10QSB 1 c10q301.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 10-QSB (Mark One) [X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 25, 2001. [ ] TRANSITION REPORT UNDER 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) 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. 5,340,804 shares of common stock, no par value, were outstanding as of July 25, 2001. Transitional Small Business Disclosure Format (Check One) Yes[ ] No[X] PART I. FINANCIAL INFORMATION. Item 1. Financial Statements. The accompanying condensed consolidated financial statements of The Coeur d'Alenes Company (sometimes referred to herein as the "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 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 nine month period ended June 25, 2001 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 revisions of those estimates. Condensed Consolidated Financial Statements Consolidated Balance Sheets at June 25, 2001 (unaudited) and September 30, 2000 (audited) Unaudited Consolidated Income Statements for the Nine Months Ended June 25, 2001 and June 25, 2000 Unaudited Consolidated Income Statements for the Three Months Ended June 25, 2001 and June 25, 2000 Unaudited Consolidated Statements of Cash Flows for the Nine Months Ended June 25, 2001 and June 25, 2000 Condensed Notes to Unaudited Consolidated Financial Statements THE COEUR D'ALENES COMPANY CONSOLIDATED BALANCE SHEETS June 25, 2001 and September 25, 2000 June 25, September 30 2001 2000 (Unaudited) (Audited) ASSETS Current assets: Cash and cash equivalents $ 267,328 $ 115,532 Accounts and notes receivable 922,066 1,226,837 Inventories 2,136,686 2,680,550 Other current assets 98,378 65,000 Total current assets 3,424,458 4,087,919 Property and equipment 5,702,403 5,630,525 Less accumulated depreciation 2,127,308 1,908,938 Property and equipment, net 3,575,095 3,721,587 Other assets 41,904 82,223 Total assets $7,041,457 $7,891,729 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Short term bank borrowings $ 0 $ 618,890 Accounts payable 914,535 865,536 Accrued expenses 255,327 328,119 Current maturities on long-term debt 255,947 210,733 Total current liabilities 1,425,809 2,023,278 Long-term debt: Deferred tax liability 184,000 184,000 Long-term debt less current maturities 2,283,210 2,437,293 Total long-term liabilities 2,467,210 2,621,293 Total liabilities 3,893,019 4,644,571 Stockholders' equity: Capital stock 1,186,192 1,186,192 Retained earnings 1,973,776 2,071,776 3,159,968 3,257,968 Less treasury stock at cost 11,530 10,810 Total stockholders' equity 3,148,438 3,247,158 Total liabilities and stockholders' equity $7,041,457 $7,891,729 THE COEUR DALENES COMPANY UNAUDITED CONSOLIDATED INCOME STATEMENTS Nine months Ended June 25, 2001 and June 25, 2000 2001 2000 Net sales $9,483,782 $9,093,214 Cost of sales 7,155,763 6,726,788 Gross profit on sales 2,328,019 2,366,426 Selling, general and administrative expenses 2,349,700 2,238,325 Operating income (loss) (21,681) 128,101 Other income (expense) Interest income 23,713 25,186 Interest expense ( 197,129) ( 179,699) Other income 44,576 29,199 Total other expense, net ( 128,840) ( 125,314) Income (loss) before income tax expense (benefit) ( 150,521) 2,787 Income tax expense (benefit) ( 52,521) 1,031 Net income loss $ ( 98,000) $ 1,756 Earnings (loss) per share (basic and diluted) $ ( 0.02) $ 0.00 Weighted average shares outstanding 5,341,927 5,344,497 THE COEUR D'ALENES COMPANY UNAUDITED CONSOLIDATED INCOME STATEMENTS Three Months Ended June 25, 2001 and June 25, 2000 2001 2000 Net sales $3,161,234 $3,202,189 Cost of sales 2,448,539 2,395,880 Gross profit on sales 712,695 806,309 Selling, general and administrative expenses 716,929 734,359 Operating income (loss) (4,234) 71,950 Other income (expense) Interest income 7,499 9,313 Interest expense ( 58,828) ( 62,571) Other income 44,238 27,812 Total other expense, net ( 7,091) ( 25,446) Income (loss) before income tax expense (benefit) ( 11,325) 46,504 Income tax expense (benefit) ( 1,018) 17,207 Net income (loss) $ ( 10,307) $ 29,297 Earnings (loss) per share (basic and diluted) $ ( 0.00) $ 0.00 Weighted average shares outstanding 5,341,321 5,344,233 THE COEUR D'ALENES COMPANY UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS Nine Months Ended June 25, 2001and June 25, 2000 2001 2000 Cash flows from operating activities: Net loss $( 98,000) $ 1,756 Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation 218,370 179,735 Gain on disposal of assets - (271) Changes in assets and liabilities: Accounts and notes receivable 304,771 (120,048) Inventories 543,864 (211,264) Prepaid expense and other current assets ( 33,378) ( 1,521) Other assets 40,319 23,828 Accounts payable 48,999 274,781 Accrued expenses ( 72,792) 20,035 Net cash provided by operating activities 952,153 167,031 Cash flows from investing activities: Proceeds from sale of assets - 3,200 Additions to property and equipment ( 71,878) (264,037) Cash used in investing activities ( 71,878) (260,837) Cash flows from financing activities: Net borrowings (repayment) under line of credit ( 618,890) 257,417 Borrowings of long-term debt 36,043 102,257 Principal repayment of debentures - (28,000) Principal repayment of long-term debt ( 144,912) (121,604) Treasury shares repurchased ( 720) ( 620) Net cash provided by (used in) financing activities (728,479) 109,450 Net increase in cash and cash equivalents 151,796 15,644 Cash and cash equivalents, beginning of period 115,532 32,422 Cash and cash equivalents, end of period $ 267,328 $ 48,066 THE COEUR D'ALENES COMPANY CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (1) Summary of Significant Accounting Policies. Significant accounting policies followed for the nine months ended June 25, 2001 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 as included in 10KSB filed on December 22, 2000. (2) Inventories. Inventories are summarized as follows: June 25, September 30, 2001 2000 (Unaudited) (Audited) Fabrication inventories: Raw materials $ 5,574 $ 26,574 Work-in-progress 341,893 579,622 Inventories, at FIFO cost 347,467 606,196 LIFO reserve ( 29,155) ( 29,155) Inventories, at LIFO cost 318,312 577,041 Distribution inventories, at FIFO 1,818,374 2,103,509 Total inventories 2,136,686 2,680,550 (3) Short-term bank borrowings. The Company has $1,500,000 in bank credit lines which mature on February 16, 2002. Interest is charged at the lenders' prime rate ( 7% as of June 25, 2001). Outstanding borrowings (zero at June 25, 2001) 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 each 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 which expired on May 31, 2001. The offer resulted in 1,360 shares being repurchased as treasury stock during the current fiscal year. The purpose of the tender offers was 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 June 25, 2001and September 30, 2000, the Company has a deferred long term tax liability of $184,000 (unaudited) and $184,000 (audited) respectively resulting primarily from the use of accelerated methods of depreciation of fixed assets and a deferred tax asset of $65,000 (unaudited) and $65,000 (audited) respectively 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 June 26, 2001. 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 distribution business in Spokane on a much 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 months. The Company has the option to extend the lease for an additional five year period with a 3% per year escalation in the required lease payment. The replacement cost of metal inventories continues to be historically low. The ongoing energy problems are having an adverse effect on demand within our market area. Most of the higher priced metal in our inventory has been sold and, with a few exceptions, our current values very closely parallel replacement costs. The fabrication business likely will continue to have smaller inventory requirements in the near future. Since business has slowed down in response to the aluminum industry shutdown, the fabrication inventories are down 48% since September 2000. The Company currently has no plans for any major capital asset additions or replacements for the remainder of the current fiscal year. The Company maintains an investment in Road Renovator, LLC, a limited liability corporation formed as a joint venture to manufacture and market a pot hole patching machine. The prototype has been successfully completed. The Company had an option to continue to participate in the project, but has decided against making any additional investment. During the first nine months of the current fiscal year, cash flows of $952,000 were provided by operations, compared to cash flows of $167,000 provided by operations during the same nine month period of the prior fiscal year. Cash flows from operations during the current fiscal year to date were impacted primarily by a net loss of $98,000 adjusted by depreciation of $218,000, a decrease in accounts receivable of $305,000, a decrease in inventories of $544,000, a decrease in accrued expenses of $73,000 and an increase in accounts payable of $49,000. Cash flows provided by operations for the same period of the prior fiscal year primarily consisted of a net income of $2,000, adjusted by depreciation of $180,000, an increase in accounts receivable and inventories of $120,000 and $211,000 respectively and an increase in accounts payable of $275,000. Cash flows used in investing activities for the first nine months of the current and prior fiscal years of $72,000 and $261,000 respectively were used to finance the purchase of new equipment. Cash flows used by financing activities for the current fiscal year consisted of $619,000 for repayment under the operating line of credit, $36,000 additional long-term borrowings and $145,000 principal repayments on existing long-term debt. During the first nine months of the prior fiscal year, cash flows of $109,000 provided by financing activities were primarily generated by net borrowings of $257,000 on the operating line of credit, new long term borrowings of $103,000, partially offset by required principal payments on long term debt of $122,000 and principal payments made to the holders of $128,000 in debentures. During the first nine months of the current fiscal year, the Company's working capital decreased by 3% from approximately $2,065,000 to approximately $1,999,000 as of June 25, 2001. The Company is dependent on an operating line of credit to meet its daily financial obligations. The operating line of $1,500,000 which is currently in place through February 16, 2002 is considered by management to be adequate to cover all expected cash requirements. Results of Operations Nine Months Ended June 25, 2001 Compared to Nine Months Ended June 25, 2000 Sales of approximately $9,484,000 for the nine month period ended June 25, 2001 are 4% higher than approximately $9,093,000 for the same period of the prior fiscal year. Gross profits decreased by 2% from approximately $2,366,000 during the first nine months of the prior fiscal year compared to approximately $2,328,000 for the first nine months of the current fiscal year. The steel service center sales of approximately $7,717,000 are 1% lower than sales of approximately $7,774,000 for the first nine months of the prior fiscal year and represent 81% of the current period's total sales. During the first nine months of the previous year, the steel service center sales represented 85% of the total Company sales. The decline is the result of a lower sales price per ton on 2% higher volume of tons sold over the first nine months of the prior year. The fabrication business, contributing 19% and 15% of the total sales for the first nine months of the current and prior fiscal years respectively, experienced a 34% increase in sales volume from approximately $1,319,000 to approximately $1,767,000 for the current year. Demand for fabricated metal products was strong during the first six months of the current year but slowed considerably during the third quarter as a result of the idling of the aluminum smelters. The aluminum industry consumes large quantities of products fabricated from heavy steel plate in the process of producing aluminum. Forty percent of all the aluminum produced in the United States is produced in the Northwest, which is the market served by our Company. Approximately 25% of our sales volume has been provided either directly or indirectly from the aluminum industry. Energy policies that prohibit the aluminum industry from acquiring adequate electricity at reasonable rates has had, and will continue to have, a detrimental impact on the steel fabrication and distribution market in the Northwest. Currently most of the aluminum producers are shut down, selling their power and paying their employees not to work. Operating expenses at approximately $2,350,000 for the nine month period ended June 25, 2001 are roughly $111,000 or 5% higher than approximately $2,238,000 for the same period of the prior fiscal year. The increase is the higher cost of fringe benefits and repairs on equipment. Interest expense, at approximately $197,000 for the nine month period ended June 25, 2001 is 10% higher than approximately $180,000 for the same period of the prior fiscal year. The increase is the result of equipment additions financed with borrowed funds. The impact of the higher debt load has been partially offset by lower interest rates. The higher sales volume was accompanied by a higher cost of material relative to the inventory replacement costs dictating the ultimate market price during most of the first three quarters of the current fiscal year. A net loss of approximately $98,000 for the first nine months of the current year compares to a net income of approximately $2,000 for the same period of the prior year. Three Months Ended June 25, 2001 Compared to Three Months Ended June 25, 2000 Sales of approximately $3,161,000 for the third quarter of the current fiscal year are 1% lower than approximately $3,202,000 for the third quarter of the prior fiscal year. The steel service center business, which contributed 87% and 85% of the total sales for the three month period ended March 25, 2001 and 2000 respectively, experienced a 1% decline in sales volume over the third quarter of the prior fiscal year. The decline from approximately $2,773,000 for the second quarter of last year to approximately $2,748,000 for the same period of time this year was largely the result of a lower sales price per ton of steel. The fabrication business, with a 4% decrease in sales volume represents 13% of the third quarter combined sales for the current fiscal year compared to 15% for the third quarter of the prior year. Sales volume of approximately $413,000 for the quarter ended June 25, 2001 compares to approximately $429,000 for the same quarter of the prior fiscal year. The sales decrease reflects the weaker demand experienced during the third quarter of the current year, following the idling of aluminum plants in our market area. This is expected to continue during the final quarter of the year. Gross profit for the three month period ended June 25, 2001, at 23% of sales compares to 25% of sales for the same period of the prior fiscal year. The resulting gross profit dollars for the third quarter of the current fiscal year at approximately $713,000 lag the same period of the prior fiscal year by approximately $94,000. The erosion in gross profit dollars is attributed to lower sales volume accompanied by lower gross margins in the fabrication business. Operating expenses at approximately $717,000 for the three month period ended June 25, 2001 are 2% lower than approximately $734,000 for the same period of the prior fiscal year. The decrease is primarily the result of a reduced labor force in response to lower demand. Interest expense for the quarter ended June 25, 2001 at approximately $59,000 is 6% lower than the same quarter of the prior fiscal year. The decrease is attributable to lower interest rates. Lower sales volume accompanied by lower gross margin percents resulted in a net loss of approximately $10,000 for the third quarter of the current fiscal year compared to a net income of approximately $29,000 for the same quarter of the prior fiscal year. PART II. OTHER INFORMATION Item 1. Legal Proceedings. None. Item 2. Changes in Securities The Company is currently conducting a new tender offer to holders of 200 and fewer shares which will expire on October 31, 2001. The purpose of the new tender offer is to buy out odd lot shareholders of stock with diminimus value. During the current fiscal year the Company has repurchased 1,360 shares for treasury at a total cost of $720 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 Exhibits. None. (a) 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: August 3, 2001 /s/ Marilyn A. Schroeder Marilyn A. Schroeder, Treasurer and Chief Financial Officer (Authorized Officer and Principal Accounting and Financial Officer) 12 14