10QSB 1 0001.txt US SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 10-QSB (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED DECEMBER 25, 2000. [ ] 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 0-18353 THE COEUR D ALENES COMPANY (Exact name of registrant as specified in its charter) Idaho 82-0109390 (State or other jurisdiction of (IRS Employer Identification No.) incorporation or organization) PO BOX 2610, Spokane, Washington 99220-2610 (Address of principal executive offices) (Zip Code) (509) 924-6363 (Registrant's telephone number, including area code) Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 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 Applicable only to issuers involved in bankruptcy proceedings during the preceding five years. Check whether the registrant filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of securities under a plan confirmed by a court. Yes___No___ Applicable only to corporate issuers State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date. 5,342,164 shares of common stock, no par value, were outstanding as of February 3, 2001 PART I. FINANCIAL INFORMATION. Item 1. Financial Statements. The accompanying condensed consolidated financial statements of The Coeur d Alenes Company ( "Company") should be read in conjunction with the audited consolidated financial statements and related notes included in the Corporation's Annual Report on Form 10-KSB for the year ended September 30, 2000. The comparative consolidated balance sheet and related disclosures at September 30, 2000 have been derived from the audited consolidated balance sheet and financial statement footnotes. The accompanying condensed consolidated financial statements reflect all adjustments that in the opinion of management are necessary for a fair presentation of the financial position, results of operations and cash flows for the interim periods presented. The results of operations for the three month period ended December 25, 2000 are not necessarily indicative of the operating results to be expected for the full year. The preparation of the Company's consolidated financial statements in conformity with generally accepted accounting principles necessarily requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the balance sheet dates and reported amounts of revenue and cost during the reporting periods. Actual results could differ from those estimates. On an ongoing basis, management reviews its estimates based on information that is currently available. Changes in facts and circumstances may result in revised estimates. Condensed Consolidated Financial Statements Consolidated Balance Sheets at December 25, 2000 (unaudited) and September 30, 2000 (audited) Unaudited Consolidated Income Statements for the Three Months Ended December 25, 2000 and December 25, 1999 Unaudited Consolidated Statements of Cash Flows for the Three Months Ended December 25, 2000 and December 25, 1999 Condensed Notes to Unaudited Consolidated Financial Statements THE COEUR D ALENES COMPANY CONSOLIDATED BALANCE SHEET December 25, 2000 and September 30, 2000 December 25, 2000 September 30, 2000 ASSETS (Unaudited) (Audited) Current assets: Cash and cash equivalents $ 3,684 $ 115,532 Accounts and notes receivable 1,203,439 1,226,837 Inventories 2,495,912 2,680,550 Other current assets 118,879 65,000 Total current assets 3,821,914 4,087,919 Property and equipment 5,666,312 5,630,525 Less accumulated depreciation 1,974,931 1,908,938 Net property and equipment 3,691,381 3,721,587 Other assets 41,903 82,223 Total assets $7,555,198 $7,891,729 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Short term bank borrowings $ 743,382 $ 618,890 Accounts payable 522,570 865,536 Accrued expenses 275,452 328,119 Current maturities on long-term debt 228,134 210,733 Total current liabilities 1,769,538 2,023,278 Long-term debt: Deferred tax liability 184,000 184,000 Long term-debt, less current maturities 2,408,583 2,437,293 Total long term liabilities 2,592,583 2,621,293 Total liabilities 4,362,121 4,644,571 Stockholders' equity: Common Stock 1,186,192 1,186,192 Retained earnings 2,017,695 2,071,776 3,203,887 3,257,968 Less treasury stock at cost 10,810 10,810 Total stockholders' equity 3,193,077 3,247,158 Total liabilities and stockholder's equity $7,555,198 $7,891,729 THE COEUR D ALENES COMPANY UNAUDITED CONSOLIDATED INCOME STATEMENT Three Months Ended December 25, 2000 and December 25, 1999 2000 1999 Net sales $3,208,755 2,899,112 Costs of sales 2,443,090 2,145,119 Gross profit 765,665 753,993 Selling, general and administrative expenses 794,570 775,786 Operating income (loss) (28,905) (21,793) Other income (expense) Interest income 9,651 8,360 Interest expense (66,798) (65,050) Other income 208 625 Net other expense (56,939) (56,065) Loss before income tax expense (85,844) (77,858) Income tax benefit (31,762) (28,808) Net loss $ (54,082) $ (49,050) Loss per share (basic and diluted) ( 0.01) $ ( 0.01) Weighted average shares outstanding 5,342,164 5,344,628 THE COEUR D ALENES COMPANY UNAUDITED CONSOLIDATED STATEMENT OF CASH FLOWS Three Months Ended December 25, 2000 and December 25, 1999 Increase (Decrease) in Cash and Cash Equivalents 2000 1999 Cash flows from operating activities: Net loss $(54,082) $(49,050) Adjustments to reconcile net income to cash (used in) provided by operating activities: Depreciation 68,790 55,440 Changes in assets and liabilities Accounts and notes receivable 23,398 26,655 Inventories 184,638 197,596 Other current assets ( 53,879) ( 10,021) Other assets 40,320 20,720 Accounts payable (342,966) 18,843 Accrued expenses ( 52,667) ( 60,407) Net Cash (used in) provided by operating activities (186,448) (199,776) Cash flows from investing activities: Additions to property and equipment ( 38,584) ( 47,312) Net cash flows used in investing activities ( 38,584) ( 47,312) Cash flows from financing activities: Purchase of treasury stock ( 620) Net borrowing (payments) under line of credit 124,492 4,683 Borrowings of long-term debt 27,274 Principal repayment of long-term debt (38,582) (167,815) Cash provided (used) by financing activities 113,184 (163,752) Net decrease in cash and cash equivalents (111,848) 11,288) Cash and cash equivalents, beginning of period 115,532 32,422 Cash and cash equivalents, end of period $ 3,684 $21,134 THE COEUR D ALENES COMPANY CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (1) Summary of Significant Accounting Policies. Significant accounting policies followed for the three months ended December 25, 2000 are the same as those contained in the Summary of Significant Accounting Policies from the Company's audited financial statements as of September 30, 2000 and September 25, 1999. (2) Inventories. Inventories are summarized as follows: Unaudited Audited December 25, September 30, 2000 2000 Fabrication inventories: Raw materials $ 21,921 $ 26,574 Work-in-progress 555,788 579,622 Inventories at FIFO cost 577,709 606,196 LIFO reserve <29,155> <29,155> Inventories at LIFO cost 548,554 577,041 Distribution inventories at FIFO 1,947,358 2,103,509 Total inventories $2,495,912 $2,680,550 (3) Short-term bank borrowings. The Company has $1,900,000 in bank credit lines which will mature on February 16, 2001. Interest is charged at the lenders' prime rate (9-1/2% as of December 25, 2000). Outstanding borrowings are collateralized by accounts receivable and inventories. The credit line agreement contains covenants under which the Company may not pay dividends in excess of 10% of annual net (after tax) profit, or enter into mergers, acquisitions or any major sales of assets or corporate reorganizations without prior consent of the bank. The Company is also required to maintain certain financial ratios concerning working capital and debt to equity, as well as a minimum net worth of $2,200,000. The Company was in compliance with all of these covenants as of their most recent respective measurement date. (4) Capital Stock. The Company conducted a tender offer to shareholders with holdings of one hundred or fewer shares beginning in January 1999 and which has been extended through February 28, 2001. The offer resulted in 3,255 shares being repurchased as treasury stock during the fiscal year ended September 30, 2000 with a total cost to the Company of $1,750. The purpose of the tender offer is to buy out odd lot holders of stock with diminimus value which cost the Company more to service than the value of the stock held by the shareholder. (5) Federal Income Tax Expense As of December 25, 2000 and September 30, 2000, the Company has a deferred long term tax liability of $184,000 resulting primarily from the use of accelerated methods of depreciation of fixed assets and a deferred tax asset of $65,000 resulting from vacation accrual and bad debt allowance. A valuation allowance on the Company's deferred tax assets has been established to the extent the Company believes it is more likely than not that the deferred tax assets will not be realized. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. THE FOLLOWING DISCUSSION OF THE FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS OF THE COMPANY SHOULD BE READ IN CONJUNCTION WITH THE COMPANY'S FINANCIAL STATEMENTS AND NOTES THERETO INCLUDED ELSEWHERE IN THIS REPORT. This report contains forward-looking statements regarding, among other items, anticipated trends in the Company's business. These forward-looking statements are based largely on the Company's expectations and are subject to a number of risks and uncertainties, certain of which are beyond the Company's control. Actual results could differ materially from these forward-looking statements as a result of the factors described elsewhere herein. In light of these risks and uncertainties, there can be no assurance that the forward- looking information contained in this report will in fact transpire or prove to be accurate. LIQUIDITY AND CAPITAL RESOURCES The Company anticipates that it will continue operating the steel distribution business much as it has for the past year during the twelve month period beginning December 26, 2000. In October 1999, the Company signed a two year lease on a small warehouse facility in Wenatchee, WA. The Company conducts a business similar to the retail steel business in Spokane on a smaller scale. The operation has been open since November 1999. Required inventories are expected to be in the $50,000 to $75,000 range during the next twelve month period. The replacement cost of metal inventories is once again on the decline. In the wake of the current energy crisis and higher interest rates, demand for the Company's products has declined within its' market area. As a result, inventories are likely to be smaller both in dollars and in tons over the next few months. The demand for fabricated metal products has remained strong over the last year and is expected to continue at approximately the same level over the next two to three months. Over the longer term, if the local economy remains sluggish, the fabrication business is also likely to decline. The Company currently has no plans for any major capital asset additions or replacements for the remainder of the fiscal year. Therefore, it is unlikely the Company will need to acquire any new long-term debt. During the first three months of the current fiscal year, cash flows of $186,000 were used by operations, compared to cash flows of $200,000 provided by operations during the same three month period of the prior fiscal year. Cash flows from operations during the current fiscal year were impacted primarily by an operating loss of $54,000 adjusted by depreciation of $69,000, a decrease in inventories of $185,000 and a decrease in accounts payable of $343,000. Cash flows provided by operations for the same period of the prior fiscal year primarily consisted of a net loss of $49,000, adjusted by depreciation of $55,000, a decrease of $198,000 in inventories and an increase of $60,000 in accrued expenses. Cash flows used in investing activities for the first three months of the current and prior fiscal years of $39,000 and $47,000 respectively were used to finance the purchase of new equipment. Cash flows provided by financing activities for the current fiscal year consisted of borrowings of $124,000 under the operating line of credit and $27,000 in new long-term borrowings, offset by $39,000 payments on existing long-term debt. During the first three months of the prior fiscal year, cash flows used by financing activities of $164,000 were primarily used to make principal payments on long-term debt. The resulting decrease in cash of $112,000 during the first three months of the current fiscal year compares to an $11,000 decrease in cash for the same period of the prior fiscal year. During the first three months of the current fiscal year, the Company's working capital decreased by 1% from approximately $2,065,000 at the end of the prior fiscal year to approximately $2,052,000 as of December 25, 2000. The Company continues to be dependent on an operating line of credit to meet its daily financial obligations. The operating line of credit of $1,900,000 which is currently in place through February 16, 2001 is considered by management to be adequate. Management expects to be able to renew the line of credit for another year with substantially the same terms and conditions that are currently in place. Results of Operations Three Months Ended December 25, 2000 compared to Three Months Ended December 25, 1999. Sales of approximately $3,209,000 for the three month period ended December 25, 2000 are 10% higher than approximately $2,899,000 for the same period of the prior fiscal year. Gross profits, however, increased by only 2% from approximately $754,000 during the first quarter of the prior fiscal year to approximately $766,000 for the first three months of the current fiscal year. The steel service center sales of approximately $2,382,000 represented 74% of the total Company's sales for the first three months of the current fiscal year, compared to sales of approximately $2,425,000 which represented 87% of the consolidated Company's sales for the same three month period of the prior fiscal year, a 2% decline. The steel service center's gross profits for the first quarter of the current and prior fiscal years of $523,000 and $590,000 respectively declined by 11%. The declines are due to a sluggish local economy resulting in diminished demand. The fabrication business, contributing 26% and 13% of the total sales for the first quarter of fiscal 2001 and 2000 respectively, experienced a 74% increase to a sales volume of approximately $827,000 from approximately $474,000. The same comparison on gross profits shows an improvement of 46% from approximately $152,000 to $222,000. Second quarter fabrication sales are again expected to be strong. However, bidding activity has definitely slowed down and is expected to have an affect on sales. Selling, general and administrative expenses at approximately $795,000 for the quarter ended December 25, 2000 are roughly $17,000 higher than approximately $776,000 for the same period of the prior fiscal year. The change is primarily the result of increased fixed costs associated with new equipment purchases during the prior year. Interest expense at approximately $67,000 for the three month period ended December 25, 2000 is 3% higher than approximately $65,000 for the three month period ended December 25, 1999. The slight increase is the result of increased levels of borrowing to support equipment purchases. Higher sales volume was offset by gross margin that were lower by 2 percentage points. This in combination with higher operating costs resulted in a net loss after tax for the first quarter of the current year of $54,000 compared to a net loss after tax of $49,000 for the same period last year. PART II. OTHER INFORMATION. Item 1. Legal Proceedings. None. Item 2. Changes in Securities. The Company is continuing to conduct a tender offer on odd lot shares under an extention that will expire on February 28, 2001. As a result of the offer, the Company purchased 3,255 shares at a total cost of $1,750 during the fiscal year ended September 30, 2000. Item 3. Defaults Upon Senior Securities. None. Item 4. Submission of Matters to a Vote of Security Holders. None. Item 5. Other Information. None. Item 6. Exhibits and Reports on Form 8-K (249.308). (a) Exhibits. None. (b) Reports on Form 8-K. None. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. THE COEUR D ALENES COMPANY (Registrant) Dated: February 2, 2001 /s/ Marilyn A. Schroeder Marilyn A. Schroeder, Treasurer and Chief Financial Officer (Authorized Officer and Principal Accounting and Financial Officer SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Dated: February 2, 2001 11 11 1