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SECURITIES AND EXCHANGE COMMISSION
Washington, DC. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File
For the Quarterly Period Ended March 29, 2003 Number 1-14967
---------------------- ----------------
WICKES INC.
-----------------------------------
(Exact name of registrant as specified in its charter)
Delaware 36-3554758
- --------------------------------------- --------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
706 North Deerpath Drive, Vernon Hills, Illinois 60061
- ------------------------------------------------ ----------
(Address of principal executive offices) (Zip Code)
847-367-3400
------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act) Yes No X
--- ---
As of March 29, 2003, the Registrant had 8,307,984 shares of Common Stock, par
value $.01 per share outstanding.
2
WICKES INC. AND SUBSIDIARIES
INDEX
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Page
Number
--------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets (Unaudited) March 29, 2003,
December 28, 2002, and March 30, 2002 3
Condensed Consolidated Statements of Operations (Unaudited) for the
three months ended March 29, 2003 and March 30, 2002 4
Condensed Consolidated Statements of Cash Flows (Unaudited) - for the
three months ended March 29, 2003 and March 30, 2002 5
Notes to Condensed Consolidated Financial Statements (Unaudited) 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 16
Item 3. Quantitative and Qualitative Disclosures about
Market Risk 26
Item 4. Controls and Procedures 26
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 27
Item 2. Changes in Securities and Use of Proceeds 27
Item 6. Exhibits and Reports on Form 8-K 27
3
WICKES INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 29, 2003, December 28, 2002 and March 30, 2002
(in thousands except share data)
(UNAUDITED)
March 29, December 28, March 30,
2003 2002 2002
------------- -------------- -------------
ASSETS
Current assets:
Cash $ 37 $ 40 $ 68
Accounts receivable, less allowance for doubtful
accounts of $1,975 in March 2003, $1,919 in December 2002
and $1,384 in March 2002 43,910 56,094 55,333
Note receivable from affiliate - - 415
Inventory, net 59,746 50,170 73,334
Deferred tax assets 10,607 5,720 6,546
Prepaid expenses and other assets 5,853 5,619 4,975
Assets of discontinued operations - - 56,066
------------- -------------- -------------
Total current assets 120,153 117,643 196,737
------------- -------------- -------------
Property, plant and equipment, net 36,196 37,971 44,286
Trademark - - 5,856
Deferred tax assets 13,775 13,775 16,344
Rental equipment (net of accumulated depreciation of $1,428 in March
2003, $1,475 in December 2002 and $1,867 in March 2002) 847 1,021 1,591
Goodwill - - 12,229
Other assets (net of accumulated amortization of $14,412 in March
2003, $13,320 in 2002, and $12,268 in March 2002) 6,173 3,577 5,161
Assets of discontinued operations - - 12,206
------------- -------------- -------------
Total assets $ 177,144 $ 173,987 $ 294,410
============= ============== =============
LIABILITIES & STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt $ 22,632 $ 28,107 $ 9,392
Accounts payable 28,629 23,824 37,553
Accrued liabilities 10,753 16,256 16,033
Liabilities of discontinued operations - - 20,012
------------- -------------- -------------
Total current liabilities 62,014 68,187 82,990
------------- -------------- -------------
Long-term debt, less current maturities 84,481 67,363 185,057
Other long-term liabilities 2,344 2,407 2,641
Liabilities of discontinued operations - - 672
Stockholders' equity:
Common stock, $0.01 par ( 8,307,984, 8,307,984,
8,285,027 shares issued and outstanding respectively) 83 83 83
Additional paid-in capital 87,173 87,173 87,145
Accumulated deficit (58,951) (51,226) (64,178)
------------- -------------- -------------
Total stockholders' equity 28,305 36,030 23,050
------------- -------------- -------------
Total liabilties and stockholders' equity $ 177,144 $ 173,987 $ 294,410
============= ============== =============
The accompanying notes are an integral part of the consolidated financial
statements.
4
WICKES INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(in thousands except share and per share data)
Three Months Ended
March 29, March 30,
2003 2002
--------- ---------
Net sales $ 101,049 $ 135,394
Cost of sales 80,474 107,789
--------- ---------
Gross profit 20,575 27,605
--------- ---------
Selling, general and administrative expenses 28,352 28,251
Depreciation 967 1,148
Provision for doubtful accounts 179 448
Store closing costs and other charges 1,311 962
Other operating income (1,166) (428)
--------- ---------
29,643 30,381
--------- ---------
Loss from continuing operations before interest and taxes (9,068) (2,776)
Interest expense 3,457 4,376
--------- ---------
Loss from continuing operations before income taxes (12,525) (7,152)
Income tax benefit (4,800) (2,684)
--------- ---------
Loss from continuing operations (7,725) (4,468)
Discontinued operations:
Income, net of taxes of $415 in 2002 - 643
--------- ---------
Income from discontinued operations - 643
--------- ---------
Net loss $ (7,725) $ (3,825)
========= =========
Loss from continuing operations per common share-basic and diluted $ (0.93) $ (0.54)
========= =========
Income from discontinued operations per common share-basic and diluted $ - $ 0.08
========= =========
Net loss per common share-basic and diluted $ (0.93) $ (0.46)
========= =========
Weighted average common shares-for basic 8,307,985 8,284,914
========= =========
Weighted average common shares-for diluted 8,307,985 8,440,615
========= =========
The accompanying notes are an integral part of the consolidated financial
statements.
5
WICKES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(in thousands)
Three Months Ended
March 29, March 30,
2003 2002
---------- ----------
Cash flows from operating activities:
Net loss $ (7,725) $ (3,825)
Adjustments to reconcile net loss to
net cash (used in) provided by operating activities:
Income from discontinued operations - (643)
Depreciation 1,211 1,531
Gain on early retirement of debt (879) -
Amortization of deferred financing costs 718 387
Provision for doubtful accounts 179 448
Gain on sale of assets and other items (26) (17)
Deferred income taxes (4,887) (1,149)
Changes in assets and liabilities, net of assets sold
Decrease in accounts receivable 3,428 5,606
Increase in inventory (9,639) (1,469)
(Decrease) increase in accounts payable and accrued liabilities (761) 6,512
Increase in prepaids and other assets (242) (691)
---------- ----------
NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES (18,623) 6,690
---------- ----------
Cash flows from investing activities:
Purchases of property, plant and equipment (1,431) (256)
Proceeds from the sale of property, plant and equipment 2,164 1,757
Proceeds from sale of business 8,577 -
---------- ----------
NET CASH PROVIDED BY INVESTING ACTIVITIES 9,310 1,501
---------- ----------
Cash flows from financing activities:
Net borrowings (repayments) under revolving line of credit 3,670 (3,053)
Decrease in notes receivable - 15
Retirements of long-term debt (4,980) -
Term loan borrowings(repayments) 13,832 (4,907)
Debt issuance cost (3,212) (7)
---------- ----------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 9,310 (7,952)
---------- ----------
NET CASH USED IN DISCONTINUED OPERATIONS - (254)
---------- ----------
NET (DECREASE) INCREASE IN CASH (3) 169
Cash at beginning of period 40 153
---------- ----------
CASH AT END OF PERIOD $ 37 $ 68
========== ==========
Supplemental schedule of cash flow information:
Interest paid $ 2,192 $ 2,667
Income taxes paid $ 591 $ 122
The accompanying notes are an integral part of the consolidated financial
statements.
6
WICKES INC. AND SUBSIDIARIES
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
------------------------------------------
Basis of Financial Statement Presentation
-----------------------------------------
The condensed consolidated financial statements present the results of
operations, financial position, and cash flows of Wickes Inc. and its
consolidated subsidiaries (the "Company"). The condensed consolidated financial
statements are prepared in accordance with accounting principles generally
accepted in the United States of America, which require 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 those estimates.
The condensed consolidated financial statements should be read in
conjunction with the Company's consolidated financial statements and notes
thereto included in the Company's Annual Report on Form 10-K (the "Form 10-K")
for the fiscal year ended December 28, 2002. The condensed consolidated
financial statements reflect all adjustments (consisting only of normal
recurring adjustments) which are, in the opinion of management, necessary for
the fair presentation of the financial results for the interim period. The
results of operations for interim periods are not necessarily indicative of
results for the entire year.
The Company has determined that it operates in one business segment, that
being the supply and distribution of lumber, building materials and manufactured
components to building professionals and do-it-yourself customers, principally
in the Midwest, Northeast, and Southern United States. All information required
by Statement of Financial Accounting Standards ("SFAS") 131, "Disclosures about
Segments of an Enterprise and Related Information", is included in the Company's
consolidated financial statements.
Stock Based Compensation
------------------------
The Company accounts for stock-based compensation under the intrinsic value
method, as prescribed by Accounting Principles Board (APB) Opinion No. 25
"Accounting for Stock Issued to Employees". As required by SFAS No. 148
"Accounting for Stock-Based Compensation - Transition and Disclosure, an
amendment of SFAS No. 123" the Company has included the following pro-forma
financial information demonstrating the difference in the Company's results, had
the fair-value based method been applied:
7
March 29, March 30,
2003 2002
-------- --------
Loss from continuing operations (as reported) $ (7,725) $ (4,468)
Add: Stock based compensation cost included
in determination of compensation expense - 10
Deduct: Stock based compensation under the
fair-value method for all awards, net of tax 83 104
Adjusted loss from continuing operations $ (7,808) $ (4,562)
Income from discontinued operations - 643
Net loss (as reported) (7,725) (3,825)
Adjusted net loss (7,808) (3,919)
Earnings per share:
Basic:
Loss from continuing operations (as reported) $ (0.93) $ (0.54)
Adjusted loss from continuing operations (0.94) (0.55)
Income from discontinued operations - 0.08
Net income (loss) (as reported) (0.93) (0.46)
Adjusted net income (loss) (0.94) (0.47)
Diluted:
Loss from continuing operations (as reported) (0.93) (0.54)
Adjusted loss from continuing operations (0.94) (0.55)
Income from discontinued operations - 0.08
Net income (loss) (as reported) (0.93) (0.46)
Adjusted net income (loss) (0.94) (0.47)
Share Data
----------
The Company issued 3,442 shares of Common Stock to members of its board of
directors in lieu of cash compensation during the three months ended March 30,
2002. The Company did not issue shares of Common Stock to members of its board
of directors in lieu of cash compensation during the three months ended March
29, 2003.
Stock Options
-------------
The Company periodically grants stock options to key personnel.
Compensation cost on these options is measured at the date of grant by comparing
the quoted market price of the Company's stock to the price the employee has to
pay to acquire the stock. Any resulting compensation cost would be recognized
over the employee's vesting period.
8
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.
2. Discontinued Operations
-----------------------
On December 16, 2002 the Company sold substantially all of the assets of
its operations in Wisconsin and Northern Michigan to Lanoga Corporation's UBC
Division (the "Lanoga Sale") for a sales price of $104.7 million. These
operations were considered discontinued operations under SFAS No. 144
"Accounting for the Impairment or Disposal of Long-lived Assets".
In the first quarter of 2003, the Company received additional proceeds of
$8.6 million related to the settlement of amounts held in escrow as of December
28, 2002. The remaining escrow amounts of $2.1 will be settled by December 2003.
Sales and income from discontinued operations for the three months ended
March 30, 2002 were as follows:
March 30,
2002
--------
Sales $ 50,431
Income before income taxes 1,058
Tax provision 415
Income from discontinued operations 643
The major classes of assets and liabilities of discontinued operations sold
were as follows (in thousands):
March 30,
2002
--------
Cash $ 70
Accounts receivable 17,761
Inventory 34,785
Deferred tax assets 2,915
Prepaid expenses and other assets 535
--------
Total current assets 56,066
--------
Property, plant and equipment 11,991
Deferred tax assets 215
Total assets 68,272
--------
Accounts payable 15,355
Accrued liabilities 4,657
--------
Total current liabilities 20,012
Other long-term liabilities 672
--------
Total liabilities 20,684
--------
Net assets $ 47,588
========
9
3. IMPLEMENTATION OF NEW ACCOUNTING STANDARDS
------------------------------------------
In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities." SFAS No. 146 requires companies to
recognize costs associated with exit or disposal activities when they are
incurred rather than at the date of commitment to a plan. SFAS No. 146 is
effective for any exit plans commencing after December 29, 2002. This standard
is effective for the Company in 2003 and did not have a material effect on the
consolidated financial statements.
In December 2002, the FASB issued SFAS No. 148 "Accounting for Stock-Based
Compensation --Transition and Disclosure, an amendment of FASB Statement No.
123". This standard provides transitional guidance for applying the fair
value-based method of accounting for stock options. It also requires additional
proforma disclosures for interim periods beginning after December 15, 2003. The
Company continues to apply the intrinsic value based method of accounting as
prescribed by APB Opinion No. 25. As such the adoption of this pronouncement has
not had a material effect on the financial statements. The required interim
disclosures have been included in the notes to the condensed consolidated
financial statements.
In September 2002, the Emerging Issues Task Force ("EITF") issued EITF
Issue No. 02-16 "Accounting by a Reseller for Cash Consideration Received from a
Vendor." This consensus requires cash consideration received from vendors to be
classified as a reduction of costs of the customer product unless a customer
incurs a specific incremental cost to promote that vendor's products for which
it is being reimbursed or is providing a service for which the consideration
represents the consideration for the fair value of those services being
performed. This consensus is effective to the Company in 2003. Historically, the
Company has had various agreements with its vendors, some of which required the
Company to be reimbursed for the cost of promoting vendors' products. Other
vendor agreements provide for rebates based on purchasing volumes. The Company's
current vendor agreements are all associated with purchasing volumes and are
considered reductions of the costs of products. These rebates are recognized in
the statement of operations when those products are sold.
10
4. LONG-TERM DEBT
--------------
Long-term debt is comprised of the following (in thousands):
March 29, March 30,
2003 2002
-------- --------
Revolving credit facility:
Revolving notes $ 24,016 $ 90,089
Term notes 25,000 40,404
Senior subordinated notes 21,123 63,956
Senior secured notes 36,974 63,956
Less current maturities (22,632) (9,392)
-------- --------
Total long-term debt $ 84,481 $ 185,057
-------- --------
Senior Subordinated Debt
On February 26, 2003, the Company completed its offer to exchange its new
Senior Secured Notes due 2005 for any and all of its outstanding 11 5/8% Senior
Subordinated Notes due 2003. The Company accepted for exchange $42.8 million of
Senior Subordinated Notes validly tendered in exchange for an equal principal
amount of Senior Secured Notes. The tendered notes represented approximately 67%
of the Senior Subordinated Notes outstanding on February 26, 2003. The Senior
Secured Notes, which bear interest at 11 5/8% per annum from the date of
issuance through December 15, 2003 and at 18% per annum thereafter, are secured
by liens on the Company's owned real estate and equipment. These liens are
junior to the liens securing amounts payable under the Company's new senior
credit facility.
Concurrent with the closing of the exchange offer, the indenture governing
the outstanding Senior Subordinated Notes was amended to remove or modify many
of the restrictive covenants. Those restrictions included (but were not limited
to) certain limitations on transactions with affiliates, dividend payments,
changes in control, and sales of assets. In addition, the new notes permit the
Company to call the notes, at its option, at declining discounts starting at
15%.
In March 2003, the Company redeemed $5.9 million of the outstanding Senior
Secured Notes at a 15% discount for a pretax gain of $0.9 million, which was
recorded in other operating income on the Company's Statement of Operations.
The Company continues to carry Senior Subordinated Notes, due 2003 of
approximately $21.1 million. Sufficient liquidity to meet these obligations when
they come due is contingent on a number of risk factors, as discussed in Item 1
of the Company's 2002 Form10-K.
11
Revolving Credit Facility
Concurrent with the Exchange Offer, on February 26, 2003, the Company
completed a refinancing of its Fleet Credit Agreement and term notes existing
under the Fleet Credit Agreement and entered into the new Merrill Credit
Agreement dated February 26, 2003. The total commitment was reduced from the
original $251.7 million ($200 million revolving line of credit and $51.7 million
of term notes) to $125 million ($100 million revolving line of credit and $25
million of term notes). The Merrill Credit Agreement expires on February 26,
2007, and the term notes are now due February 26, 2007.
As of March 29, 2003, there was $49.0 million outstanding under the Merrill
Credit Agreement of which $24.0 million was revolving credit and $25.0 million
was term notes. The spread on prime rate borrowings under the Merrill agreement
ranges from 1.25% to 2.00% over prime for revolving loans and 2.00% to 2.75%
over prime under the term notes. The spread for LIBOR based borrowing ranges
from 2.50% to 3.25% over LIBOR for revolving loans and 3.25% to 4.00% over LIBOR
for term notes. The spread over the prime or LIBOR rates is determined based
upon the Company's Fixed Charge Coverage Ratio, as defined under the Merrill
Credit Agreement. The Company's base rate on revolver loans, 6.00% at March 29,
2003 and 5.50% at March 30, 2002, included an interest spread over prime of
1.75% and 0.75%, respectively. The Company's LIBOR borrowing rate on revolver
loans, 3.81% at March 29, 2003 and 4.63% at March 30, 2002, included an interest
spread over LIBOR of 2.50% and 2.75%, respectively. The Company's weighted
average interest rates on revolver loans were 7.59% and 7.22% as of March 29,
2003 and March 30, 2002, respectively.
The Merrill Credit Agreement limits the level of capital expenditures for
each annual period, while allowing for reinvestment of proceeds on asset sales.
The company is also subject to certain minimum levels of EBITDA, as defined
within the Credit Agreement. Availability is generally limited to 85% of
eligible accounts receivable and 60% of eligible inventory. For the first six
months from inception of this agreement, minimum availability is required to be
$15 million. As of March 29, 2003 unused availability was $35.8 million.
Under the Merrill Credit Agreement, a commitment fee of .375% to .5% is
payable on the unused revolving credit amount. Ranges of fees are determined
based upon the aforementioned Fixed Charge Coverage Ratio, as defined under the
Credit Agreement. As of March 29, 2003, the Company was in compliance with all
of its then existing covenants.
12
Aggregate Maturities
The Senior Subordinated Notes totaling $21.1 million mature on December 15,
2003. The Senior Secured Noted totaling $37.0 million mature on July 29, 2005.
The term portion of the revolving credit facility requires quarterly principal
payments as follows: $1.5 million from May 31, 2003 through February 29, 2004;
$3.0 million from May 31, 2004 through February 28, 2005; $6.1 million from May
31, 2005 through November 30, 2006; with the remaining principal balance due
February 26, 2007
5. INCOME TAXES
------------
The income tax benefit from continuing operations for the three-month
period ended March 29, 2003 was $4.8 million compared to $2.7 million the same
period in the prior year. The company's effective tax rate from continuing
operations was 38.3% for the three-month period ended March 29, 2003, compared
to 37.5% for the same period in the prior year. The company's provision includes
franchise taxes and non-deductible items. State franchise taxes were $0.1
million for the three-month periods ended March 29, 2003 and March 30, 2002. The
Company has net operating loss carryforwards from December 28, 2002 available to
offset future taxable income of approximately $22.4 million expiring in the
years 2011 through 2021. A change in control of the Company, for tax purposes,
may limit the Company's ability to utilize these carryforwards.
6. COMMITMENTS AND CONTINGENCIES
-----------------------------
At March 29, 2003, the Company had accrued approximately $220,000 for
remediation of certain environmental and product liability matters.
Many of the sales and distribution facilities presently and formerly
operated by the Company at one time contained underground petroleum storage
tanks. All such tanks known to the Company and located on facilities owned or
operated by the Company have been filled or removed in accordance with
applicable environmental laws in effect at the time. As a result of reviews made
in connection with the sale or possible sale of certain facilities, the Company
has found petroleum contamination of soil and ground water on several of these
sites and has taken, and expects to take, remedial actions with respect thereto.
In addition, it is possible that similar contamination may exist on properties
no longer owned or operated by the Company, the remediation of which the Company
could, under certain circumstances, be held responsible. Since 1988, the Company
has incurred approximately $2.1 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.
13
The Company is one of many defendants in two class action suits filed in
August of 1996 by approximately 200 claimants for unspecified damages as a
result of health problems claimed to have been caused by inhalation of silica
dust, a byproduct of concrete and mortar mix, allegedly generated by a cement
plant with which the Company has no connection other than as a customer. The
Company has entered into a cost-sharing agreement with its insurers, and any
liability is not expected to be material.
The Company is one of many defendants in approximately 757 actions, each of
which seeks unspecified damages, primarily in Michigan 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 360
similar actions for insignificant amounts, and another 356 of these actions have
been dismissed. None of these suits have made it to trial.
Losses in excess of the $220,000 reserved as of March 29, 2003 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 such assurance of this result.
7. EARNINGS PER SHARE
------------------
The Company calculates earnings per share in accordance with SFAS 128. In
periods where net losses are incurred, dilutive common stock equivalents are not
used in the calculation of diluted EPS as they would have an anti-dilutive
effect on EPS. In March 30, 2002, common stock equivalents of 156,000 shares
were included in calculating diluted weighted average shares outstanding. Common
stock equivalents of 268,000 were excluded from earnings per share at March 29,
2003, as they were anti-dilutive. In addition, options to purchase 355,000 and
413,000 weighted average shares of common stock at March 29, 2003 and March 30,
2002, respectively, had an exercise price greater than the average market price.
14
8. RELATED PARTY TRANSACTIONS
--------------------------
At March 29, 2003, approximately 34% of the Company's outstanding shares of
common stock were owned by Riverside Group, Inc. and approximately 13% was owned
by Imagine Investments, Inc. and its parent, Stone Investments, Inc. On April 4,
2003, Imagine Investments, Inc. acquired 2,797,743 common shares of Wickes Inc.
owned by Riverside Group, Inc. and an option to purchase an additional 53,700
shares. As of this date, Imagine Investments, Inc. and its affiliates
beneficially own approximately 47.3% of the Company's outstanding common stock.
At March 30, 2002, the Company held a promissory note from Riverside of
$415,000 including accrued interest. As of December 28, 2002 the Company had not
received payment for the principal and accrued interest, and therefore provided
a reserve for the outstanding balance.
For the three months ended March 29, 2003, the Company paid approximately
$363,000, compared to approximately $254,000 in the first quarter of 2002, in
reimbursements to affiliates of the Company's former Chairman of the Board and
President primarily for use of a corporate aircraft as well as office space and
office support services.
9. STORE CLOSINGS
--------------
Pursuant to certain initiatives to improve performance and reduce
under-performing assets, the Company has closed or consolidated seven locations
during the first quarter of 2003: Two operations in January (Southport IN and
Jackson TN) and five in February (Bloomfield IN, Denton NC, Owosso MI, Jackson
MI and Port Huron MI). During the first quarter of 2002, the Company sold four
locations in January (Pearl, MS, Baton Rouge, LA, Pascagoula, MS, and Ocean
Springs, MS) and one location in February (Wilkes-Barre, PA). In addition, the
Company consolidated one operation in March (Kokomo, IN). The following is a
summary of the activity in the reserve balances from December 28, 2002 through
March 29, 2003 and from December 29, 2001 through March 30, 2002 (in thousands):
Employee Property and
Separation Other Carrying
Costs Costs Total
------ ------ ------
Accrual balance at December 28, 2002 $ 385 $ 15 $ 400
2003 Store closing and other costs 610 701 1,311
2003 Related payments 848 671 1,519
------ ------ ------
Accrual balance at March 29, 2003 $ 147 $ 45 $ 192
Accrual balance at December 29, 2001 $ 139 $ 286 $ 425
2002 Store closing and other costs 763 199 962
2002 Related payments 827 363 1,190
------ ------ ------
Accrual balance at March 30, 2002 $ 75 $ 122 $ 197
15
The costs incurred to liquidate the inventory has been included in cost of
sales on the Company's financial statements. The costs of reserving for bad
debt, write-offs and subsequent collections, has been included in provision for
doubtful accounts. All other costs are included in store closing costs.
10. SUBSEQUENT EVENTS
-----------------
On April 4, 2003 Imagine Investments, Inc. acquired 2,797,743 shares of
common stock from Riverside Group Inc. and an option to purchase an additional
53,700 shares. As of that date, Imagine and its affiliates beneficially owned
approximately 47.3% of the Company's outstanding common stock. In connection
with this transaction, J. Steven Wilson resigned as the Chairman and Chief
Executive Officer of the Company effective immediately and entered into an
agreement with the Company, which provides for the payment of $1.0 million in
severance to Mr. Wilson.
Subsequently, the Company's restructuring efforts included the hiring of
Jim O'Grady as President and Chief Executive Officer, as well as the
terminations of James Detmer, Senior Vice President of Distribution and Jimmie
Frank, Senior Vice President of Merchandising and Manufacturing. In addition,
the Company terminated approximately 55 additional operating associates. The
Company estimates that the severance related to these terminations is $0.9
million.
As a result of (i) the Company's failure to deliver to the lenders its
annual 2002 audited financial statements by March 28, 2003 and (ii) as of April
4, 2003, Riverside Group Inc. and J. Steven Wilson ceasing between them to own
at least 25% of the Company's outstanding common stock and Imagine Investments,
Inc. owning a greater percentage of such shares than Riverside and Mr. Wilson,
certain events of default arose under the Merrill Credit Agreement. Such
defaults were simultaneously waived by the lenders and the Credit Agreement was
amended in certain respects, including the addition of a provision which permits
the Company to make the severance payment to Mr. Wilson. In connection with such
waiver and amendments, the Company paid to the lenders a fee of $312,500.
16
WICKES INC. AND SUBSIDIARIES
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with the Condensed
Consolidated Financial Statements and Notes thereto contained elsewhere herein
and in conjunction with the Consolidated Financial Statements and Notes thereto
and Management's Discussion and Analysis of Financial Condition and Results of
Operations contained in the Company's Annual Report on Form 10-K for the fiscal
year ended December 28, 2002.
This Discussion and Analysis 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.
Among the factors that could cause actual results to differ materially are
the following: effects of seasonality and cyclicality; 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 6.
INTRODUCTION
Wickes Inc. and its consolidated subsidiaries ("Wickes" or the "Company")
is a leading supplier of lumber, building materials and manufactured building
components in the United States. The Company sells its products and services
primarily to residential and commercial building professionals, repair and
remodeling contractors and, to a lesser extent, project do-it-yourself consumers
involved in major home improvement projects. At March 29, 2003, the Company
operated 52 sales and distribution facilities and 11 component manufacturing
facilities in 19 states in the Midwest, Northeast, and South.
The Company's mission is to be the premier provider of building materials
and services and manufactured building components to the professional segments
of the building and construction industry.
17
The Company focuses on the professional builder and contractor market. The
Company targets five customer groups: the production or volume builder; the
custom builder; the tradesman; the repair and remodeler; and the commercial
developer. Its marketing approach encompasses three channels of distribution:
Major Markets, Conventional Markets, and Wickes Direct. These channels are
supported by the Company's network of building component manufacturing
facilities. In Major Markets, the Company serves the national, regional, and
large local builder in larger markets with a total solutions approach and
specialized services. In Conventional Markets, the Company provides the smaller
building professional in less-populous markets with tailored products and
services. Wickes Direct provides materials flow and logistics management
services to commercial customers. The Company also serves building professionals
through its network of 11 component manufacturing facilities that produce
value-added, wood framed wall panels, roof and floor truss systems, and pre-hung
interior and exterior doors.
RESULTS OF OPERATIONS
In fiscal 2002, the Company sold 31 distribution centers and 4 component
plants to Lanoga Corporation (the "Lanoga Sale"). The operations included in the
transaction were treated as discontinued operations in accordance with statement
of Financial Accounting Standards No. 144 "Accounting for the Impairment or
Disposal of Long-lived Assets." The results of these operations have been
reclassified as discontinued operations for the three-month period ended March
30, 2002.
The following table sets forth, for the periods indicated, the percentage
relationship to net sales of certain expense and income items. Certain
reclassifications have been made to prior year amounts to conform to the current
presentation. All material intercompany balances and transactions have been
eliminated. The table below, and the subsequent discussion of the results of
operations, has been adjusted to exclude those operations reclassified as
discontinued operations that were part of the Lanoga Sale. (See additional
discussion in Note 2 to the consolidated financial statements.)
Three Months Ended
------------------
March 29, March 30,
2003 2002
----- -----
Net sales 100.0% 100.0%
Gross profit 20.4% 20.4%
Selling, general and
administrative expense 28.1% 20.9%
Depreciation 1.0% 0.8%
Provision for doubtful accounts 0.2% 0.3%
Store closing costs and other charges 1.3% 0.7%
Other operating income (1.2)% (0.2)%
Loss from continuing operations (9.0)% (2.1)%
18
The Company's results of operations are historically affected by, among
other factors, interest rates, lumber prices, housing starts and weather
conditions. In general, this year's weather conditions were comparable with last
year with the exception of late season snow storms this year which the Company
believes postponed sales activity in the first quarter and severely damaged one
of the Company's component facilities. The Company's weighted average rate of
interest on revolver loans increased to 7.59% during the first quarter compared
to 7.22% for the same period last year. The first quarter results were
negatively affected by lower commodity lumber prices, down 6.0% from last year.
Housing starts nationally were up 2.3% in the first quarter of 2003, however in
the Company's primary markets, the Northeast, Midwest, and South, starts were
down 5.7%, down 6.1% and up 0.5%, comparable to the first quarter of 2002,
respectively.
Losses from continuing operations for the first quarter ended March 29,
2003 and March 30, 2002 was $7.7 million and $4.5 million, respectively.
Three Months Ended March 29, 2003 Compared
with the Three Months Ended March 30, 2002
The following discussion is based on the results of continuing operations
of the Company. The Lanoga Sale, which is treated as discontinued operations,
has been excluded from prior year's results. (See Note 2 to the consolidated
financial statements.)
Net Sales
- ---------
Net sales for the first quarter of 2003 decreased 25.4%, to $101.0 million
compared to $135.4 million for the first quarter of 2002. Same store sales
decreased 16.0% from the comparable quarter last year. Sales at locations now
closed, excluding discontinued operations, contributed approximately $22.7
million for the first quarter of 2002 compared to $3.0 million in the first
quarter 2003. Total sales to building professionals represented 94.2% of total
sales compared to 92.8% in the same quarter last year. Housing starts in the
Company's primary markets, the Northeast, Midwest, and South, starts were down
5.7%, down 6.1% and up 0.5%, comparable to the first quarter of 2002,
respectively.
The Company believes that sales decreases for the three months ended March
29, 2003 primarily resulted from a decline in the number of locations, late
season snow storms, uncertain economic conditions and lumber deflation. The
Company estimates that the effect of lumber deflation for the first quarter of
2003 decreased total sales by approximately $2.7 million compared with the same
period last year. Lumber and building materials accounted for 85.7% of total
sales in the first quarter of 2003 compared with 83.7% in 2002.
19
Products that exhibited the greatest change in sales dollars for the
quarter ended March 29, 2003 versus the comparable prior year period were:
lumber and plywood (down 31.4%), doors and windows (down 17.9%), trusses and
engineered wood products (down 14.4%), roofing (down 32.4%) and insulation (down
26.5%).
Gross Profit
- ------------
Gross profit decreased to $20.6 million in the first quarter of 2003 from
$27.6 million in the first quarter of 2002, a 25.5% decrease. Gross profit as a
percentage of sales remained constant from the first quarter of 2002 to first
quarter of 2003 at 20.4%. The Company believes that the decrease in gross profit
dollars resulted primarily from the reduction in sales as discussed above.
Selling, General and Administrative Expense ("SG&A")
- ----------------------------------------------------
SG&A expense remained relatively constant at $28.4 million in the first
quarter of 2003 from $28.3 million in the first quarter of 2002. As a percentage
of sales, SG&A increased to 28.1% of net sales in the first quarter of 2003
compared with 20.9% of net sales in the first quarter of 2002. This increase
primarily is due to the decrease in sales as well as overhead costs that have
yet to be eliminated due to the sale and closing of centers in December 2002 and
first quarter 2003 and a move from co-operative marketing and cost recovery
programs to purchase based programs.
Depreciation
- ------------
Depreciation decreased to $1.0 million for the first quarter of 2003
compared to $1.1 million for the same period in 2002.
Provision for Doubtful Accounts
- -------------------------------
The provision for doubtful accounts was $0.2 million in the first quarter
of 2003, compared with $0.4 million in the first quarter of 2002. The Company
believes the decrease is the result of management's improvements in the
collection efforts, which have reduced credit exposure and bad debts.
20
Store Closing Costs
- -------------------
Pursuant to certain initiatives to improve performance and reduce
under-performing assets, the Company consolidated seven sales and distribution
centers during the first quarter of 2003. During the first quarter of 2002, the
Company closed, consolidated, or sold five distributions centers and one
component plant. Store closing costs associated with these activities typically
include employee termination costs, non-cancelable lease obligations and other
exit costs incurred as a direct result of closing facilities. The following is a
summary of the activity in the reserve balances from December 28, 2002 through
March 29, 2003 and December 29, 2001 through March 30, 2002 (in thousands):
Property
and
Employee Other
Separation Carrying
Costs Costs Total
----- ----- -----
Accrual balance at December 28, 2002 $ 385 $ 15 $ 400
2003 Store closing and other costs 610 701 1,311
2003 Related payments 848 671 1,519
----- ----- -----
Accrual balance at March 29, 2003 $ 147 $ 45 $ 192
Accrual balance at December 29, 2001 $ 139 $ 286 $ 425
2002 Store closing and other costs 763 199 962
2002 Related payments 827 363 1,190
----- ----- -----
Accrual balance at March 30, 2002 $ 75 $ 122 $ 197
Other Operating Income
- ----------------------
Other operating income for the first quarter of 2003 was $1.2 million
compared with $0.4 million for the first quarter 2002. Other operating income
primarily includes gains on early retirement of debt, the sales or disposals of
property, plant and equipment, service charges assessed customers on past due
accounts receivables, and casualty gains/losses. The increase in other operating
income primarily is related to the early retirement of $5.9 million of bonds at
an 85% discount for a pre-tax gain of $0.9 million. (See note 4 of notes to the
consolidated financial statements.)
Interest Expense
- ----------------
In the first quarter of 2003, interest expense decreased to $3.5 million
from $4.4 million during the first quarter of 2002. Interest expense in 2003
includes a charge for the write-off of a portion of debt issue costs related to
the Fleet Credit Agreement of $0.4 million. The Company's weighted average rate
of interest on all debt increased to 11.1% during the first quarter of 2003
compared to 8.7% for the same period last year. Interest expense was affected by
the increase in the effective interest rate resulting from the bond refinancing.
See additional discussion at Note 4 to the consolidated financial statements and
in Liquidity and Capital Resources included in Managements Discussion and
Analysis. The Company's average debt levels decreased by 47.5% from first
quarter 2002 to first quarter 2003. This decrease in outstanding debt primarily
is due to the use of proceeds from the Lanoga Sale to pay down the revolving
credit facility.
21
Income Tax Benefit
- ------------------
The Company recorded an income tax benefit of $4.8 million for the first
quarter of 2003, compared with a benefit of $2.7 million in the first quarter of
2002. The Company's effective tax rate was 38.3% for the first quarter of 2003,
compared to 37.5% for the first quarter of 2002. The Company's provision
includes franchise taxes and non-deductible items. State franchise taxes were
$0.1 million for the first quarter of 2003 and 2002, respectively.
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.
This assessment constitutes Forward-Looking Information made pursuant to
the safe harbor provisions of the Private Securities Litigation Reform Act of
1995 and is inherently subject to uncertainty and dependent upon the Company's
future profitability, which in turn depends upon a number of important risk
factors including, but not limited to, the effectiveness of the Company's
operational efforts, the sale of certain assets, cyclicality and seasonality of
the Company's business, the effects of the Company's substantial leverage, and
competition.
Recently Issued Accounting Pronouncements
- -----------------------------------------
In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities." SFAS No. 146 requires companies to
recognize costs associated with exit or disposal activities when they are
incurred rather than at the date of commitment to a plan. SFAS No. 146 is
effective for any exit plans commencing after December 29, 2002. This standard
is effective for the Company in 2003 and did not have a material effect on the
consolidated financial statements.
22
In December 2002, the FASB issued SFAS No. 148 "Accounting for Stock-Based
Compensation --Transition and Disclosure, an amendment of FASB Statement No.
123". This standard provides transitional guidance for applying the fair
value-based method of accounting for stock options. It also requires additional
proforma disclosures for interim periods beginning after December 15, 2003. The
Company continues to apply the intrinsic value based method of accounting as
prescribed by APB Opinion No. 25. As such the adoption of this pronouncement has
not had a material effect on the financial statements. The required interim
disclosures have been included in the notes to the condensed consolidated
financial statements.
In September 2002, the Emerging Issues Task Force ("EITF") issued EITF
Issue No. 02-16 "Accounting by a Reseller for Cash Consideration Received from a
Vendor." This consensus requires cash consideration received from vendors to be
classified as a reduction of costs of the customer product unless a customer
incurs a specific incremental cost to promote that vendor's products for which
it is being reimbursed or is providing a service for which the consideration
represents the consideration for the fair value of those services being
performed. This consensus is effective to the Company in 2003. Historically, the
Company has had various agreements with its vendors, some of which required the
Company to be reimbursed for the cost of promoting vendors' products. Other
vendor agreements provide for rebates based on purchasing volumes. The Company's
current vendor agreements are all associated with purchasing volumes and are
considered reductions of the costs of products. These rebates are recognized in
the statement of operations when those products are sold.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal sources of working capital and liquidity are income
from operations and borrowings under its credit facility. 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 in paragraph three of Item2: Management Discussion
and Analysis. The Company anticipates that funds provided by operations and
under this facility will be adequate for the Company's future needs. The
Company's primary need for capital resources is to finance inventory, accounts
receivable, improvements to plant property and equipment, insurance reserves and
debt service.
During the first quarter of 2003, net cash used in operating activities was
$18.6 million compared with net cash provided by operating activities of $6.7
for the first quarter of 2002. The increase in cash used by operating activities
primarily is due to increases in inventory, and decreases in accounts payables
and accrued liabilities from December 28, 2002 to March 29, 2003.
23
The Company's accounts receivable from continuing operations at March 29,
2003 decreased $3.4 million. This decrease primarily is the result of a
reduction in credit sales and improved collection efforts.
The Company's inventory balance at March 29, 2003 decreased $9.6 million or
19.1% when compared to the balance at December 28, 2002. This decrease primarily
is also the result of a reduction in the number of distribution facilities and
the Company's goal to improve inventory management. Accounts payable and accrued
liabilities at March 29, 2003 decreased approximately $0.8 million from December
28, 2002.
The Company's capital expenditures consist primarily of the construction of
product storage facilities, the remodeling and reformatting of sales and
distribution facilities and component manufacturing facilities, and the purchase
of vehicles, equipment and management information systems for both existing and
new operations. The Company also may make expenditures to establish or acquire
operations to expand or complement its existing operations, especially in its
major markets. In the first three months of 2003, the Company spent
approximately $1.4 on capital expenditures, compared to $0.3 million for the
same period in 2002. Under the Merrill Credit Agreement, capital expenditures
during 2003 are currently limited to $6.0 million. The Company expects to fund
capital expenditures through borrowings and its internally generated cash flow.
At March 29, 2003 the Company operated 52 sales and distribution centers
and 11 component manufacturing facilities compared with 93 sales and
distribution facilities and 16 component manufacturing facilities at March 30,
2002. The reduction in facilities is due to the Lanoga Sale as well as other
sales and consolidation of facilities that took place during this period. At
March 29, 2003, there were no material commitments to third parties for future
capital expenditures.
The Company maintained excess availability under the Merrill Credit
Agreement throughout the first quarter of 2003. 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 agreement because
of the increased inventory and receivables needed for the peak building season.
At March 29, 2003, the Company had outstanding borrowings under the Merrill
Credit Agreement of $49.0 million, the minimum availability requirement was
$15.0 million and the unused availability was $35.8 million.
24
Senior Subordinated Debt
On February 26, 2003, the Company completed its offer to exchange its new
Senior Secured Notes due 2005 for any and all of its outstanding 11 5/8% Senior
Subordinated Notes due 2003. The Company accepted for the exchange all $42.8
million of Senior Subordinated Notes validly tendered in exchange for an equal
principal amount of Senior Secured Notes. The tendered notes represented
approximately 67% of the Senior Subordinated Notes outstanding as on February
26, 2003. The Senior Secured Notes, which bear interest at 11 5/8% per annum
from the date of issuance through December 15, 2003 and at 18% per annum
thereafter, are secured by liens on the Company's owned real estate and
equipment. These liens are junior to the liens securing amounts payable under
the Company's new senior credit facility.
Concurrent with the closing of the exchange offer, the indenture governing
the outstanding Senior Subordinated Notes was amended to remove or modify many
of the restrictive covenants. Those restrictions included (but were not limited
to) certain limitations on transactions with affiliates, dividend payments,
changes in control, and sales of assets. In addition, the Senior Secured notes
permit the Company to call the notes, at its option, at declining discounts
starting at 15%.
In March 2003, the Company redeemed $5.9 million of the outstanding Senior
Secured Notes for a gain of $0.9 million, recorded in other operating income on
the Company's Statement of Operations.
The Company continues to carry Senior Subordinated Notes due in December
2003 of approximately $21.1 million. Sufficient liquidity to meet these
obligations when they come due is contingent on a number of risk factors, as
discussed in Item 1 of the Company's 2002 Form10-K.
Revolving Credit Facility
Concurrent with the Exchange Offer, on February 26, 2003, the Company
completed a refinancing of its Fleet Credit Agreement and term notes existing
under the prior Amended and Restated Credit Agreement dated December 13, 2000
and entered into the new Merrill Credit Agreement dated February 26, 2003. The
total commitment was reduced from the original $251.7 million ($200 million
revolving line of credit and $51.7 million of term notes) to $125 million ($100
million revolving line of credit and $25 million of term notes). The Merrill
Credit Agreement expires on February 26, 2007, and the term notes are now due
February 26, 2007, with quarterly repayments beginning May 31, 2003.
As of March 29, 2003, there was $49.0 million outstanding under the Merrill
Credit Agreement of which $24.0 million was revolving credit and $25.0 million
was term notes. The spread on prime rate borrowings under the Merrill agreement
ranges from 1.25% to 2.00% over prime for revolving loans and 2.00% to 2.75%
over prime under the term notes. The spread for LIBOR based borrowing ranges
from 2.50% to 3.25% over LIBOR for revolving loans and 3.25% to 4.00% over LIBOR
for term notes. The spread over the prime or LIBOR rates is determined based
25
upon the Company's Fixed Charge Coverage Ratio, as defined under the
Merrill Credit Agreement. The Company's base rate on revolving loans, 6.00% at
March 29, 2003 and 5.50% at March 30, 2002, included an interest spread over
prime of 1.75% and 0.75%, respectively. The Company's LIBOR borrowing rate on
revolving loans, 3.81% at March 29, 2003 and 4.63% at March 30, 2002, included
an interest spread over LIBOR of 2.50% and 2.75%, respectively. The Company's
weighted average interest rates on revolver loans were 7.59% and 7.22% as of
0March 29, 2003 and March 30, 2002, respectively.
The Merrill Credit Agreement limits the level of capital expenditures for
each annual period, while allowing for reinvestment of proceeds on asset sales.
The company is also subject to certain minimum levels of EBITDA, as defined
within the Credit Agreement. Availability is generally limited to 85% of
eligible accounts receivable and 60% of eligible inventory. For the first six
months from inception of this agreement, minimum availability is required to be
$15 million. As of March 29, 2003 unused availability was $35.8 million.
Under the Merrill Credit Agreement, a commitment fee of .375% to .5% is
payable on the unused revolving credit amount. Ranges of fees are determined
based upon the aforementioned Fixed Charge Coverage Ratio, as defined under the
Credit Agreement. As of March 29, 2003, the Company was in compliance with all
of its then existing covenants.
As a result of (i) the Company's failure to deliver to the lenders its
fiscal 2002 audited financial statements by March 30, 2003 and (ii) as of April
4, 2003, Riverside Group Inc. and J. Steven Wilson ceasing between them to own
at least 25% of the Company's outstanding common stock and Imagine Investments,
Inc. owning a greater percentage of such shares than Riverside and Mr. Wilson,
certain events of default arose under the Merrill Credit Agreement. Such
defaults were simultaneously waived by the lenders and the Credit Agreement was
amended in certain respects, including the addition of a provision which permits
the Company to make the severance payment to Mr. Wilson. In connection with such
waiver and amendments, the Company paid to the lenders a fee of $312,500.
Net Operating Loss Carryforwards
The Company has net operating loss carryforwards available to offset future
taxable income of approximately $22.4 million expiring in the years 2011 through
2021. A change in control of the Company, for tax purposes, may limit the
Company's ability to utilize these carryforwards.
26
WICKES INC. AND SUBSIDIARIES
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
For information of the Company's Quantitative and Qualitative Disclosures
About Market Risk, please see the Company's Annual Report on Form 10-K for the
fiscal year ended December 28, 2002. There have been no material changes in the
Company's quantitative or qualitative exposure to market risk since the end of
fiscal 2002.
Item 4. CONTROLS AND PROCEDURES
The Company has performed an evaluation under the supervision and with the
participation of management, including the Chief Executive Officer ("CEO") and
Chief Financial Officer ("CFO"), of the effectiveness of the design and
operation of the disclosure controls and procedures. Based on that evaluation,
the CEO and CFO concluded that the disclosure controls and procedures were
effective as of March 29, 2003. There have been no significant changes in the
internal controls or other factors that could significantly affect internal
controls subsequent to March 29, 2003.
27
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
-----------------
Item 2. Changes in Securities and Use of Proceeds
-----------------------------------------
(a) None
(b) None
(c) None
(d) None
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
Exhibit 99.1 Certification of Chief Executive Officer
Exhibit 99.2 Certification of Chief Financial Officer
(b) Reports on Form 8-K
A Current Report on Form 8-K dated January 23, 2003 was filed
under Item 5 disclosing that the expiration date of the exchange
offer relating to the Company's Senior Subordinated Notes due
2003 had been extended.
A Current Report on Form 8-K dated February 4, 2003 was filed
under Item 5 disclosing the resignation of two board members.
A Current Report on Form 8-K dated February 14, 2003 was filed
under Item 5 disclosing the total appraised value of the real
property securing the new Senior Secured Notes due 2005.
A Current Report on Form 8-K dated February 20, 2003 was filed
under Item 5 disclosing that the expiration date of the exchange
offer had been extended.
A Current Report on Form 8-K dated February 26, 2003 was filed
under Item 5 disclosing that the Company successfully completed
its offer to exchange its new Senior Secured Notes due 2005 for
its outstanding 11 5/8 percent Senior Subordinated Notes due
2003. The Company also completed the refinancing of the Fleet
Credit facility with the proceeds of the Merrill Credit
Agreement.
28
A Current Report on Form 8-K dated February 20, 2003 was filed
under Item 9 disclosing a Standard & Poor's rating change dated
February 27, 2003, stating that the Standard & Poor's Ratings
Services lowered its corporate credit rating on Wickes Inc. to
'SD' from 'CC'.
A Current Report on Form 8-K dated March 5, 2003 was filed under
Item 5 disclosing that the Company completed its offer to
exchange its new Senior Secured Notes due 2005 for any and all of
its outstanding 11 5/8% Senior Subordinated Notes due 2003. The
Company also completed on that date the refinancing of its senior
credit facility with the proceeds of a new $125,000,000 senior
credit facility.
29
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
WICKES INC.
By: /s/ Jim O'Grady
---------------
Jim O'Grady
President and Chief Executive Officer
By: /s/ James A. Hopwood
--------------------
James A. Hopwood
Senior Vice President and
Chief Financial Officer
Date: May 13, 2003
30
SECTION 302 CERTIFICATION
-------------------------
I, Jim O'Grady, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Wickes Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: May 13, 2003 Signature: /s/ Jim O'Grady
------------ ---------------
President and
Chief Executive Officer
31
SECTION 302 CERTIFICATION
-------------------------
I, James Hopwood, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Wickes Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
b) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal controls
which could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: May 13, 2003 Signature: /s/ James A. Hopwood
------------ --------------------
Senior Vice President and
Chief Financial Officer
32
Exhibit 99.1
CERTIFICATION
PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED BY SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
I, Jim O'Grady, President and Chief Executive Officer of Wickes Inc. (the
"Registrant") hereby certify, pursuant to 18 U.S.C.ss. 1350, as adopted by
Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:
(1) the Quarterly Report on Form 10-Q for the period ending March 29, 2003
as filed with/submitted to the U.S. Securities and Exchange Commission (the
"Report"), fully complies with the requirements of Section 13(a) of the
Securities Exchange Act of 1934, as amended; and
(2) the information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations of the
Registrant.
Dated: May 13, 2003
/s/ Jim O'Grady
---------------
Jim O'Grady,
President and Chief Executive Officer
A signed original of this written statement required by Section 906 has
been provided to Wickes Inc. and will be retained by Wickes Inc. and furnished
to the Securities and Exchange Commission or its staff upon request.
33
Exhibit 99.2
CERTIFICATION
PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED BY SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
I, James A. Hopwood, Senior Vice President and Chief Financial Officer of
Wickes Inc. (the "Registrant") hereby certify, pursuant to 18 U.S.C.ss. 1350, as
adopted by Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:
(1) the Quarterly Report on Form 10-Q for the period ending March 29, 2003
as filed with/submitted to the U.S. Securities and Exchange Commission (the
"Report"), fully complies with the requirements of Section 13(a) of the
Securities Exchange Act of 1934, as amended; and
(2) the information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations of the
Registrant.
Dated: May 13, 2003
/s/ James A. Hopwood
--------------------
James A. Hopwood,
Senior Vice President and
Chief Financial Officer
A signed original of this written statement required by Section 906 has
been provided to Wickes Inc. and will be retained by Wickes Inc. and furnished
to the Securities and Exchange Commission or its staff upon request.