10-Q 1 k71063e10vq.txt QUARTERLY REPORT FOR PERIOD ENDED JUNE 30, 2002 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q [X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. For the quarter ended June 30, 2002 -------------------------------------------------------- [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from to -------------------- ----------------------- Commission file number 0-6169 ------------------------------------------------------- WOLOHAN LUMBER CO. ----------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Michigan 38-1746752 ------------------------------------ -------------------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 1740 Midland Road, Saginaw, Michigan 48603 ------------------------------------------------------------------------------ (Address of principal executive offices) (989) 793-4532 ------------------------------------------------------------------------------ (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practical date. Common stock, $1 par value -- 2,097,975 shares as of July 31, 2002 PART I -- FINANCIAL INFORMATION ITEM 1. FINANCIAL INFORMATION WOLOHAN LUMBER CO. CONSOLIDATED BALANCE SHEETS (in thousands)

Note: The consolidated balance sheet at December 31, 2001, has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. See notes to condensed consolidated financial statements. 2 WOLOHAN LUMBER CO. CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) (in thousands, except per-share amounts)

See notes to condensed consolidated financial statements. 3 WOLOHAN LUMBER CO. CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) (in thousands, except per-share amounts)

See notes to condensed consolidated financial statements. 4 WOLOHAN LUMBER CO. CONSOLIDATED STATEMENT OF SHAREOWNERS' EQUITY (UNAUDITED) (in thousands)

See notes to condensed consolidated financial statements. 5 WOLOHAN LUMBER CO. CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (in thousands)

See notes to condensed consolidated financial statements. 6 WOLOHAN LUMBER CO. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) JUNE 30, 2002 NOTE A - BASIS OF PRESENTATION The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting only of normal recurring accruals) considered necessary for a fair presentation have been included. The Company's business is seasonal in nature, subject to general economic conditions and outside factors, and the timing of store closings, and accordingly, its operating results for the three months and six months ended June 30, 2002 are not necessarily indicative of the results that may be expected for the entire year ending December 31, 2002. The Company recognizes revenues when products, ordered by the customer, are either delivered to the customer or the customer picks up the products at one of the Company's retail locations. For further information, refer to the consolidated financial statements and footnotes included in the Company's annual report on Form 10-K for the year ended December 31, 2001. NOTE B - NEW ACCOUNTING PRONOUNCEMENTS ADOPTED The Company adopted Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets, in the first quarter of 2002. The Company no longer amortizes goodwill and intangible assets with indefinite useful lives but will test these assets periodically for impairment in accordance with the provisions of Statement No. 142. Amortization expense reported during the quarter ended June 30, 2002 was $26,000 ($52,000 for the six-month period of 2001). The FASB issued Statement of Financial Accounting Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets", dated August 2001. This statement supercedes Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of", and the accounting and reporting provisions of APB Opinion No. 30, "Reporting Results of Operations - Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions". Statement No. 144 requires that one accounting model be used for long-lived assets to be disposed of by sale, whether previously held and used or newly acquired, and it broadens the presentations of discontinued operations to include more disposal 7 transactions. The Company adopted the provisions of Statement No. 144 on January 1, 2002. As of June 30, 2002, the Company determined that no long-lived assets are impaired. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. Certain information contained in Management's Discussion and Analysis of Financial Condition and Results of Operations may be deemed to be forward-looking statements within the meaning of The Private Securities Litigation Reform Act of 1995 and are subject to the Act's safe harbor provisions. These statements are based on current expectations and involve a number of risks and uncertainties. Actual results could differ materially from those described in the forward-looking statements as a result of various factors outside the control of the Company, including, but not limited to the following: fluctuations in customer demand and spending, expectations of future volumes and prices for the Company's products, prevailing economic conditions affecting the retail lumber and building materials markets and seasonality of operating results. Results Of Operations Net income was $892,000 (44 cents per share) for the second quarter ended June 30, 2002, compared with $1.3 million (38 cents per share) for the same period of 2001. For the six-month period ended June 30, 2002, net income totaled $17,000 (1 cent per share), compared with $680,000 (20 cents per share) for the similar period of 2001. Net income per share for the second quarter and six month periods of 2002 was impacted by a 37-percent reduction in average shares outstanding from the same periods in 2001. Average shares outstanding were 2.1 million for second quarter and the six-month period of 2002, compared with 3.3 million for the same periods in 2001. The reduction in average shares outstanding was primarily a result of the Company repurchasing 1.3 million shares in a stock tender offer in September 2001 at a price of $15 per share. Net sales in 2002 were $56.7 million for the second quarter and $94.6 million for the first six months, compared with $68.3 million and $112.6 million for the comparable periods of 2001. Compared with 2001, same-store sales in 2002 declined 4 percent for the second quarter and 2 percent for the six-month period. Second quarter 2002 sales and gross margin dollars were negatively impacted by significant price deflation in lumber and structural panel products as well as a reduction in the number of operating stores compared with 2001. At June 30, 2002, the Company had 29 stores compared with 33 at the end of the second quarter of 2001. In addition, with the Company's strategic focus on the professional builder and the large project-oriented consumer, it continues to eliminate or reduce certain products previously sold to the do-it-yourself home-improvement market, which in turn, has a negative impact on sales comparisons. The lower net income in the second quarter and six month-period of 2002, compared with similar periods in 2001 reflects: 8 1) Lower net gains recorded on the sale of real estate properties in 2002 versus 2001 ($83,000 less for the second quarter and $857,000 less for the six-month period). 2) Inventory shrinkage recorded at one store negatively impacted gross margins for the second quarter and the six-month period of 2002, compared with 2001. 3) A Lifo credit of $225,000 in the second quarter of 2002, compared with no Lifo adjustment recorded in the first six months of 2001 partially offset these negative factors. Gross margins for the second quarter and six-month period of 2002 were 23.1 percent and 22.6 percent, respectively, compared with 22.7 percent and 23.1 percent for the comparable periods in 2001. The operating expense ratio for the second quarter of 2002 was 21.8 pecent, compared with 21.0 percent for the same period in 2001. For the 2002 six-month period, the ratio was 24.2 percent compared with 24.3 percent in 2001. In the Company's continuing effort to redeploy investments which do not meet its strategic profit model, the Company has closed one store in the first half of 2002 (six stores were closed during the first half of 2001). Store closing costs related to the stores closed in the first half of both years have been accrued in the corresponding prior year. The expansion of the Company's Marne, MI facility to include a new showroom, an enlarged lumber yard area and improvements to increase manufacturing capabilities for wall-panelization, roof trusses and millwork should be completed in the third quarter 2002. This facility will serve professional builders and project-oriented consumers in the greater Grand Rapids, MI market. The effective federal income tax rate for the second quarter and six month period of 2002 and 2001 was 34 percent. Financial Condition At June 30, 2002, the Company's balance sheet remained strong. Net working capital at June 30, 2002, totaled $23.0 million, compared with $32.8 million at June 30, 2001, and $21.1 million at Dec. 31, 2001. The current ratio at June 30, 2002, was 2.0 to 1, compared with 2.3 to 1 at June 30, 2001, and 2.0 to 1 at Dec. 31, 2001. Cash and cash equivalents totaled $5.1 million at June 30, 2002, compared with $4.1 million at June 30, 2001, and $4.8 million at Dec. 31, 2001. The liquidity ratio at June 30, 2002, was .23 to 1, compared to .44 to 1 at June 30, 2001, and .22 to 1 at Dec. 31, 2001. Cash and cash equivalents increased $.3 million during the first half of 2002. Operating activities provided net cash of $2.5 million during the first half of 2002, primarily from reductions in net working capital plus depreciation. 9 Investing activities in the first half of 2002 included $1.1 million in capital expenditures, primarily related to the expansion of the Company's Marne, MI facility, and offset in part by $.5 million of proceeds from the sale of properties and equipment. Financing activities in the first half of 2002 used net cash of $1.6 million and included $2.1 million for payments on long-term debt and $.3 million for dividend payments, offset in part by $.9 million of proceeds from the exercise of stock options. The Company expects that net cash from operating activities and available lines of credit should be adequate to meet future working capital needs. Invested capital (long-term debt and shareowners' equity) was equal to 74% of total assets at June 30, 2002, compared with 74% at year-end 2001. At June 30, 2002, the total long-term debt-to-asset ratio was .003, versus .004 at year-end 2001 and the ratio of equity to total assets was .73:1, the same as year-end 2001. Outlook The Company's strategic direction continues to be: (1) revenue growth and operating improvement at existing stores through the advancement of services to its target customers and development of operating efficiencies, and (2) strengthening its balance sheet by improving management of working capital at existing operations and redeploying investments which do not meet its strategic profit model. The Company has consistently utilized its strategic profit model to evaluate overall performance of its assets and will continue to do so. Adherence to this model may result in additional store closings or other asset redeployments. 10 PART II -- OTHER INFORMATION ITEM 3. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The following information is furnished with respect to the Annual Meeting of security holders of the Registrant held during May 2002: (a) A meeting was held on May 2, 2002 and was an Annual Meeting. (b) Not Applicable (c) At such meeting the following nominees for election as directors were elected to hold office until the next annual meeting of stockholders or until their successors are elected and qualified. The votes cast with respect to each nominee for director are as follows:

ITEM 4. EXHIBITS AND REPORTS ON FORM 8-K (a) Reports on Form 8-K The registrant filed no reports on Form 8-K during the quarter for which this Report is filed. 11 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereto duly authorized. WOLOHAN LUMBER CO. -------------------------------------- Registrant Date: August 9, 2002 /s/ James L. Wolohan --------------------------- -------------------------------------- James L. Wolohan President and Chief Executive Officer Date: August 9, 2002 /s/ Edward J. Dean --------------------------- -------------------------------------- Edward J. Dean Corporate Controller (Principal Accounting Officer) 12 CERTIFICATION The undersigned, James L. Wolohan, President and Chief Executive Officer, and Edward J. Dean, Corporate Controller (Principal Accounting Officer), of Wolohan Lumber Co., a Michigan corporation (the "Company") do hereby certify that the periodic report on Form 10-Q of the Company for the quarterly period ended June 30, 2002 containing financial statements of the Company fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)) and that information contained in the periodic report fairly presents, in all material respects, the financial condition and results of operations of the Company. IN WITNESS WHEREOF, we have signed this Certification as of the 9th day of August, 2002. /s/ James L. Wolohan ---------------------------------------- James L. Wolohan President and Chief Executive Officer /s/ Edward J. Dean ---------------------------------------- Edward J. Dean Corporate Controller (Principal Accounting Officer) 13

WOLOHAN LUMBER CO 10-Q