Wolohan Lumber Co.
                             1999 Annual Report
          "Quality Home Builders And Remodelers Build With Wolohan"








Company Profile

         Wolohan Lumber Co., is a full-line retailer of lumber, building
materials and related products used primarily for new-home construction and
home-improvement projects.

         Headquartered in Saginaw, Mich., the Company was founded in 1964
with three stores and at year-end 1999, 48 stores were in operation under the
names Wolohan Lumber, CML and Weber Lumber. Each store provides a strong
offering of quality materials, competitive prices and expert and personal
service. Each location includes a retail sales area (with most stores having
significant square footage devoted to displays of kitchens, baths, doors and
windows and other building materials), under-roof storage areas and an
outside lumberyard area with displays of pole barns, garages, decks and
storage buildings. In addition, the Company has one truss plant, a specialty
millwork operation, two wall-panel facilities and several stores with
door-assembly capabilities.

         The Company's primary customer focus is the single-family
homebuilder, commercial and multi-family builder, remodeler and
project-oriented consumer. The Company offers a wide range of services
including house design, delivery, installation, various financing options and
job-site contractor sales representatives with experienced store support
coordination.


Table of Contents
-----------------

Corporate and Financial Highlights ....................    1

Shareholders' Address .................................    2

Common Stock Data .....................................    4

Quarterly Summaries ...................................    4

Sales Mix .............................................    5

5-Year Performance ....................................    6

Management's Discussion and Analysis of
Results of Operations and Financial Condition  ........    7

Reports of Management and Independent Auditors ........   10

Financial Statements

     Consolidated Balance Sheets ......................   11

     Consolidated Statements of Income ................   12

     Consolidated Statements of Shareowners'
       Equity .........................................   12

     Consolidated Statements of Cash Flows ............   13

     Notes to Consolidated Financial Statements .......   14

Corporate Information.....................(Inside Back Cover)





Corporate Highlights

o   The Company announced a realignment of its operations into two operating
    divisions in preparation for accelerated growth. The two divisions
    comprise a core group of high-performing, contractor-focused Wolohan
    stores and a CML Division targeting retail project sales and sales to
    professional homebuilders. CML is the operating name of Central Michigan
    Lumber, acquired by the Company in 1998. Up to 27 stores currently
    operating under the Wolohan Lumber name are expected to be converted to
    the CML model over the next several years.

o   Earnings per share improved to $1.19 per share from $1.05 per share in
    1998.

o   The Company repurchased 539,000 shares of its common stock at an average
    of $12.76 per share, which was in addition to 1,370,000 shares
    repurchased in 1998. The combination of the stock-repurchase program and
    earnings retention has increased the Company's book value per share from
    $15.94 at year-end 1997 to $19.27 at year-end 1999.

o   Sales totaled $404 million for 1999 with comparable-store sales
    increasing 5 percent.

o   Net income totaled $6.3 million.

o   Capital expenditures of $8.6 million included the addition of a
    wall-panel manufacturing facility and the relocation of one store.

o   The Company completed the installation of a new point-of-sale computer
    system.

o   The Company ended 1999 with a strong balance sheet highlighted by a sound
    working capital position and a low debt ratio.


<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
(in thousands, except per-share amounts, ratios and percentages)
                                                                                          1999     1998
                                                                                           vs       vs
                                                 1999           1998           1997       1998     1997
                                                 ----           ----           ----       ----     ----
<S>                                          <C>            <C>            <C>            <C>       <C>
INCOME STATISTICS
Net sales                                    $404,032       $449,904       $424,503       -10%       +6%
Gross profit                                   91,628        102,492        101,583       -11%       +1%
Income before income taxes                     10,377         11,186          7,247        -7%      +54%
Net Income                                      6,276          6,779          4,332        -7%      +56%
Per share, basic:
     Net income                                  1.19           1.05            .63       +13%      +67%
     Dividends                                    .28            .28            .28        --        --
                                             --------       --------       --------       ---       ---
BALANCE SHEET STATISTICS
Working capital                              $ 52,302       $ 53,202       $ 72,070        -2%      -26%
Total assets                                  140,646        157,511        157,463       -11%       --
Long-term debt, net of current portion         12,593         17,091         20,443       -26%      -16%
Total liabilities                              43,707         58,840         47,284       -26%      +24%
Shareowners' equity                            96,939         98,671        110,179        -2%      -10%
Book value per share                            19.27          17.78          15.94        +8%      +12%
                                             --------       --------       --------       ---       ---
KEY RATIOS AND PERCENTAGES
Current ratio                                   2.7:1          2.3:1          3.7:1       +17%      -41%
Liquidity ratio                                 .10:1          .08:1          .94:1       +25%      -91%
Gross profit margin                              22.7%          22.8%          23.9%       --        -5%
Pre-tax profit margin                             2.6%           2.5%           1.7%       +4%      +47%
Return on sales                                   1.6%           1.5%           1.0%       +7%      +50%
Return on average assets                          4.2%           4.2%           2.7%       --       +56%
Return on beginning shareowners' equity           6.4%           6.2%           4.0%       +3%      +55%
                                             ========       ========       ========       ===       ===
</TABLE>

                                      1


JAMES L. WOLOHAN                                          [ PICTURE OMITTED ]
Chairman of the Board,
President and Chief
Executive Officer

JOHN A. SIEGGREEN
Executive Vice President
and Chief Operating Officer

                             Shareowners' Address

         In 1999, Wolohan Lumber marked another year of progress in meeting
the objectives set forth in its strategic plan. Broadly, this strategic plan
focuses on three key areas of our business: market share growth to
professional and project-oriented customers, leadership through quality store
management with highly productive salespeople, and financial performance. The
Company's primary measure of financial performance is Economic Value Added
(EVA(TM)), which rewards investors through improvement in net income relative
to the net assets employed in business operations.

         Although the Company must continue to make strides toward realizing
the strategic plan objectives, we are nonetheless encouraged by our 1999
results. Sales of $404 million were 10 percent lower than 1998 levels;
comparable-store sales, however, rose 5 percent from 1998. Net income for
1999 was down 7 percent from the prior year but earnings per share increased
13 percent, to $1.19, in 1999, compared with $1.05 in 1998. This marked the
36th consecutive year of profitability for Wolohan Lumber Co. The increase in
earnings per share was affected by a 19-percent decline in average shares
outstanding, reflective of the Company's aggressive stock repurchases.
Wolohan repurchased 539,000 shares of common stock in 1999 at an average of
$12.76 per share and 1,370,000 shares in 1998 at an average of $12.07 per
share.

         We were able to achieve these results even as the industry and the
Company continue to experience dramatic and unprecedented change. Externally,
competitive forces continue to be the growth of large warehouse chains in
ever-smaller markets, coupled with rapid consolidation on the part of leading
industry players on the professional side of the business.

         Internally, the Company executed several initiatives representing
significant change. Each of these initiatives is consistent with the key
elements of the strategic plan.

o   In the first quarter of 1999, we closed or divested all remaining
    operations in northern Illinois and Wisconsin. The 1998 sales and
    operating income from the stores that were eliminated totaled
    approximately $90 million and $1.5 million, respectively. We took this
    bold action because we believe our best growth opportunity and
    competitive positioning lies in the three "core" states of Michigan,
    Indiana, and Ohio, where we already have significant market share with
    target customers. In Michigan, for example, we operate more than 30
    locations, all outside the

                                      2


    metropolitan Detroit market area. As we make incremental investments in
    value-added manufacturing facilities to support stores in our core
    markets, we will be able to leverage this market presence to create a
    larger internal distribution area through which to market these
    manufactured products. We will also be able to gain greater efficiency in
    other areas of our business such as purchasing and marketing.

                           "Quality Home Builders
                               and Remodelers
                             Build with Wolohan"

o   We bolstered our value-added manufacturing capacity within our core
    market area in 1999. Incremental investments to increase production
    capacity in our western Michigan truss and wall-panel facility and a new
    investment in a state-of-the-art panelizing plant in Dayton, Ohio
    position us to improve market share and gross margins to professional
    customers.

o   We completed the installation of our new fourth-generation language (4GL)
    point-of-sale computer system during 1999. This gives the Company a
    platform for further expanding its commitment to technology, including
    use of electronic commerce and other internet applications. Curt
    LeMaster, promoted to Senior Vice President and Chief Information Officer
    in 1999, will lead our efforts in these areas. He was formerly Vice
    President of Marketing, Purchasing and Systems.

o   The most exciting of our 1999 initiatives, however, came in October, when
    we announced plans to restructure our stores into two operating divisions
    in preparation for accelerated growth. The two divisions comprise our
    core group of high-performing, contractor-focused Wolohan stores and a
    CML Division targeting retail project sales and sales to professional
    customers. CML is the operating name of Central Michigan Lumber, acquired
    in mid-1998. CML has a highly centralized operating model specializing in
    sales of large-ticket packages such as post-frame buildings, garages,
    shell homes, decks and storage buildings. The market for these types of
    major packages presents a real growth opportunity for the Company and is
    not a primary area of focus for other marketplace competitors. Over the
    next two to three years, we will convert up to 27 stores to the CML model
    through complete remodeling and repositioning of the facilities and
    extensive associate training in packages and projects. Eight stores are
    slated for conversion in 2000.

         To provide hands-on leadership to each of the two operating
divisions, we have named Dan Rogers president of the CML Division and Dave
Honaman president of the Wolohan Division. Rogers and Honaman, both Senior
Vice Presidents of Wolohan Lumber Co., will also serve in the roles of
General Merchandise Manager and Chief Financial Officer, respectively. Rogers
has served as CML president since the date of the acquisition and has been
instrumental in maintaining the stores' strong performance.

         One corporate administrative team will serve the varying needs of
both the Wolohan and CML divisions. For example, one common purchasing and
marketing team will develop programs and implement initiatives for both
divisions, although product mixes will differ. We have also combined all of
our associate programs in areas such as health-care benefits, retirement
benefits and vacation. Our goal is to ensure that all associates, whether in
the Wolohan Division, the CML Division, or at our corporate offices,
understand that, even with multiple operating divisions, we are still all a
part of one Company.

         The creation of two operating divisions and the corresponding
changes in executive responsibilities better position our Company to achieve
growth in comparable-store sales as well as growth through acquisitions.
Acquisitions would be added to one of the two operating divisions depending
on their characteristics and where they would best fit.

         Heading into the year 2000, the future for Wolohan Lumber is very
promising. The strength of the Wolohan Division and the CML Division
conversion strategy will provide the necessary incremental growth in our core
base of operations. We will continue to scour our market area for acquisition
opportunities. Additional investment in value-added capacity remains a top
priority. Our executive team is dedicated to bringing the strategic plan
objectives to completion.

         Finally, we thank all Wolohan associates for their outstanding
efforts in 1999. Managing and working through change is never easy, but it is
necessary to continue our rich history as a strong industry competitor. We
look forward to continued progress in 2000.

                               /s/ Jim Wolohan
                               James L. Wolohan, Chairman of the Board,
                               President and Chief Executive Officer

                               /s/ John A. Sieggreen
                               John A. Sieggreen, Executive Vice President
                               and Chief Operating Officer

                                      3



<TABLE>
<CAPTION>
COMMON STOCK DATA
                                     1999                                         1998
                  ----------------------------------------      ----------------------------------------
                       MARKET RANGE         CASH DIVIDENDS           MARKET RANGE         CASH DIVIDENDS
                    HIGH          LOW          DECLARED           HIGH          LOW           DECLARED
                    ----          ---       --------------        ----          ---       --------------
<S>               <C>           <C>              <C>            <C>           <C>               <C>
First Quarter     $13           $12 1/4          $.07           $13 5/8       $11               $.07
Second Quarter     12 7/8        10 3/4           .07            13 1/4        11 1/4            .07
Third Quarter      13 3/4        12 3/4           .07            13 7/16       11                .07
Fourth Quarter     13 3/16       11 5/8           .07            13 5/16       8 13/16           .07

Year               13 3/4        10 3/4          $.28            13 5/8        8 13/16          $.28
</TABLE>

         The Company's common stock trades on The Nasdaq Stock Market(TM)
under the symbol WLHN. The approximate number of record holders of the
Company's stock at Dec. 25, 1999 was 719.



<TABLE>
<CAPTION>
QUARTERLY SUMMARIES
(in thousands, except per-share amounts)

                             FIRST         SECOND        THIRD        FOURTH          TOTAL
                            QUARTER       QUARTER       QUARTER       QUARTER         YEAR
                            -------       -------       -------       -------         ----
<S>                        <C>            <C>           <C>           <C>           <C>
1999
Net sales                  $ 73,148       $117,414      $118,727      $ 94,743      $404,032
Gross profit                 17,020         26,477        27,014        21,117        91,628
Net income:
     Amount                    (932)         3,215         3,608           385         6,276
     Per share, basic          (.17)           .60           .68           .08          1.19
                           --------       --------      --------      --------      --------

1998
Net sales                  $ 73,195       $112,856      $143,117      $120,736      $449,904
Gross profit                 17,175         27,206        31,678        26,433       102,492
Net income:
     Amount                    (854)         2,800         3,075         1,758         6,779
     Per share, basic          (.12)           .41           .46           .30          1.05
                           --------       --------      --------      --------      --------
</TABLE>

                                      4


SALES MIX
                             BY CUSTOMER SEGMENT

(in thousands, except percentages)     1999       Mix      1998       Mix
----------------------------------     ----       ---      ----       ---
Contractor Builder and Remodeler     $258,256      64%   $285,497     63%
Project-Oriented Consumer             145,776      36%    164,407     37%
                                      -------      --     -------     --
Total Sales                          $404,032     100%   $449,904    100%
                                     ========     ===    ========    ===


         Single-family homebuilders, remodelers and commercial/industrial
accounts are all part of the contractor builder and remodeler segment of the
Company's sales. Project selling is the Company's focus regarding the
consumer/DIY customer.

                            BY PRODUCT CATEGORY
                           (percent of total sales)

                                          1999    1998
                                          ----    ----
Dimension Lumber                          20.6    18.1
Sheathing Plywood                         11.4    10.0
Other Forest Products                     11.3    11.0
Building Materials                        17.6    17.5
Hardware                                   5.6     6.0
Home Decorations                           1.7     2.0
Millwork                                  15.7    17.1
Kitchen Cabinets and Vanities              6.0     6.4
Plumbing, Heating, and Electrical          2.0     4.8
Trusses and Components                     8.1     7.1
                                           ---     ---
Total Sales                                100     100
                                           ===     ===

         Wolohan Lumber Co. will focus on selling more product to its large
base of homebuilders and remodelers while also expanding market share by
developing new customers. The Company continues to invest in value-added
services such as wall panelization, truss manufacturing, door and window
assembly, construction financing, specialized delivery equipment, product
installation and house design. These capabilities will help increase market
share of builder and remodeler sales. These value-added services demonstrate
the Company's commitment to the professional builder.

         Project-oriented sales, such as doors and windows, kitchens and
baths, decks, fences and storage buildings, continue to be the focus of the
Company for its DIY customers. Knowledgeable sales associates are utilizing
up-to-date displays, computerized drawings and special financing programs to
enhance and improve the market share of this segment of the Company's sales.


                                      5


<TABLE>
<CAPTION>
5-YEAR PERFORMANCE
(In thousands, except per-share amounts, ratios and percentages)

                                               1999       1998        1997        1996        1995
                                               ----       ----        ----        ----        ----
<S>                                         <C>         <C>          <C>         <C>         <C>
Income Statistics
Net sales                                   $ 404,032   $ 449,904    $ 424,503   $ 430,358   $ 418,058
Gross profit                                   91,628     102,492      101,583     103,375      99,989
Store closing costs                             1,304       1,966        3,800         921       3,317
Interest expense                                1,541       1,828        2,212       2,457       2,919
Income before income taxes                     10,377      11,186        7,247      10,511       6,498
Income taxes                                    4,101       4,407        2,915       4,340       2,763
Net income                                      6,276       6,779        4,332       6,171       3,735
Net income per share, basic                      1.19        1.05          .63         .89         .53
Cash dividends declared:
           Amount per share                       .28         .28          .28         .28         .28
           Percent of net income                 23.4%       26.6%        44.7%       31.6%       53.2%
Average shares outstanding                      5,271       6,474        6,912       6,968       7,100
                                            ---------   ---------    ---------   ---------   ---------
Balance Sheet Statistics
Current assets                              $  83,416   $  94,951    $  98,911   $  96,722   $  92,041
Other assets                                   13,886      18,121        7,544       2,311       2,149
Properties (net)                               43,344      44,439       51,008      63,676      68,250
Total assets                                  140,646     157,511      157,463     162,709     162,440
Working capital                                52,302      53,202       72,070      61,689      60,631
Long-term debt, net of current portion         12,593      17,091       20,443      19,883      26,674
Total liabilities                              43,707      58,840       47,284      54,916      58,084
Shareowners' equity:
           Amount                              96,939      98,671      110,179     107,793     104,356
           Book value per share                 19.27       17.78        15.94       15.60       14.93
                                            ---------   ---------    ---------   ---------   ---------
Key Operating Percentages
Gross profit margin                              22.7%       22.8%        23.9%      24.0%        23.9%
Pre-tax profit margin                             2.6%        2.5%         1.7%       2.4%         1.6%
Return on sales                                   1.6%        1.5%         1.0%       1.4%         0.9%
Return on average assets                          4.2%        4.2%         2.7%       3.7%         2.2%
Return on average working capital                11.9%       10.8%         6.5%      10.1%         6.0%
Return on beginning shareowners' equity           6.4%        6.2%         4.0%       5.9%         3.6%
Return on average total invested capital          5.6%        5.5%         3.4%       4.8%         2.8%
                                            ---------   ---------    ---------   ---------   ---------
Key Financial Ratios and Measures
Sales to average working capital                7.7:1       7.2:1        6.3:1       7.0:1       6.7:1
Sales to average shareowners' equity            4.1:1       4.3:1        3.9:1       4.1:1       4.0:1
Sales to average total invested capital         3.6:1       3.7:1        3.3:1       3.3:1       3.2:1
Current ratio                                   2.7:1       2.3:1        3.7:1       2.8:1       2.9:1
Quick ratio                                     1.2:1       1.1:1        2.1:1       1.4:1       1.3:1
Liquidity ratio                                 .10:1       .08:1        .94:1       .44:1       .44:1
Debt to total assets ratio                      .09:1       .11:1        .13:1       .12:1       .16:1
Capitalization ratio                            .11:1       .15:1        .16:1       .16:1       .20:1
Shareowners' equity to total assets ratio       .69:1       .63:1        .70:1       .66:1       .64:1
Inventory turnover                               7.30        7.68         6.73        6.30        5.89
Asset turnover                                   2.71        2.81         2.62        2.58        2.47
                                            ---------   ---------    ---------   ---------   ---------
Stores
Number of stores at end of year                    48          55           55          61          60
                                            =========   =========    =========   =========   =========

</TABLE>

                                      6



Management's Discussion and Analysis of
Results of Operations and Financial Condition

         Certain information contained in Management's Discussion and
Analysis of Results of Operations and Financial Condition 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 standards are based on current expectations and involve a
number of risks and uncertainties. Actual results could differ materially and
adversely from those described in the forward-looking statements as a result
of various factors outside 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 in 1999 totaled $6.3 million ($1.19 per basic share),
compared with $6.8 million ($1.05 per basic share) in 1998. The improvement
in earnings per share resulted primarily from a 19-percent decrease in
average shares outstanding as a result of the Company's repurchase program.
The decline in 1999 net income reflects the elimination of $1.5 million of
operating income associated with stores divested in late 1998 and early 1999
and a 10-percent drop in total sales.

         Other significant items affecting 1999 net income included: (1) a
gain on the sale of properties of $3.5 million (compared with $2.9 million in
1998); (2) a LIFO charge of $809,000 (compared with a LIFO credit of $1.3
million in 1998); and (3) store closing costs of $1.5 million (compared with
$3.5 million in 1998).

         Net income in 1998 increased 56 percent from 1997 net income of $4.3
million due to the positive contribution of Central Michigan Lumber ("CML"),
acquired on June 29, 1998; gains from selling idle properties; a lower
operating expense factor and a 6-percent increase in total sales. Included in
the 1998 results were approximately $4.6 million (pre-tax) of costs related
to restructuring activities. Of this total restructuring charge, $3.5 million
was related to store closings.

         Sales of $404 million in 1999 were 10 percent lower than 1998 sales
of $449.9 million, which were 6 percent higher than 1997 sales. Sales in 1998
included $90.6 million from seven stores closed in late 1998 and six stores
sold in February 1999. Comparable-store sales increased 5 percent in 1999
from 1998. Higher selling prices for lumber and structural panel products
accounted for approximately half of the increase in comparable-store sales
for 1999. The sales mix by customer type was 64 percent contractor builder
and remodeler sales and 36 percent project consumer sales in 1999, compared
with 63 and 37 percent, respectively, for 1998 and 61 and 39 percent,
respectively, for 1997. The higher mix of sales to the contractor customer
reflects the Company's strategy to focus on selling products to the builder,
remodeler and project-oriented customer, versus selling general
home-improvement merchandise to individual consumers.

         The gross profit margin in 1999 was 22.7 percent, compared with 22.8
percent in 1998 and 23.9 percent in 1997. Gross profit margin results in 1999
included a LIFO charge of $809,000, compared with a LIFO credit of $1.3
million in 1998 and 1997. The decline in gross profit margins in 1998
compared with 1997 was due primarily to the impact of liquidating inventories
at closed stores and the recording of an allowance for obsolete inventory.
The allowance for obsolete inventory totaled approximately $1.9 million at
year-end 1999 and will be used to offset liquidation efforts in 2000 as the

[GRAPHIC OMITTED] [GRAPHIC OMITTED]  [GRAPHIC OMITTED]      [GRAPHIC OMITTED]
Sales             Net Income         Net Income Per Share  Net Return of Sales




                                      7




Company continues to bring product mix in balance with its customer focus.
The gross profit margin in 1999, excluding the provision for LIFO, was 22.9
percent, compared to 22.5 percent in 1998 and 23.6 percent in 1997.

         Other operating income, which is primarily revenue from installed
labor income, finance charges related to receivables and rental income,
increased to $3.7 million in 1999 from $3 million in 1998 and $2.7 million in
1997.

         Selling, general, and administrative expenses (excluding
store-closing costs) declined 8 percent in 1999 to $78.7 million from $85.7
million in 1998 and $81.9 million in 1997, resulting in an expense factor of
19.5 percent of sales in 1999 compared with 19.0 percent and 19.3 percent in
1998 and 1997, respectively. The higher 1999 expense factor was primarily due
to the combination of the 10-percent sales decline, a higher provision for
uncollectible trade receivables, training costs related to the installation
of a new point-of-sale computer system and other costs related to the
execution of the Company's strategic plan. The lower 1998 expense factor was
primarily due to lower provision for uncollectible trade receivables and
marketing expense.

         The closing of seven stores in 1999 (including six stores which were
sold in February 1999) resulted in costs of $1.5 million, compared with $3.5
million recorded in 1998 and costs of $3.8 million recorded in 1997 related
to closing seven and six stores, respectively. A portion of the closing costs
in 1999 and 1998 ($200,000 and $1.5 million, respectively) was a charge to
cost of sales. The closing costs in 1999 were primarily related to
liquidating inventories and absorbing certain other ongoing fixed costs. The
closing costs in 1998 and 1997 were primarily related to liquidating
inventories, writing down of certain owned real property, expensing portions
of future lease payments on longer-term leases and writing off of leasehold
improvements. The Company will continue to evaluate performances of stores in
terms of meeting minimum return-on-investment criteria, and additional store
closings may result from this ongoing review.

         Excluding store-closing costs, the net operating expense factor for
1999 increased to 21.3 percent of sales from 20.9 percent in 1998 and 21.6
percent in 1997. Depreciation and amortization expense in 1999 was reduced
$1.1 million from 1998 and $2.3 million from 1997.

         Other income and expenses netted income of $2.4 million in 1999
compared with income of $1.7 million in 1998 and expense of $1.7 million in
1997. The improvement in both 1999 and 1998 was due primarily to the
significant amount of gain on sale of idle properties. In addition, interest
expense was reduced 16 percent to $1.5 million from $1.8 million in 1998 and
$2.2 million in 1997. The decrease reflects the reductions in long-term debt.

         The effective income tax rate (federal and state combined) was 39.5
percent in 1999, compared with 39.4 percent in 1998 and 40.2 percent in 1997.

FINANCIAL CONDITION -
LIQUIDITY AND CAPITAL RESOURCES

         Cash and cash equivalents totaled $3.2 million at year-end 1999 and
1998. Net cash provided by operating activities totaled $4 million in 1999,
compared with $14.2 million in 1998. The 1999 reduction in net cash from
operations was primarily a result of lower accounts payable compared with
year-end 1998, reflecting reductions made in inventory levels.

         Investing activities provided net cash of $10.5 million in 1999,
compared with cash used in investing activities of $16.9 million in 1998. The
increase in cash in 1999 was due primarily to the proceeds from the sale of
inventory, trade receivables and equipment related to the sale of six stores.
The decrease in 1998 was due to a $17.9 million cash outlay for the purchase
of CML.

         Financing activities used net cash of $14.4 million in 1999 and
included $4.1 million for payments on long-term debt, $2 million for payment
of a short-term credit line, $1.5 million for dividend payments and $6.9
million used to repurchase 539,000 shares of Company common stock at an
average of $12.76 per share. In 1998, net cash used in financing activities
totaled $19.4 million and included $16.5 million for the

[GRAPHIC OMITTED] [GRAPHIC OMITTED]  [GRAPHIC OMITTED]     [GRAPHIC OMITTED]
Gross Margin      Working Capital    Debt to Equity Ratio  Shareowners' Equity


                                      8


repurchase of 1.37 million shares of Company common stock.

         The Company has $50 million available in lines-of-credit
arrangements for short-term debt. There was no outstanding balance under
these arrangements at year-end 1999 and at year-end 1998 $2 million was
outstanding.

         Working capital was $52.3 million at the end of 1999, compared with
$53.2 million at year-end 1998. The Company expects that net cash provided
from operating activities and available lines of credit will be adequate to
meet working-capital needs and capital expenditures for 2000 (estimated to be
$5.4 million) and beyond.

         The long-term debt-to-asset ratio was lowered to .09:1 at Dec. 25,
1999, compared with .11:1 for year-end 1998.

         Capital expenditures totaled $8.6 million in 1999 and included: (1)
the addition of a wall-panel plant facility, (2) the purchase of land and
buildings used to relocate an existing store, (3) costs related to converting
two stores to the CML format and (4) replacements and additions of equipment
at existing stores. Capital expenditures have totaled $35 million over the
last five years.

         Invested capital (long-term debt and shareowners' equity) was 78
percent of total assets at Dec. 25, 1999, compared with 73 percent at Dec.
26, 1998. Shareowners' equity has been the principal financing factor over
the years and accounted for more than 85 percent of invested capital at
year-end 1999 and 1998.

EFFECT OF INFLATION

         The Company does not measure precisely the effect of inflation on
its operations; however, it does not believe inflation had a material effect
on sales or results of operations.

ENVIRONMENTAL

         The Company is subject to laws and regulations relating to the
protection of the environment. While it is not possible to quantify with
certainty the potential impact of actions regarding environmental matters,
particularly any future remediation and other compliance effects, in the
opinion of management, compliance with the present environmental-protection
laws will not have a material adverse effect on the financial condition of
the Company or on operating results or cash flows in any one year

READINESS FOR YEAR 2000

         The Company's information technology (IT) systems as well as non-IT
systems such as embedded systems/microcontrollers have not experienced any
material adverse impacts as a result of the Year 2000 transition. In
addition, the Company experienced no material supply chain problems related
to the date transition.

OUTLOOK

         Wolohan Lumber Co. enters 2000 with a strong consolidated balance
sheet and looks forward to the challenges and opportunities present in each
of its two operating divisions. Both divisions are committed to expanding
market share by building on their strengths in wood products, building
materials, millwork and kitchen and bath. During 2000, the Company plans to
convert eight more stores to the CML format which will cause some
interruption of normal business during the conversion process but will keep
the Company on target to have its stores positioned to serve its target
customers (single-family homebuilders, commercial and multi-family builders,
remodelers and project-oriented consumers) in a more effective manner. The
Company continues to emphasize its value-added services to the builder and
expects to increase the volume of wall-panel and truss manufacturing and will
continue to provide special delivery services, design and installation
services. The Company will continue to place strong emphasis on buying and
distribution strategies to improve its competitive position and will work
aggressively to lower its operating-expense ratios by focusing on training
and more-efficient systems. By proper execution of these strategies, the
Company expects to further improve profitability in 2000.

[GRAPHIC OMITTED] [GRAPHIC OMITTED]  [GRAPHIC OMITTED]   [GRAPHIC OMITTED]
Equity Per Share  Total Assets       Properties (Net)    Equity to Asset RAtio


                                      9


REPORTS OF MANAGEMENT AND
INDEPENDENT AUDITORS

                             REPORT OF MANAGEMENT

           The accompanying consolidated financial statements of Wolohan
Lumber Co., together with the other financial information included in the
Annual Report, were prepared by management.

           The responsibility for the integrity of the consolidated financial
statements, and other financial information included in this report, rests
with management. The consolidated financial statements have been prepared in
accordance with generally accepted accounting principles appropriate in the
circumstances and, of necessity, include certain amounts which are based on
our best estimates and judgments. The other financial information included
herein is consistent with that reported in the consolidated financial
statements.

           Wolohan Lumber Co. maintains internal accounting-control systems
that are designed to provide reasonable assurance that assets are safeguarded
from loss or unauthorized or illegal use and that transactions are executed
and recorded in accordance with management authorization. There are limits
inherent in all systems of internal control, based on the recognition that
costs of such a system should not exceed the benefits to be derived. We
believe the Company's system provides an appropriate balance.

           The Board of Directors, through its Audit Committee, is
responsible for assuring that management fulfills its responsibilities in the
preparation of the consolidated financial statements. The Audit Committee
meets periodically with the independent auditors and representatives of
management to ensure that each is discharging its responsibilities. To ensure
complete independence, Rehmann Robson, P.C. has full and free access to meet
with the Audit Committee to discuss the results of their audit, the adequacy
of internal controls, the quality of financial reporting and other matters of
mutual interest.


/s/ David G. Honaman
David G. Honaman
Senior Vice President-- Secretary,
Chief Financial Officer and
President of the Wolohan Division


/s/ Edward J. Dean
Edward J. Dean
Corporate Controller



REPORT OF INDEPENDENT AUDITORS
Board of Directors and Shareowners
Wolohan Lumber Co.
Saginaw, Michigan

         We have audited the accompanying consolidated balance sheets of
Wolohan Lumber Co. as of December 25, 1999 and December 26, 1998, and the
related consolidated statements of income, changes in shareowners' equity and
cash flows for each of the three years in the period ended December 25, 1999.
These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements 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
consolidated 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 financial position of
Wolohan Lumber Co. as of December 25, 1999 and December 26, 1998, and the
results of their operations and their cash flows for each of the three years
in the period ended December 25, 1999 in conformity with generally accepted
accounting principles.

/s/ Rehmann Robson, P.C.
Rehmann Robson, P.C.
Saginaw, Michigan
February 15, 2000


                                     10



CONSOLIDATED BALANCE SHEETS

(in thousands, except per-share amounts)         December 25,  December 26,
                                                     1999          1998
                                                 ------------  ------------
ASSETS
CURRENT ASSETS
              Cash and cash equivalents           $   3,217    $   3,166
              Trade receivables, net                 33,741       41,837
              Builder Finance Program
                receivables, net                      5,220        3,146
              Inventories, net                       35,853       40,903
              Other current assets                    5,385        5,899
                                                  ---------    ---------
TOTAL CURRENT ASSETS                                 83,416       94,951
PROPERTIES
              Land                                    6,910        7,595
              Land improvements                      11,629       13,177
              Buildings                              40,936       44,652
              Equipment                              45,361       47,473
                                                  ---------    ---------
TOTAL PROPERTIES                                    104,836      112,897
              Accumulated depreciation              (61,492)     (68,458)
                                                  ---------    ---------
PROPERTIES, NET                                      43,344       44,439
OTHER ASSETS
              Properties held for sale                8,207        9,805
              Intangible assets, net                  3,684        3,964
              Other                                   1,995        4,352
                                                  ---------    ---------
TOTAL ASSETS                                      $ 140,646    $ 157,511
                                                  =========    =========

LIABILITIES AND SHAREOWNERS' EQUITY
CURRENT LIABILITIES
              Trade accounts payable              $  12,467    $  20,123
              Employee compensation and
                accrued expenses                     14,458       15,867
              Short-term debt                          --          2,000
              Current portion of long-term debt       4,189        3,759
                                                  ---------    ---------
TOTAL CURRENT LIABILITIES                            31,114       41,749

LONG-TERM DEBT, net of current portion               12,593       17,091
                                                  ---------    ---------
TOTAL LIABILITIES                                    43,707       58,840

SHAREOWNERS' EQUITY
              Common stock, $1 par value
                 Authorized - 20,000 shares;
                  issued and outstanding -
                  5,031 shares (5,548 in 1998)        5,031        5,548
              Additional capital                        673        6,694
              Retained earnings                      91,235       86,429
                                                  ---------    ---------
TOTAL SHAREOWNERS' EQUITY                            96,939       98,671
                                                  ---------    ---------
TOTAL LIABILITIES AND SHAREOWNERS' EQUITY         $ 140,646    $ 157,511
                                                  =========    =========
BOOK VALUE PER SHARE                              $   19.27    $   17.78
                                                  =========    =========


The accompanying notes are an integral part of these consolidated financial
statements.


                                     11




<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF INCOME

                                                     FOR THE YEAR ENDED
                                          ----------------------------------------
(in thousands, except per-share amounts)  December 25,  December 26,  December 27,
                                              1999        1998            1997
                                          ------------  ------------  ------------
<S>                                         <C>           <C>          <C>
NET SALES                                   $404,032      $449,904     $424,503
Cost of sales                                312,404       347,412      322,920
                                            --------      --------     --------
Gross profit                                  91,628       102,492      101,583
Other operating income                         3,661         3,007        2,711

OPERATING EXPENSES
    Selling, general and administrative       78,655        85,660       81,920
    Store closing costs                        1,304         1,966        3,800
    Depreciation and amortization              7,310         8,367        9,616
                                            --------      --------     --------
Total operating expenses                      87,269        95,993       95,336
                                            --------      --------     --------
Income from operations                         8,020         9,506        8,958

OTHER INCOME ( EXPENSES)
    Interest expense                          (1,541)       (1,828)      (2,212)
    Interest income                              396           627          562
    Gain (loss) from sale of properties        3,502         2,881          (61)
                                            --------      --------     --------
Other income (expenses), net                   2,357         1,680       (1,711)
                                            --------      --------     --------
INCOME BEFORE INCOME TAXES                    10,377        11,186        7,247
Income taxes                                   4,101         4,407        2,915
                                            --------      --------     --------
NET INCOME                                  $  6,276      $  6,779     $  4,332
                                            ========      ========     ========
NET INCOME PER SHARE, basic                 $   1.19      $   1.05     $   0.63
                                            ========      ========     ========
NET INCOME PER SHARE, assuming dilution     $   1.17      $   1.03     $   0.62
                                            ========      ========     ========

<CAPTION>
CONSOLIDATED STATEMENTS OF SHAREOWNERS' EQUITY

                                              Common Stock                                Total
(in thousands, except per-share amounts)   ------------------   Additional   Retained   Shareowners'
                                           Shares     Amount     Capital     Earnings     Equity
                                           ------    --------    ---------   --------   ------------
<S>                                         <C>      <C>         <C>         <C>         <C>
BALANCES AT DECEMBER 28, 1996               6,912    $  6,912    $ 21,828    $ 79,053    $107,793

Net income for 1997                                                             4,332       4,332
Cash dividends - $.28 per share                                                (1,935)     (1,935)
Shares issued under Long-Term
     Incentive Plan, net of related
      tax benefit                               8           8         104                     112
Shares purchased and retired                  (10)        (10)       (113)                   (123)
                                           ------    --------    --------    --------    --------
BALANCE AT DECEMBER 27, 1997                6,910       6,910      21,819      81,450     110,179

Net income for 1998                                                             6,779       6,779
Cash dividends - $.28 per share                                                (1,800)     (1,800)
Shares issued under Long-Term
     Incentive Plan, net of
     related tax benefit                        8           8          52                      60
Shares purchased and retired               (1,370)     (1,370)    (15,177)                (16,547)
                                           ------    --------    --------    --------    --------
BALANCES AT DECEMBER 26, 1998               5,548       5,548       6,694      86,429      98,671

Net income for 1999                                                             6,276       6,276
Cash dividends - $.28 per share                                                (1,470)     (1,470)
Shares issued under Long-Term
     Incentive Plan, net of
     related tax benefit                       22          22         317                     339
Shares purchased and retired                 (539)       (539)     (6,338)                 (6,877)
                                           ------    --------    --------    --------    --------
BALANCES AT DECEMBER 25, 1999               5,031    $  5,031    $    673    $ 91,235    $ 96,939
                                           ======    ========    ========    ========    ========
<FN>
The accompanying notes are an integral part of these consolidated financial
statements.
</TABLE>


                                     12




<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS

                                                                   FOR THE YEAR ENDED
                                                         ---------------------------  ------------
(In thousands)                                           December 25,   December 26,  December 27,
                                                             1999          1998           1997
                                                         ------------   ------------  ------------
<S>                                                        <C>           <C>           <C>
Operating Activities
  Net income                                               $  6,276      $  6,779      $  4,332
     Adjustments to reconcile net income to net
       cash provided by operating activities
           Depreciation                                       7,030         8,236         9,616
           Amortization                                         280           131          --
           Provision for losses on receivables                1,438           996         1,502
           Provision for obsolete inventory                    --           1,900          --
           Effect of LIFO                                       809        (1,286)       (1,281)
           Deferred income taxes (benefit)                     (295)           70          (633)
           (Gain) loss on sale of properties                 (3,502)       (2,881)           61
           Store closing costs related to properties           --             195         1,699
           Common stock based compensation                      339            60           112
           Changes in assets and liabilities net of
              effects in 1999 from sale of stores to
              Stock Lumber and in 1998 from
              purchase of CML
               Trade receivables                                912        (5,528)        1,156
               Builder Finance Program receivables           (2,174)       (2,974)         (322)
               Other assets                                   1,758        (3,127)          (43)
               Inventories                                      192         6,628         6,825
               Accounts payable and accrued expenses         (9,065)        4,965        (3,925)
                                                           --------      --------      --------
Net Cash Provided By Operating Activities                     3,998        14,164        19,099

Investing Activities
  Additions to properties                                    (8,605)       (5,384)       (3,680)
  Payment for purchase of CML, net of cash acquired            --         (17,912)         --
  Proceeds from sale of stores to Stock Lumber                9,956          --            --
  Proceeds from the sale of properties                        9,117         6,347           477
                                                           --------      --------      --------
Net Cash Provided By (Used In) Investing Activities          10,468       (16,949)       (3,203)

Financing Activities
  Net credit lines (repayments) borrowings                   (2,000)        2,000          --
  Payments on  long-term debt                                (4,068)       (3,035)       (3,990)
  Dividends paid                                             (1,470)       (1,800)       (1,935)
  Purchases of common stock                                  (6,877)      (16,547)         (123)
                                                           --------      --------      --------
Net Cash Used In Financing Activities                       (14,415)      (19,382)       (6,048)
                                                           --------      --------      --------
Increase (Decrease) In Cash and Cash Equivalents                 51       (22,167)        9,848
                                                           --------      --------      --------
Cash and cash equivalents at beginning of year                3,166        25,333        15,485
                                                           --------      --------      --------
Cash and Cash Equivalents at End of Year                   $  3,217      $  3,166      $ 25,333
                                                           ========      ========      ========
Supplemental disclosure of cash flows information:
      Interest paid                                        $  1,544      $  2,117      $  2,029
                                                           ========      ========      ========
      Income taxes  paid                                   $  4,206      $  5,670      $  4,497
                                                           ========      ========      ========

<FN>
The accompanying notes are an integral part of these consolidated financial
statements.
</TABLE>




                                     13



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE A--NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING PRACTICES

Organization. Wolohan Lumber Co.("WLC"), together with its wholly owned
subsidiaries Wolohan Lumber Co., LLC and Wolohan Lumber Co. of Michigan, LLC,
collectively the "Company", is engaged in the retail sale of a full line of
lumber and building materials and related merchandise through a chain of 48,
(55 in 1998 and 1999) building supply stores operated in Illinois, Indiana,
Kentucky, Michigan and Ohio. The stores operate primarily under the names
Wolohan Lumber or CML.

         The Company sells to contractor builders and remodelers and to the
"do-it-yourself" market consisting principally of homeowners. The volume of
residential construction can be volatile and is highly dependent on general
economic conditions. A significant decrease in residential construction could
have an adverse effect on the Company's operating results.

Principles of Consolidation. The consolidated financial statements of the
Company include the accounts of WLC and its subsidiaries after elimination of
significant intercompany accounts and transactions.

Use of Estimates. The preparation of consolidated financial statements in
conformity with generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at the
date of the consolidated financial statements and the reported amounts of
income and expenses during the reporting period. Significant estimates
include but are not limited to allowances for bad debts, self-insured medical
and workers' compensation accruals, carrying values and recovery period of
goodwill and fair value less cost to sell of assets held for sale. Actual
results could differ from those estimates.

Concentrations of Credit Risk. Financial instruments that potentially subject
the Company to significant concentrations of credit and other financial risk
consist principally of cash investments, trade accounts receivable and
Builder Finance Program receivables.

           The Company maintains cash and cash equivalents including bank
money market funds and short-term tax exempt securities. Bank money market
funds are on deposit with financial institutions located primarily in
Michigan, and Company policy is designed to limit exposure to any one
institution.

         The Company has deposits with financial institutions which exceed
federally insured limits. The Company performs periodic evaluations of the
relative credit standing of those financial institutions that are considered
in the Company's investment strategy. In management's opinion, the Company is
not subject to undue interest rate or financial risk as a result of these
concentrations.

         The Company grants credit in the normal course of business related
to product sales and the financing of construction projects through the
Builder Finance Program. Concentrations of credit risk with respect to
accounts receivable from product sales and the Builder Finance Program are
limited because of the large number of businesses and individual customers
comprising the Company's customer base. The Company's receivables are
primarily from customers in the residential construction industry. Generally,
no collateral is required for trade receivables but security, in the form of
a first mortgage, is obtained for all Builder Finance Program receivables.

Cash and Cash Equivalents. The Company considers all highly liquid
investments with a maturity of three months or less when purchased to be cash
equivalents. Cash equivalents consist principally of money market funds and
short-term tax-exempt securities.

Inventories. Inventories are stated at the lower of cost, determined by the
last-in, first-out method ("LIFO"), or market. Current cost exceeded the LIFO
value of inventories by approximately $12,944,000 at December 25, 1999 and
$12,135,000 at December 26, 1998. The increase in the LIFO


                                     14



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE A--NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING PRACTICES (continued)


reserve in 1999 resulted in an $809,000 charge to cost of sales. In 1998 and
1997, the liquidation of certain LIFO layers decreased cost of sales by
$1,286,000 and $1,281,000, respectively.

Properties. Properties are stated at cost. Depreciation is provided on the
straight-line basis over the estimated useful life of the property.
Management reviews these assets quarterly to determine whether carrying
values have been impaired.

Start-Up Expenses. Expenses associated with the opening of new stores are
charged against income as incurred.

Advertising Expenses. The cost of advertising is expensed as incurred. The
Company incurred $3,637,000, $4,214,000 and $4,428,000 in advertising costs
during 1999, 1998 and 1997, respectively.

Cash-Based Employee Benefit Plans. The Company has a 401(k) retirement
savings and profit sharing plan under which eligible employees may contribute
up to 15% of their wages. The Company matches the employees' contribution up
to one-third of the first 6% of wages. In addition, eligible employees
receive a Company contribution equal to 3% of wages. Prior to 1999, the
Company contributed up to a maximum of $500 per year for the matching portion
and made a profit-sharing contribution to the plan annually based on a
percentage of the Company's pre-tax profit. Consolidated profit-sharing
contributions approximated $730,000, $634,000 and $722,000 for 1999, 1998 and
1997, respectively, and consolidated contributions to the 401(k) plans were
approximately $468,000, $469,000 and $486,000 for 1999, 1998 and 1997,
respectively.

Earnings Per Share. Earnings-per-share information is based on the weighted
average number of shares outstanding for the year. The effect of the assumed
issuance of the performance-based incentive share awards and the assumed
exercise of outstanding stock options is presented in the following table.
This table presents a reconciliation of the denominator used in the
calculation of basic net income per share and net income per share assuming
dilution:

                                                FOR THE YEAR ENDED
                                   ----------------------------------------
(in thousands)                     December 25,  December 26,  December 27,
                                       1999        1998            1997
                                   ------------  ------------  ------------
Weighted average number of common
   shares outstanding used for
    basic calculation                   5,271        6,474          6,912

Dilutive effect of assumed
    exercise of common stock
    options                                98          104           108
                                        -----        -----          -----
Number of shares outstanding
  assuming dilution                     5,369        6,578          7,020
                                        =====        =====          =====

Reclassifications. Certain amounts as originally reported in the 1998 and
1997 financial statements have been reclassified to conform to their 1999
presentation.


                                     15


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE B--ACQUISITION OF CENTRAL MICHIGAN LUMBER

           The Company acquired CML effective June 29, 1998 in a transaction
accounted for as a purchase. CML had eight locations throughout mid-Michigan
and operated as a wholly owned subsidiary of WLC until November 1999 when it
became a division of WLC. The purchase price of $17,933,000 was paid in cash
and allocated to the assets acquired and liabilities assumed based on their
fair values (see table at right).

(in thousands)

Total assets                  $ 21,469
Total liabilities               (7,631)
Intangible assets                4,095
                              --------
Total purchase price            17,933
Less cash received                 (21)
                              --------
Net cash paid                 $ 17,912
                              ========

           The intangible assets which consist of goodwill, customer lists
and the trained employee work force are being amortized on a straight-line
basis over their expected lives, which is 5 to 15 years. Results of
operations are included in the consolidated financial statements since the
date of acquisition.


NOTE C--VALUATION ACCOUNTS

           The following table presents a summary of the changes in the
allowances for doubtful receivables for each of the years in the three-year
period ended December 25, 1999:

(in thousands)                         1999       1998       1997
                                       ----       ----       ----
Balance at beginning of year         $ 2,197    $ 1,933    $ 1,250

Provisions for doubtful accounts       1,438        996      1,502

Amounts charged off                   (1,069)      (732)      (819)
                                     -------    -------    -------
Balance at end of year               $ 2,566    $ 2,197    $ 1,933
                                     =======    =======    =======

           During 1998, the Company recorded a valuation allowance for
obsolete inventory in the amount of approximately $1,900,000. No significant
changes were made to this allowance during 1999.

NOTE D-- SHAREOWNERS' EQUITY AND RELATED MATTERS

           The Company's Long-Term Incentive Plan was established to enable
key employees to participate in the future growth and profitability of the
Company by offering them long-term performance-based incentive compensation
through issuance of stock options and performance share awards, which are
vested based on achievement of performance goals. Performance shares awarded
are earned and vested at the rate of 20% per year and become issuable 10
years after date of award. During 1999, 17,000 performance shares (19,500
shares in 1998 and 18,500 in 1997) were awarded at average weighted fair
values of $13.00 per share for 1999 and 1998 and $13.13 per share for 1997.
At December 25, 1999, there were 100,200 performance shares awarded but
unissued.

           The Company also has a stock option plan for non-employee
directors in addition to the Long-Term Incentive Plan for key employees. The
following table summarizes information about stock-option transactions:


                                     16



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE D-- SHAREOWNERS' EQUITY AND RELATED MATTERS (continued)

                                                             WEIGHTED AVERAGE
                                    NUMBER    EXERCISE PRICE  EXERCISE PRICE
                                   OF SHARES     PER SHARE       PER SHARE
                                   ---------  --------------  --------------
Outstanding at December 28, 1996    122,600    $9.25 - 14.50      $12.28
                                    -------    -------------      ------
Granted                              16,800    12.00 - 13.38       12.52
Exercised                              (200)            9.25        9.25
Forfeited                           (21,700)    9.25 - 14.50       12.73
                                    -------    -------------      ------
Outstanding at December 27, 1997    117,500     9.25 - 14.50       12.24
                                    -------    -------------      ------
Granted                             196,400    11.13 - 13.25       13.09
Exercised                            (1,000)            9.31        9.31
Forfeited                           (18,800)    9.25 - 14.50       12.80
                                    -------    -------------      ------
Outstanding at December 26, 1998    294,100     9.25 - 14.50       12.78
                                    -------    -------------      ------
Granted                              36,300    11.88 - 12.25       12.11
Exercised                            (1,000)            9.31        9.31
Forfeited                           (17,300)    9.25 - 14.50       12.26
                                    -------    -------------      ------
Outstanding at December 25, 1999    312,100     9.25 - 14.50       12.75
                                    =======    =============      ======

           The number of shares exercisable were 282,100, 134,100, and
117,500 as of the year-ends 1999, 1998 and 1997, respectively. The fair value
of options granted was $4.20 and $4.68 per share in 1999 and 1998,
respectively. Options outstanding at December 25, 1999 are composed of the
following:

                               OUTSTANDING                   EXERCISABLE
                 ------------------------------------   ----------------------
                                WEIGHTED
                  NUMBER OF      AVERAGE     WEIGHTED    NUMBER OF    WEIGHTED
                  SHARES AT     REMAINING    AVERAGE     SHARES AT    AVERAGE
    RANGE OF     DECEMBER 25,  CONTRACTUAL   EXERCISE   DECEMBER 25,  EXERCISE
EXERCISE PRICES      1999         LIFE        PRICE        1999        PRICE
---------------  -----------   -----------   --------   -----------   --------
 $ 9.25 - 11.13     33,100        5.95       $ 9.31        33,100      $ 9.31
  12.00 - 13.06     63,800        9.00        12.34        33,800       12.34
  13.13 - 14.00    170,200        8.30        13.13       170,200       13.13
  14.38 - 15.50     45,000        4.35        14.38        45,000       14.38
 --------------    -------        ----       ------       -------      ------
 $ 9.25 - 14.50    312,100        7.62       $12.74       282,100      $12.74
 ==============    =======        ====       ======       =======      ======

           All options expire 10 years after the date of grant. There are
120,000 shares reserved for future issuance under the Long-Term Incentive
Plan and 32,000 shares reserved for future issuance under the stock option
plan for non-employee directors.

           Holders of common shares received a distribution of one right for
each common share held on February 15, 1990. The rights become exercisable
ten days after a person or group acquires or commences a tender or exchange
offer that could result in the acquisition of 25% of the Company's common
shares (except pursuant to an offer for all shares determined by the
non-officer Directors to be fair and in the best interest of the Company and
its shareowners). The rights also become exercisable 10 days after an
acquisition of 10% of the Company's common shares or more by a person or
group deemed by the Board of Directors to have interests adverse to those of
the


                                     17


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE D-- SHAREOWNERS' EQUITY AND RELATED MATTERS (continued)


Company and its shareowners. Each right would, subject to certain adjustments
and alternatives, entitle the rightholder to purchase common shares of the
Company having a market value of $180 at a price equal to 50% of the fair
market value of the shares. The rights are nonvoting, may generally be
redeemed by the Company at a price of 1 cent per right and expire on February
15, 2000. The Company has reserved for issuance 6.6 million common shares for
this stock rights plan.

           The Company has elected to continue to apply the provisions of
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees", and, accordingly, stock options do not constitute compensation
expense in the determination of net income. Had stock option compensation
expense been determined pursuant to the methodology provided in Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation", the pro forma effect on results of operations would have been
a decrease in net income of $91,000, or 2 cents per common share in 1999, a
reduction of 2 cents per share in 1998 and a reduction of less than 1 cent
per share in 1997.

NOTE E DEBT-- AND LEASE TRANSACTIONS

           The Company has available, under lines of credit arrangements with
several banks, $50 million in unsecured short-term borrowings. The interest
rate applicable when using these lines is dependent upon a variety of
formulae which utilize different money rate pricing indexes. In no case does
the interest rate exceed the Prime Rate and there are no commitment fees. The
terms of these credit arrangements are reviewed annually.

           There were no borrowings outstanding under these arrangements at
year-end 1999 ($2 million was outstanding at year-end 1998). The Company also
has unused letters of credit in the amount of $5.3 million related to
liability coverage and bonds payable.

Long-term debt consisted of the following obligations

(in thousands)                                      DECEMBER 25,  DECEMBER 26,
                                                        1999          1998
                                                    ------------  ------------
Unsecured notes to insurance company, due in
   annual installments ranging from $2,050 to
   $4,060 with the final payment in 2002.
   Interest is payable quarterly at 8.65%             $ 8,570      $10,000

Unsecured notes to insurance company, due in
   annual installments of $2,000 in 2001 and 2002
   Interest is payable semi-annually at 8.99%           4,000        6,000

Michigan Strategic Fund limited obligation revenue
   bonds, payable in 2001. Interest varies weekly
   at prevailing market rates for similar tax
   exempt securities (average of 3.50% for 1999)
   and is paid quarterly                                3,300        3,300

Other                                                     912        1,550
                                                      -------      -------
Total long-term debt                                   16,782       20,850
Less amount due in one year                             4,189        3,759
                                                      -------      -------
Total long-term debt net of current maturities        $12,593      $17,091
                                                      =======      =======

           Properties at December 25, 1999 with a net carrying value of
approximately $3,525,000 are pledged as collateral for the revenue bonds.

           Maturities of long-term debt for each of the four years following
2000 approximate: $7,482,000 in 2001; $4,595,000 in 2002; $139,000 in 2003
and $143,000 in 2004.

           The Company leases certain facilities under


                                     18



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE E DEBT-- AND LEASE TRANSACTIONS (continued)

various operating leases. Lease expense for such facilities totaled
approximately $362,000 in 1999, $373,000 in 1998 and $522,000 in 1997. Future
minimum lease payments for each of the next five years approximate $304,000
and aggregate $1,987,000 thereafter.

NOTE F--INCOME TAXES

           Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax purposes.
Significant components of the Company's deferred tax assets are: basis
differences in properties, compensation and employee benefits, allowances for
doubtful receivables, basis differences in inventories and store closing
costs.

The provision for income taxes consist of:

                                                   FOR THE YEAR ENDED
                                      ----------------------------------------
(in thousands)                        December 25,  December 26,  December 27,
                                          1999        1998            1997
                                      ------------  ------------  ------------
Current
   Federal                                $ 3,517      $3,273     $ 2,364
   State                                      879       1,064       1,184
Deferred Federal and State (credit)          (295)         70        (633)
                                          -------      ------     -------
Total provision for income taxes          $ 4,101      $4,407     $ 2,915
                                          =======      ======     =======

           A reconciliation of the income tax provisions and the amount
computed by applying the statutory federal income tax rate of 34% to income
before income taxes, is as follows:

                                                   FOR THE YEAR ENDED
                                      ----------------------------------------
(in thousands)                        December 25,  December 26,  December 27,
                                          1999        1998            1997
                                      ------------  ------------  ------------

Computed amount                           $3,528     $ 3,803      $ 2,464
State income taxes, net of federal
   income tax benefit                        556         708          725
Tax exempt investment income                --          (116)        (111)
Other                                         17          12         (163)
                                          ------     -------      -------
Total provision for income taxes          $4,101     $ 4,407      $ 2,915
                                          ======     =======      =======

NOTE G -- CLOSINGS AND SALES OF STORES

           On February 1, 1999 the Company sold inventory, trade receivables
and equipment related to six of its stores to Stock Lumber Co. The selling
price, which approximated net book value was approximately $10 million.

           Also during 1999, the Company closed one store which did not meet
the Company's strategic and financial expectations. Costs from store closings
approximated $1.5 million including $200,000 recorded as a charge to cost of
sales. The closing costs were primarily related to liquidating inventory and
absorbing certain other ongoing fixed costs.

           Seven stores were closed in 1998 and six stores were closed in
1997. Closing costs totaled $3.5 million in 1998 including $1.5 million
recorded as a charge to cost of sales, and $3.8 million in 1997. Real estate
owned related to closed stores is held for sale and included with other
assets on the accompanying consolidated balance sheets.


                                     19


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE H--FAIR VALUE OF FINANCIAL INSTRUMENTS

           The following methods and assumptions were used by the Company in
estimating fair value disclosures for financial instruments.

Cash and Cash Equivalents. The carrying amounts reported in the consolidated
balance sheets for cash and cash equivalents approximate their fair values.

Accounts Receivable and Accounts Payable. The carrying amounts reported in
the consolidated balance sheets for accounts receivable and accounts payable
approximate their fair values.

Long-Term Debt. The fair value of the Company's long-term debt is estimated
using discounted cash-flow analyses, based on the Company's current borrowing
rates for similar types of borrowing arrangements. The carrying amounts and
fair values of the Company's financial instruments are as follows:

                                         DECEMBER 25,         DECEMBER 26,
(in thousands)                              1999                 1998
                                      ----------------     ----------------
                                      CARRYING   FAIR      CARRYING   FAIR
                                       AMOUNT    VALUE      AMOUNT    VALUE
                                      --------   -----     --------   -----
Cash and cash equivalents             $ 2,934   $ 2,934    $ 3,166   $ 3,166

Trade receivables                      33,491    33,491     41,687    41,687

Builder Finance Program receivables     5,470     5,470      3,296     3,296

Accounts payable                       12,184    12,184     20,123    20,123

Short-term debt                          --        --        2,000     2,000

Long-term debt including current
  portion                              16,782    18,246     20,850    21,684
                                      =======   =======    =======   =======


NOTE I--CONTINGENCIES

           Various lawsuits arising during the normal course of business are
pending against the Company. In the opinion of management based upon
discussion with legal counsel the ultimate liability, if any, resulting from
these matters will have no significant effect on the Company's consolidated
results of operations, liquidity or financial position.


                                     20


Corporate Information

Annual Meeting

     The Annual Meeting of shareowners of Wolohan Lumber Co. will be held
May 4, 2000, 2 p.m. at the Citizens Bank Building, 101 N. Washington Avenue,
Saginaw, Mich. You are cordially invited.


Form 10-K

     Shareowners may obtain a copy of the Form 10-K annual report filed
with the Securities and Exchange Commission (SEC) free of charge by
writing to the Company's Investor Relations Dept., Wolohan Lumber Co.,
P.O. Box 3235, Saginaw, MI 48605.


Headquarters

Wolohan Lumber Co. Administrative Offices
1740 Midland Road
P.O. Box 3235
Saginaw, MI 48605
(517) 793-4532


Common Stock

Wolohan's common stock trades on The Nasdaq Stock Market(tm) under the symbol
WLHN.


Transfer Agent

Registrar and Transfer Company
10 Commerce Drive
Cranford, NJ 07016-3572
(800) 378-5948


General Counsel

Dickinson Wright PLLC
500 Woodward Avenue, Suite 4000
Detroit, MI 48226


Independent Auditors

Rehmann Robson, P.C.
5800 Gratiot
Saginaw, MI 48603


Board of Directors

James L. Wolohan
Chairman of the Board,
President and Chief Executive Officer;
Director since 1986

Hugo E. Braun, Jr.
Partner, Braun Kendrick Finkbeiner,
Attorneys-at-Law;
Director since 1984

Leo B. Corwin
President, Txcor, Inc.;
Director since 1992

Charles R. Weeks
Chairman and formerly Chief
Executive Officer of Citizens
Banking Corp.;
Director since 1996

Lee A. Shobe
formerly President and Chief
Executive Officer of Dow
Brands, Inc.;
Director since 1996

John A. Sieggreen
Executive Vice President and
Chief Operating Officer;
Director since 1999


Committees

Management Review Committee

Lee A. Shobe, Chairman
Hugo E. Braun, Jr.
Leo B. Corwin
Charles R. Weeks

Compensation Committee

Charles R. Weeks, Chairman
Hugo E. Braun, Jr.

Audit Committee

Hugo E. Braun, Jr., Chairman
Leo B. Corwin
Lee A. Shobe
Charles R. Weeks


Officers

James L. Wolohan
Chairman of the Board, President and Chief Executive Officer

John A. Sieggreen
Executive Vice President and Chief Executive Officer

David G. Honaman
Senior Vice President-Secretary, Chief Financial Officer
and President of the Wolohan Division

Daniel P. Rogers
Senior Vice President-General Merchandise Manager and
President of the CML Division

Curtis J. LeMaster
Senior Vice President-Chief Information Officer

Edward J. Dean
Corporate Controller

James R. Krapohl
Treasurer and
Assistant Secretary





[ LOGO ]

Wolohan Lumber Co. - 1740 Midland Road - P.O. Box 3235 -
          Saginaw, MI 48605 - (517) 793-4532
             Web Address: www.wolohan.com