Back to GetFilings.com
1
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 28, 1996
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. 0-22468
WICKES LUMBER COMPANY
---------------------
(Exact name of registrant as specified in its charter)
Delaware 36-3554758
-------- ----------
(State of Incorporation) (IRS Employer Identification No.)
706 North Deerpath Drive, Vernon Hills, Illinois 60061
-------------------------------------------------------
(Address of principal executive offices)
(847) 367-3400
--------------
(Registrant's telephone number, including area code)
Securities Registered Pursuant to Section 12 (b) of the Act:
None
----
Securities Registered Pursuant to Section 12 (g) of the Act:
Common Stock, par value of $.01 per share
-----------------------------------------
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, 1997, the Registrant had 7,663,521 shares of Common
Stock, par value $.01 per share, and 499,768 shares of Class B Non-Voting
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 System of Common Stock on that date) held by
nonaffiliates was approximately $19,200,000 (includes the market value of
all such stock other than shares beneficially owned by 10% stockholders,
executive officers and directors).
DOCUMENTS INCORPORATED BY REFERENCE
-----------------------------------
Portions of the Registrant's Proxy Statement in connection with its
Annual Meeting of Shareholders tentatively scheduled to be held on May 20,
1997, are incorporated by reference into Part III hereof, as more
specifically described herein.
2
TABLE OF CONTENTS
Page No.
PART I
Item 1. Business 3
Item 2. Properties 17
Item 3. Legal Proceedings 18
Item 4. Submission of Matters To a Vote
of Security-Holders 19
PART II
Item 5. Market For Registrant's Common Equity
and Related Stockholder Matters 20
Item 6. Selected Financial Data 20
Item 7. Management's Discussion and Analysis
of Financial Condition and Results
of Operations 24
Item 8. Financial Statements and Supplementary Data 36
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure 36
PART III
Item 10. Directors and Executive Officers
of the Registrant 37
Item 11. Executive Compensation 37
Item 12. Security Ownership of Certain
Beneficial Owners and Management 37
Item 13. Certain Relationships and Related Transactions 37
PART IV
Item 14. Exhibits, Financial Statement Schedules,
and Reports on Form 8-K 38
SIGNATURES 39
2
3
PART I
Item 1. BUSINESS.
- -----------------
Wickes Lumber Company ("Wickes" or the "Company") is a major retailer
and distributor of building materials. 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-
yourselfers ("DIYers") involved in major home improvement projects. The
Company operates 110 building centers in 24 states in the Midwest,
Northeast, and South and twelve component manufacturing facilities that
produce and distribute pre-hung door units, roof and floor trusses, framed
wall panels, and pre-assembled windows.
Background
- ----------
The Company was formed as a Delaware corporation in 1987 and in April
1988 completed the acquisition (the "1988 Acquisition") of an operating
division that had commenced in 1952 with a single building center. Upon
completion of the 1988 Acquisition, the Company's operations consisted of
223 building centers and 10 component manufacturing facilities. From 1988
through 1993, the Company reduced the number of its building centers to 124
and the number of its component manufacturing facilities to six.
On October 22, 1993, the Company completed a plan of recapitalization
(the "Recapitalization Plan") pursuant to which the Company retired all
outstanding indebtedness incurred in connection with the 1988 Acquisition,
restructured its previously existing classes of capital stock, and
completed the initial public offering of 2,800,000 shares of its common
stock.
In 1994, the Company commenced an acquisition program which resulted in
the acquisition of fifteen building centers and five component
manufacturing facilities during 1994 and 1995, principally through the
acquisition of the Gerrity Lumber business. For further information, see
Note 4 of Notes to Consolidated Financial Statements included elsewhere
herein.
During the fourth quarter of 1995 the Company committed to a plan (the
"1995 Plan") to reduce the number of under-performing building centers, the
corresponding overhead to support these building centers, and to strengthen
its capital structure. The operational changes contemplated by this plan
were begun on December 29, 1995. Since that date, the Company has
consolidated or closed 18 building centers and has identified additional
building centers for consolidation or closing. The plan also included the
modification and extension of the Company's bank revolving credit
agreement, which was completed on March 12, 1996, and the private sale of 2
million newly-issued shares of the Company's Common Stock for $10 million,
which occurred on June 20, 1996. In connection with the
3
4
1995 Plan, and other unusual items, the Company recorded a $17.8 million
charge in the fourth quarter of 1995. See Note 3 of Notes to Consolidated
Financial Statements included elsewhere herein.
Industry Overview
- -----------------
According to the Home Improvement Research Institute ("HIRI"), 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 $203.2
billion in 1996. 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 10% of the total market in 1996.
In general, building material retailers concentrate their marketing
efforts either on building professionals or consumers.
Professional-oriented building material retailers, such as the Company,
tend to focus on single-family residential contractors, repair and
remodeling ("R&R") contractors and project DIYers. These retailers compete
principally on the basis of service, product assortment, price, scheduled
job-site delivery and trade credit availability. In contrast,
consumer-oriented building material retailers target the mass consumer
market, where competition is based principally on price, merchandising,
location and advertising. Consumer-oriented warehouse and home center
retailers typically do not offer as wide a range of services, such as
specialist advice, trade credit and scheduled job-site delivery, as do
professional-oriented building material retailers.
Industry sales are closely linked to the level of activity in the
residential building industry, which tends to be cyclical and seasonal.
New residential construction is determined largely by household formations,
interest rates, housing affordability, availability of mortgage financing,
regional demographics, consumer confidence, job growth, and general
economic conditions. According to the U.S. Bureau of the Census, U.S.
housing starts totaled 1.20 million in 1992, 1.29 million in 1993, 1.46
million in 1994, and 1.35 million in 1995. In 1996, housing starts
increased by 8.8% to 1.47 million. The increase in 1996 housing starts in
the Company's primary markets, the Midwest and Northeast, were
approximately 11.2% and 10.6%, respectively. Nationally, single family
housing starts, which generate the majority of the Company's sales to
building professionals, experienced an increase of 7.8% in 1996, from 1.07
million starts in 1995 to 1.16 million starts in 1996. The Blue Chip
Economic Indicators Consensus Forecast dated March 10, 1997, projects 1997
housing starts to be 1.39 million, or a decrease of approximately 5.4%.
Repair and remodeling expenditures tend to be less cyclical than new
residential construction. These expenditures are generally undertaken with
less regard to economic conditions, but both repair and remodeling projects
(including projects undertaken by DIYers) tend to increase with increasing
sales of both existing and newly-constructed
4
5
residences. The HIRI estimates the sales of home improvement products to
repair and remodeling professionals represented $40.3 billion, or
approximately 20% of total 1996 sales of the building material supply
industry, while direct sales to DIYers amounted to $95.1 billion.
Business Strategy
- -----------------
General
-------
The Company's strategic goal is to become the preferred supplier of
building materials and services to its target customers: home builders,
commercial builders, and trade contractors and remodelers.
The Company has focused on improving its product lines, staffing,
facilities, purchasing, sales and marketing, as well as other aspects of
its operations to fit a new operational model based on a lower cost
structure, improved asset turnover, and more efficient service to target
customers. The shift to improve upon the Company's traditional "dual yard"
format was necessary to remain profitable in the high volume, lower margin
professional construction market.
Increased Market Share in Existing Markets
------------------------------------------
In order to increase sales force productivity and increase market share
in existing markets, the Company has commenced several management and sales
initiatives. To improve penetration in its current markets the Company is
broadening and deepening the non-wood inventory selection carried at its
building centers and establishing more competitive pricing on these items.
In addition, the Company is significantly increasing the number of its
outside sales representatives ("OSR's") through the addition of quality
experienced OSR's in most of its building centers. Other initiatives, such
as a tool rental program and expanded inventory for R&R contractors in many
locations, are aimed at increasing sales through improved product and
service offerings. Also, the Company is significantly expanding its
management and sales training programs.
Increased Focus and Strategic Alliances with Top Builders
---------------------------------------------------------
In 1996 the Company established a special management team to focus on
the top 400 builders in the U.S. The goal was to increase the Company's
success with medium-sized, regional and top national builders and to
explore strategic alliances with these builders where mutually beneficial.
The efforts of this team have led to increased sales to twelve major
builders. In addition, the Company is involved in serious discussions with
several top builders to create strategic alliances that leverage the
Company's size, number of locations, and significant resources on both a
regional and national basis.
5
6
Limited SKU Facilities
----------------------
In order to meet the specific needs of large key accounts in markets the
Company does not currently service, the Company has developed a model for a
low cost "Limited SKU Facility". Limited SKU Facilities are designed to be
established in conjunction with a builder engaged in a major development to
provide the specific inventory, equipment, logistics, and services to meet
the customer's special needs and specifications. Limited SKU facilities
are designed to be profitable at lower gross margins and may include some
form of component manufacturing. Two facilities have already opened in
1997, two others are currently being assembled, and several others are in
early stages of planning.
Because of the need to supply only the specific service needs of a
single customer, it is expected that a Limited SKU Facility can be
operational usually within 90 days of reaching agreement with the customer.
Once operating, the facility will look to expand its services to other
customers within its market. Each facility will be designed to allow for
ease of exit at the end of the agreement, if necessary, or the ability to
grow into a full-fledged building center or component manufacturing
operation. Initial reaction to this concept from large national and
regional builders has been very favorable.
Expanded Component Manufacturing
--------------------------------
The Company owns and operates twelve component manufacturing facilities
that supply the Company's building centers with certain higher-margin,
value-added products such as pre-hung doors, framed wall panels, roof and
floor trusses, and windows. These manufacturing facilities enable the
Company to serve the needs of its professional customers for such quality,
custom-made products. These operations supply approximately 56% of the
pre-hung interior doors, 69% of the metal exterior doors, 42% of the roof
and floor truss systems and all the wall panel systems sold by the Company
in 1996. The Company believes that these pre-assembled products improve
customer service and provide an attractive alternative to job-site
construction as labor costs rise. The Company plans to expand its
manufacturing facilities to take advantage of these increased opportunities
and to supply a greater number of its building centers with these products.
In addition to expanding the production capacity at existing facilities,
the Company is currently working on several projects to meet the needs of
specific customers in markets not currently serviced by the Company's
manufacturing operations. These projects vary from low cost start-up
operations to joint ventures with existing experienced manufacturers.
Wickes Direct
-------------
In an effort to increase its business to non-traditional customers and
out-of-market trade areas, the Company formed the Commercial Sales Division
in 1993 and added a national builder accounts sales team in 1996. In late
1996, these two groups were combined to form "Wickes Direct", the Company's
wholesale division. This division focuses on large volume orders, from
both commercial and residential builders, much of which is to
6
7
be shipped directly from the manufacturer to the customer's job-site. A
team of ten key account managers and twelve independent sales representatives
has been assembled to work directly with customers to provide products and
services. In addition to lumber and building materials, this division
provides design, 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.
Increased Use of Sales Technology
---------------------------------
The Company is progressive in its use of the Internet to expand its
business. The Company maintains a Web site, at http://www.wickes.com/,
which provides product and service information, together with links to
numerous suppliers and customers, a listing of all building centers and
management and sales staff, information about the Company, and the ability
to leave questions or requests for quotes. At the National Association of
Home Builders show held in Houston in January 1997 the Company introduced a
new site designed to help maximize the customer's efficiency by offering
Wickes' services 24 hours a day. This site allows a customer, through a
secure link on the Internet, the ability to check pricing, place orders,
request quotes, or check billing information. It is currently being
implemented with select customers.
The Company is also expanding its use of the Internet and telemarketing
to identify sales opportunities as they become available, rather than
waiting until they appear in traditional industry sources.
Improvement of the Company's Balance Sheet
------------------------------------------
The Company has taken numerous steps to strengthen its balance sheet,
including the improvement of working capital management, the reduction of
underperforming and non-operating assets, the modification of its revolving
credit agreement and the sale of newly-issued stock. These steps, along
with other on-going efforts have improved, and are expected to further
improve, the Company's debt position and increase its return on assets.
During the fourth quarter of 1995, the Company committed to and began
implementing the 1995 Plan, which was designed to improve return on assets
by closing or consolidating under-performing operating centers, decreasing
the corresponding overhead to support these building centers, and
initiating actions to strengthen its capital structure. During 1996 and
1997, the Company continued executing the 1995 Plan. Through February 28,
1997 the Company has consolidated or closed 18 building centers. See Note
3 of Notes to Consolidated Financial Statements included elsewhere herein.
During the first and second quarters of 1996, the Company implemented a
plan to reduce the number of underutilized vehicles and equipment. As a
result of this program, the number of delivery vehicles and forklifts was
reduced by approximately 350 units, while still providing customers with
the high level of delivery service to which they are accustomed.
7
8
The 1995 Plan also included the amendment and restatement of the
Company's revolving credit agreement, which was completed March 12, 1996.
See Note 7 of "Notes to Consolidated Financial Statements" included
elsewhere herein. A second amendment and restatement of this credit
agreement, which would include among other things (i) extension of the life
of the facility until March 2001, (ii) 75 basis point reductions in the
interest rate premiums over LIBOR and over prime, (iii) modifications to
certain financial covenants, and (iv) a provision for further interest rate
premium reductions if certain performance levels are achieved, is expected
to be completed in March or early April 1997. Also, on June 20, 1996, the
Company sold 2,000,000 newly-issued shares of its Common Stock to Riverside
Group, Inc., the Company's largest stockholder, for $10 million in cash.
See Note 9 of Notes to Consolidated Financial Statements included elsewhere
herein.
Markets
- -------
The Company has generally located its building centers in less populous
areas, with 82% located in trade areas (10 mile radius) with fewer than
50,000 owner-occupied households. The following table sets forth the
distribution of the Company's building centers by size of community:
Owner-Occupied Number of
Households in Building
Ten Mile Radius Centers
---------------- --------
Under 10,000 36
10,000-25,000 24
25,000-50,000 30
50,000-100,000 16
100,000 and over 4
-----
Total 110
In its more densely populated markets, the Company sells primarily to
building professionals, while in smaller markets, the Company's building
centers generally sell to both building professionals and consumers. Each
of the Company's building centers operates as a separate profit center and
tailors its product and service mix to its local market.
The Company's 110 building centers are located in 24 states in the
Midwest, Northeast and South. The Company believes that its geographic
diversity generally lessens the impact of economic downturns and adverse
weather conditions in any one of the Company's geographic markets. The
following table sets forth certain information with respect to the
locations of the Company's building centers as of February 28, 1997:
8
9
Midwest Northeast South
- ----------------------- ------------------------ ----------------------
Number of Number of Number of
Building Building Building
State Centers State Centers State Centers
- ------------- ------- ------------- -------- ------------- -------
Michigan 30 New York 8 Alabama 3
Wisconsin 15 Pennsylvania 7 Kentucky 3
Indiana 11 Maine 2 Texas 2
Ohio 5 Connecticut 3 Louisiana 1
Illinois 5 New Hampshire 2 Mississippi 2
Iowa 2 New Jersey 1 Tennessee 1
Colorado 2 Massachusetts 1 Georgia 1
Maryland 1 North Carolina 1
Florida 1
--------- --------- ---------
Total 70 Total 25 Total 15
========= ========= =========
During the first two months of 1997 the Company opened two new building
centers, in Aurora, Illinois and Colorado Springs, Colorado. Both of these
facilities were initially established as Limited SKU Facilities to meet the
specific needs of an existing customer, but with the intention and
flexibility to expand the volume at these operations well beyond these
initial needs.
During 1996, The Company opened a new component manufacturing facility
in Indiana and consolidated two building centers into other existing
centers.
The following table reconciles the number of building centers and
component manufacturing facilities operated by the Company at December, 31,
1994, December 30, 1995, December 28, 1996 and February 28, 1997.
Component
Building Manufacturing
Centers Facilities
------- ------------
As of December 31, 1994 130 10
Acquisitions 5 2
Expansion 2 -
Closings (10) -
Consolidations (17) (1)
----- ----
As of December 30, 1995 110 11
===== =====
Expansion - 1
Consolidations (2) -
----- -----
As of December 28, 1996 108 12
===== =====
Expansion 2 -
----- -----
As of February 28, 1997 110 12
===== =====
9
10
Customers
- ---------
The Company has a broad base of customers, with no single customer
accounting for more than 0.5% of net sales in 1996. In 1996, 87% (compared
with 82% in 1995) of the Company's sales were on trade credit, with the
remaining 13% as cash and credit card transactions.
Home Builders
-------------
The Company's primary customers are single-family home builders. In
1996, all home builder customers accounted for 57% of the Company's sales,
compared with 54% in 1995. The majority of the Company's sales to these
customers are of high-volume commodity items, such as lumber and building
materials. The Company will continue its intense focus on this customer
segment, offering new products and developing additional services to meet
their needs.
Commercial Contractors
----------------------
In 1993, the Company launched a program developed specifically to serve
the unique needs of commercial and multi-family contractors. In 1996 and
early 1997 the responsibility for serving this customer segment was
transferred to the Company's building center operations and the newly
formed Wickes Direct sales division. In 1996, sales to these customers
accounted for more than 16% of the Company's sales, compared with 14% of
the Company's sales in 1995.
Repair & Remodelers
-------------------
In 1996, R&R customers accounted for approximately 12% of the Company's
sales, compared with 14% in 1995. The R&R segment consists of a broad
spectrum of customers, from part-time handymen to large, sophisticated
business enterprises. Some contractors are involved exclusively with
single product application, such as roofing, siding, or insulation, while
some specialize in remodeling jobs, such as kitchen or bathroom remodeling
or the construction of decks, garages, or full room additions. The Company
offers the product and project expertise, special order capability, design
assistance, and credit terms to serve the widely varying needs of this
diverse market.
DIYers
------
Sales to DIYers (both project and convenience) represented about 15% of
the Company's sales in 1996, compared with 18% in 1995. The percentage of
sales to DIYers varies widely from one building center to another, based
primarily on the degree of local competition from warehouse and home center
retailers. The Company's building centers do not have the large showrooms
or broad product assortments of the major warehouse or home center
retailers. For small purchases, the showrooms serve as a convenience
rather
10
11
than a destination store. Consequently, the Company's focus on consumer
business is toward project DIYers -- customers who are involved in major
projects such as building decks or storage buildings or remodeling kitchens
or baths.
Sales and Marketing
- -------------------
The Company employs a number of marketing initiatives designed to
increase sales and to support the Company's goal of being the dominant
force in the sale of lumber and other building materials to building
professionals in each of its markets.
Building Professional
---------------------
The Company seeks to establish long-term relationships with its
professional customers by providing a higher level of customer assistance
and services than are generally available at independently-owned building
centers or large warehouse and home center retailers.
The Company provides a wide range of customer services to building
professionals, including expert assistance, technical support, trade
credit, scheduled job-site delivery and other special services. The Company
believes that, while pricing is an important purchasing criterion for these
customers, availability of quality products and services are equally or
more important.
The Company's primary link to the building professional market is its
experienced sales staff. The Company's approximately 370 outside sales
representatives ("OSRs") are commissioned sales persons who work with
professional customers on an on-going basis at the contractors' job sites
and offices. Typically, a sale to a contractor is made through a
competitive bid prepared by the OSR from plans made available by the
contractor. From these plans, the OSR or sales support associate prepares
and provides to the contractor a bid and a complete list, or "take-off," of
the materials required to complete the project. Preparation of a take-off
requires significant time and effort by trained and experienced sales
representatives and support associates. The Company has equipped all of
its building centers with a computerized system which significantly reduces
the time required to prepare take-offs. In addition, this system instantly
recalculates changes and automatically includes add-on products needed to
complete the project, which generally improves productivity, sales and
margins. The ability of the sales representative to provide prompt and
accurate take-offs, to arrange timely deliveries, and to provide additional
products or services as necessary is an important element of the Company's
marketing strategy and distinguishes the Company from many of its
competitors.
In January 1997 a new sales and marketing division, Wickes Direct, was
launched targeting sales to some of the nation's largest single and multi-
family residential builders, as well as commercial construction
contractors. Wickes Direct employs numerous non-traditional, as well as
traditional, selling techniques to reach customers generally not
11
12
serviced by the Company's existing building centers. Positioned as the
"wholesale division of Wickes Lumber", Wickes Direct pursues sales through
ten key account managers and approximately twelve independent sales
representatives throughout the country. Shipments to Wickes Direct accounts
are primarily made direct from the supplier or manufacturer and in many
cases will not require the support of a physical Wickes Lumber facility.
The Company currently employs 147 specialty salespeople in its building
centers who provide expert advice to customers in project design, product
selection and applications. A staff of 64 trained R&R sales specialists
offer special services to R&R contractors equivalent to that accorded home
builders. The Company, for many years, has made its local offices and
office equipment (such as facsimile and photocopy machines) available to
R&R customers, many of whom work out of their homes and have a need for
these services. In many of its building centers, the Company maintains
separate R&R offices. The Company currently has kitchen and bath
departments in all of its building centers and has a staff of 72 kitchen
and bath specialists. The Company also employs 11 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% of the Company's sales during 1996 were on credit, with the remaining
13% consisting of cash or credit card sales, including approximately 1% of
sales on the Company's private label credit card. Overall credit policy is
established at the corporate level, with each building center manager and a
district credit manager responsible for the administration and collection
of accounts. The accounts are generally not collateralized, except to the
extent the Company is able to take advantage of the favorable materialmen's
lien laws of most states applicable in the case of delinquent accounts.
The Company's credit practices have resulted in a bad debt expense of .1%
of total credit sales in 1996, compared with .8% in 1995 and .3% in both
1994 and 1993. Much of the increase in 1995 was attributable to the
conversion of accounts at the Gerrity Lumber building centers acquired in
1994 to the Company's credit practices.
The Company owns and leases a fleet of 687 delivery vehicles as of
February 28, 1997, to provide job-site deliveries of building materials
scheduled to coordinate with project progress, including 55 specialized
delivery trucks equipped for roof-top or second story delivery and 85
specialized millwork delivery vehicles. The Company will continue to add
these specialized vehicles to other markets where there is sufficient
demand for such services.
Over the past several years, the Company has installed and will continue
to increase its base of computer-aided design hardware and software. These
systems include design and take-off software for kitchens, decks,
outbuildings, additions and houses. With these tools, sales
representatives and specialists are able to provide customers with
professional-quality plans more efficiently.
12
13
The Company has built and continues to expand its Internet site on the
world wide web. This resource provides information about Wickes' services
and products, facilitates doing business with customers, allows customers
to pull up their own transactional information, and features extensive
links to suppliers and other industry references. The home page can be
found at the Internet address: http://www.wickes.com/. The Company has
also begun implementation of a client/server data warehouse system to
upgrade its central information processing needs.
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 building centers to highlight special products and
services.
To increase customer loyalty and strengthen customer relationships, the
Company, in many cases with vendor support, sponsors or participates in
numerous special marketing activities, such as trade show events,
informational product seminars, various outings, and professional builder
trips.
DIYers
------
Most building centers also pursue sales to project DIYers through their
staff of specially-trained inside sales representatives and specialists.
These representatives provide professional advice to consumers for home
improvement projects and assist these customers in designing specific
projects with sophisticated computer design software. The sales
representatives can also provide a comprehensive list of materials and
detailed drawings to assist customers in completing their projects. The
Company believes that project DIYers are attracted to its building centers
by this high level of service.
The Company's showrooms generally feature product presentations such as
kitchen and bath and door and window displays. The showrooms are regularly
re-merchandised to reflect product trends, service improvements and market
requirements.
While the Company's product offerings in hardlines are generally more
limited than its consumer-oriented competitors, the Company stocks a larger
selection of commodity products and offers a special order program for
custom or specialty products. The Company emphasizes project packages,
which include all materials and detailed instructions for the assembly of
the larger projects frequently undertaken by project DIYers.
Products
- --------
The Company stocks a wide variety of building products, totaling
approximately 49,000 stock keeping units ("SKUs") Company-wide, to provide
its customers with the quality products needed to build, remodel and repair
residential and commercial properties.
13
14
Each of the Company's building centers tailors its product mix to meet the
demands of its local market. A core group of approximately 5,200 SKUs is
typically stocked in each building center.
The Company separates its products into three groups: Wood Products --
lumber, plywood, roof and floor trusses, treated lumber, sheathing, wood
siding and specialty lumber; Building Products -- roofing, vinyl siding,
doors, windows, mouldings, drywall and insulation; and Hardlines --
hardware products, paint, tools, kitchen and bathroom cabinets, plumbing
products, electrical products, light fixtures and floor coverings. Wood
Products, Building Products and Hardlines represented 52%, 36% and 12%,
respectively, of the Company's sales for 1996 and 51%, 36% and 13% of sales
for 1995.
In addition to stock items, the Company also fills special orders,
either from its own manufacturing facilities or through outside suppliers.
The Company believes that these special order services are extremely
important to its customers, particularly the building professional. In
1996, approximately 30% of the Company's sales were of special order items,
compared with 32% in 1995.
The Company owns and operates twelve component manufacturing facilities
that supply the Company's building centers with certain higher-margin,
value-added products such as pre-hung doors, framed wall panels, roof and
floor trusses, and windows. These manufacturing facilities enable the
Company to serve the needs of its professional customers for such quality,
custom-made products. The door manufacturing operations support 95 of the
Company's building centers by supplying approximately 56% of the pre-hung
interior doors and 69% of the metal exterior doors sold by the Company.
The truss manufacturing operations supplied 42 building centers with
approximately 42% of the total roof and floor truss systems sold by the
Company in 1996 and 17 building centers with wall panel systems. The
Company believes that these pre-assembled products improve customer service
and provide an attractive alternative to job-site construction as labor
costs rise. The Company plans to expand its manufacturing facilities to
take advantage of these increased opportunities and to supply a greater
number of its building centers with these products.
Suppliers and Purchasing
- ------------------------
The Company purchases its products from numerous vendors. The great
majority of commodity items are purchased directly from manufacturers,
while the remaining products are purchased from a combination of
manufacturers, wholesalers and other intermediaries. The Company also
manufactures approximately 42% of the roof and floor trusses, 56% of the
pre-hung interior doors, and 69% of the metal exterior doors sold in its
building centers. No single vendor accounted for as much as 5% of the
Company's purchases in 1996, 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.
14
15
The great majority of the Company's commodity purchases are made on the
basis of individual purchase orders rather than supply contracts. In
certain product lines, though, the Company has negotiated some advantageous
volume pricing agreements for a portion of the product line's purchases.
Because approximately 33% of the Company's average inventory consists of
commodity wood products, 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. 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. With certain
of its suppliers, the Company has entered into purchasing arrangements
which allow the Company to purchase wood products shipped to distribution
centers as such goods are needed to restock inventory or fill customer
orders, thereby allowing the Company to reduce its on-hand inventory needs.
The Company's computerized inventory tracking and forecasting system as
well as its inventory replenishment system are designed to track and
maintain appropriate levels of products at each building center. These
systems have increased the Company's operating efficiencies by providing an
automated inventory replenishment system, allowing more time to be devoted
to sales opportunities.
In 1995, the Company established a replenishment program for many of its
non-commodity products through an independent hardlines distributor. This
arrangement provides weekly replenishment of many hardline products in more
economic quantities at competitive prices. The Company also has
experienced significant purchasing and administrative efficiencies as a
result of the implementation of this program.
The Company has active rail sidings at 63 of its building centers
enabling suppliers to ship products purchased by the Company directly to
these building centers by rail. The Company also utilizes two distribution
centers owned by third parties, located in Chicago, Illinois and Pottstown,
Pennsylvania. Approximately 4% of the Company's wood products inventory is
distributed through these facilities.
International Operations
- ------------------------
The Company owns 46% of a company, Riverside International LLC, engaged
in logging, sawmill and other lumber-related activities in Russia,
principally in the Archangel region. During 1996, two investment funds
invested $5 million each in this company and each received a 25% equity
interest, with the Company retaining 46% interest and Riverside
International LLC's management receiving the balance of the equity. All of
the funds received in this transaction were retained by Riverside
International LLC for its own operations.
15
16
Seasonality
- -----------
Historically, the Company's first quarter and, frequently, 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 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
regional and local nature of this 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 professional 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 quality and expertise of its sales staff, quality and
breadth of product lines and services, reliability of inventory levels,
competitive pricing, job-site delivery, 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, where it competes primarily with local
independent lumber yards, regional building material chains, and, to a
lesser extent, with national building center chains and warehouse and home
center retailers, which generally locate their units in more densely
populated areas.
Within the consumer segment, the Company competes primarily with local
lumber yards and hardware stores and, in certain of its markets, with local
units of larger warehouse and home center retailers. Competition within
this segment is based principally on price, merchandising, location and
advertising. The Company focuses primarily on project DIYers, who tend to
place much more value on product selection and the availability of special
services in selecting a building materials supplier. According to Building
Supply Home Centers "1995 Giants" report, the most recent available, the
average product mix of consumer-oriented retailers consist of 14% wood
products, 11% building products and 75% hardlines, compared with 52%, 36%
and 12%, respectively, for the Company in 1996.
Environmental and Product Liability Matters
- -------------------------------------------
Many of the building center facilities presently and formerly operated
by the Company contained underground petroleum storage tanks. Other than
tanks at one acquired facility, recently installed and in compliance with
modern standards, all such tanks known to the Company located on facilities
owned or operated by the Company have been filled,
16
17
removed, or are scheduled to be 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 with respect to the filling or removing of underground storage
tanks and related investigatory and remedial actions, and the Company has
reserved $1.0 million towards the cost of these and other environmental and
product liability matters.
Although the Company has not expended material amounts in the past eight
years with respect to the foregoing, there can be no assurances that these
matters will not give rise to additional compliance and other costs that
could have a material adverse effect on the Company.
For information concerning certain litigation concerning products
containing asbestos, see "Item 3. Legal Proceedings."
Employees
- ---------
As of February 28, 1997, the Company had approximately 3,402 employees,
of whom 2,886 were employed on a full-time basis. The Company believes
that it has maintained favorable relations with its employees. None of the
Company's employees is represented by a union or covered by a collective
bargaining agreement.
Trademarks and Patents
- ----------------------
The Company has no material patents, trademarks, licenses, franchises,
or concessions other than the name "Wickes Lumber" and the "Flying W"
trademark.
Item 2. PROPERTIES.
- -------------------
The Company's 110 building centers are located in 24 states, with 70 in
the Midwest, 25 in the Northeast and 15 in the South. See "Item 1. Business
- - Markets." The Company believes that its facilities generally are in good
condition and will meet the Company's needs in the foreseeable future.
The Company's building centers generally consist of a showroom averaging
9,700 square feet and covered storage averaging 42,800 square feet. The
Company's building centers are situated on properties ranging from 1.3 to
40.0 acres and averaging 10.2 acres. The Company also operates twelve
17
18
component manufacturing facilities which have an average of 37,700 square
feet under roof on 7.8 acres.
The Company owns 96 of its building centers and 92 of the sites on which
such building centers are located. The remaining 14 building centers and
18 sites are leased. As of December 28, 1996, the Company also held for
sale the assets of 18 closed building centers and three other properties
with an aggregate book value of $11.1 million. In addition to its building
centers, the Company operates twelve component manufacturing plants. Six
of these plants are located on building center sites. Of the remaining six
plants, four are on owned sites and two are on leased properties.
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, 1997, the fleet included
approximately 96 heavy duty trucks, 55 of which provide roof-top or second
story delivery, 506 medium duty trucks, 433 light duty trucks and
automobiles, 531 forklifts, and 85 specialized millwork delivery vehicles.
The Company owns its corporate headquarters, located at 706 North
Deerpath Drive in Vernon Hills, Illinois.
Item 3. LEGAL PROCEEDINGS.
- --------------------------
On November 3, 1995, a complaint styled Morris Wolfson v. J. Steven
Wilson, Kenneth M. Kirschner, Albert Ernest, Jr., Claudia B. Slacik, Jon F.
Hanson, Robert E. Mulcahy, Frederick H. Schultz, Wickes Lumber Company and
Riverside Group, Inc. was filed in the Court of Chancery of the State of
Delaware in and for New Castle County (C.A. No. 14678). As amended, this
complaint alleges, among other things, that the sale by the Company of 2
million newly-issued shares of the Company's Common Stock to Riverside
Group, Inc., the Company's largest stockholder, was unfair and constituted
a waste of assets and that the Company's directors in connection with the
transaction breached their fiduciary duties. The amended complaint, among
other things, seeks on behalf of a purported class of the Company's
shareholders equitable relief or to obtain damages with respect to, the
transaction. See "Item 1. Business - Background" and Note 9 of Notes to
Consolidated Financial Statements included elsewhere herein.
As a result of the settlement of certain claims between the plaintiffs
and other parties peripheral to the dispute included in FynSyn Capital
Corporation and Wickes Lumber Investment Partnership vs. Bankers Trust
Company, et al., the primary remaining issue in the dispute is the
Company's affirmative claim for attorney's fees from the plaintiffs.
The Company is one of many defendants in approximately 110 actions, each
of which seeks unspecified damages, brought since 1993 in various Michigan
state courts against manufacturers and building material retailers by
individuals who claim to have suffered injuries from products containing
asbestos. Each of the plaintiffs in these actions is represented by one of
18
19
two law firms. The Company is aggressively defending these actions and
does not believe that these actions will have a material adverse effect on
the Company.
The Company is involved in various other legal proceedings which are
incidental to the conduct of its business. The Company does not believe
that any of these proceedings will have a material adverse effect on the
Company.
The Company's assessment of the matters described in this Item 3 and
other forward-looking statements ("Forward-Looking Statements") in this
report 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.
19
20
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 System under the trading symbol "WIKS." As of February 28,
1997, there were 7,663,521 shares outstanding held by approximately 173
shareholders of record. There were also outstanding 499,768 shares of
Class B Non-Voting Common Stock, which are not publicly traded.
The following table sets forth for the periods indicated the high and
low last 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
Fiscal 1996 High Low
----------- ---------- ---------
March 30 $ 6.625 $ 4.00
June 29 5.50 4.75
September 28 5.25 4.00
December 28 4.875 3.375
Fiscal 1995
-----------
April 1 $ 16.00 $ 10.25
July 1 16.25 12.75
September 30 16.00 9.75
December 30 9.75 5.00
The Company has not declared or paid any dividends on Common Stock in
the past three years and has no present intention to pay cash dividends on
Common Stock in the foreseeable future. The Company's revolving credit
facility prohibits cash dividends on Common Stock, and the trust indenture
related to the Company's 11-5/8% senior subordinated notes restricts cash
dividends on Common Stock. See "Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations."
Item 6. SELECTED FINANCIAL DATA.
- --------------------------------
The following table presents selected financial data derived from the
audited consolidated financial statements of the Company for each of the
five years ended December 28, 1996. 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.
20
21
WICKES LUMBER COMPANY AND SUBSIDIARIES
SELECTED CONSOLIDATED FINANCIAL DATA
(in thousands, except ratios and per share data)
Dec. 28, Dec. 30, Dec. 31, Dec. 25, Dec. 26,
1996 1995 1994 1993 1992
--------- --------- --------- --------- ---------
Income Statement Data:
Net sales $ 848,535 $ 972,612 $ 986,872 $ 846,842 $ 745,365
Gross profit 189,463 220,812 233,831 206,558 187,622
Selling, general and administrative expense 162,329 194,629 194,586 174,889 156,790
Depreciation, goodwill and trademark amortization 5,367 5,882 4,543 5,782 5,850
Provision for doubtful accounts 1,067 6,482 2,457 1,942 849
Other operating income 6,796 5,831 6,772 4,575 3,618
Income from operations before restructuring
and unusual items 27,496 19,650 39,017 28,520 27,751
Restructuring and unusual items(1) 745 17,798 2,000 53 -
Income from operations 26,751 1,852 37,017 28,467 27,751
Interest expense(2) 21,750 24,351 21,663 20,298 20,845
Equity in loss of affiliated company 3,183 3,543 - - -
Income (loss) before income taxes, and extraordinary gain 1,818 (26,042) 15,354 8,169 6,906
Income taxes 1,010 1,353 1,660 1,227 902
Deferred tax expense/(benefit) (3) 300 (11,796) (14,360) - -
Income (loss) before extraordinary gain 508 (15,599) 28,054 6,942 6,004
Extraordinary gain (4) - - - 1,241 -
Net income (loss) 508 (15,599) 28,054 8,183 6,004
Dividends applicable to redeemable preferred stock - - - (872) (1,080)
Income (loss) applicable to common shares 508 (15,599) 28,054 7,311 4,924
Ratio of earnings to fixed charges (5) 1.07 - 1.63 1.37 1.31
Interest coverage (6) 1.61 0.35 2.09 2.08 2.10
Adjusted interest coverage (7) 1.65 1.15 2.19 2.09 2.10
Per Share Data:(8)
Earnings (loss) per common share (per pro forma
share in 1993 and 1992) (9) $ 0.07 $ (2.54) $ 4.59 $ 1.34 $ 0.98
Weighted average pro forma common shares outstanding(9) 7,219,754 6,151,771 6,106,279 6,099,985 6,099,985
Earnings (loss) per common share - historical $ 0.07 $ (2.54) $ 4.59 $ 2.55 $ 2.27
Weighted average common shares outstanding - historical 7,219,754 6,151,771 6,106,279 2,871,091 2,168,784
Operating and Other Data:
EBITDA (10) $ 32,118 $ 7,734 $ 41,560 $ 34,249 $ 33,601
Adjusted EBITDA (11) 32,863 25,532 43,560 34,302 33,601
Cash interest expense(12) 19,969 22,266 19,882 16,435 15,971
Depreciation and amortization 5,367 5,882 4,543 5,782 5,850
Deferred financing cost amortization 1,781 2,085 1,781 1,840 2,179
Capital expenditures 2,893 7,538 9,760 4,289 5,502
Same store sales growth(13) (6.4)% (3.8)% 14.1% 14.3% 8.8%
Building centers open at end of period 108 110 130 124 125
Net cash provided by (used in) operating activities 18,710 15,862 1,331 (21,269) 13,643
Net cash provided by (used in) investing activities 2,410 (10,277) (41,777) 5,323 (1,446)
Net cash provided by (used in) financing activities (19,274) (7,535) 42,480 15,944 (12,197)
Balance Sheet data (at period end):
Working capital $ 116,771 $ 139,622 $ 163,511 $ 104,089 $ 60,706
Total assets 272,842 302,515 319,573 248,015 222,611
Total long-term debt, less current maturities 176,376 205,221 211,139 167,883 166,837
Redeemable preferred stock - - - - 15,960
Total stockholders' equity (deficit) 25,499 15,129 30,146 1,818 (48,957)
21
22
Notes to Selected Consolidated Financial Data
----------------------------------------------
(1) In 1995, the Company recorded a $17.8 million charge relating to a
plan to reduce the number of operating building centers, the
corresponding overhead to support those centers identified, strengthen
its capital structure, and other unusual items. In 1996, the Company
recorded an additional charge of $0.7 million primarily as a result of
adjustments to the 1995 restructuring plan. In 1994, the Company
recorded a $2.0 million charge primarily as a result of its
headquarters cost reduction plan.
(2) Interest expense includes cash interest expense, amortization of
deferred financing costs and accretion of note discount (See note 12
below).
(3) The deferred tax benefit recorded in 1994 includes a $21.0 million
reduction of the Company's valuation allowance for deferred tax
assets.
(4) During the year ended December 25, 1993, the Company completed its
Recapitalization Plan. As a result of the Recapitalization Plan, the
early extinguishment of debt, the retirement of supplemental
retirement benefits and the expensing of unamortized 1988 Acquisition
costs, the Company recorded an extraordinary gain of $1.2 million, net
of income taxes of $0.2 million.
(5) For purposes of computing this ratio, earnings consist of income
(loss) before income taxes, extraordinary gain and fixed charges.
Fixed charges consist of cash interest expense, amortization of
deferred financing costs, and a portion of operating lease rental
expense that is representative of the interest factor attributable to
interest expense. Such earnings were insufficient to cover fixed
charges by $26.0 million for the year ended December 30, 1995.
(6) For purposes of computing this ratio, earnings consists of EBITDA (see
note 10 below), which is divided by cash interest expense (see note 12
below).
(7) For purposes of computing this ratio, earnings consists of Adjusted
EBITDA (see note 11 below), which is divided by cash interest expense
(see note 12 below).
(8) All per share data reflect a 21.73-for-1 stock split declared in
October 1993, immediately prior to the consummation of the
Recapitalization Plan.
(9) For all periods prior to 1994 earnings per share is based upon the pro
forma 6,099,985 weighted average number of common shares outstanding
giving effect to the Recapitalization Plan.
22
23
(10)EBITDA represents income (loss) before income taxes, extraordinary
gain, equity in loss of affiliated company, interest expense,
depreciation and amortization. EBITDA is not presented herein as an
alternative measure of operating results but rather to provide
additional information related to debt service capability, and does
not represent cash flow from operations, as defined by GAAP.
(11)Adjusted EBITDA represents EBITDA (see note 10 above) adjusted to
exclude restructuring and unusual items.
(12)Cash interest expense consists of interest expense less amortization
of deferred financing costs and accretion of subordinated note
discount. The following table details interest expense, cash interest
expense, and interest paid for each of the five years ended December
28, 1996.
1996 1995 1994 1993 1992
----- ----- ----- ----- -----
Interest expense $21,750 $24,351 $21,663 $20,298 $20,845
Less:
Amortization of deferred
financing costs 1,781 2,085 1,781 1,840 2,179
Accretion of note discount -- -- -- 2,023 2,695
------ ------ ------ ------ ------
Cash interest expense 19,969 22,266 19,882 16,435 15,971
(Increase) Decrease in
accrued interest 403 557 (1,105) 8,863 (1,339)
------ ------ ------ ------ ------
Interest paid $20,372 $22,823 $18,777 $25,298 $14,632
====== ====== ====== ====== ======
(13)For 1996, same store data reflects average sales from 103 building
centers and other facilities that were operated by the Company
throughout 1996 and 1995. For 1995, same store data reflects average
sales from 101 building centers and other facilities that were
operated by the Company throughout 1995 and 1994. The sixteen lumber
centers closed on December 29, 1995 were excluded from the 1995 same
store figures, and two centers that were consolidated with another
Wickes center, in early 1995, were included in 1995 same store
results. For 1994 same store data reflects average sales from the 122
building centers and other facilities that were operated by the
Company throughout 1994 and 1993. Prior years data reflects 124
building centers and other facilities operated throughout the period
1992 through 1993.
23
24
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
- -------------------------------------------------------------------
AND RESULTS OF OPERATIONS.
--------------------------
General
- -------
The following table sets forth, for the periods indicated, the
percentage relationship to net sales of certain expense and income items.
The table and subsequent discussion should be read in conjunction with the
financial statements and notes thereto appearing elsewhere herein.
Years Ended
-----------
Dec. 28, Dec. 30, Dec. 31,
1996 1995 1994
---- ---- ----
Net sales 100.0% 100.0% 100.0%
Gross profit 22.3 22.7 23.7
Selling, general and
administrative expense 19.1 20.0 19.7
Depreciation, goodwill and
trademark amortization .6 .6 .4
Provision for
doubtful accounts .1 .7 .3
Restructuring and
unusual Items .1 1.8 .2
Other operating income (.8) (.6) (.7)
Income from operations 3.2 .2 3.8
The Company's operations, as well as those of the building material
industry generally, have reflected substantial fluctuations from period to
period as a consequence of various factors, including levels of
construction activity, general regional and local economic conditions,
prices of commodity wood products, interest rates and the availability of
credit, all of which are cyclical in nature. The Company anticipates that
fluctuations from period to period will continue in the future. Because a
substantial percentage of the Company's sales are attributable to building
professionals, certain of these factors may have a more significant impact
on the Company than on companies more heavily focused on consumers.
The Company's first quarter and, frequently, 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 conditions. While the Company experienced a relatively
mild first quarter in 1995, severe ice storms in the Northeast in 1994, and
record setting snow falls throughout the Midwest and Northeast in January
of 1996, have adversely affected construction activity in the first quarter
of these years. The following table contains selected unaudited quarterly
24
25
financial data for the years ended December 28, 1996, December 30, 1995 and
December 31, 1994.
QUARTERLY FINANCIAL DATA
------------------------
Three Months Ended
(in millions, except per share data and percentages)
----------------------------------------------------
Net Sales as Net Earnings/
a % of Annual Gross Net Income (Loss) per
Net Sales Net Sales Profit /(Loss) Common Share
--------- ------------- ------ ---------- -------
1996
March 30 $152.5 18.0% $34.9 $(6.2) $(1.00)
June 29 228.8 27.0 51.2 1.9 .29
September 28 255.6 30.1 55.5 2.8 .35
December 28 211.7 24.9 47.9 2.0 .24
1995
April 1 $191.7 19.7% $45.6 $(4.6) $(.75)
July 1 272.8 28.0 63.9 2.5 .40
September 30 284.5 29.3 62.9 1.9 .31
December 30 223.6 23.0 48.4 (15.4) (2.50)
1994
March 26 $149.6 15.1% $37.2 $(8.7) $(1.43)
June 25 259.3 26.3 62.0 7.4 1.21
September 24 284.2 28.8 67.1 10.7 1.75
December 31 293.8 29.8 67.5 18.7 3.06
Net income/(loss) in the fourth quarter of 1995 was negatively affected
by a $17.8 million charge for restructuring and unusual items. In 1996 and
1994 the Company recorded charges of $0.7 million and $2.0 million,
respectively, as restructuring and unusual items. For additional
information on the restructuring and unusual items charge see "1995
Compared with 1994" and Note 3 of Notes to Consolidated Financial
Statements included elsewhere herein. In additon, in 1996 the Company
received insurance premium adjustments from a former insurance carrier in
the amount of $2.2 million and reversed an accrual of $1.5 million for
other disputed insurance premiums with this carrier. Accordingly, Selling,
General and Administrative expenses were reduced by $1.0 million during the
first three quarters of 1996 and by $2.7 million in the fourth quarter of
1996.
The Company has historically generated approximately 15% to 20% of its
annual revenues during the first quarter of each year, and the Company has
historically recorded a significant net loss for this quarter. As a result
of these seasonal factors, the Company's inventories and receivables reach
peak levels during the second and third quarters and are generally lower
during the first and fourth quarters, depending on sales volume and lumber
prices.
25
26
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. Those factors include but
are not limited to the seasonal and cyclical factors discussed above in
this Item 7 and elsewhere in this report, the effects of the Company's
substantial leverage and competition, the success of the Company's
operational efforts, and the matters discussed in Note 8 of the Notes to
Consolidated Financial Statements included elsewhere herein.
1996 Compared with 1995
- -----------------------
Net Sales
---------
Net sales for 1996 decreased $124.1 million, or 12.8%, to $848.5 million
from $972.6 million in 1995. Sales for all facilities operated throughout
both years ("same store") decreased 6.4%. During 1996, the Company
experienced a 2.1% decrease in same store sales to its primary customer
segment, the professional home builder, and a 3.2% increase in same store
sales to commercial builders.
The reduction in the number of under-performing building centers
pursuant to the restructuring plan committed to in December of 1995 was the
major cause of the 1996 total sales decline. Pursuant to this plan, the
Company closed or consolidated 16 building centers in December 1995 and two
during 1996. During 1995, these closed or consolidated building centers
contributed an aggregate of $86.7 million to total net sales.
Severe weather conditions in the first quarter of 1996, together with
mild weather in the first quarter of 1995, and a 17.5% decrease in same
store sales staff as part of the Company's efforts to better align its
costs to its sales volume, were the major factors contributing to the 1996
same store sales decline. The decrease in same store sales occurred most
heavily during the first nine months of 1996. For this period, same store
sales were down 8.8%, while fourth quarter same store sales were up
slightly from the fourth quarter of 1995.
Total housing starts in the United States increased 8.8% in 1996, and
starts in the Company's primary markets, the Midwest and Northeast,
increased approximately 10.6% and 11.2%, respectively. Nationally, single
family housing starts, which generate the majority of the Company's sales
to building professionals, experienced an increase of 7.8% in 1996, from
1.07 million starts in 1995 to 1.16 million starts in 1996. In 1996
inflation in lumber prices had a negligible effect on sales.
26
27
Gross Profit
------------
Gross profit decreased $31.3 million to 22.3% of net sales for 1996
compared with 22.7% of net sales for 1995. The primary reason for the
decrease in gross profit was the reduction in total sales as a result of
the Company's program to reduce the number of under-performing building
centers.
The decline in gross profit as a percent of sales is primarily
attributed to the Company's continued emphasis on sales to the professional
builder, resulting in an increase in the portion of the Company's sales
comprised of lower margin commodity products, and to a lesser extent a
program to reduce the amount of excess and slow moving inventory. The
percent of Company sales attributable to professional builders increased to
84.7% for 1996 compared with 81.6% in 1995, and sales attributable to
commodity lumber products increased from 50.6% in 1995 to 52.7% in 1996.
The Company anticipates that its continued focus on the professional
builder will create additional pressure on gross profit margins. The
decline in gross profit as a percent of sales was partially offset by a
decrease in the cost associated with physical inventory count adjustments.
Selling, General, and Administrative Expense
--------------------------------------------
In 1996, Selling, general, and administrative expense ("SG&A") decreased
as a percent of net sales to 19.1% compared with 20.0% of net sales in
1995. In 1996, the Company focused substantial efforts on better aligning
its SG&A expenses to sales volumes and improving the productivity of its
existing sales staff in order to improve profitability. As a result of the
Company's 1995 Plan and several cost reduction initiatives implemented in
the second half of 1995 and early 1996 the Company was able to reduce its
total SG&A expense by 16.6%, which is proportionately greater than the
12.8% total sales decline for the year.
The Company experienced a decrease in salaries, wages and employee
benefits as a percent of sales by 0.5% from 1995 to 1996. On a same store
basis, the number of total employees at the average building center during
1996 was reduced approximately 13% from 1995. In 1996 the Company
successfully recovered $3.7 million in previous years insurance costs. The
recoveries associated with workers compensation insurance reduced salaries,
wages and employee benefits by 0.2% of sales, and the balance of the
recoveries reduced property and casualty insurance, as a percent of sales,
by 0.2%. The Company also experienced decreases from 1995 to 1996 as a
percent of sales in postage, communications, office supplies, and marketing
expenses which were partially offset by increased delivery costs.
In addition to the reductions in SG&A directly related to building
center closings, other cost reduction initiatives included a reduction in
vehicles and other equipment at continuing operations and various programs
to reduce costs associated with the corporate headquarters in Vernon Hills,
Illinois.
27
28
Depreciation, Goodwill and Trademark Amortization
-------------------------------------------------
Depreciation, goodwill and trademark amortization costs decreased $0.5
million in 1996 compared with 1995. The primary reasons for this decrease
were a program initiated in early 1996 to reduce excess vehicles and
equipment and the closing and sale of facilities in conjunction with the
1995 Plan.
Provision for Doubtful Accounts
-------------------------------
The Company extends credit, generally due on the 10th day of the month
following the sale, to qualified and approved contractors. Provision for
doubtful accounts decreased to $1.1 million or 0.1% of sales for 1996 from
$6.5 million or 0.7% of sales for 1995. Much of this decrease is
attributable to improved credit policies at centers acquired since 1994 and
a more selective customer base. In addition, the Company significantly
increased its efforts to collect previously reserved accounts receivable.
The provision attributable to the Gerrity Lumber acquisition centers
improved significantly from 1995 to 1996. Historically the Company's
provision for doubtful accounts averages approximately 0.3% of sales.
Restructuring and Unusual Items
-------------------------------
After extensive review of the 1995 Plan, and changes in business
conditions in certain markets in which the Company operates, the Company
made adjustments to the 1995 Plan and incurred other one time costs
resulting in a net $0.7 million charge to results of operations in the
fourth quarter of 1996 for restructuring and unusual items. These
adjustments included (i) the determination that three of the centers
identified in the 1995 Plan for closure will remain open, resulting in a
$1.5 million credit to restructuring expense, (ii) the extension of the
1995 plan to include the closing (substantially completed by the end of
1996) of two building centers not previously included, resulting in a $1.3
million charge for the write down of assets and liabilities to their net
realizable value and a $0.1 million charge for severance and post-
employment benefits, (iii) a $1.1 million charge for impairment in the
carrying value of real estate held for sale at closed centers, and (iv) a
$0.3 million credit with respect to the resolution of a claim at below the
reserved amount.
Other Operating Income
----------------------
Other operating income increased to $6.8 million in 1996 from $5.8
million in 1995. The increase was the result of an increase in gains
reported on the sale of closed facilities, excess vehicles and equipment of
approximately $1.9 million when compared with 1995. The Company also
reported a $0.6 million gain as the result of the difference between
insured replacement cost and book value as a result of a fire and storm
damage at several of the Company's building centers. These gains were
partially offset by decreases in services charges for overdue credit
accounts of approximately $0.9 million and closed center rental income and
other miscellaneous revenues of $0.7 million.
28
29
Interest Expense
----------------
Interest expense decreased to $21.8 million in 1996 from $24.4 million
in 1995. This decrease was the result of a decrease in average outstanding
debt under the Company's revolving line of credit of $26.8 million
partially offset by an increase in the overall effective borrowing rate of
22 basis points. The decrease in average outstanding debt was due
primarily to cash provided by operations, proceeds from the sale of
additional common stock (See Note 9 of Notes to Consolidated Financial
Statements included elsewhere herein) and the proceeds from the sale of
excess real estate and vehicles.
Equity in Loss of Affiliated Company
------------------------------------
During 1996, the Company's equity in the losses of Riverside
International LLC was $3.2 million compared with equity in losses of $3.5
million during 1995. See "Item 1. Business - International Operations"
and Notes 2 and 13 of Notes to Consolidated Financial Statements included
elsewhere herein.
Provision for Income Taxes
--------------------------
In 1996, the Company recorded current income tax expense of $1.0 million
compared with $1.4 million in 1995. The 1996 and 1995 current income tax
provisions consist of state and local tax liabilities.
A deferred tax expense of $0.3 million was also recorded in 1996. This
expense results from temporary differences in the recognition of certain
items of revenue and expense for tax and financial reporting purposes. In
1995 a deferred tax benefit of $11.8 million was recorded primarily due to
the recording of a deferred tax asset as a result of the operating loss
experienced during 1995, in accordance with FAS 109. Management has
determined, based on the Company's positive earnings growth from 1992
through 1994 and its expectations for the future, that operating income of
the Company will more likely than not be sufficient to recognize fully
these net deferred tax assets. See Note 11 of Notes to Consolidated
Financial Statements included elsewhere herein.
Net Income
----------
Net income was $0.5 million in 1996, compared with a net loss of $15.6
million in 1995, an improvement of $16.1 million. The primary components
of this improvement include a decrease in SG&A expense of $32.3 million, a
decrease in restructuring and unusual items expense of $17.1 million, a
decrease in provision for doubtful accounts of $5.4 million, a decrease in
interest expense of $2.6 million, and an increase in other income of $1.0
million. These improvements were partially offset by a decrease in gross
profit of $31.3 million and an increase in the provision for income taxes
of $11.8 million.
29
30
1995 Compared with 1994
- -----------------------
Net Sales
---------
Net sales for 1995 decreased $14.3 million, or 1.4%, to $972.6 million
from $986.9 million in 1994. The 1994 fiscal year consisted of 53 weeks
compared with 52 weeks in 1995. After adjusting for this additional week
of sales in 1994, the Company experienced only a $.3 million sales decline
from 1994. Sales for all facilities operated throughout both years
decreased 3.8%. After adjusting for the additional week in 1994 the
decrease was 2.1%.
In 1995, deflation in lumber prices amounted to approximately 18% as a
result of increased production in Canadian mills, generated by demand for
wood pulp, and a decrease in demand for construction lumber in both the
United States and foreign markets. The Company estimates the decline in
wood prices accounted for $45 million in lost sales for 1995, or
approximately a 4.6% decline. A decline in housing starts in the United
States also adversely affected sales. U.S. Bureau of the Census data
indicated a nation-wide decline of approximately 7.5% and declines in the
Company's primary markets, the Midwest and Northeast, of approximately
12.1% and 15.1%, respectively. Nationally, single family housing starts
experienced a larger decline of 10.8% in 1995, from 1.20 million starts in
1994 to 1.07 million starts in 1995. While the Company added seven new
building centers through acquisition and expansion during 1995, it also
closed or consolidated 27 other building centers (sixteen of these occurred
on December 29, 1995).
The Company experienced a 6.2% increase in sales to its primary customer
segment, the professional home builder, and a 45.8% increase in sales to
commercial builders.
Gross Profit
------------
Gross profit decreased $13.0 million to 22.7% of net sales for 1995
compared with 23.7% of net sales for 1994. The Company estimates that
deflation in lumber prices caused approximately $7.6 million of this
decrease, and the additional week of sales in 1994 contributed
approximately $3.3 million of additional gross profit in 1994.
The Company's continued emphasis on sales to professional builders and
the resulting increased sales of lower margin wood products also
contributed to the change. The Company believes that approximately 50% of
the decrease in gross profit percentage was the result of the shift in
customer mix from 22% consumer and 78% professional in 1994 to 18% consumer
and 82% professional in 1995. An increase in the percent of sales
attributable to commodity lumber and building materials along with customer
pricing issues, accounted for the remainder of the variance.
30
31
Selling, General, and Administrative Expense
--------------------------------------------
In 1995, SG&A increased as a percent of net sales to 20.0% compared with
19.7% of net sales in 1994. While new residential construction activity
slowed during 1995, expenses were not adjusted quickly enough to match the
rate of the decline in residential construction. The deflation in lumber
prices also affected SG&A as a percent of sales as certain costs tend to
increase from year to year, such as delivery, rent and utilities, and are
relatively unaffected by lumber deflation.
The Company's largest single expense, labor costs, remained constant as
a percent of sales from 1994 to 1995. The Company did experience increases
from 1994 to 1995, as a percent of sales, in communications, rental, and
delivery expense. The Company also experienced a decrease, as a percent of
sales, in marketing and advertising costs. In the second half of 1995,
there were significant reductions made in the work force to keep salary and
wage costs in line with actual sales volume.
Depreciation, Goodwill and Trademark Amortization
-------------------------------------------------
Depreciation, goodwill and trademark amortization costs increased $1.3
million in 1995 compared with 1994. Depreciation of vehicles and
equipment, and amortization of goodwill for acquisitions purchased during
the second half of 1994 and first half of 1995 account for all of the
increase.
Provision for Doubtful Accounts
-------------------------------
In 1995, the Company's provision for doubtful accounts increased as a
percentage of net sales to 0.7% compared with 0.3% in 1994. Approximately
$3.1 million of the $4.0 million increase is attributable to the Gerrity
Lumber centers. During the integration of the Gerrity Lumber centers these
centers experienced significant credit losses as they converted to the
Company's more controlled credit policies.
Restructuring and Unusual Items
-------------------------------
During the fourth quarter of 1995 the Company committed to the 1995
Plan, which included a reduction in the number of under-performing building
centers and the corresponding overhead to support these building centers,
and the strengthening of the Company's capital structure. The Company
recorded a $17.8 million charge relating to the 1995 Plan and other unusual
items. See "Item 1. Business - Background" and Note 3 of Notes to
Consolidated Financial Statements included elsewhere herein.
Other Operating Income
----------------------
Other operating income decreased to $5.8 million in 1995 from $6.8
million in 1994. The primary reasons for this decline were two unusual
gains recorded in 1994, a $1.2 million gain on the sale of the Company's
private label credit card portfolio and a $0.7 million gain as the result
31
32
of the difference between insured replacement cost and book value as the
result of storm related damage to one of the Company's building centers.
Service charges for overdue credit accounts increased to $3.0 million in
1995 compared with $2.5 million in 1994. The Company also experienced an
increase in rental income, interest earned, and miscellaneous revenues of
$0.5 in 1995 compared with 1994.
Interest Expense
----------------
Interest expense increased to $24.4 million in 1995 from $21.7 million
in 1994. This increase was the result of an increase in average
outstanding debt, due primarily to acquisitions made in 1995 and late 1994,
and to a lesser degree, an increase in the average effective interest rate
on the Company's total debt of 7 basis points compared with 1994.
Equity in Loss of Affiliated Company
------------------------------------
During 1995, the Company's equity in the losses of Riverside
International LLC operations was $3.5 million. During 1994, the results of
the Riverside International LLC operations were consolidated with those of
the Company and contributed a loss of approximately $0.4 million (pre-tax).
See "Item 1. Business - International Operations" and Notes 2 and 13 of
Notes to Consolidated Financial Statements included elsewhere herein.
Provision for Income Taxes
--------------------------
In 1995, the Company recorded current income tax expense of $1.4 million
compared with $1.7 million in 1994. The 1995 income tax provision consists
of state and local tax liabilities. The 1994 income tax provision
consisted of $1.4 million for state and local liabilities and $0.3 million
for the alternative minimum federal income tax liability. A deferred tax
benefit of $11.8 million was also recorded in 1995. This benefit is
primarily due to the recording of a deferred tax asset as a result of the
operating loss experienced during 1995, in accordance with FAS 109. See
Note 11 of Notes to Consolidated Financial Statements included elsewhere
herein.
Net Income
----------
The Company experienced a net loss of $15.6 million in 1995 compared
with $28.1 million of net income for 1994, a change of $43.7 million. The
primary components of the change include an increase in restructuring and
unusual items of $15.8 million, a decrease in gross profit dollars of $13.0
million, an increase in SG&A of $4.1 million, increased losses of the
operations of Riverside International LLC of $3.1 million, and an increase
in interest expense of $2.7 million. The Company also recorded a lower tax
benefit in 1995 compared with 1994, increased depreciation and amortization
expense, and in the fourth quarter of 1994, the company recorded a $1.2
million one time gain on the sale of its private label credit card
portfolio.
32
33
Statements of Financial Accounting Standards
- --------------------------------------------
Recently Issued Accounting Pronouncements
-----------------------------------------
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of," requires that long-lived assets and certain identifiable intangibles
to be 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. Impairment is evaluated by comparing future cash
flows (undiscounted and without interest charges) expected to result from
the use or sale of the asset and its eventual disposition, to the carrying
amount of the asset. This accounting principle was effective for the
Company's fiscal year ending December 28, 1996. There was no impairment of
the Company's long-lived and intangible assets other than assets held for
sale. See Note 5 of Notes to Consolidated Financial Statements included
elsewhere herein.
Statement of Financial Accounting Standards 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 new fair value accounting
rules. Although expense recognition for employee stock based compensation
is not mandatory, the pronouncement requires companies that choose not to
adopt the new fair value accounting, to disclose the pro-forma net income
and earnings per share under the new method. This new accounting principle
was effective for the Company's fiscal year ending December 28, 1996, and
did not have a material impact on its financial position as the Company did
not adopt the new fair value accounting, but instead implemented the
disclosure requirements. See Note 9 of Notes to Consolidated Financial
Statements included elsewhere herein.
Statement of Financial Accounting Standard No. 125, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishment of
Liabilities", addresses accounting for transactions including
securitizations, transfers of securities with recourse, repurchase
agreements, securities-lending arrangements, pledges of collateral,
financial assets subject to prepayment risk, servicing of financial
assets, and extinguishment of liabilities. The Company did not have any
transaction during 1996 addressed by this statement.
Statement of Financial Accounting Standards No. 128, "Earnings Per
Share," revises the disclosure requirements and increases the
comparability of EPS data on an international basis by simplifying the
existing computational guidelines in APB Opinion No. 15. The pronouncement
will require dual presentation of basic and diluted EPS on the Company's
Statement of Operations and is effective the Company's fiscal year ending
December 27, 1997. The Company believes that adoption will not have a
material impact on its financial statements.
33
34
Statement of Financial Accounting Standards No. 129, "Disclosures of
Information About Capital Structure," establishes standards for disclosing
information about an entity's capital structure. The new accounting
principle is effective for the Company's fiscal year ending December 27,
1997. The Company believes that adoption will not have a material impact
on its financial statements.
Liquidity and Capital Resources
- -------------------------------
The Company's principal sources of working capital and liquidity are
earnings and borrowings under its revolving credit facility. The Company's
primary need for capital resources is to finance inventory and accounts
receivable.
In 1996, net cash provided by operating activities amounted to $18.7
million. This compares favorably with cash provided by operating
activities of $15.9 million in 1995 and $1.3 million in 1994. This
increase is primarily the result of decreases in accounts receivable and
inventory as well as earnings after adjustment for non-cash expenses. A
decrease in accounts payable and accrued liabilities partially offset these
increases. These funds were used primarily to reduce the Company's net
borrowings under its revolving credit facility.
Management's focus on improving the balance sheet included making
significant improvements in the use of working capital. Accounts
receivable at the end of 1996 were $10.6 million, or 12.9%, lower than at
year-end 1995. Building centers that were closed at the end of December
1995 and during 1996 account for approximately $6.3 million of this
reduction. The remainder is attributed to improved collection practices,
especially at building centers that were acquired during 1994, a reduction
in the number of accounts with extended terms and improved delinquency.
Inventory at the end of 1996 was $10.0 million, or 9.0%, lower than at year-
end 1995. The primary reason for the decrease in inventory is the closing
of 18 building centers since December of 1995. The amount of the Company's
accounts payable on any balance sheet date may vary from the average
accounts payable throughout the period due to the timing of payments and
will tend to increase or decrease in conjunction with an increase or
decrease in inventory.
On June 20, 1996, the Company sold to Riverside Group, Inc. 2 million
newly-issued shares of the Company's common stock for $10 million in cash.
In accordance with the terms of the revolving credit agreement, upon
completion of this transaction $12 million in real estate was released as
collateral required under this agreement. These funds were used to reduce
the Company's borrowings under its revolving credit facility.
The Company maintained excess availability under its revolving credit
facility throughout 1996. 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 the first and second quarters
of each year, the Company typically reaches its peak utilization of its
revolving credit facility because of the inventory build-up needed for the
34
35
peak building season. At all times during 1996 the Company was in full
compliance with all of the requirements contained in its revolving credit
agreement. Availability under the revolving credit facility is limited, in
the aggregate, to the lesser of $130 million and a "borrowing base amount,"
which is the sum of (i) between 80% and 85% of eligible accounts receivable
plus (ii) between 50% and 60% of eligible inventory. At March 1, 1997, the
Company had outstanding borrowings of $79.1 million and unused availability
of $27.7 million under its revolving credit facility. A second amendment
and restatement of the revolving credit agreement, which would include
among other things (i) extension of the life of the facility until March
2001, (ii) 75 basis point reductions in the interest rate premiums over
LIBOR and over prime, (iii) modifications to certain financial covenants,
and (iv) a provision for further interest rate premium reductions if
certain performance levels are achieved, is expected to be completed in
March or early April 1997. The Company currently has excess availability
under its revolving credit facility and anticipates that funds provided by
operations and under this facility will be adequate for the Company's
future needs.
The revolving credit facility and the trust indenture related to the
Company's 11-5/8% Senior Subordinated Notes contain certain covenants and
restrictions. Among other things, the revolving credit facility prohibits
non-stock dividends, certain investments and other "restricted payments"
by the Company. The trust indenture generally restricts non-stock
dividends and other restricted payments by the Company to 50% of
"cumulative consolidated net income," or if cumulative consolidated net
income shall be a loss, minus 100% of such loss, of the Company earned
subsequent to October 22, 1993, plus the proceeds of the sale of certain
equity securities after such date. In addition, the trust indenture
prohibits non-stock dividends and limits other restricted payments while
(as at present) the Company's fixed charge coverage ratio is less than or
equal to 2.0.
The Company's capital expenditures consist primarily of the construction
of storage facilities, the remodeling of building centers and component
manufacturing facilities, and the purchase of equipment and management
information systems. The Company may also from time to time make
expenditures to establish Limited SKU Facilities or to establish or acquire
operations to expand or complement its existing operations. The Company
made $2.9 million in capital expenditures in 1996. The Company expects to
spend between $4 million and $6 million in 1997. These expenditures are
expected to be funded by the Company's borrowings and its internally
generated cash flow. At December 28, 1996, there were no material
commitments for future capital expenditures.
Net Operating Loss Carryforwards
- --------------------------------
At December 28, 1996, the Company and its subsidiaries had federal
income tax net operating loss carryforwards ("NOLs") of approximately $41
million. The NOLs will expire in the years 2004 to 2011, if not previously
utilized. The Company's ability to use certain of the NOLs carried forward
will be subject to the limitations of Section 382 of the Internal Revenue
Code. See Note 11 of Notes to Consolidated Financial Statements included
elsewhere herein.
35
36
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.
------------------------------------
None.
36
37
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
- ------------------------------------------------------------
Information required by this Item is incorporated herein by reference
from the definitive proxy statement to be filed in connection with the
Company's Annual Meeting of Stockholders tentatively scheduled to be held
on May 20, 1997.
Item 11. EXECUTIVE COMPENSATION.
- --------------------------------
Information required by this Item is incorporated herein by reference
from the definitive proxy statement to be filed in connection with the
Company's Annual Meeting of Stockholders tentatively scheduled to be held
on May 20, 1997.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
- ------------------------------------------------------------
MANAGEMENT.
-----------
Information required by this Item is incorporated herein by reference
from the definitive proxy statement to be filed in connection with the
Company's Annual Meeting of Stockholders tentatively scheduled to be held
on May 20, 1997.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
- --------------------------------------------------------
Information required by this Item is incorporated herein by reference
from the definitive proxy statement to be filed in connection with the
Company's Annual Meeting of Stockholders tentatively scheduled to be held
on May 20, 1997.
37
38
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.
--------
Report of Independent Accountants F-1
Consolidated balance sheets as of December 28, 1996
and December 30, 1995 F-2
Consolidated statements of operations for the years ended
December 28, 1996, December 30, 1995 and December 31, 1994 F-3
Consolidated statements of changes in common stockholders'
equity for the years ended December 28, 1996,
December 30, 1995 and December 31, 1994 F-4
Consolidated statements of cash flows for the years ended
December 28, 1996, December 30, 1995 and December 31,1994 F-5
Notes to consolidated financial statements F-6
(2) Financial Statement Schedules:
Schedule Description
- -------- -----------
VlII. Valuation and Qualifying Accounts S-1
(3) Exhibits
See Exhibit Index included elsewhere herein.
(b) Reports on Form 8-K
None
38
39
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 LUMBER COMPANY
Date: March 26, 1997 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 March 26, 1997
- -------------------- Officer (Principal Executive
J. Steven Wilson Officer), Director
/s/ Albert Ernest, Jr. Director March 26, 1997
- ----------------------
Albert Ernest, Jr.
/s/ Kenneth M. Kirschner Director March 26, 1997
- ------------------------
Kenneth M. Kirschner
/s/ William H. Luers Director March 26, 1997
- --------------------
William H. Luers
/s/ Robert E. Mulcahy III Director March 26, 1997
- -------------------------
Robert E. Mulcahy III
/s/ Frederick H. Schultz Director March 26, 1997
- ------------------------
Frederick H. Schultz
/s/ Claudia B. Slacik Director March 26, 1997
- ---------------------
Claudia B. Slacik
/s/ George A. Bajalia Senior Vice President and March 26, 1997
- --------------------- Chief Financial Officer
George A. Bajalia (Principal Financial and
Accounting Officer)
39
F-1
Report of Independent Accountants
- ---------------------------------
To The Stockholders and Board of Directors
Wickes Lumber Company and Subsidiaries
We have audited the accompanying consolidated balance sheets of Wickes
Lumber Company and Subsidiaries (the "Company") as of December 28, 1996 and
December 30, 1995, and the related consolidated statements of operations,
changes in common stockholders' equity and cash flows for the years ended
December 28, 1996 and December 30, 1995, and December 31, 1994. We have
also audited the financial statement schedule of valuation and qualifying
accounts. These financial statements and financial statement schedule are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements and this financial
statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. 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
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial
position of Wickes Lumber Company and Subsidiaries as of December 28, 1996
and December 30, 1995, and the consolidated results of their operations and
cash flows for the years ended December 28, 1996, December 30, 1995, and
December 31, 1994, in conformity with generally accepted accounting
principles. In addition, in our opinion, the financial statement schedule
referred to above, when considered in relation to the basic financial
statements taken as a whole, presents fairly, in all material respects, the
information required to be included therein.
/s/ Coopers & Lybrand L.L.P.
----------------------------
Chicago, Illinois
February 20, 1997
F-1
F-2
WICKES LUMBER COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 28, 1996 and December 30, 1995
(in thousands except share data)
ASSETS 1996 1995
-------- --------
Current assets:
Cash $ 1,933 $ 87
Accounts receivable, less allowance for doubtful
accounts of $4,289 in 1996 and $8,208 in 1995 71,210 81,792
Inventory 100,672 110,639
Deferred tax asset 10,331 15,237
Prepaid expenses 915 1,051
-------- --------
Total current assets 185,061 208,806
-------- --------
Property, plant and equipment, net 50,171 56,545
Trademark (net of accumulated amortization of
$10,052 in 1996 and $9,830 in 1995) 6,948 7,170
Deferred tax asset 15,525 10,919
Other assets (net of accumulated amortization of
$6,487 in 1996 and $4,464 in 1995) 15,137 19,075
-------- --------
$ 272,842 $ 302,515
======== ========
LIABILITIES & STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt $ 133 $ 424
Accounts payable 41,039 41,457
Accrued liabilities 27,118 37,972
-------- --------
Total current liabilities 68,290 79,853
-------- --------
Long-term debt, less current maturities 176,376 205,221
Other long-term liabilities 2,677 2,312
Commitments and contingencies (Note 8)
Common stockholders' equity:
Common stock (8,159,498 shares issued and outstanding in 1996
and 6,143,473 shares issued and outstanding in 1995) 82 61
Additional paid-in capital 86,613 76,772
Accumulated deficit (61,196) (61,704)
-------- --------
25,499 15,129
-------- --------
Total common stockholders' equity $ 272,842 $ 302,515
======== ========
The accompanying notes are an integral part of the consolidated
financial statements.
F-2
F-3
WICKES LUMBER COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended December 28, 1996, December 30, 1995, and
December 31,1994
(in thousands except share and per share data)
1996 1995 1994
--------- --------- ---------
Net sales $ 848,535 $ 972,612 $ 986,872
Cost of sales 659,072 751,800 753,041
--------- --------- ---------
Gross profit 189,463 220,812 233,831
--------- --------- ---------
Selling, general and administrative expenses 162,329 194,629 194,586
Depreciation, goodwill and trademark amortization 5,367 5,882 4,543
Provision for doubtful accounts 1,067 6,482 2,457
Restructuring and unusual items 745 17,798 2,000
Other operating income (6,796) (5,831) (6,772)
--------- --------- ---------
162,712 218,960 196,814
--------- --------- ---------
Income from operations 26,751 1,852 37,017
Interest expense 21,750 24,351 21,663
Equity in loss of affiliated company 3,183 3,543 -
--------- --------- ---------
Income (loss) before income taxes 1,818 (26,042) 15,354
Provision (benefit) for income taxes:
Current 1,010 1,353 1,660
Deferred 300 (11,796) (14,360)
--------- --------- ---------
Net income (loss) $ 508 $ (15,599) $ 28,054
========= ========= =========
Earnings (loss) per common share $ 0.07 $ (2.54) $ 4.59
========= ========= =========
Weighted average common and common
equivalent shares outstanding 7,219,754 6,151,771 6,106,279
========= ========= =========
The accompanying notes are an integral part of the consolidated
financial statements.
F-3
F-4
WICKES LUMBER COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN COMMON STOCKHOLDERS' EQUITY
For the Years Ended December 31, 1994, December 30, 1995 and
December 28, 1996
(in thousands)
Total
Additional Common
Common Paid-in Accumulated Stockholders'
Stock Capital Deficit Equity
-------- -------- -------- --------
Balance at December 25, 1993 $ 61 $ 75,916 $ (74,159) $ 1,818
Net income - - 28,054 28,054
Issuance of common stock, net - 274 - 274
-------- -------- -------- --------
Balance at December 31, 1994 61 76,190 (46,105) 30,146
Net income - - (15,599) (15,599)
Issuance of common stock, net - 582 - 582
-------- -------- -------- --------
Balance at December 30, 1995 61 76,772 (61,704) 15,129
Net income - - 508 508
Issuance of common stock, net 21 9,841 - 9,862
-------- -------- -------- --------
Balance at December 28, 1996 $ 82 $ 86,613 $ (61,196) $ 25,499
======== ======== ======== ========
The accompanying notes are an integral part of the consolidated
financial statements.
F-4
F-5
WICKES LUMBER COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 28, 1996, December 30, 1995,
and December 31, 1994
(in thousands)
1996 1995 1994
-------- -------- --------
Cash flows from operating activities:
Net income / (loss) $ 508 $ (15,599) $ 28,054
Adjustments to reconcile net income / (loss) to
net cash provided by (used in) operating activities:
Equity in loss of affiliated company 3,183 3,543 -
Depreciation expense 4,904 5,391 4,277
Amortization of trademark 222 222 222
Amortization of goodwill 242 270 44
Amortization of deferred financing costs 1,781 2,085 1,781
Provision for doubtful accounts 1,067 6,482 2,457
Gain on sale of assets (940) (71) (238)
Deferred tax provision/(benefit) 300 (11,795) (14,360)
Changes in assets and liabilities (net of effects
from acquisitions):
Decrease (increase) in accounts receivable 9,515 9,355 (15,673)
Decrease (increase) in inventory 9,967 20,697 (98)
(Decrease) increase in accounts payable and accrued liabilities (10,907) 2,377 (4,896)
Increase in other assets (1,132) (7,095) (239)
-------- -------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 18,710 15,862 1,331
-------- -------- --------
Cash flows from investing activities:
Purchases of property, plant and equipment (2,893) (4,111) (5,947)
Payments for acquisitions - (8,686) (36,515)
Proceeds from sales of property, plant and equipment 5,303 2,520 685
-------- -------- --------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 2,410 (10,277) (41,777)
-------- -------- --------
Cash flows from financing activities:
Net (repayment) borrowing under revolving line of credit (28,708) (5,760) 43,462
Reductions of notes payable (428) (2,357) (556)
Net proceeds from issuance of common stock 9,862 582 274
Payment of transaction costs of the
Recapitalization Plan - - (700)
-------- -------- --------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (19,274) (7,535) 42,480
-------- -------- --------
NET INCREASE (DECREASE) IN CASH 1,846 (1,950) 2,034
Cash at beginning of period 87 2,037 3
-------- -------- --------
CASH AT END OF PERIOD $ 1,933 $ 87 $ 2,037
======== ======== ========
Supplemental schedule of cash flow information:
Interest paid $ 20,372 $ 22,823 $ 18,777
Income taxes paid 1,518 1,987 1,536
Supplemental schedule of non-cash investing and financing activities:
The Company purchased capital stock and assets in conjuction with
acquisitions made during the period. In connection with these
acquitions, liabilties were assumed as follows:
Fair value of assets acquired $ - $ 12,387 $ 41,736
Cash paid - (8,686) (36,515)
-------- -------- --------
Liabilities assumed $ - $ 3,700 $ 5,221
======== ======== ========
The accompanying notes are an integral part of the consolidated
financial statements.
F-5
F-6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Description of Business
- ---------------------------
Wickes Lumber Company, through its building centers, markets lumber,
building materials and services primarily to professional contractors,
repair and remodelers and do-it-yourself home owners principally in the
Midwest, Northeast and Southern United States. Wickes Lumber Company's
wholly-owned and majority-owned subsidiaries are: Lumber Trademark Company
("LTC"), a holding company for the "Flying W" trademark and GLC Division,
Inc. ("GLC"), which operates the Gerrity Lumber business.
2. Accounting Policies
- -----------------------
Principles of Consolidation
- ----------------------------
The consolidated financial statements present the results of operations,
financial position, and cash flows of Wickes Lumber Company and all its
wholly-owned and majority-owned subsidiaries (the "Company"). All
significant intercompany balances have been eliminated.
Fiscal Year
- -----------
The Company's fiscal year ends on the last Saturday in December.
Cash and Cash Equivalents
- -------------------------
The Company considers all highly liquid investments with a maturity date of
three months or less to be cash equivalents.
Accounts Receivable
- -------------------
The Company extends credit primarily to qualified contractors. The accounts
receivable balance excludes consumer receivables as such receivables are
sold on a nonrecourse basis. The remaining accounts and notes receivable
represent credit extended to professional contractors and professional
repair and remodelers, generally on a non-collateralized basis.
Inventory
- ---------
Inventory consists principally of finished goods. The Company utilizes the
first-in, first-out (FIFO) cost flow assumption for valuing its inventory.
Inventory is valued at the lower of cost or market, but not in excess of
net realizable value.
Reclassifications
- -----------------
Certain reclassifications have been made to the 1995 presentation to
conform with the 1996 presentation. A reclassification to more
appropriately classify deferred tax assets between current and long term
was made to the 1995 balance sheet.
F-6
F-7
Property, Plant, and Equipment
- ------------------------------
Property, plant, and equipment are stated at cost and are depreciated under
the straight-line method. Estimated lives used range from 15 to 39 years
for buildings and improvements and leasehold improvements. Machinery and
equipment lives range from 3 to 6 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 results of operations as other operating income.
Other Assets
- ------------
Other assets consist primarily of deferred financing costs and goodwill
which are being amortized on the straight line method, goodwill primarily
over 35 years and deferred financing costs over the expected terms of the
related debt agreements. At each balance sheet date, the Company evaluates
the realizability of goodwill based upon expectations of nondiscounted cash
flows and operating income for each subsidiary having a material goodwill
balance. Based upon its most recent analysis, the Company believes that no
impairment of goodwill exists at December 28, 1996.
The Company's investment in an international operation is recorded under
the equity method. The Company's share of losses is reflected as Equity in
loss of affiliated company on the Consolidated Statements of Operations.
Amortization expense for deferred financing costs is reflected as interest
expense on the Company's Consolidated Statements of Operations.
Trademark
- ---------
The Company's "Flying W" trademark is being amortized over a 40 year
period.
Accounts Payable
- ----------------
The Company includes outstanding checks in excess of in-transit cash in
accounts payable. There were no outstanding checks in excess of in-transit
cash at December 28, 1996 and $1,672,000 at December 31, 1995.
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 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 Statement of Financial Accounting
Standards No. 112, "Employers' Accounting for Postemployment Benefits".
F-7
F-8
Income Taxes
- ------------
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards 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 for which income tax
benefits will be realized in future years. 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.
Computation of Earnings Per Common Share
- ----------------------------------------
Earnings per common share is based upon the weighted average number of
shares of common stock outstanding and, where dilutive, common equivalent
shares (using the treasury stock method). Common equivalent shares consist
of common stock warrants and common stock options. Dilution relating to
common stock options was not material.
Use of Estimates in the Preparation of Financial Statements
- -----------------------------------------------------------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities 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.
Significant estimates made by the Company include accrued compensation
liability and medical claims, accrued postemployment and postretirement
benefits, accrued restructuring charges, accrued environmental liabilities
and valuation allowances for accounts receivable, inventory and deferred
tax assets. Accrued compensation liability and medical claims involve the
determination of reserves for incurred but not reported claims. Accrued
postemployment and postretirement benefits involve the use of actuarial
assumptions, including selection of discount rates (see Note 10). Accrued
restructuring charges involve an estimation of what the market will bring
and specific costs incurred relating to the liquidation of certain Company
assets using actual historical results (see Note 3). Accrued environmental
costs involve estimated remediation costs probable at facilities with
underground storage tanks removed. Determination of the valuation
allowances for accounts receivable and inventory involve assumptions
related to current market conditions and historical market trends. While
the valuation allowance for the deferred tax assets considers estimates of
projected taxable income (see Note 11), it is reasonably possible that the
company's estimates for such items could change in the near term.
Impairment of Long-Lived Assets
- -------------------------------
In 1996 the company adopted Statement of Financial Accounting Standards 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 to be 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.
There was no impairment of the Company's long-lived and intangible assets
other than assets held for sale. The Company has historically reviewed
excess property held for sale and when appropriate recorded these assets at
the lower of their carrying amount or net realizable value (see Note 5).
F-8
F-9
Stock-Based Compensation
- ------------------------
Statement of Financial Accounting Standards 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 new fair value accounting
rules. Although expense recognition for employee stock based compensation
is not mandatory, the pronouncement requires companies that choose not to
adopt the new fair value accounting to disclose the pro-forma net income
and earnings per share under the new method. The company elected not to
adopt Statement of Financial Accounting Standards No. 123, but to continue
to apply 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 in this Statement have been used to account for
stock-based compensation cost (see Note 9).
Recently Issued Accounting Pronouncements
- -----------------------------------------
Transfers and Servicing of Financial Assets. Statement of Financial
Accounting Standard No. 125, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishment of Liabilities", addresses accounting
for transactions including securitizations, transfers of securities with
recourse, repurchase agreements, securities-lending arrangements, pledges
of collateral, financial assets subject to prepayment risk, servicing of
financial assets, and extinguishment of liabilities. The Company did not
have any transaction during 1996 addressed by this statement.
Earnings Per Share. Statement of Financial Accounting Standards No. 128,
"Earnings Per Share," revises the disclosure requirements and increases
the comparability of EPS data on an international basis by simplifying the
existing computational guidelines in APB Opinion No. 15. The pronouncement
will require dual presentation of basic and diluted EPS on the Company's
Statement of Operations and is effective for the Company's fiscal year
ending December 27, 1997. The Company believes that adoption will not have
a material impact on its financial statements.
Disclosure of Information About Capital Structure. Statement of Financial
Accounting Standards No. 129, "Disclosures of Information About Capital
Structure," establishes standards for disclosing information about an
entity's capital structure. The new accounting principle is effective for
the Company's fiscal year ending December 27, 1997. The Company believes
that adoption will not have a material impact on its financial statements.
3. Restructuring and Unusual Charges
- --------------------------------------
During the fourth quarter of 1995, the Company committed to and began
implementing a restructuring plan ("1995 Plan") to improve return on assets
by closing or consolidating under-performing operating centers, decreasing
the corresponding overhead to support these building centers, and
initiating actions to strengthen its capital structure. The costs for
closing these building centers were based on management estimates of costs
to exit these markets and actual historical experience. Included in 1995
results of operations is a $17.8 million charge, including $12.6 million in
anticipated losses on the disposition of closed center assets and
liabilities and $2.2 million in severance and postemployment benefits,
relating to the 1995 Plan and other one time costs.
F-9
F-10
The major components of this charge include the write-down of assets to
their net realizable value, liabilities associated with closed building
centers held for sale, postemployment benefits to qualified former
employees as a result of the center closings, and other charges related to
the strengthening of the Company's capital structure. Also included was a
charge for unusual employment related claims expensed in the fourth quarter
of 1995.
During 1996, the Company continued executing the 1995 Plan, through the
consolidation and closing of 18 building centers and the improvement of its
overall capital structure through the issuance of new shares and the
modification of its bank revolving credit agreement (see Notes 7 and 9).
Management anticipates completion of the 1995 Plan by the end of 1997.
After extensive review of the 1995 Plan, and changes in business conditions
in certain markets in which the Company operates, the Company made
adjustments to the 1995 Plan and incurred other one time costs resulting in
a net $0.7 million charge to results of operations in the fourth quarter of
1996 for restructuring and unusual items. These adjustments included (i)
the determination that three of the centers identified in the 1995 Plan for
closure will remain open, resulting in a $1.5 million credit to
restructuring expense, (ii) the extension of the 1995 plan to include the
closing (substantially completed by the end of 1996) of two building
centers not previously included, resulting in a $1.3 million charge for the
write down of assets and liabilities to their net realizable value and a
$0.1 million charge for severance and post-employment benefits, (iii) a
$1.1 million charge for impairment in the carrying value of real estate
held for sale at closed centers, and (iv) a $0.3 million credit with
respect to the resolution of a claim at below the reserved amount.
4. Acquisitions
- ----------------
All acquisitions have been accounted for as purchases; operations of the
companies and businesses acquired have been included in the accompanying
consolidated financial statements from their respective dates of
acquisition. The excess of the purchase price over fair value of the net
assets acquired is included in goodwill. The fair market value of the
assets acquired in 1995 was approximately $12.4 million. The Company had
no acquisitions in 1996.
During 1995 the Company acquired five building material centers for a total
cost of $11.8 million, $8.1 million in cash and $3.7 million in liabilities
assumed. An additional $0.6 million was recorded for the 1994 Gerrity
acquisition. The cost of the acquisitions have been allocated on the basis
of the fair market value of the assets acquired and the liabilities
assumed. This allocation resulted in goodwill for one of the acquired
businesses which is being amortized over a 30 year period on a straight
line basis.
In August 1994, the Company acquired all of the net assets of two building
material centers for approximately the fair market value of the assets and
liabilities assumed. In addition, the Company acquired all of the
outstanding Class B common stock of Riverside International Corporation,
from an affiliated entity. The cost of this acquisition has been allocated
on the basis of the estimated fair value of the assets acquired and
liabilities assumed. In October 1994, the Company acquired the Gerrity
Lumber business from the Gerrity Company, Inc. The acquired business
consisted of the operating assets of eight lumber and building material
centers of which three include component manufacturing plants. The purchase
price has been adjusted in accordance with a post-acquisition audit of the
acquired assets, resulting in an increase in goodwill. Goodwill is being
amortized over 35 years on a straight line basis.
F-10
F-11
5. Property, Plant, and Equipment
- ----------------------------------
Property, plant, and equipment is summarized as follows:
December 28, December 30,
1996 1995
----- -----
(in thousands)
Land and improvements $12,391 $15,888
Buildings 25,169 32,242
Machinery and equipment 26,068 26,495
Leasehold improvements 2,701 2,715
Construction in progress 90 226
------- -------
Gross property, plant, and equipment 66,419 77,566
Less: accumulated depreciation 27,322 25,932
------- -------
Property, plant, and equipment
in use, net 39,097 51,634
Assets held for sale, net 11,074 4,911
------- -------
Property, plant, and equipment, net $50,171 $56,545
======= =======
The company reviews assets held for sale in accordance with Statement of
Financial Accounting Standards No. 121. In 1996 the Company recorded a
loss of $1.1 million to report land, land improvements and buildings held
for sale at their net realizable value. This charge is reflected, under
`Restructuring and unusual items' on the Consolidated Statement of
Operations.
6. Accrued Liabilities
- -----------------------
Accrued liabilities consist of the following:
December 28, December 30,
1996 1995
----- -----
(in thousands)
Accrued payroll $ 6,564 $6,934
Accrued interest 1,142 1,546
Accrued liability insurance 4,572 4,970
Accrued restructuring charges 6,199 14,871
Other 8,641 9,651
------- -------
Total accrued liabilities $27,118 $37,972
======= =======
In 1996 the Company received insurance premium adjustments from a former
insurance carrier in the amount of $2.2 million and reversed an accrual of
$1.5 million for other disputed insurance premiums with this carrier.
Accordingly, Selling, general and administrative expenses were reduced by
$1.0 million during the first three quarters of 1996 and by $2.7 million in
the fourth quarter of 1996.
F-11
F-12
7. Long-Term Debt
- ------------------
Long-term debt obligations are summarized as follows:
December 28, December 30,
1996 1995
----- -----
(in thousands)
Revolving line of credit, interest
payable at 1.5% above prime or 3.0%
over LIBOR, principal due
January 22, 1998 $76,313 $105,021
Senior subordinated notes, interest
payable at 11-5/8% semi-annually,
principal due December 15, 2003 100,000 100,000
Other 196 624
-------- --------
Total long-term debt 176,509 205,645
Less current maturities (133) (424)
-------- --------
Total long-term debt less current
maturities $176,376 $205,221
======== ========
Revolving Line of Credit
- ------------------------
Under the revolving line of credit, which expires in January 1998, the
Company may borrow against certain levels of accounts receivable and
inventory, up to a maximum credit limit of $130,000,000. At December 28,
1996, the amount available for borrowing was $27,676,000. A commitment fee
of 1/2 of 1% is payable on the unused portion of the commitment. The
weighted-average interest rate for the years ending December 28, 1996 and
December 30, 1995 was approximately 9.0% and 8.8%, respectively.
Substantially all of the Company's accounts receivable, inventory, general
intangibles and certain machinery and equipment are pledged as collateral
for the revolving line of credit. Covenants under the related debt
agreements require, among other restrictions, that the Company maintain
certain financial ratios and certain levels of consolidated net worth. In
addition, the debt agreement restricts among other things, capital
expenditures, the incurrence of additional debt, asset sales, dividends,
investments, and acquisitions.
The revolving credit agreement was amended and restated in its entirety on
March 12, 1996. Among other things, the amendment and restatement (i)
extended the term of the facility 15 months to January 1998, (ii) reduced
the maximum borrowing limit $15 million to $130 million, (iii) modified
certain covenants, including changes to accommodate the Company's fourth
quarter 1995 restructuring charge, (iv) required the temporary addition of
approximately $12 million of real estate collateral and (v) required the
completion by July 31, 1996 of the receipt from Riverside Group, Inc. of
$10 million from the sale of equity securities of the Company. The sale of
securities to Riverside Group, Inc. was completed on June 20, 1996 and
required real estate collateral was released.
F-12
F-13
Senior Subordinated Notes
- -------------------------
On October 22, 1993, the Company issued $100,000,000 in principal amount of
10-year unsecured senior subordinated notes. Interest on the notes is 11-
5/8%, 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, and the sale of certain assets unless the proceeds are applied
to the notes. In addition, the notes require that, upon a change in
control of the Company, the Company must offer to purchase the notes at
101% of the principal thereof, plus accrued interest.
Aggregate Maturities
- --------------------
The aggregate amounts of long-term debt maturities by fiscal year are as
follows:
Year Amount
---- ------
(in thousands)
1997 $ 133
1998 76,360
1999 16
2000 0
2001 0
Thereafter 100,000
8. Commitments and Contingencies
- ---------------------------------
At December 28, 1996, the Company had accrued approximately $1,003,000 for
remediation of certain environmental and product liability matters,
principally underground storage tank removal.
Many of the building center facilities presently and formerly operated by
the Company contained underground petroleum storage tanks. Other than
tanks at one acquired facility, recently installed and in compliance with
modern standards, all such tanks known to the Company located on facilities
owned or operated by the Company have been filled, removed, or are
scheduled to be 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 net costs with
respect to the filling or removing of underground storage tanks and related
investigatory and remedial actions.
The Company is one of many defendants in approximately 110 actions, each of
which seeks unspecified damages, brought in 1993, 1994 and 1995 in various
Michigan state courts against manufacturers and building material retailers
by individuals who claim to have suffered injuries from products containing
asbestos. Each of the plaintiffs in these actions is represented by one of
two law firms. The Company is aggressively defending these actions and does
not believe that these actions will have a material adverse effect on the
Company.
F-13
F-14
On November 3, 1995, a complaint was filed against the Company, its
directors and Riverside Group, Inc. seeking to enjoin or to obtain damages
with respect to the Company's agreement to issue 2,000,000 newly-issued
shares of common stock to Riverside Group, Inc. for $10 million (see Note
9).
The Company is involved in various other legal proceedings which are
incidental to the conduct of its business. The Company does not believe
that any of these proceedings will have a material adverse effect on the
Company.
The Company's assessment of the matters described in this note and other
forward-looking statements ("Forward-Looking Statements") in these notes
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 in this note 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.
Leases
- ------
The Company has entered into operating leases for retail space, equipment
and other items. These leases provide for minimum rents. These leases
generally include options to renew for additional periods. Total minimum
rents under all operating leases were $10,076,000, $10,501,000, and
$8,086,000 for the years ended December 28, 1996, December 30, 1995, and
December 31, 1994, respectively.
Future minimum commitments for noncancelable operating leases are as
follows:
Year Amount
---- -------
(in thousands)
1997 $ 6,667
1998 3,975
1999 2,883
2000 992
2001 404
Thereafter 1,889
-------
Subtotal 16,810
Less: Sublease income (929)
-------
Total $15,881
=======
9. Stockholders' Equity
- -------------------------
Preferred Stock
- ---------------
As of December 28, 1996 the Company had authorized 3,000,000 shares of
preferred stock, none of which is issued or outstanding.
F-14
F-15
Common Stock
- ------------
The Company has two classes of common stock: Common Stock, par value $.01
per share, and Class B Non-Voting Common Stock, par value $.01 per share.
At December 28, 1996 there were 20,000,000 shares of Common Stock
authorized and 7,659,730 shares issued and outstanding, and there were
1,200,000 shares of Class B Non-Voting Common authorized and 499,768 shares
issued and outstanding. In addition, at December 28, 1996, 910,000 shares
of Common Stock were reserved for issuance under the Company's 1993 Long
Term Incentive Plan and 1993 Director Incentive Plan. Another 10,750
shares of Common Stock were reserved for issuance under outstanding
warrants. Class B Non-Voting Common Stock is generally equivalent to
Common Stock, except that shares of Class B Non-Voting Common Stock may not
be voted except on certain matters regarding merger, consolidation,
recapitalization and reorganization, and as otherwise provided by law.
Class B Non-Voting Common Stock is convertible into Common Stock on a share-
for-share basis in certain circumstances.
Private Sale of Common Stock
- ----------------------------
On June 20, 1996, pursuant to a stock purchase agreement dated January 11,
1996, the Company sold 2,000,000 newly-issued shares of its Common Stock to
Riverside Group, Inc., the Company's largest stockholder, for $10 million
in cash. Prior to the sale the terms of the stock purchase agreement were
reviewed and recommended to the boards of directors of both companies by
committees comprised of the independent directors of each company.
Warrants
- --------
The Company has outstanding warrants for 10,750 shares of Common Stock,
exercisable through April 29, 1998, at a nominal exercise price.
Stock Compensation Plans
- ------------------------
As of December 28, 1996, the Company has two stock-based compensation plans
(both fixed option plans), which are described below. Under the 1993 Long-
Term Incentive plan, the Company may grant options and other awards to its
employees for up to 835,000 shares of Common Stock. Under the 1993
Director Incentive plan, the Company may grant options and other awards to
directors for up to 75,000 shares of Common Stock. For 1996 grants, the
exercise price generally equals the market price at the date of grant. For
grants prior to 1996, the exercise price generally equals the greater of
$15 or 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 are based on graded calendar year
schedules, which can vary by officer.
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 FASB
Statement 123, the Company's net income and earnings per share would have
been reduced to the pro forma amounts indicated as follows:
F-15
F-16
December 28, December 30,
1996 1995
----- -----
Net Income (loss) As reported $508 ($15,599)
Pro forma $321 ($15,920)
Earnings (loss)
per share As reported $.07 ($2.54)
Pro forma $.04 ($2.59)
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 1995 and 1996, respectively: dividend yield
of 0% for all years; expected volatility of 40% and 42%; risk-free interest
rates of 7.7% and 6.2%; and expected lives of 6.1 and 6.5 years.
A summary of the status of the Company's fixed stock option plans as of
December 28, 1996 and December 30, 1995 and changes during the years ended
on those dates is presented below:
December 28, December 30,
1996 1995
--------------- ---------------
Weighted- Weighted-
Average Average
Shares Exercise Shares Exercise
Fixed Options (000) Price (000) Price
------------- ------- -------- ------- -------
Outstanding beginning
of year 446,689 $15.32 281,049 $15.69
Granted 261,371 $4.59 193,167 $14.90
Exercised 0 n/a 0 n/a
Forfeited-nonvested (58,985) $13.29 (19,983) $15.98
Forfeited-exercisable (36,815) $15.33 (7,547) $16.50
Expired 0 n/a 0 n/a
------- -------
Outstanding end of
year 612,257 $10.93 446,686 $15.32
Options exercisable at
year-end 145,525 $15.60 106,662 $15.53
Weighted-average fair
value of options granted
during the year where:
Exercise price equals
market price $2.40 $6.94
Exercise price exceeds
market price n/a $6.26
Exercise price is less
than market price n/a n/a
The following table summarizes information about fixed stock options
outstanding at December 28, 1996:
Options Outstanding Options Exercisable
--------------------------------- -------------------
Weighted-
Number Average Weighted- Number Weighted-
Range of Outstanding Remaining Average Exercisable Average
Exercise at Contractual Exercise at Exercise
Prices 12/28/96 Life Price 12/28/96 Price
------------- ----------- ----------- --------- ----------- ---------
$4.52-$10.95 255,171 9.8 years $4.69 1,333 $10.95
$15-$23.25 357,086 7.8 years $15.39 144,192 $15.65
------------- ----------- ----------- -------- ----------- ---------
$4.52-$23.25 612,257 8.6 years $10.93 145,525 $15.60
F-16
F-17
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 28, 1996, December 30, 1995, and December 31, 1994 were
$1,392,000, $1,700,000, and $2,625,000, respectively.
Postretirement Benefits Other than Pensions
- -------------------------------------------
The Company provides life and health care benefits to retired employees.
Generally, employees who have attained an age of 60, have rendered 10 years
of service and are currently enrolled in the medical benefit plan are
eligible for postretirement benefits. The Company accrues the estimated
cost of retiree benefit payments, other than pensions, during the
employee's active service period.
The plan's funded status is as follows:
December 28, December 30,
1996 1995
---- ----
(in thousands)
Accumulated postretirement benefit obligation-
Retirees and their dependents $ 1,259 $ 934
Active employees fully eligible to retire
and receive benefits 682 531
Active employees not fully eligible 1,349 1,292
------ ------
Total accumulated postretirement benefit obligations 3,290 2,757
Plan's assets at fair value -0- -0-
------ ------
Accumulated postretirement benefit obligation in
excess of plan's assets 3,290 2,757
Unrecognized net loss (613) (445)
------ ------
Accrued postretirement health care cost $ 2,677 $2,312
====== ======
Actuarial assumptions used were as follows:
December 28, December 30,
1996 1995
---- ----
(in thousands)
Projected health care costs trend rate 6.0% 6.0%
Ultimate trend rate 6.0% 6.0%
Year ultimate trend rate achieved n/a n/a
Effect of a 1% point increase in the health care
cost trend rate on the postretirement benefit
obligation $ 77 $ 63
Effect of a 1% point increase in the health care
cost trend rate on the aggregate of service and
interest cost $ 21 $ 18
Discount rate 7.75% 7.25%
F-17
F-18
Postemployment Benefits
- -----------------------
The Company provides certain postemployment benefits to qualified former or
inactive employees who are not retirees. These benefits include salary
continuance, severance, and healthcare. Salary continuance and severance
pay is based on normal straight-line compensation and is calculated based
on years of service. Additional severance pay is granted to eligible
employees who are 40 years of age or older and have been employed by the
Company five or more years. The Company accrues the estimated cost of
benefits provided to former or inactive employees who have not yet retired
over the employees' service period or as an expense at the date of the
event triggering the benefit. The Company incurred postemployment benefit
income of $31,000 for the year ended December 28, 1996, and expense of
$160,000 (exclusive of amounts included in its restructuring liability, see
Note 3) and $2,000,000 for the years ended December 30, 1995 and December
31, 1994, respectively.
11. Income Taxes
- -----------------
The Company and its subsidiaries file a consolidated Federal income tax
return. As of December 28, 1996 the Company has U.S. net operating loss
carryforwards available to offset income of approximately $41 million
expiring in the years 2004 through 2011; and $.9 million of capital loss
carryforwards which expire in 1997 unless utilized.
On October 22, 1993, the Company completed a recapitalization plan which
created an ownership change as defined by Section 382 of the Internal
Revenue Code of 1996. As a result of this, certain of the loss
carryforwards of the company are limited to an annual limitation of
approximately $2.6 million a year.
An additional loss carryforward of $19.1 million was generated in 1996.
This loss was largely due to the utilization of deferred tax assets set up
in 1995. Major components included the use of the restructuring reserve,
bad debt reserve, intangible asset amortization and utilization of prior
year capital loss carryovers. The loss created in 1996 will be available
without limitations, to offset taxable income in future periods and will
expire in 2011.
Income tax provision for 1996 consists of both current and deferred
amounts. The components of the income tax provision are as follows:
December 28, December 30, December 31,
1996 1995 1994
---- ---- ----
(in thousands)
Taxes currently payable:
State income tax $1,010 $ 1,353 $1,350
Federal income tax - - 310
Deferred expense/ (benefit) 300 (11,796) (14,360)
------ ------ ------
Total income tax expense/ (benefit) $1,310 $(10,443) $(12,700)
====== ====== ======
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 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. Management has determined,
based on the Company's positive earnings growth from 1992 through 1994 and
F-18
F-19
its expectations for the future, that operating income of the Company will
more likely than not be sufficient to recognize fully its net deferred
tax assets. The components of the deferred tax assets and liabilities at
December 28, 1996, December 30, 1995 and December 31, 1994, respectively,
are as follows:
December 28, December 30, December 31,
1996 1995 1994
---- ---- ----
(in thousands)
Deferred income tax assets:
Trade accounts receivable $1,676 $3,193 $1,816
Inventories 1,954 2,446 3,252
Accrued personnel cost 1,936 1,850 2,153
Other accrued liabilities 6,911 12,042 8,718
Net operating loss 16,556 9,856 5,640
Other 2,342 1,399 2,003
------ ------ ------
Gross deferred income tax assets 31,375 30,786 23,582
Less: valuation allowance (1,493) (1,350) (3,421)
------ ------ ------
Total deferred income tax assets 29,882 29,436 20,161
====== ====== ======
Deferred income tax liabilities:
Property, plant and equipment 1,962 1,906 5,094
Goodwill and trademark 2,052 1,348 690
Other accrued income items 13 26 17
------ ------ ------
Total deferred income tax
liabilities 4,027 3,280 5,801
------ ------ ------
Net deferred tax assets $25,855 $26,156 $14,360
====== ====== ======
The deferred tax expense recorded in the current year results from
temporary differences in the recognition of certain items of revenue and
expense for tax and financial reporting purposes. The sources of these
differences and the tax effect of each were as follows:
December 28, December 30, December 31,
1996 1995 1994
---- ---- ----
(in thousands)
Change in bad debt reserve $(1,517) $1,377 $631
Differences in tax and
book inventory (491) (806) (47)
Settlement of deferred
compensation 86 (303) 309
Change in accrued liabilities (5,130) 3,324 2,548
(Utilization)/creation of NOL 6,700 4,216 (7,474)
AMT credit and capital loss
carryover 942 (604) 993
Differences in tax and book
asset basis (56) 3,188 (2,909)
Differences in book and tax
intangibles (704) (658) (690)
Extinguishment of debt - - -
Change in accrued income items 13 (9) 34
(Increase)/decrease in valuation
allowance (143) 2,071 20,965
------ ------ ------
Deferred tax benefit/ (expense) $(300) $11,796 $14,360
====== ====== ======
F-19
F-20
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 28, December 30, December 31,
1996 1995 1994
---- ---- ----
(in thousands)
Taxes (benefit) computed at U.S.
statutory tax rate $637 $(9,115) $5,220
State and local taxes 656 894 891
Alternative minimum tax
differential - - 310
Current and deferred benefit of
capital loss utilized - - (2)
Current benefit of deferred
tax asset - - (14,360)
Other (126) (151) 148
Change in valuation allowance 143 (2,071) -
Current and deferred benefit of
NOL carried forward (utilized) - - (4,907)
------ ------ ------
Total tax provision $1,310 $(10,443) $(12,700)
====== ====== ======
12. Fair Value of Financial Instruments
- -----------------------------------------
In accordance with SFAS No. 107, "Disclosures About Fair Value of Financial
Instruments," information has been provided about the fair value of certain
financial instruments. The following methods and assumptions were used to
estimate the fair value of each material class of financial instruments
covered by the Statement for which it is practicable to estimate that
value.
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. The
estimated fair values of the Company's material financial instruments at
December 28, 1996 and December 30, 1995 are as follows:
Fair Carrying
Value Value
----- -----
(in thousands)
1996 Financial Liabilities:
Long-term Debt
Revolver $76,313 $76,313
Senior Subordinated Notes 77,000 100,000
1995 Financial Liabilities:
Long-term Debt
Revolver $105,021 $105,021
Senior Subordinated Notes 68,000 100,000
F-20
F-21
13. Related Party Transactions
- --------------------------------
On July 31, 1994, the Company acquired Riverside International Corporation
("RIC"), from Riverside Group, Inc., the Company's largest stockholder, for
$895,000. The acquisition was accounted for as a purchase. In December
1995, voting rights to 66 2/3% of RIC's voting stock were assigned to
Riverside Group, Inc.
In 1996, the Company paid approximately $612,000 in reimbursements to an
affiliate of the Company's chairman and to third parties for costs related
to services provided to the Company during 1996 by certain employees of the
affiliated company and use of a corporate aircraft. Total payments in 1995
and 1994 for similar services were approximately $613,000 and $810,000,
respectively.
In June of 1996, the Company entered into a mortgage lending agreement with
an affiliate of the Company's chairman. In exchange for providing home
construction loans to the Company's customers the Company has committed to
reimbursing this affiliate for certain start-up expenses. In 1996 this
reimbursement amounted to approximately $365,000. This reimbursement will
continue through 1997.
The Chairman and certain directors of the Company as well as an affiliated
company, own in aggregate a majority of the voting securities of a private
manufacturer of glass products, wooden stair parts and other building
materials that supplies products, primarily through independent
distributors, to the Company. The Chairman of the Company also is chairman
of the board, president and chief executive officer, and one of the
Company's directors is a director and officer, of this manufacturer.
During 1995, the Company estimates that it purchased approximately
$1,423,000 of this manufacturer's products at prices generally available
from the third party distributors from which the products were obtained.
This compares with $2,086,000 of similar products purchased in 1994.
During 1995 this manufacturer disposed of its glass products division.
A certain director and executive officer of the Company, is a shareholder
of the law firm that is general counsel to the Company. The Company paid
this firm $430,000, $394,000, and $623,000 for legal services provided to
the Company during 1996, 1995, and 1994, respectively.
For a description of the sale of 2,000,000 newly-issued shares by the
Company to Riverside Group, Inc., see Note 9.
F-21
S-1
WICKES LUMBER COMPANY AND SUBSIDIARIES
Schedule VIII-Valuation and Qualifying Accounts
For the Years Ended December 28, 1996, December 30, 1995,
and December 31, 1994
(dollars in thousands)
Col. A Col. B Col. C Col. D Col. E
Additions
(1) (2)
Balance at Charged to Balance at
Beginning Costs and Charged to End of
Description of Period Expenses(a) Other accounts(b) Deduction(c) Period
----------- --------- ----------- ----------------- ------------ ----------
1996:
Allowance for doubtful
accounts $8,208 $1,067 - $4,986 $4,289
1995:
Allowance for doubtful
accounts $4,657 $6,482 - $2,931 $8,208
1994:
Allowance for doubtful
accounts $3,039 $2,457 $634 $1,473 $4,657
(a) Net of reserved and collected accounts.
(b) Bad debt allowance related to acquisitions and recorded as a reduction
to the purchase price.
(c) Reserved accounts written-off.
S-1
38
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 (the "June 1994 Form
10-Q") for the period ended June 25, 1994).
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* Credit Agreement dated March 12, 1996, among the Registrant,
as borrower, each of the financial institutions signatory thereto
(the "Lenders"), BT Commercial Corporation, as Agent for the
Lenders, and Bankers Trust Company, as issuing Bank (incorporated
by reference to Exhibit 4.1 to the 1995 Form 10-K).
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* Trademark Agreement, dated April 29, 1988, between Wickes Companies,
Inc. and the Registrant (incorporated by reference to Exhibit 10.2
to the Form S-1).
10.2* Stock Purchase Agreement, dated as of July 23, 1993, among FynSyn
Capital Corp., W. Lumber Investment Partnership, Riverside
Group, Inc. and American Financial Acquisition Corporation
(incorporated by reference to Exhibit 10.11 to the Form S-1).
10.3* 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).
10.4* Form of Employee Warrant to purchase Common Stock of the
Registrant (incorporated by reference to Exhibit 10.16 to the Form
S-1).
10.5* Settlement Agreement, dated as of August 11, 1993, among FynSyn
Capital Corp., W. Lumber Investment Partnership, Riverside Group,
Inc. and Arthur M. Goldberg (incorporated by reference to
Exhibit 10.17 to the Form S-1).
10.7* Agreement, dated as of September 20, 1993, among the Registrant,
Riverside Group, Inc., Bankers Trust (Delaware) and American
Financial Acquisition Corporation (incorporated by reference to
Exhibit 10.19 to the Form S-1).
10.8(a)* Amended and Restated 1993 Long-Term Incentive Plan of the
Registrant (incorporated by reference to Exhibit 10.8 to the 1994
Form 10-K).
(b)** Amendment No. 1.
(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).
10.9(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 (the "March 1994 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).
10.12* Employment Agreement between George A. Bajalia and the Registrant
(incorporated by reference to Exhibit 10.02 to the March 1994
Form 10-Q).
10.14* Marketing Agreement dated as of September 7, 1994 between the
Registrant and Wickes Financial Services Center, Inc. (incorporated
by reference to Exhibit 10.14 to the 1994 Form 10-K).
10.15* Stock Purchase Agreement dated as of January 11, 1996 between
Riverside Group, Inc. and the Registrant (incorporated by reference
to Exhibit 99.1 to the Registrants Current Report on Form 8-K dated
January 11, 1996).
10.16* Mortgage Lending Agreement between Wickes Lumber Company, Inc. and
Wickes Mortgage Lending, Inc. dated as of June 30, 1996 (incorporated
by reference to Exhibit 10.01 to the Registrant's Quarterly Report
on Form 10-Q for the period ended June 29, 1996).
11.1** Statement regarding Computation of Per Share Earnings.
21.1** List of Subsidiaries of the Registrant.
23.1** Consent of Coopers & Lybrand L.L.P.
27.1** Financial data schedule (SEC use only).
* Incorporated by reference.
** Filed herewith.
There have been omitted certain instruments with respect to long-term
debt not in excess of 10% of the consolidated total assets of the Company.
The Company agrees to furnish copies of any such instruments to the
Commission upon request.