2000. The amounts
previously classified as goodwill have been reclassified to software. In
addition, the Company built a state-of-the-art component manufacturing facility
37
38
in Mackville, WI and expanded its facility in Decatur, IL to accommodate the
manufacturing of wall panels during 2000.
At December 29, 2001 the Company operated 98 sales and distribution centers
and 26 component manufacturing facilities compared with 101 sales and
distribution facilities and 27 component manufacturing facilities at December
30, 2000. At December 29, 2001, there were no material commitments to third
parties for future capital expenditures.
The Company maintained excess availability under its revolving credit
facilities throughout 2001. 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 and receivables needed for the peak building season. At March 2, 2002,
the Company had outstanding working asset borrowings of $84.6 million. The
minimum availability requirement was $25.0 million and the unused availability
was $31.3 million.
The Company's assessment of its future funds availability constitutes
Forward-Looking Information made pursuant to the Private Securities Litigation
Reform Act of 1995 and is inherently subject to uncertainty resulting from,
among other things, the factors discussed under "Results of Operations -
Provision for Income Taxes". The Company anticipates that funds provided by
operations and under this facility will be adequate for the Company's future
needs.
The Company's amended and restated credit agreement and the trust indenture
relating to the Company's 11-5/8% Senior Subordinated Notes contain certain
covenants and restrictions. Generally, the agreement and the trust indenture
restrict, among other things, capital expenditures, the incurrence of additional
debt, asset sales, dividends, investments, acquisitions and other restricted
payments. Furthermore, the agreement considers a change in control, as defined,
as an event of default. In addition, upon a change in control of the Company, as
defined in the trust indenture, the Company must offer to purchase the 11-5/8%
Senior Subordinated Notes at 101% of the principal thereof, plus accrued
interest.
On May 14, 2001, the Company amended the credit agreement to reduce the
level of net worth required on March 31, 2001. On August 13, 2001 the Company
amended the credit agreement to remove the net worth covenant, increase the
required minimum unused availability from $15 million to $25 million, and to
allow for certain corporate structure changes. The amendment also requires the
Company to maintain certain average borrowing levels. On February 28, 2002, the
Company amended the credit agreement to modify the approved average borrowing
levels for the next 12 months, and to reduce the capital spending limit from
$9.0 million to $7.0 million for 2002. In March 2002, the Company's bank group
waived compliance with sections 9.3, 9.6 and 9.10 of the amended and restated
credit agreement to allow a sale-leaseback transaction on the Company's Aurora,
CO. property. (See Note 7 to the Consolidated Financial Statements)
38
39
As further explained in Note 7 to the Consolidated Financial Statements, on
November 21, 2000 the Company commenced a cash tender offer for its outstanding
11-5/8% Senior Subordinated Notes due 2003, at a substantial discount from face
value. The offer expired on December 20, 2000 and on December 26, 2000, the
Company redeemed $36.0 million of notes tendered. As a result of this
transaction, the Company recorded a pre-tax gain of $11.1 million, net of costs
associated with the transaction. The net gain, after appropriate state and
federal income taxes was $6.8 million.
To provide the funds necessary to complete the Redemption, the Company
entered into an amended and restated credit agreement with its existing bank
group on December 13, 2000. The amended and restated credit agreement, among
other things, increased the total commitment to $251.7 million, removed the
seasonal reduction in borrowing capacity provided for in the previous credit
agreement, increased both the base rate and LIBOR based borrowing spreads, and
extended the final maturity of the revolving credit agreement to June 30, 2005.
A portion of the credit facility was provided as a one-time term loan in the
principal amount of $51.7 million that requires quarterly principal payments,
which began on March 31, 2001. The term loan contains provisions for mandatory
principal prepayments in the event that the Company receives cash in connection
with certain transactions, as defined.
A commitment fee of 0.38% is payable on the unused amount of the amended
and restated credit agreement. Interest on amounts outstanding under the amended
and restated credit agreement bear interest at a spread of 0.75% above the base
rate of Fleet National Bank (5.50% at December 29, 2001) or 2.50% above the
applicable LIBOR rate (4.69% at December 29, 2001). Depending upon the Company's
rolling four-quarter interest coverage ratio and unused availability, as
defined, amounts outstanding will bear interest at a spread above the base rate
from 0.0% to 0.75% or from 2.00% to 2.75% above the applicable LIBOR rate. At
December 29, 2001, the Company had designated $21.1 million and $72.0 million as
base rate and LIBOR borrowings, respectively. Amounts outstanding at December
29,2001 under the $45.3 million term loan portion bear interest at a spread of
3.00% above the applicable LIBOR rate. All interest is payable monthly.
The Company entered into an interest rate swap agreement that effectively
fixes the Company's borrowing cost at 5.75% plus the Company's LIBOR borrowing
spread on $40.0 million of the Company's amended and restated line of credit
borrowings. The interest rate swap agreement expired in February 2002.
Substantially all of the Company's accounts receivable, inventory and
general intangibles are pledged as collateral under the amended and restated
credit agreement. In addition, substantially all of the Company's owned real
estate assets were provided as additional collateral in connection with the term
loan. Availability is limited to 85.0% of eligible accounts receivable plus
60.0% of eligible inventory, with these percentages subject to change at the
permitted discretion of the agent for the lenders.
39
40
The Company's weighted-average interest rate on all outstanding borrowings,
excluding amortization of debt issue costs, for the years ended December 29,
2001, December 30, 2000 and December 25, 1999 was approximately 8.87%, 9.96% and
9.34%, respectively.
Contractual Obligations and Commercial Commitments
- --------------------------------------------------
To facilitate an understanding of the Company's contractual obligations and
commercial commitments, the following data are provided. Note that approximately
$1.1 million of mortgages on real estate included herein are classified as a
component of other long-term liabilities in the Company's Balance Sheet.
Payments Due by Period
--------------------------------------------------------------------
Within 2 - 3 4 - 5 After 5
Thousands Total 1 year years years years
-------------- ------------ ------------- ------------- ------------
Contractual Obligations
-------------------------------------------
Long-Term Debt $ 203,527 $ 9,717 $ 88,225 $ 105,585 $ -
Operating Leases 75,548 14,899 22,132 7,222 31,296
-------------- ------------ ------------- ------------- ------------
Total Contractual Cash Obligations $ 279,075 $ 24,616 $110,357 $ 112,807 $ 31,296
============== ============ ============= ============= ============
Other than the operating leases included above, the Company has no other
off-balance sheet financing arrangements.
Net Operating Loss Carryforwards
- --------------------------------
At December 29, 2001 the Company and its subsidiaries had federal income
tax net operating loss carryforwards ("NOLs") of approximately $41.4 million.
The NOLs will expire in the years 2006 to 2021 if not previously utilized. See
also Note 11 to the Consolidated Financial Statements included elsewhere herein.
The Company continues to review future earnings projections to determine
that there is sufficient support for its deferred tax assets and valuation
allowance. Management believes that it is more likely than not that the Company
will receive full benefit of its net deferred tax asset and that the valuation
allowance is properly stated.
40
41
Recently Issued Accounting Pronouncements
- -----------------------------------------
In October 2001, the Financial Accounting Standards Board issued Statement
of Accounting Standards No. 144 ("SFAS 144"), "Accounting for the Impairment or
Disposal of Long-Lived Assets." SFAS 144 supersedes SFAS 121, and requires that
long-lived assets held for use and those to be disposed of be measured for
impairment. The standard became effective for fiscal year 2002. The Company is
in the process of evaluating the adoption of this statement.
In July 2001, the Financial Accounting Standards Board issued Statement of
Accounting Standards No. 142 ("SFAS 142"), "Goodwill and Other Intangible
Assets." SFAS 142 requires companies to assess impairment of goodwill and other
intangible assets on at least an annual basis to determine whether the fair
value of those intangible assets continues to exceed the book value. Instead of
amortization of goodwill, companies are required to record an impairment charge
if the fair value is below carrying value. The standard became effective for the
Company in fiscal year 2002. Goodwill amortization for the years ended December
29, 2001 and December 30, 2000 was $515,000 and $621,000, respectively. The
Company is in the process of evaluating the adoption of this statement. It is
possible the Company could incur an impairment charge related to adopting this
statement.
On December 31, 2000, the Company adopted SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities," as amended ("SFAS 133"), which
establishes accounting and reporting standards for derivative instruments and
hedging activities. This standard requires that all derivative instruments,
including certain derivative instruments embedded in other contracts, be
recognized as assets or liabilities in the balance sheet and measured at fair
value. If a derivative is designated as a fair value hedge, changes in the fair
value of the derivative and the hedged item will be recognized in earnings. If a
derivative is designated as a cash flow hedge, changes in the fair value of the
derivative will be recorded in other comprehensive income and will be recognized
in the statement of operations when the hedged item affects earnings. For a
derivative that does not qualify as a hedge, changes in fair value will be
recorded in earnings. As a result of adopting SFAS 133 in 2000, the Company
recorded a pre-tax charge of approximately $0.1 million in the year 2000 as a
cumulative transition adjustment to other comprehensive income for derivatives
designated in cash flow-type hedges prior to adopting SFAS 133. At December 29,
2001 the Company's interest rate swap qualified as a hedge under SFAS 133 which
resulted in an adjustment to Other Comprehensive Income of $93,000, net of
income taxes of $57,000, and $116,000 interest expense for the year. The Company
did not have any commodity hedges open at December 29, 2001.
41
42
Item 7a. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
- --------------------------------------------------------
MARKET RISK.
------------
The Company is subject to market risk primarily associated with changes in
interest rates and commodity lumber prices.
Interest Rate Risk
------------------
As discussed in Note 7 to the Consolidated Financial Statements, to provide
the funds necessary to complete the redemption of a portion of the Company's
11-5/8% Senior Subordinated Notes due 2003, the Company entered into an amended
and restated credit agreement with its existing bank group on December 13, 2000.
The amended and restated credit agreement, among other things, increased the
total commitment to $251.7 million, removed the seasonal reduction in borrowing
capacity provided for in the previous credit agreement, increased both the base
rate and LIBOR based borrowing spreads, and extended the final maturity of the
revolving credit agreement to June 30, 2005. A portion of the credit facility
was provided as a one-time term loan in the principal amount of $51.7 million
that requires quarterly principal payments beginning on March 31, 2001. Interest
on amounts outstanding under the amended and restated revolving line of credit
bear interest at a spread of 0.75% above the base rate of Fleet National Bank
(5.50% at December 29, 2001) or 2.75% above the applicable LIBOR rate (4.69% at
December 29, 2001). Depending upon the Company's rolling four-quarter interest
coverage ratio and unused availability, as defined, amounts outstanding will
bear interest at a spread above the base rate from 0.0% to 0.75% or from 2.00%
to 2.75% above the applicable LIBOR rate. At December 29, 2001, the Company had
designated $21.1 million and $72.0 million as base rate and LIBOR borrowings,
respectively. Amounts outstanding at December 29, 2001 under the remaining $45.3
million term loan portion bear interest at a spread of 3.00% above the
applicable LIBOR rate.
The Company entered into an interest rate swap agreement that effectively
fixes the Company's borrowing cost at 5.75% plus the Company's LIBOR borrowing
spread on $40.0 million of the Company's amended and restated line of credit
borrowings. The interest rate swap agreement expired in February 2002.
Based on the Company's average borrowings under its revolving credit
agreements during 2001, including amounts outstanding under the term loan
portion and net of the impact of the interest rate swap agreement described
above, a hypothetical 25 basis point movement in the base rate or LIBOR rate
would result in an approximate $161,876 annualized increase or decrease in
interest expense. (See Note 12 of Consolidated Financial Statements included
elsewhere herein).
The fair value of the Company's outstanding 11 5/8% Senior Subordinated
Notes was $32.0 million and $38.3 million at December 29, 2001 and December 30,
2000, respectively. As discussed in Note 7 to the Consolidated Financial
Statements, the Company redeemed approximately $36.0 million face amount of the
notes in December 2000. Assuming a hypothetical 100 basis point decrease in the
yield to maturity of the outstanding notes at December 29, 2001, the fair value
of the fixed rate debt would have increased by $0.3 million.
42
43
Commodity Price Risk
--------------------
The Company will from time to time enter into lumber futures contracts to
hedge price fluctuations related to anticipated future purchases of commodity
lumber. While lumber futures contracts are entered into on a risk management
basis, the Company's hedge positions could show a net gain or loss depending on
prevailing market conditions. At December 29, 2001, the Company did not have any
lumber futures contracts outstanding.
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.
---------------------
Not Applicable.
43
44
PART III
--------
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
- -------------------------------------------------------------
Information required by this Item is incorporated herein by reference to
the Sections entitled "Election of Directors" and "Management" in the definitive
proxy statement to be filed in connection with the Company's 2001 Annual Meeting
of Stockholders tentatively scheduled to be held on May 21, 2002.
Item 11. EXECUTIVE COMPENSATION.
- ---------------------------------
Information required by this Item is incorporated herein by reference to
the Sections entitled "Executive Compensation", "Board of Directors' Meetings
and Compensation" (the last two paragraphs), "Report of the Compensation and
Benefits Committee" and "Comparison of Cumulative Total Return" in the
definitive proxy statement to be filed in connection with the Company's 2001
Annual Meeting of Stockholders tentatively scheduled to be held on May 21, 2002.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
- -------------------------------------------------------------------------
Information required by this Item is incorporated herein by reference to
the Section entitled "Principal Security Holders and Security Ownership of
Management" in the definitive proxy statement to be filed in connection with the
Company's 2001 Annual Meeting of Stockholders tentatively scheduled to be held
on May 21, 2002.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
- ---------------------------------------------------------
Information required by this Item is incorporated herein by reference to
the Section entitled "Certain Relationships and Related Transactions" in the
definitive proxy statement to be filed in connection with the Company's 2001
Annual Meeting of Stockholders tentatively scheduled to be held on May 21, 2002.
44
45
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
Consolidated balance sheets as of December 29, 2001
and December 30, 2000 F-2
Consolidated statements of operations for the years ended
December 29, 2001, December 30, 2000 and December 25, 1999 F-3
Consolidated statements of changes in common stockholders'
equity for the years ended December 29, 2001, December 30,
2000 and December 25, 1999 F-4
Consolidated statements of cash flows for the years ended
December 29, 2001, December 30, 2000 and December 25, 1999 F-5
Notes to consolidated financial statements F-6
(2) Financial Statement Schedules:
- ------------------------------------
Report of Independent Accountants S-1
Schedule II. Valuation and Qualifying Accounts S-2
(3) Exhibits
- -------------
See Exhibit Index included elsewhere herein.
(b) Reports on Form 8-K
- ------------------------
The Company has filed no reports on Form 10-k with the Securities and
Exchange Commision during the last quarter of the fiscal year.
(c) See item 14(a)(3) above
- --------------------------------
(d) See item 14(a)(2) above
- --------------------------------
45
46
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 29, 2002 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 29, 2002
- --------------------
J. Steven Wilson (Principal Executive and Financial Officer)
Director
/s/ James A. Hopwood Senior Vice President, Chief Financial March 29, 2002
- --------------------
James A. Hopwood Officer (Principal Accounting Officer)
/s/ Harry T. Carneal Director March 29, 2002
- --------------------
Harry T. Carneal
/s/ Albert Ernest, Jr. Director March 29, 2002
- ----------------------
Albert Ernest, Jr.
/s/ William H. Luers Director March 29, 2002
- --------------------
William H. Luers
/s/ Robert E. Mulcahy III Director March 29, 2002
- -------------------------
Robert E. Mulcahy III
/s/ Frederick H. Schultz Director March 29, 2002
- ------------------------
Frederick H. Schultz
/s/ Robert T. Shaw Director March 29, 2002
- ------------------
Robert T. Shaw
/s/ Claudia B. Slacik Director March 29, 2002
- ---------------------
Claudia B. Slacik
46
47
INDEPENDENT AUDITORS' REPORT
----------------------------
To the Board of Directors and Stockholders of
Wickes Inc.
Vernon Hills, IL
We have audited the accompanying consolidated balance sheets of Wickes Inc. and
subsidiaries (the "Company") as of December 29, 2001 and December 30, 2000, and
the related consolidated statements of operations, stockholders' equity, and
cash flows for each of the three years in the period ended December 29, 2001.
Our audits also included the financial statement schedules for each of the three
years in the period ended December 29, 2001, listed in the Index at Item 14.
These consolidated financial statements and financial statement schedules are
the responsibility of the Company's management. Our responsibility is to express
an opinion on the consolidated financial statements and financial statement
schedules based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the consolidated
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the consolidated financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall consolidated financial statement presentation. We
believe that our audits provide 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 29, 2001 and December 30, 2000, and the results of their operations and
their cash flows for each of the three years in the period ended December 29,
2001, in conformity with accounting principles generally accepted in the United
States of America. Also, in our opinion, such financial statement schedules,
when considered in relation to the basic consolidated financial statements taken
as a whole, present fairly in all material respects the information set forth
therein.
/s/Deloitte & Touche LLP
Chicago, IL
March 5, 2002, except for the last paragraph of Note 7, as to which the date is
March 29, 2002.
48
WICKES INC. AND SUBSIDIARIES
----------------------------
CONSOLIDATED BALANCE SHEETS
December 29, 2001 and December 30, 2000
(in thousands except share data)
2001 2000
---- ----
ASSETS
Current assets:
Cash $ 198 $ 243
Accounts receivable, less allowance for doubtful
accounts of $2,119 in 2001 and $2,791 in 2000 83,369 76,659
Notes receivable from affiliate 430 201
Inventory 100,357 117,910
Deferred tax asset 7,474 6,692
Prepaid expenses 3,155 3,405
----- -----
Total current assets 194,983 205,110
------- -------
Notes receivable from affiliate - 282
Property, plant and equipment, net 58,452 55,474
Trademark (net of accumulated amortization of
$11,163 in 2001 and $10,941 in 2000) 5,856 6,079
Deferred tax asset 16,557 12,990
Rental equipment (net of accumulated depreciation
of $2,186 in 2001 and $1,582 in 2000) 2,287 2,296
Other assets (net of accumulated amortization of
$14,456 in 2001 and $12,440 in 2000) 17,035 18,705
------ ------
Total assets $ 295,170 $ 300,936
======== ========
LIABILITIES & STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt $ 9,157 $ 6,339
Accounts payable 43,956 35,294
Accrued liabilities 18,660 21,576
------ ------
Total current liabilities 71,773 63,209
------ ------
Long-term debt, less current maturities 193,253 200,403
Other long-term liabilities 3,373 3,428
Commitments and contingencies (Note 8)
Stockholders' equity:
Common stock $0.01 par (8,281,585 and 8,271,313
shares issued and outstanding in 2001 and 2000,respectively) 83 83
Accumulated comprehensive loss (93) -
Additional paid-in capital 87,134 87,092
Accumulated deficit (60,353) (53,279)
------- -------
Total stockholders' equity 26,771 33,896
------ ------
Total liabilities and stockholders' equity $ 295,170 $ 300,936
======== ========
The accompanying notes are an integral part of the consolidated financial
statements.
F-2
49
WICKES INC. AND SUBSIDIARIES
----------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended December 29, 2001, December 30, 2000, and December 25, 1999
(in thousands, except per share data)
2001 2000 1999
---- ---- ----
Net sales $1,000,999 $1,027,604 $1,087,402
Cost of sales 789,446 804,512 862,798
------- ------- -------
Gross profit 211,553 223,092 224,604
------- ------- -------
Selling, general and administrative expenses 194,608 199,889 185,884
Depreciation, goodwill and trademark amortization 6,508 5,877 5,295
Provision for doubtful accounts 1,470 983 1,724
Severance and other items 1,744 - -
Other operating income (4,344) (3,292) (4,932)
------ ------ ------
199,986 203,457 187,971
------- ------- -------
Income from operations 11,567 19,635 36,633
Interest expense 21,787 24,322 23,302
------ ------ ------
(Loss) income before income taxes (10,220) (4,687) 13,331
(Benefit) provision for income taxes: (3,146) (735) 5,743
------ ---- -----
(Loss) income before extraordinary item (7,074) (3,952) 7,588
Extraordinary gain on early extinguishment
of debt, net of taxes of $4,313 - 6,806 -
------ ----- -----
Net (loss) income $ (7,074) $ 2,854 $ 7,588
====== ====== ======
(Loss) income before extraordinary gain per
common share - basic $ (0.85) $ (0.48) $ 0.92
====== ====== ======
(Loss) income before extraordinary gain per
common share - diluted $ (0.85) $ (0.48) $ 0.91
====== ====== ======
Net (loss) income per common share - basic $ (0.85) $ 0.35 $ 0.92
====== ====== ======
Net (loss) income per common share - diluted $ (0.85) $ 0.34 $ 0.91
====== ====== ======
Weighted average common shares - for basic 8,277,190 8,249,774 8,216,265
========= ========= =========
Weighted average common shares - for diluted 8,277,190 8,466,383 8,330,571
========= ========= =========
The accompanying notes are an integral part of the consolidated financial
statements.
F-3
50
WICKES INC. AND SUBSIDIARIES
----------------------------
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
For the Years Ended December 25, 1999, December 30, 2000 and December 29, 2001
(in thousands, except for share data)
Additional Accumulated
Common Stock Paid-in Accumulated Comprehensive Total
Shares Amount Capital Deficit Loss Equity
------ ------ ------- ------- ---- ------
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
Net income - - 2,854 2,854
Issuance of common stock 46,425 1 222 - 223
------ - --- ------- ---
Balance at December 30, 2000 8,271,313 83 87,092 (53,279) 33,896
Net Loss (7,074) (7,074)
Other comprehensive loss (93) (93)
---
Total comprehensive loss (7,167)
Issuance of Common stock 10,272 - 42 - - 42
------ ----- ----- ------ ----- -----
Balance at December 29, 2001 8,281,585 $ 83 $ 87,134 $ (60,353) (93) $ 26,771
========= ===== ======== ========= ===== ========
The accompanying notes are an integral part of the consolidated financial
statements.
F-4
51
WICKES INC. AND SUBSIDIARIES
----------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 29, 2001, December 30, 2000, and December 25, 1999
(in thousands)
2001 2000 1999
---- ---- ----
Cash flows from operating activities:
Net (loss) income $ (7,074) $ 2,854 $ 7,588
Adjustments to reconcile net (loss) income to
net cash from operating activities:
Extraordinary gain - (6,806) -
Depreciation expense 7,719 6,507 5,852
Amortization of trademark 222 222 222
Amortization of goodwill 515 621 399
Amortization of deferred financing costs 1,449 1,274 1,510
Provision for doubtful accounts 1,470 983 1,724
Gain on sale of assets and other items (1,270) 77 (1,375)
Deferred tax (benefit) provision (4,349) (2,116) 4,460
Changes in assets and liabilities, net of the effects of acquisitions:
(Increase) / decrease in accounts receivable (8,153) 32,461 (16,904)
Decrease / (increase) in inventory 17,728 2,795 (15,831)
Decrease / (increase) in accounts payable and accrued liabilities 4,569 (22,150) 3,539
Increase in prepaids and other assets 372 (1,830) (666)
----- ------ ----
NET CASH PROVIDED BY / (USED IN) OPERATING ACTIVITIES 13,198 14,892 (9,482)
------ ------ ------
Cash flows from investing activities:
Purchases of property, plant and equipment (10,269) (9,734) (8,624)
Payments for acquisitions (760) (800) (12,999)
Proceeds from sales of property, plant and equipment 2,646 1,291 4,026
----- ----- -----
NET CASH USED IN INVESTING ACTIVITIES (8,383) (9,243) (17,597)
------ ------ -------
Cash flows from financing activities:
Decrease / (increase) in notes receivable 53 (2) 614
Debt issuance cost (581) (2,595) (2,294)
Net borrowing / (repayments) under revolving line of credit (4,332) 22,044 28,782
Reductions of notes payable - (24,925) (16)
------- ------- -----
NET CASH (USED IN) / PROVIDED BY FINANCING ACTIVITIES (4,860) (5,478) 27,086
------ ------ ------
NET (DECREASE) / INCREASE IN CASH (45) 171 7
Cash at beginning of year 243 72 65
----- ----- -----
CASH AT END OF YEAR $ 198 $ 243 $ 72
======= ======== =======
Supplemental schedule of cash flow information:
Interest paid $ 19,458 $ 23,203 $21,503
Income taxes paid 1,141 1,457 1,524
Supplemental schedule of non-cash investing and financing activities:
The Company purchased assets in conjunction with acquisitions
made during the period. In connection with these acquisitions,
liabilities were assumed as follows:
Assets acquired $ 1,789 $ 800 $14,850
Liabilities assumed $ 1,030 $ - $ 529
Purchase price payable $ 759 $ - $ 1,322
The accompanying notes are an integral part of the consolidated
financial statements.
F-5
52
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------
1. Description of Business
- ---------------------------
Wickes Inc. (formerly Wickes Lumber Company), through its sales and
distribution facilities, markets lumber and building materials and provides
specialized 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 and
transactions have been eliminated in consolidation.
Fiscal Year
- -----------
The Company's fiscal year ends on the last Saturday in December. All
periods presented represent 52-week years with the exception of 2000 being a
53-week year.
Revenue Recognition
- -------------------
The Company recognizes revenues at the time products are shipped or
services are provided. For contracts that have material or service elements
provided over extended periods of time, revenue generally is recognized, as
materials are delivered, services have been performed and manufactured building
components have been delivered or installed. Prepayments for materials or
services are deferred until such materials have been delivered or services have
been provided.
Cash and Cash Equivalents
- -------------------------
The Company considers all highly liquid investments with a maturity date of
three months or less to be cash equivalents.
F-6
53
Accounts Receivable
- -------------------
The Company extends credit primarily to qualified professional contractors
and professional repair and remodelers, generally on a non-collateralized basis.
The allowance for doubtful accounts is based on management's assessment of the
amount which may become uncollectable in the future and is estimated using
specific review of problem accounts, overall portfolio quality and current
economic conditions that may affect the borrower's ability to pay, and
historical experience.
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 for
buildings and improvements. Leasehold improvements are depreciated over the
lesser of the estimated useful life of the asset or the lease term. Machinery
and equipment, which includes software, 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 using the straight-line method over a 3 to
7 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 10 to 35
years and deferred financing costs over the expected terms of the related debt
agreements.
Amortization expense for deferred financing costs is reflected as interest
expense on the Company's Consolidated Statements of Operations.
Trademark
- ---------
The cost of Company's "Flying W" trademark is being amortized over a
40-year period.
F-7
54
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."
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 is 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 accounting
principles generally accepted in the United States 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.
F-8
55
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 historically has 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 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
- -----------------
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information" 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 2001,
2000, and 1999.
Recently Issued Accounting Pronouncements
- -----------------------------------------
In October 2001, the Financial Accounting Standards Board issued Statement
of Accounting Standards No. 144 ("SFAS 144"), "Accounting for the Impairment or
Disposal of Long-Lived Assets." SFAS 144 supersedes SFAS 121, and requires that
long-lived assets held for use and those to be disposed of be measured for
impairment. The standard became effective for fiscal year 2002. The Company is
in the process of evaluating the adoption of this statement.
F-9
56
In July 2001, the Financial Accounting Standards Board issued Statement of
Accounting Standards No. 142 ("SFAS 142"), "Goodwill and Other Intangible
Assets." SFAS 142 requires companies to assess impairment of goodwill and other
intangible assets on at least an annual basis to determine whether the fair
value of those intangible assets continues to exceed the book value. Instead of
amortization of goodwill, companies are required to record an impairment charge
if the fair value is below carrying value. The standard became effective for the
Company in fiscal year 2002. Goodwill amortization for the years ended December
29, 2001 and December 30, 2000 was $515,000 and $621,000, respectively. The
Company is in the process of evaluating the adoption of this statement. It is
possible the Company could incur an impairment charge related to adopting this
statement.
On December 31, 2000, the Company adopted SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities," as amended ("SFAS 133"), which
establishes accounting and reporting standards for derivative instruments and
hedging activities. This standard requires that all derivative instruments,
including certain derivative instruments embedded in other contracts, be
recognized as assets or liabilities in the balance sheet and measured at fair
value. If a derivative is designated as a fair value hedge, changes in the fair
value of the derivative and the hedged item will be recognized in earnings. If a
derivative is designated as a cash flow hedge, changes in the fair value of the
derivative will be recorded in other comprehensive income and will be recognized
in the statement of operations when the hedged item affects earnings. For a
derivative that does not qualify as a hedge, changes in fair value will be
recorded in earnings. As a result of adopting SFAS 133 in 2000, the Company
recorded a pre-tax charge of approximately $0.1 million in the year 2000 as a
cumulative transition adjustment to other comprehensive income for derivatives
designated in cash flow-type hedges prior to adopting SFAS 133. At December 29,
2001 the Company's interest rate swap qualified as a hedge under SFAS 133 which
resulted in an adjustment to Other Comprehensive Income of $93,000, net of
income taxes of $57,000, and $116,000 interest expense for the year. The Company
did not have any commodity hedges open at December 29, 2001.
Reclassifications and Eliminations
- ----------------------------------
Certain reclassifications have been made to prior year amounts to conform
to the current presentation. All material intercompany balances and transactions
have been eliminated.
F-10
57
3. Other Comprehensive Income
- -----------------------------
The components of comprehensive (loss) income for the years ended December
29, 2001 and December 30, 2000 are as follows (in thousands):
Dec. 29, Dec. 30,
2001 2000
---- ----
Net (loss) income $ (7,074) $ 2,854
-------- ----------
Change in fair value of interest
rate swap, net of tax of
$57 (93) -
--- ---
Comprehensive (loss) income $ (7,167) $ 2,854
--------- ----------
4. Acquisitions
- ---------------
During 2001, the Company acquired the real estate and other assets of a
local lumber distributor in Kenvil, New Jersey for approximately $1.6 million,
of which $650,000 was paid in cash and $950,000 in a three-year purchase money
mortgage. The purpose of the acquisition is to relocate an existing lumber and
distribution center from a nearby leased location. In addition, the Company
acquired JWatt Construction, a framing contractor for construction of
residential and commercial real property, for an immaterial purchase price. The
Company has accrued a liability for payments to be paid over a three-year
period.
The Company made one acquisition during 2000, acquiring TresArk
Enterprises, Inc. TresArk Enterprises, Inc. is a producer of construction
management software designed for lumberyards and their professional contractors
and was acquired for $0.8 million, paid for in cash in 2000. The amounts
previously classified as goodwill have been reclassified to software.
During 1999, the Company made four acquisitions, all component facilities.
The total purchase price of these acquisitions was $14.3 million. In January
1999, the Company acquired the assets of a wall panel manufacturer located in
Cookeville, Tennessee. In March 1999, the Company acquired the assets of Porter
Building Products, a manufacturer of trusses and wall panels, located in Bear,
Delaware. In October 1999, 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 1999, 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 resulted in
F-11
58
goodwill, which is being amortized on a straight-line basis. All acquisitions
have been accounted for as purchases. Operations of the companies acquired have
been included in the accompanying consolidated financial statements from their
respective acquisition dates.
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 29, December 30,
2001 2000
---- ----
(in thousands)
Land and improvements $15,168 $14,356
Buildings 35,432 32,997
Machinery and equipment 41,979 39,410
Leasehold improvements 3,537 3,680
Construction in progress 3,110 2,246
----- -----
Gross property, plant, and equipment 99,226 92,689
Less: accumulated depreciation (42,278) (39,822)
------- -------
Property, plant, and equipment
in use, net 56,948 52,867
Assets held for sale, net 1,504 1,517
----- -----
Property, plant, and equipment, net $58,452 $54,384
======= =======
Sales of Real Estate
- --------------------
In 2001, the Company sold four pieces of real estate for a net gain of $1.2
million. One property, which had been held since first quarter 1996 was sold at
a net loss of $10,000. The other three properties were not held for sale and
were sold for net gains. Of the three properties, one was an easement of
property, one was a result of relocation to a larger facility, and one was a
result of closing a center and selling the property.
In 2000, the Company sold three pieces of real estate for a net gain
$204,000. One property, which had been held for sale since 1998 had been
previously written down by $119,000 from its original net book value and sold at
a net loss of $72,000. The other two properties, both held for sale since prior
to 1996, had not been previously written down and each were sold for net gains.
F-12
59
In 1999, the Company sold five pieces of real estate for a net gain of $1.4
million. One 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.
The Company reviews assets held for sale in accordance with SFAS No. 121.
At December 30, 2000, the Company held three properties for resale that had been
written down to their estimated fair market values prior to 1998. The Company
did not record any impairment to the cost of assets held for sale in 2001, 2000
or 1999. Certain of these properties are leased to others until such time that
appropriate disposition can be affected.
6. Accrued Liabilities
- -----------------------
Accrued liabilities consist of the following:
December 29, December 30,
2001 2000
---- ----
(in thousands)
Accrued payroll $6,965 $9,038
Accrued liability insurance 2,034 5,183
Other 9,661 7,355
----- -----
Total accrued liabilities $18,660 $21,576
======= =======
7. Long-Term Debt
- ------------------
Long-term debt obligations are summarized as follows:
December 29, December 30,
2001 2000
---- ----
(in thousands)
Senior subordinated notes $ 63,956 $ 63,956
Revolving credit facility:
Revolving notes 93,143 91,136
Term notes 45,311 51,650
------ ------
Total long-term debt 202,410 206,742
Less current maturities 9,157 6,339
----- -----
Total long-term debt less current
maturities $193,253 $200,403
======== ========
F-13
60
Aggregate Maturities
- --------------------
The remaining outstanding principal balance of the Notes, totaling $64.0
million, matures on December 15, 2003. The amended and restated credit facility
has an expiration date of June 30, 2005. The term loan portion of the revolving
credit facility includes required quarterly principal payments as follows: $2.1
million from March 31, 2001 through December 31, 2001; $2.3 million from March
31, 2002 through December 31, 2002; $3.0 million from March 31, 2003 through
December 31, 2004; $4.7 million on March 31, 2005; with the remaining principal
balance due June 30,2005. In addition, the term loan contains provisions for
mandatory principal prepayments in the event that the Company receives cash in
connection with certain transactions, as defined.
Senior Subordinated Notes
- -------------------------
On October 22, 1993, the Company issued $100.0 million principal amount of
10-year unsecured senior subordinated notes, due December 15, 2003
(collectively, the "Notes"). Interest on the Notes is 11-5/8%, which is payable
semi-annually. Covenants under the related indenture restrict, among other
things, the payment of dividends, the prepayment of certain debt, the incurrence
of additional debt if certain financial ratios are not met, the sale of certain
assets unless the proceeds are applied to the Notes and other restricted
payments. In addition, the Notes require that, upon a change in control of the
Company, as defined, the Company must offer to purchase the Notes at 101% of the
principal thereof, plus accrued interest.
On November 21, 2000 the Company commenced a cash tender offer for the
Notes, at a substantial discount from face value. The offer expired on December
20, 2000 and on December 26, 2000, the Company redeemed $36.0 million of notes
tendered (the "Redemption"). As a result of this transaction, the Company
recorded a pre-tax gain of $11.1 million, net of costs associated with the
transaction. The net gain, after appropriate state and federal income taxes was
$6.8 million.
Revolving Line of Credit / Term Debt
- ------------------------------------
The Company's amended and restated credit agreement and the trust indenture
relating to the Company's 11-5/8% Senior Subordinated Notes contain certain
covenants and restrictions. Generally, the agreement and the trust indenture
restrict, among other things, capital expenditures, the incurrence of additional
debt, asset sales, dividends, investments, acquisitions and other restricted
payments. Furthermore, the agreement considers a change in control, as defined,
as an event of default. In addition, upon a change in control of the Company, as
defined in the trust indenture, the Company must offer to purchase the 11-5/8%
Senior Subordinated Notes at 101% of the principal thereof, plus accrued
interest.
F-14
61
On November 21, 2000 the Company commenced a cash tender offer for its
outstanding 11-5/8% Senior Subordinated Notes due 2003, at a substantial
discount from face value. The offer expired on December 20, 2000 and on December
26, 2000, the Company redeemed $36.0 million of notes tendered. As a result of
this transaction, the Company recorded a pre-tax gain of $11.1 million, net of
costs associated with the transaction. The net gain, after appropriate state and
federal income taxes was $6.8 million.
To provide the funds necessary to complete the Redemption, the Company
entered into an amended and restated credit agreement with its existing bank
group on December 13, 2000. The amended and restated credit agreement, among
other things, increased the total commitment to $251.7 million, removed the
seasonal reduction in borrowing capacity provided for in the previous credit
agreement, increased both the base rate and LIBOR based borrowing spreads, and
extended the final maturity of the revolving credit agreement to June 30, 2005.
A portion of the credit facility was provided as a one-time term loan in the
principal amount of $51.7 million that requires quarterly principal payments,
which began on March 31, 2001. The term loan contains provisions for mandatory
principal prepayments in the event that the Company receives cash in connection
with certain transactions, as defined.
A commitment fee of 0.38% is payable on the unused amount of the amended
and restated revolving line of credit. Interest on amounts outstanding under the
amended and restated revolving line of credit bear interest at a spread of 0.75%
above the base rate of Fleet National Bank (5.50% at December 29, 2001) or 2.50%
above the applicable LIBOR rate (4.69% at December 29, 2001). Depending upon the
Company's rolling four-quarter interest coverage ratio and unused availability,
as defined, amounts outstanding will bear interest at a spread above the base
rate from 0.0% to 0.75% or from 2.00% to 2.75% above the applicable LIBOR rate.
At December 29, 2001, the Company had designated $21.1 million and $72.0 million
as base rate and LIBOR borrowings, respectively. Amounts outstanding under the
$45.3 million term loan portion bear interest at a spread of 3.00% above the
applicable LIBOR rate. All interest is payable monthly.
The Company has entered into an interest rate swap agreement that
effectively fixes the Company's borrowing cost at 5.75% plus the Company's LIBOR
borrowing spread on $40.0 million of the Company's amended and restated line of
credit borrowings. The interest rate swap agreement expired in February 2002.
Substantially all of the Company's accounts receivable, inventory and
general intangibles are pledged as collateral for the amended and restated
revolving line of credit. In addition, substantially all of the Company's owned
real estate assets were provided as additional collateral in connection with the
term loan. Availability is limited to 85.0% of eligible accounts receivable plus
60.0% of eligible inventory, with these percentages subject to change at the
permitted discretion of the agent for the lenders.
F-15
62
The Company's weighted-average interest rate on all outstanding borrowings,
excluding amortization of debt issue costs, for the years ended December 29,
2001, December 30, 2000 and December 25, 1999 was approximately 8.87%, 9.96% and
9.34%, respectively.
On May 14, 2001, the Company amended the credit agreement to reduce the
level of net worth required on March 31, 2001. On August 13, 2001 the Company
amended the credit agreement to remove the net worth covenant, increase the
required minimum unused availability from $15 million to $25 million, and to
allow for certain corporate structure changes. The amendment also requires the
Company to maintain certain average borrowing levels. On February 28, 2002, the
Company amended the credit agreement to modify the approved average borrowing
levels for the next 12 months, and to reduce the capital spending limit from
$9.0 million to $7.0 million for 2002. In March 2002, the Company's bank group
waived compliance with sections 9.3, 9.6 and 9.10 of the amended and restated
credit agreement to allow a sale-leaseback transaction on the Company's Aurora,
CO. property.
8. Commitments and Contingencies
- ---------------------------------
At December 29, 2001, the Company had accrued approximately $113,000 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 decommissioned or removed. 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 be held responsible for under certain circumstances. 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
six years.
The Company previously had been identified as having used two landfills
which are now Superfund clean up sites. The Company's obligation related to
these items were settled for immaterial amounts.
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
F-16
63
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 not expected to be material.
The Company is one of many defendants in approximately 424 actions, each of
which seeks unspecified damages, in various state courts against manufacturers
and building material retailers by individuals who claim to have suffered
injuries from products containing asbestos. 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 68
similar actions for insignificant amounts, and another 262 of these actions have
been dismissed. None of these suits have made it to trial.
Losses in excess of the $113,000 reserved as of December 29, 2001 are
possible, but an estimate of these amounts cannot be made.
The Company is involved in various other legal proceedings that 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 entered into a sale-leaseback transaction for a facility
located in Aurora, CO. The Company sold the property for approximately $2.7
million and accepted a 6 month promissory note with recourse against the asset
sold. The Company has accounted for this transaction under the deposit method,
under the requirements of SFAS No. 66 "Accounting for the Sale of Real Estate".
Under the deposit method, the Company does not recognize any profit or note
receivable, and continues to report in the financial statements the property and
related debt, if any. The Company paid cash for the land and building upon the
initial purchase and thus, does not have a mortgage associated with the
building.
The lease has an initial 20-year lease term with two additional renewal
options of five years each. The minimum lease payments are included in the
minimum lease schedule summarized below.
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 $18.5 million, $17.4 million, and
$14.3 million for the years ended December 29, 2001, December 30, 2000, and
December 25, 1999, respectively.
F-17
64
Future minimum commitments for noncancelable operating leases are as
follows:
Year Amount
---- ------
(in thousands)
2002 $14,899
2003 12,551
2004 9,581
2005 4,649
2006 2,572
Thereafter 31,296
------
Subtotal 75,548
Less sublease income (6,273)
------
Total $69,275
=======
9. Stockholders' Equity
- ------------------------
Preferred Stock
- ---------------
As of December 29, 2001, 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 29, 2001, there were 20,000,000 shares of
Common Stock authorized and 8,281,585 shares issued and outstanding. In
addition, at December 29, 2001, there were options to purchase 653,297 shares of
Common Stock under the Company's 1993 Long-Term Incentive Plan and 1993 Director
Incentive Plan.
Stock Compensation Plans
- ------------------------
As of December 29, 2001, 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. No more than 835,000 shares of common stock
may be issued under the Incentive Plan. Under the 1993 Director Incentive Plan,
the Company may grant options and other awards and issue shares in lieu of
directors fees to directors. No more than 75,000 shares may be issued under the
Director Plan. 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.
F-18
65
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):
2001 2000 1999
---- ---- ----
(Loss) income before
extraordinary gain As reported $(7,074) $(3,952) $7,558
Pro forma $(7,166) $(4,158) $7,357
Net (loss) income As reported $(7,074) $2,854 $ 7,558
Pro forma $(7,166) $2,648 $ 7,357
(Loss) income before
extraordinary gain per
share - basic As reported $(.85) $(.48) $ .92
Pro forma $(.87) $(.50) $ .90
(Loss) income before
extraordinary gain per
share - diluted As reported $(.85) $(.48) $ .91
Pro forma $(.87) $(.50) $ .88
Net (loss) income per
share - basic As reported $(.85) $ .35 $ .92
Pro forma $(.87) $ .32 $ .90
Net (loss) income per
share - diluted As reported $(.85) $ .34 $ .91
Pro forma $(.87) $ .31 $ .88
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 2001, 2000, and 1999, respectively: dividend
yield of 0% for all years; expected volatility of 68%, 60%, and 49%; risk-free
interest rates of 4.9%, 6.7% and 5.1%; and an expected life of 5.5, 5.6 and 5.6
years.
F-19
66
A summary of the status of the Company's fixed stock option plans as of
December 29, 2001, December 30, 2000 and December 25, 1999 and changes during
the years ended on those dates is presented as follows:
2001 2000 1999
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Fixed Options Shares Price Shares Price Shares Price
- ------------- ------ ----- ------ ----- ------ -----
Outstanding beginning
of year 776,797 $ 7.23 788,072 $ 7.22 734,263 $ 7.67
Granted 75,500 $ 4.49 83,500 $ 6.90 121,475 $ 4.85
Exercised - (39,433) $ 3.68 (3,617) $ 3.91
Forfeited, cancelled
or expired (199,000) $ 4.72 (55,342) $ 9.04 (64,049) $ 8.17
-------- ------- -------
Outstanding end
of year 653,297 $ 7.68 776,797 $ 7.23 788,072 $ 7.22
Options exercisable
at year end 526,532 $ 8.26 443,404 $ 8.86 384,720 $ 10.23
Options available for
future grant at
year end 202,639 79,139 107,297
Weighted-average fair value of options granted during the year where:
2001 2000 1999
---- ---- ----
Exercise price equals market price $ 2.84 $ 4.02 $2.51
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 29, 2001:
Options Outstanding Options Exercisable
------------------- -------------------
Weighted-
Average Weighted- Weighted-
Range of Number Remaining Average Number Average
Exercise Outstanding Contractual Exercise Exercisable Exercise
Prices at 12/29/01 Life Price at 12/29/01 Price
------ ----------- ---- ----- ----------- -----
$ 3.06 - $ 5.00 380,457 6.5 years $ 4.28 291,674 $ 4.18
$ 5.13 - $ 7.00 89,917 6.8 years $ 6.34 51,935 $ 5.96
$ 10.95 - $ 23.25 182,923 2.7 years $ 15.41 182,923 $ 15.41
F-20
67
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:
2001 2000 1999
---- ---- ----
Numerators:
Income (loss) before extraordinary
gain - for basic and diluted EPS $(7,074,000) $(3,952,000) $7,588,000
Net income (loss) - for basic and
diluted EPS $(7,074,000) $2,854,000 $7,588,000
Denominators:
Weighted average common
shares - for basic EPS 8,277,190 8,249,774 8,216,265
Common shares from options - 98,885 82,191
Other common stock equivalents - 117,724 32,115
----- ------- ------
Weighted average common
shares - for diluted EPS 8,277,190 8,466,383 8,330,571
========= ========= =========
In years where net losses are incurred, the dilutive effects of options and
other common stock equivalents are not used in the calculation of diluted EPS,
as they would be anti-dilutive. In addition, options to purchase 544,000,
278,000 and 227,000 weighted-average shares of common stock during 2001, 2000
and 1999 were not included in the calculation of 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 ended December
29, 2001, December 30, 2000, and December 25, 1999 were $2.0 million, $2.1
million and $1.8 million, 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
F-21
68
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 29, December 30,
2001 2000
---- ----
(in thousands)
Change in accumulated postretirement benefit obligation:
Benefit obligation at beginning of year $2,247 $2,142
Service cost 335 263
Interest cost 179 157
Participant contributions - -
Claims paid (703) (317)
Actuarial losses (gains) 325 2
Plan amendments - -
------ -------
Benefit obligation at year-end $2,384 $2,247
====== ======
Change in plan assets:
Fair value of plan assets n/a n/a
Reconciliation of funded status:
Funded status $(2,384) $(2,247)
Unrecognized transition obilgation - -
Unrecognized prior service cost (20) (30)
Unrecognized actuarial gain (442) (794)
---- ----
Net amount recognized as other
long-term liabilities $(2,846) $(3,071)
======= =======
Weighted-average assumptions as of year-end:
Discount rate 7.25% 7.50%
Expected return on assets n/a n/a
Medical cost trend 6.00% 6.00%
December 29, December 30, December 25,
2001 2000 1999
---- ---- ----
(in thousands)
Components of net periodic benefit cost:
Service cost $ 335 $ 264 $ 244
Interest cost 179 157 151
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 gain (27) (80) (39)
--- --- ---
Net periodic benefit cost $ 478 $ 331 $ 346
======= ======= =======
F-22
69
December 29, December 30, December 25,
2001 2000 1999
---- ---- ----
(in thousands)
Weighted average assumptions used in
computing net periodic benefit cost:
Discount rate 7.50% 8.00% 6.75%
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 $ 28 $ (25)
Effect on postretirement benefit obligation 66 (62)
Postemployment Benefits
- -----------------------
The Company provides certain postemployment benefits to qualified former or
inactive employees who are not retirees. The Company had accrued $219,000 and
$152,000 at December 29, 2001 and December 30, 2000, respectively. These
benefits include salary continuance, severance, and healthcare. Salary
continuance and severance pay are based on compensation and 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-23
70
11. Income Taxes
- -------------------
The Company and its subsidiaries file a consolidated federal income tax
return. As of December 29, 2001, the Company has net operating loss
carryforwards available to offset future taxable income of approximately $41.4
million expiring in the years 2006 through 2021.
The income tax provision consists of both current and deferred amounts. The
components of the income tax provision are as follows:
December 29, December 30, December 25,
2001 2000 1999
---- ---- ----
(in thousands)
Taxes currently payable:
State income tax $ 1,203 $ 1,372 $ 1,122
Federal income tax - 9 161
Deferred (benefit) expense (4,349) (2,116) 4,460
------ ------ -----
Income tax (benefit) expense (3,146) (735) 5,743
Extraordinary expense - 4,313 -
------ -------- -----
Total income tax (benefit)
expense $(3,146) $ 3,578 $ 5,743
======= ======= =======
An effective federal and state income tax rate of 38.9%, 38.8% and 38.7%
was used to calculate income taxes for 2001, 2000 and 1999, respectively. In
addition to the effective income tax rate, state franchise taxes of $1.1
million, $1.4 million and $1.1 million are included in the provision reported
for 2001, 2000 and 1999, respectively. 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 29, December 30, December 25,
2001 2000 1999
---- ---- ----
(in thousands)
Tax/(benefit) computed at
U.S. statutory tax rate $(3,577) $ 2,251 $ 4,666
State and local taxes 312 1,020 1,159
Alternative minimum tax
Differential - 9 161
Other 119 298 (243)
--- --- ----
Total tax provision $(3,146) $ 3,578 $ 5,743
======= ======== ========
F-24
71
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 2000, and its expectations for the future, that
taxable 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 29, 2001 and December 30, 2000 are as
follows:
December 29, December 30,
2001 2000
---- ----
( in thousands )
Deferred income tax assets:
Trade accounts receivable $ 863 $ 1,139
Inventories 2,822 3,066
Accrued personnel cost 1,249 1,316
Other accrued liabilities 5,201 3,673
Net operating loss 14,487 13,247
Other 6,132 3,622
----- -----
Gross deferred income tax assets 30,754 26,063
Less: valuation allowance (1,190) (1,132)
------ ------
Total deferred income tax assets 29,564 24,931
------ ------
Deferred income tax liabilities:
Property, plant and equipment 1,241 1,537
Goodwill and trademark 3,104 3,083
Other accrued liabilities 1,188 629
----- ---
Total deferred income tax liabilities 5,533 5,249
----- -----
Net deferred tax assets $24,031 $19,682
======= =======
F-25
72
12. Financial Instruments
- ----------------------------
The fair value of the Company's cash and cash equivalents, accounts and
notes receivable (including related party amounts) and accounts payable,
approximates the carrying value due to the short maturity of these instruments.
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)
2001 Financial Liabilities:
Long-term Debt-
Revolving Credit Facility:
Revolving Notes $ 93,143 $ 93,143
Term Notes 45,311 45,311
Senior Subordinated Notes 31,978 63,956
2000 Financial Liabilities:
Long-term Debt-
Revolving Credit Facility:
Revolving Notes $ 91,136 $ 91,136
Term Notes 51,650 51,650
Senior Subordinated Notes 38,374 63,956
Derivative Financial Instruments
- --------------------------------
The Company uses derivative financial instruments in the normal course of
business as a tool to manage its exposure to interest rates and commodity lumber
prices. The Company does not hold or issue derivative financial instruments for
trading purposes. Gains and losses relating to hedging contracts are generally
deferred and recorded in income or as an adjustment to the carrying value of the
related asset or liability 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 derivative financial
instruments is determined based upon dealer quotes.
F-26
73
Lumber Futures Contracts
- ------------------------
The Company enters into lumber futures contracts to hedge price
fluctuations related to anticipated future purchases of commodity lumber. While
lumber futures contracts are entered into on a risk management basis, the
Company's hedge positions could show a net gain or loss depending on prevailing
market conditions. At December 29, 2001, the Company did not have any lumber
futures contracts outstanding.
Interest Rate Swap
- ------------------
The Company has entered into an interest rate swap agreement on February
17, 1999 that effectively fixes the Company's borrowing cost at 5.75% plus the
Company's LIBOR borrowing spread (as discussed in Note 7 above) on $40.0 million
of the Company's amended and restated line of credit borrowings. The interest
rate swap agreement expired in February 2002.
13. Related Party Transactions
- -------------------------------
Approximately 35% of the Company's outstanding shares of common stock are
owned by Riverside Group, Inc. and approximately 13% owned by Imagine
Investments, Inc. and its parent, Stone Investments, Inc.
In March 2000, the Company entered into an agreement with Buildscape, Inc.,
an entity affiliated with Riverside Group, Inc. and Imagine Investments, Inc.,
each of which may be deemed an affiliate of the Company. Pursuant to this
agreement, the Company and Buildscape, Inc. are jointly conducting an Internet
distribution program. Buildscape(R) is an Internet service designed for builders
that allows the Company's customers to buy products and materials from Wickes
and other suppliers. It provides real-time online access to the professional
builders' specific Wickes price list, bill of materials and trade account.
Wickes' sales through the Buildscape site were $23.8 million in 2001.
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
Riverside Group, Inc. In exchange for these assets, the Company received 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). In March
2000, the Company extended the terms of its note receivable from Riverside
Group, Inc. Under the revised terms, all previously accrued interest was paid to
the Company by Riverside Group, Inc. on March 31, 2000. Repayment of the
remaining principal balance was deferred for one year, with quarterly principal
payments commencing on April 1, 2001 and ending June 30, 2002. On December 28,
2001 the Company amended the terms of its note receivable with Riverside Group,
Inc. in an agreement that extended the payment of principal and interest, due in
full, on December 28, 2002. As of December 29, 2001 the remaining principle
balance was approximately $402,000, with accrued interest of $28,000. Interest
F-27
74
earned for the years ended 2001, 2000 and 1999 was approximately $40,000,
$54,000 and $71,000, respectively.
In 2001, the Company paid approximately $953,000 in reimbursements
primarily to affiliates of the Company's Chairman, for costs related to services
provided to the Company during the year by certain employees of the affiliated
company and use of a corporate aircraft. Total payments in 2000 and 1999 for
similar services were approximately $333,000 and $660,000, respectively.
14. Severance and Other Charges
- -------------------------------
In 2001, the Company's management developed a plan to reorganize and
improve productivity and performance. The results have shown and are expected to
continue to show reductions in administrative expense, marketing expense,
headcount and the elimination of non-strategic operating units. The Company
incurred severance and other items of $1.7 million, primarily relating to
severance pay and distribution center closing costs.
15. Other Operating Income
- --------------------------
Other operating income on the Company's Statement of Operations primarily
includes the sale or disposal of property, plant and equipment, service charges
assessed customers on past due accounts receivables and casualty gains/losses.
Other operating income increased approximately $1.0 million or 32.0% to $4.3
million in 2001, compared with $3.3 million in 2000. The increase is
attributable to gains realized on the sale of real estate and various fixed
assets. During 2001, the Company sold four pieces of real estate, resulting in
recorded gains of approximately $1.2 million. This is compared with three real
estate sales and various fixed asset disposals in 2000, resulting in total gains
of approximately $0.3 million. The following table summarizes the major
components of other operating income by year.
F-28
75
Other Operating Income
Gain/(Loss)
2001 2000 1999
---- ---- ----
(in thousands)
Sale of property, plant and equipment $ 1,357 $ 345 $ 1,821
Accounts receivable service charges 2,305 2,409 2,460
Casualty losses (320) (559) (556)
Other 1,002 1,096 1,208
----- ----- -----
Total $ 4,344 $ 3,292 $ 4,932
======== ======= =======
16. Selected Quarterly Financial Data (unaudited)
- -------------------------------------------------
The following table contains selected unaudited quarterly financial data
for the years ended December 29, 2001 and December 30, 2000. Quarterly
earnings/(loss) per common 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
(Unaudited)
Fiscal Quarters
(in millions, except per share data and percentages)
Income (loss) Basic / Diluted
Net Sales as a before Net income (loss)
% of Annual Gross Extraordinary Net Income per share before
Net Sales Net Sales Profit Item (Loss) Extraordinary Item
--------- --------- ------ ---- ------ ------------------
2001
- ----
Quarter 1 $184.8 18.5% $42.0 $(6.5) $(6.5) $(.78)/(.78)
Quarter 2 274.1 27.4 58.6 1.0 1.0 .12/.12
Quarter 3 295.3 29.5 61.3 0.7 0.7 .08/.08
Quarter 4 246.8 24.6 49.7 (2.3) (2.3) (.27)/(.27)
2000
- ----
Quarter 1 $216.5 21.1% $46.0 $(3.2) $(3.2) $(.39)/(.39)
Quarter 2 280.4 27.3 60.1 1.5 1.5 .19 / .18
Quarter 3 282.7 27.5 62.6 2.1 2.1 .26 / .25
Quarter 4 248.0 24.1 54.4 (4.4) 2.4 (.53)/(.53)
Each fiscal quarter in the table above represents a thirteen-week period,
with the exception of Quarter 4 in 2000, which was a fourteen-week period.
F-29
76
WICKES INC. AND SUBSIDIARIES
Schedule II - Valuation and Qualifying Accounts
For the Years Ended December 29, 2001, December 30, 2000, and
December 25, 1999
(dollars 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
----------- --------- -------- ----------- ------------- ------
2001:
Allowance for doubtful
accounts $2,791 $1,470 ($197) $2,339 $2,119
2000:
Allowance for doubtful
accounts $4,105 $983 ($7) $2,290 $2,791
1999:
Allowance for doubtful
accounts $4,393 $1,724 ($40) $1,972 $4,105
(a) Net recoveries from previously closed stores credited to other operating
income.
(b) Reserved accounts written-off.
F-30
77
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
Form 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).***
4.1
(d)* Amended and Restated Credit Agreement dated December 13, 2000
among the Registrant, Fleet Retail Financial Inc, and Bank of
America, N.A. as agents and the lendors set forth therein
(incorporated by reference to Exhibit 4.1 to the Registrant's
Annual Report on Form 10-K for the year ended December
29,2000).***
F-31
78
4.1
(e)**Amended and Restated Credit Agreement dated May 14, 2000 among
the Registrant, Fleet Retail Financial Inc, and Bank of America,
N.A. as agents and the lendors set forth therein.
4.1
(f)**Amended and Restated Credit Agreement dated August 13, 2000 among
the Registrant, Fleet Retail Financial Inc, and Bank of America,
N.A. as agents and the lendors set forth therein.
4.1
(g)**Amended and Restated Credit Agreement dated February 28, 2000
among the Registrant, Fleet Retail Financial Inc, and Bank of
America, N.A. as agents and the lendors set forth therein.
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 1993 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).***
F-32
79
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. (incorporated by
reference to Exhibit 10.6 to teh Registrant's Annual Report on Form
10-K for the year ended December 25, 1999).***
21.1** List of Subsidiaries of the Registrant.
23.1** Consent of Deloitte & Touche LLP.
* Incorporated by reference.
** Filed herewith.
*** SEC File No. 1-14967
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.
F-33
80
Exhibit 21.1
LIST OF SUBSIDIARIES OF REGISTRANT
Name State of Incorporation
- ---- ----------------------
Lumber Trademark Company Illinois
GLC Division, Inc. Delaware
F-34
81
Exhibit 23.1
INDEPENDENT AUDITORS' CONSENT
- -----------------------------
We consent to the incorporation by reference in Registration Statement Nos.
33-85380, 33-88010, 33-90240 of Wickes Inc. and subsidiaries on Form S-8 of our
report dated March 5, 2002, except for the last paragraph of Note 7, as to which
the date is March 29, 2002, appearing in the Annual Report on Form 10-K of
Wickes Inc. and subsidiaries for the year ended December 29, 2001.
/s/ Deloitte & Touche LLP
Chicago, IL
March 29, 2002