10-Q 1 jc10qmay31-2002.txt JEWETT-CAMERON TRADING CO LTD FORM 10Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One)(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended May 31, 2002 OR ( ) 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: 0-19954 JEWETT-CAMERON TRADING COMPANY, LTD. (Exact name of registrant as specified in its charter) BRITISH COLUMBIA NONE (State or other jurisdiction of (IRS Employer Identification Number) incorporation or organization) 32275 N.W. Hillcrest, North Plains, Oregon 97133 (Address of Principal Executive Offices) Registrant's telephone number, including area code: (503) 647-0110 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 since May 16, 1992 and (2) has been subject to the above filing requirements for the past 90 days. Yes _X_ No___ APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS: Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13, or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes ___ No ___ APPLICABLE ONLY TO CORPORATE ISSUERS Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of May 31, 2002. Common Stock, no par value, 1,082,162 Shares. JEWETT-CAMERON TRADING COMPANY, LTD. FORM 10-Q For the quarterly period ended May 31, 2002 PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS. JEWETT-CAMERON TRADING COMPANY LTD. FORM 10-Q CONSOLIDATED FINANCIAL STATEMENTS (EXPRESSED IN U.S. DOLLARS) (UNAUDITED - PREPARED BY MANAGEMENT) MAY 31, 2002 JEWETT-CAMERON TRADING COMPANY LTD. CONSOLIDATED BALANCE SHEETS (Expressed in U.S. dollars) (Unaudited - Prepared by Management)
May 31, August 31, 2002 2001 --------------- --------------- ASSETS CURRENT Cash and cash equivalents $ 321,452 $ 322,622 Accounts receivable 6,809,091 1,864,991 Inventory (Note 3) 3,604,586 2,400,027 Prepaid expenses 161,511 61,109 --------------- --------------- Total current assets 10,896,640 4,648,749 --------------- --------------- CAPITAL ASSETS (Note 4) 2,931,962 2,820,676 DEFERRED INCOME TAXES (Note 5) 184,300 207,300 DEPOSITS 14,400 - --------------- --------------- Total assets $ 14,027,302 $ 7,676,725 =============== ===============
Continued The accompanying notes are an integral part of these consolidated financial statements. JEWETT-CAMERON TRADING COMPANY LTD. CONSOLIDATED BALANCE SHEETS (Expressed in U.S. dollars) (Unaudited - Prepared by Management)
May 31, August 31, 2002 2001 --------------- --------------- CONT'D LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT Bank indebtedness (Note 6) $ 2,964,652 $ 297,960 Accounts payable and accrued liabilities 3,983,714 684,891 --------------- --------------- Total current liabilities 6,948,366 982,851 --------------- --------------- STOCKHOLDERS' EQUITY Capital stock (Note 7) Authorized 20,000,000 common shares, without par value 10,000,000 preferred shares, without par value. Issued 1,082,162 common shares (August 31, 2001 - 1,074,162) 1,836,259 1,795,157 Additional paid-in capital 602,587 582,247 Retained earnings 5,309,224 4,817,666 7,748,070 7,195,070 Less: Treasury stock - 120,400 common shares (August 31, 2001 - 97,000) (669,134) (501,196) --------------- --------------- 7,078,936 6,693,874 --------------- --------------- Total liabilities and stockholders' equity $ 14,027,302 $ 7,676,725 =============== ===============
CONTINGENT LIABILITIES AND COMMITMENTS (Note 10) The accompanying notes are an integral part of these consolidated financial statements. JEWETT-CAMERON TRADING COMPANY LTD. CONSOLIDATED STATEMENTS OF OPERATIONS (Expressed in U.S. dollars) (Unaudited - Prepared by Management)
Three Month Three Month Nine Month Nine Month Period Ended Period Ended Period Ended Period Ended May 31, May 31, May 31, May 31, 2002 2001 2002 2001 ------------- ------------- ------------- ------------- SALES $ 19,597,409 $ 7,572,756 $ 27,118,392 $ 15,838,071 COST OF SALES 16,937,851 6,393,014 22,538,306 13,052,490 ------------- ------------- ------------- ------------- GROSS PROFIT 2,659,558 1,179,742 4,580,086 2,785,581 ------------- ------------- ------------- ------------- OPERATING EXPENSES General and administrative - Schedule 2,180,886 853,661 3,808,059 2,267,598 INCOME FROM OPERATIONS 478,672 326,081 772,027 517,983 OTHER ITEMS Interest and other income - 14,154 491 19,574 Interest expense (18,645) (54,126) (20,360) (106,989) ------------- ------------- ------------- ------------- (18,645) (39,972) (19,869) (87,415) ------------- ------------- ------------- ------------- INCOME BEFORE INCOME TAXES 460,027 286,109 752,158 430,568 INCOME TAX EXPENSE (133,600) - (260,600) (13,000) ------------- ------------- ------------- ------------- NET INCOME FOR THE PERIOD $ 326,427 $ 286,109 $ 491,558 $ 417,568 ============= ============= ============= ============= BASIC EARNINGS PER SHARE $ 0.34 $ 0.29 $ 0.51 $ 0.42 ============= ============= ============= ============= DILUTED EARNINGS PER SHARE $ 0.32 $ 0.28 $ 0.48 $ 0.40 ============= ============= ============= ============= WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING: Basic 965,086 998,506 966,615 998,506 ============= ============= ============= ============= Diluted 1,017,920 1,032,179 1,016,478 1,032,179 ============= ============= ============= =============
The accompanying notes are an integral part of these consolidated financial statements. JEWETT-CAMERON TRADING COMPANY LTD. CONSOLIDATED SCHEDULES OF GENERAL AND ADMINISTRATIVE EXPENSES (Expressed in U.S. dollars) (Unaudited - Prepared by Management)
Three Month Three Month Nine Month Nine Month Period Ended Period Ended Period Ended Period Ended May 31, May 31, May 31, May 31, 2002 2001 2002 2001 ------------- ------------- ------------- ------------- Bad debt recovery $ - $ (28,266) $ (2,949) $ (61,579) Consulting - 487 - 1,732 Depreciation and amortization 78,807 66,361 202,269 160,370 Foreign exchange (gain) loss 28 (11,764) (787) 22,119 Insurance 92,221 35,731 149,761 87,993 Office and miscellaneous 142,604 59,653 248,198 179,522 Professional fees 57,891 17,371 106,145 72,120 Rent 41,313 - 41,313 - Repairs and maintenance 14,234 8,257 31,368 28,487 Telephone and utilities 43,424 30,185 101,163 76,117 Travel, entertainment and advertising 72,566 49,235 165,525 130,304 Warehouse expenses and supplies 97,696 60,866 215,387 148,513 Wages and employee benefits 1,540,102 565,545 2,550,666 1,421,900 ------------- ------------- ------------- ------------- $ 2,180,886 $ 853,661 $ 3,808,059 $ 2,267,598 ============= ============= ============= =============
The accompanying notes are an integral part of these consolidated financial statements. JEWETT-CAMERON TRADING COMPANY LTD. CONSOLIDATED STATEMENTS OF CASH FLOWS (Expressed in U.S. dollars) (Unaudited - Prepared by Management)
Three Month Three Month Nine Month Nine Month Period Ended Period Ended Period Ended Period Ended May 31, May 31, May 31, May 31, 2002 2001 2002 2001 ------------- ------------- ------------- ------------- CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 326,427 $ 286,109 $ 491,558 $ 417,568 Items not involving an outlay of cash: Depreciation and amortization 78,808 66,361 202,269 160,370 Deferred income tax - - 23,000 - Stock-based compensation - - 20,340 - Changes in non-cash working capital items: Increase in accounts receivable (5,547,402) (1,176,779) (4,944,100) (1,238,189) (Increase) decrease in inventory (154,037) 1,697,519 (1,204,559) (393,768) (Increase) decrease in prepaid expenses 34,446 50,375 (100,402) (72,306) Increase (decrease) in bank indebtedness 2,023,376 (688,207) 2,666,692 2,483,517 Increase (decrease) in accounts payable and accrued liabilities 3,513,726 (226,804) 3,298,823 354,134 ------------- ------------- ------------- ------------- Net cash provided by operating activities 275,344 8,574 453,621 1,711,326 ------------- ------------- ------------- ------------- CASH FLOWS FROM FINANCING ACTIVITIES Issuance of capital stock for cash - - 41,102 - Treasury shares acquired (28,337) (11,341) (167,938) (136,518) ------------- ------------- ------------- ------------- Net cash used in financing activities (28,337) (11,341) (126,836) (136,518) ------------- ------------- ------------- ------------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of capital assets (284,215) (34,254) (313,555) (1,628,969) Deposits (14,400) - (14,400) - ------------- ------------- ------------- ------------- Net cash used in investing activities (298,615) (34,254) (327,955) (1,628,969) ------------- ------------- ------------- ------------- CHANGE IN CASH AND CASH EQUIVALENTS (51,608) (37,021) (1,170) (54,161) CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 373,060 191,137 322,622 208,277 ------------- ------------- ------------- ------------- CASH AND CASH EQUIVALENTS, END OF PERIOD $ 321,452 $ 154,116 $ 321,452 $ 154,116 ============= ============= ============= =============
SUPPLEMENTAL DISCLOSURE WITH RESPECT TO CASH FLOWS (Note 13) The accompanying notes are an integral part of these consolidated financial statements. JEWETT-CAMERON TRADING COMPANY LTD. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (Expressed in U.S. Dollars) (Unaudited - Prepared by Management)
Common Stock Treasury Shares -------------------------- ------------------------- Additional Number Number Paid-In Retained of Shares Amount of Shares Amount Capital Earnings Total ------------ ------------ ------------ ------------ ------------ ------------ ------------ BALANCE, AUGUST 31, 2000 1,074,162 $ 1,795,157 65,500 $ 332,642 $ 582,247 $ 4,105,470 $ 6,150,232 Net income for the period - - - - - 712,196 712,196 Treasury shares acquired - - 31,500 168,554 - - (168,554) ------------ ------------ ------------ ------------ ------------ ------------ ------------ BALANCE, AUGUST 31, 2001 1,074,162 1,795,157 97,000 501,196 582,247 4,817,666 6,693,874 Net income for the period - - - - - 491,558 491,558 Treasury shares acquired - - 23,400 167,938 - - (167,938) Stock based compensation for options issued to employees - - - - 20,340 - 20,340 Share options exercised 8,000 41,102 - - - - 41,102 ------------ ------------ ------------ ------------ ------------ ------------ ------------ BALANCE, MAY 31, 2002 1,082,162 $ 1,836,259 120,400 $ 669,134 $ 602,587 $ 5,309,224 $ 7,078,936 ============ ============ ============ ============ ============ ============ ============
The accompanying notes are an integral part of these consolidated financial statements. JEWETT-CAMERON TRADING COMPANY LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Expressed in U.S. Dollars) (Unaudited - Prepared by Management) MAY 31, 2002 1. NATURE OF OPERATIONS The Company was incorporated under the Company Act of British Columbia on July 8, 1987. The Company through its subsidiaries operates out of facilities located in North Plains, Oregon and Ogden, Utah. The Company operates as a wholesaler of lumber and building materials to home improvement centres located primarily in the Pacific and Rocky Mountain regions of the United States, as an importer and distributor of pneumatic air tools and industrial clamps throughout the United States, and as a processor and distributor of agricultural seeds in the United States. 2. SIGNIFICANT ACCOUNTING POLICIES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES These consolidated financial statements have been prepared in accordance with generally accepted accounting principles of the United States of America, which are not materially different from generally accepted accounting principles utilized in Canada. In the opinion of management, the accompanying consolidated financial statements contain all adjustments necessary (consisting only of normal recurring accruals) to present fairly the financial information contained therein. These statements do not include all disclosures required by generally accepted accounting principles and should be read in conjunction with the audited financial statements of the Company for the year ended August 31, 2001. The results of operations for the period ended May 31, 2002 are not necessarily indicative of the results to be expected for the year ending August 31, 2002. PRINCIPLES OF CONSOLIDATION These consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, The Jewett-Cameron Lumber Corporation, Jewett-Cameron Seed Co., Greenwood Products Inc. and MSI-PRO Co., all of which are incorporated under the laws of Oregon, U.S.A. Significant inter-company balances and transactions have been eliminated upon consolidation. ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. JEWETT-CAMERON TRADING COMPANY LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Expressed in U.S. Dollars) (Unaudited - Prepared by Management) MAY 31, 2002 2. SIGNIFICANT ACCOUNTING POLICIES (cont'd...) REVENUE RECOGNITION The Company recognizes revenue from the sales of building supply products and tools, when the products are shipped and the ultimate collection is reasonably assured. Revenue from the Company's seed operations is generated by the provision of seed processing, handling and storage services provided to seed growers, and by the sales of seed products. Revenue from the provision of these services and products is recognized when the services have been performed and products sold and collection of the amounts is reasonably assured. CURRENCY These financial statements are expressed in U.S. dollars as the Company's operations are based predominately in the United States. Any amounts expressed in Canadian dollars are indicated as such. CASH AND CASH EQUIVALENTS Cash and cash equivalents include highly liquid investments with original maturities of three months or less. INVENTORY Inventory is recorded at the lower of cost, using the average cost method and net realizable value. CAPITAL ASSETS AND DEPRECIATION Capital assets are recorded at cost and the company provides for Depreciation over the estimated life of each asset on a straight-line basis over the following periods: Office equipment 5-7 years Warehouse equipment 2-10 years Buildings 5-30 years FOREIGN EXCHANGE The Company's functional currency for all operations worldwide is the U.S. dollar. Nonmonetary assets and liabilities are translated at historical rates and monetary assets and liabilities are translated at exchange rates in effect at the end of the period. Income statement accounts are translated at average rates for the period. Gains and losses from translation of foreign currency financial statements into U.S. dollars are included in current results of operations. Gains and losses resulting from foreign currency translations are also included in current results of operations. JEWETT-CAMERON TRADING COMPANY LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Expressed in U.S. Dollars) (Unaudited - Prepared by Management) MAY 31, 2002 2. SIGNIFICANT ACCOUNTING POLICIES (cont'd...) EARNINGS PER SHARE In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS 128"). Under SFAS 128, basic and diluted earnings per share are to be presented. Basic earnings per share is computed by dividing income available to common shareholders by the weighted average number of common shares outstanding in the period. Diluted earnings per share takes into consideration common shares outstanding (computed under basic earnings per share) and potentially dilutive common shares. The earnings per share data for the periods ended May 31 is summarized as follows:
Three Month Three Month Nine Month Nine Month Period Ended Period Ended Period Ended Period Ended May 31, 2002 May 31, 2001 May 31, 2002 May 31, 2001 ------------ ------------ ------------ ------------ Net income $ 326,427 $ 286,109 $ 491,558 $ 417,568 Basic earnings per share weighted average number of shares outstanding 965,086 998,506 966,615 998,506 Effect of dilutive securities Stock options 52,834 33,673 49,863 33,673 Diluted earnings per share weighted average number of shares outstanding 1,017,920 1,032,179 1,016,478 1,032,179
EMPLOYEE STOCK OPTION PLAN Financial Accounting Standards Board statement No. 123 (Accounting for Stock-Based Compensation) encourages, but does not require, companies to record compensation cost for stock-based employee compensation plans based on the fair value of options granted. The Company has elected to continue to account for stock-based compensation using the intrinsic value method prescribed in Accounting Principles Board Opinion No. 25 (Accounting for Stock Issued to Employees) and related interpretations and to provide additional disclosures with respect to the pro-forma effects of adoption had the Company recorded compensation expense as provided in SFAS 123. In accordance with APB-25, compensation costs for stock options is recognized in income based on the excess, if any, of the quoted market price of the stock at the grant date of the award or other measurement date over the amount an employee must pay to acquire the stock. Generally, the exercise price for stock options granted to employees equals or exceeds the fair market value of the Company's common stock at the date of grant, thereby resulting in no recognition of compensation expense by the Company. JEWETT-CAMERON TRADING COMPANY LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Expressed in U.S. Dollars) (Unaudited - Prepared by Management) MAY 31, 2002 2. SIGNIFICANT ACCOUNTING POLICIES (cont'd...) POST RETIREMENT BENEFITS Post retirement benefits are accounted for on an accrual basis. Any difference between net periodic post retirement benefit cost charged against income and the amount actually funded is recorded as an accrued or prepaid cost. This policy is consistent with Financial Accounting Standards No. 106, "Employers Accounting for Post Retirement Benefits Other than Pensions". FINANCIAL INSTRUMENTS The Company uses the following methods and assumptions to estimate the fair value of each class of financial instruments for which it is practicable to estimate such values: CASH AND SHORT-TERM INVESTMENTS The carrying amount approximates fair value because of the short-term maturity of those instruments. ACCOUNTS RECEIVABLE The carrying value of accounts receivable approximates fair value due to the short-term nature and historical collectability. BANK INDEBTEDNESS The carrying amount approximates fair value due to the short-term nature of the obligation. ACCOUNTS PAYABLE The carrying value of accounts payable approximates fair value due to the short-term nature of the obligations. The estimated fair values of the Company's financial instruments are as follows:
May 31, 2002 August 31, 2001 -------------------------- -------------------------- Carrying Fair Carrying Fair Amount Value Amount Value ------------ ------------ ------------ ------------ Cash and cash equivalents $ 321,452 $ 321,452 $ 322,622 $ 322,622 Accounts receivable 6,809,091 6,809,091 1,864,991 1,864,991 Bank indebtedness 2,964,652 2,964,652 297,960 297,960 Accounts payable and accrued liabilities 3,983,652 3,983,652 684,891 684,891
JEWETT-CAMERON TRADING COMPANY LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Expressed in U.S. Dollars) (Unaudited - Prepared by Management) MAY 31, 2002 2. SIGNIFICANT ACCOUNTING POLICIES (cont'd...) COMPARATIVE FIGURES Certain comparative figures have been reclassified to conform with the presentation adopted for the current period. INCOME TAXES Income taxes are provided in accordance with SFAS No. 109, "Accounting for Income Taxes". A deferred tax asset or liability is recorded for all temporary differences between financial and tax reporting and net operating loss carryforwards. Deferred tax expense (benefit) results from the net change during the year of deferred tax assets and liabilities. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment. RECENT ACCOUNTING PRONOUNCEMENTS Effective June 1, 2001, the Company adopted the SEC's Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements," ("SAB 101"). SAB 101 provides guidance related to revenue recognition. In July 2001, the FASB issued SFAS No. 141, "Business Combinations", and SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS No. 141 requires that the purchase method of accounting be used for all future business combinations and specifies criteria that intangible assets acquired in a business combination must meet to be recognized and reported apart from goodwill. SFAS No. 142 requires that goodwill and intangible assets with indefinite useful lives no longer be amortized, but instead tested for impairment at least annually in accordance with the provisions of SFAS No. 142. SFAS No. 142 will also require that intangible assets with estimable useful lives be amortized over their respective estimated useful lives, and reviewed for impairment in accordance with SFAS No. 121. The Company has adopted the provisions of SFAS 141 and SFAS 142 as of July 1, 2001. In July 2001, the FASB issued Statement of Financial Accounting Standards No. 143 ("SFAS 143") "Accounting for Asset Retirement Obligations" that records the fair value of the liability for closure and removal costs associated with the legal obligations upon retirement or removal of any tangible long-lived assets. The initial recognition of the liability will be capitalized as part of the asset cost and depreciated over its estimated useful life. SFAS 143 is required to be adopted effective January 1, 2003. In August 2001, the FASB issued Statement of Financial Accounting Standards No. 144 ("SFAS 144") "Accounting for the Impairment or Disposal of Long-Lived Assets" that supersedes Statement of Financial Accounting Standards No. 121 "Accounting for the Impairment or Disposal of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." SFAS 144 is required to be adopted effective January 1, 2002. JEWETT-CAMERON TRADING COMPANY LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Expressed in U.S. Dollars) (Unaudited - Prepared by Management) MAY 31, 2002 2. SIGNIFICANT ACCOUNTING POLICIES (cont'd...) RECENT ACCOUNTING PRONOUNCEMENTS (con'd...) The adoption of these new pronouncements is not expected to have a material effect on the Company's financial position or results of operations. 3. INVENTORY May 31, August 31, 2002 2001 ------------ ------------ Home improvement products $ 2,879,646 $ 1,936,706 Air tools and industrial clamps 284,556 280,449 Seeds 440,384 182,872 ------------ ------------ $ 3,604,586 $ 2,400,027 ============ ============ 4. CAPITAL ASSETS May 31, August 31, 2002 2001 ------------ ------------ Office equipment $ 486,767 $ 199,348 Warehouse equipment 659,282 651,581 Buildings 2,085,240 2,072,155 Land 851,568 845,632 ------------ ------------ 4,082,857 3,768,716 Accumulated depreciation (1,150,895) (948,040) ------------ ------------ Net book value $ 2,931,962 $ 2,820,676 ============ ============ In the event that facts and circumstances indicate that the carrying amount of an asset may not be recoverable and an estimate of future undiscounted cash flows is less than the carrying amount of the asset, an impairment loss will be recognized. Management's estimates of revenues, operating expenses, and operating capital are subject to certain risks and uncertainties which may affect the recoverability of the Company's investments. Although management has made its best estimate of these factors based on current conditions, it is possible that changes could occur which could adversely affect management's estimate of the net cash flow expected to be generated from its operations. 5. DEFERRED INCOME TAXES Deferred income taxes of $184,300 (August 31, 2001 - $207,300) relate principally to timing differences between the accounting and tax treatment of income, expenses, reserves and depreciation. JEWETT-CAMERON TRADING COMPANY LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Expressed in U.S. Dollars) (Unaudited - Prepared by Management) MAY 31, 2002 6. BANK INDEBTEDNESS Bank indebtedness is secured by an assignment of accounts receivable and inventory. Interest is calculated at either prime or the libor rate plus 225 basis points. 7. CAPITAL STOCK Holders of common stock are entitled to one vote for each share held. There are no restrictions that limit the Company's ability to pay dividends on its common stock. The Company has not declared any dividends since incorporation. TREASURY STOCK Treasury stock is recorded at cost. During the periods ended May 31, 2002 and 2001, the Company repurchased 23,400 and 30,500 shares, respectively, at an aggregate cost of $167,938 and $136,518, respectively. 8. EMPLOYEE STOCK OWNERSHIP PLAN The Company sponsors an employee stock ownership plan ("ESOP") that covers all U.S. employees who are employed by the Company on August 31 of each year and who have at least one thousand hours with the Company in the twelve months preceding that date. The ESOP grants to participants in the plan certain ownership rights in, but not possession of, the common stock of the Company held by the Trustee of the Plan. Shares of common stock are allocated annually to participants in the ESOP pursuant to a prescribed formula. The Company accounts for its ESOP in accordance with SOP-93-6 (Employers' Accounting for Employee Stock Ownership Plans). The Company records compensation expense equal to the market price of the shares acquired on the open market. Any dividends on allocated ESOP shares will be recorded as a reduction of retained earnings. 9. STOCK OPTIONS The Company has a stock option plan under which stock options to purchase securities from the Company can be granted to directors and employees of the Company on terms and conditions acceptable to the regulatory authorities of Canada, notably the Toronto Stock Exchange ("TSX"), the Ontario Securities Commission and the British Columbia Securities Commission. Under the stock option program, stock options for up to 10% of the number of issued and outstanding common shares may be granted from time to time, provided that stock options in favour of any one individual may not exceed 5% of the issued and outstanding common shares. No stock option granted under the stock option program is transferable by the optionee other than by will or the laws of descent and distribution, and each stock option is exercisable during the lifetime of the optionee only by such optionee. The exercise price of all stock options, granted under the stock option program, must be at least equal to the fair market value (subject to regulated discounts) of such common shares on the date of grant. JEWETT-CAMERON TRADING COMPANY LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Expressed in U.S. Dollars) (Unaudited - Prepared by Management) MAY 31, 2002 9. STOCK OPTIONS (cont'd...) Proceeds received by the Company from exercise of stock options are credited to capital stock. At May 31, 2002, employee incentive stock options were outstanding enabling the holders to acquire the following number of shares: Number Exercise of Shares Price Expiry Date ------------ ----------- --------------- 70,000 Cdn$ 4.25 August 6, 2006 12,000 Cdn$ 7.50 April 30, 2003 Following is a summary of the status of the plan during 2002 and 2001: Weighted Average Number Exercise of Shares Price ------------ ------------ Outstanding at August 31, 2000 90,000 Cdn$ 5.14 Granted - - Forfeited - - Exercised (12,000) 8.25 ------------ ------------ Outstanding at August 31, 2001 78,000 4.66 Granted/repriced 12,000 8.55 Forfeited - - Exercised (8,000) 8.25 ------------ ------------ Outstanding at May 31, 2002 82,000 Cdn$ 4.73 ============ ============ Following is a summary of the status of options outstanding at May 31, 2002: Outstanding Options Exercisable Options ------------------------- ------------------------- Weighted Average Weighted Weighted Remaining Average Average Contractual Exercise Exercise Exercise Price Number Life (Years) Price Number Price -------------- ---------- ------------ ----------- ---------- ------------ Cdn$ 4.25 70,000 4.19 Cdn$ 4.25 70,000 Cdn$ 4.25 Cdn$ 7.50 12,000 0.92 Cdn$ 7.50 12,000 Cdn$ 7.50 JEWETT-CAMERON TRADING COMPANY LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Expressed in U.S. Dollars) (Unaudited - Prepared by Management) MAY 31, 2002 9. STOCK OPTIONS (cont'd...) The Company has elected to follow APB Opinion No. 25 (Accounting for Stock Issued to Employees) in accounting for its employee stock options. Accordingly, compensation cost for stock options is measured as the excess, if any, of quoted market price of the Company's stock at the date of grant over the option price. Stock based compensation recognized during the period ended May 31, 2002 was $20,340 (2001 - $Nil). This amount was allocated to wages and employee benefits in the accompanying statement of operations. If under Financial Accounting Standards Board Statement No. 123 (Accounting for Stock-Based Compensation) the Company determined compensation costs based on the fair value at the grant date for its stock options, net earnings and earnings per share would have been reduced to the following pro-forma amounts: May 31, May 31, 2002 2001 ------------ ------------ NET INCOME As reported $ 491,558 $ 417,568 Pro forma $ 481,586 $ 417,568 BASIC EARNINGS PER SHARE As reported $ 0.51 $ 0.42 Pro forma $ 0.50 $ 0.42 DILUTED EARNINGS PER SHARE As reported $ 0.48 $ 0.40 Pro forma $ 0.47 $ 0.40 The weighted average estimated fair value of stock options granted during the periods ended May 31, 2002 and 2001 were Cdn$3.98 and $Nil per share, respectively. These repriced amounts were determined using the Black- Scholes option pricing model, which values options based on the stock price at the grant date, the expected life of the option, the estimated volatility of the stock, the expected dividend payments, and the risk-free interest rate over the expected life of the option. The assumptions used in the Black-Scholes model were as follows for stock options granted: May 31, May 31, 2002 2001 ------------ ------------ Risk-free interest rate 3% - Expected life of the options 2 years - Expected volatility 41.62% - Expected dividend yield - - The Black-Scholes option valuation model was developed for estimating the fair value of traded options that have no vesting restrictions and are fully transferable. Because option valuation models require the use of subjective assumptions, changes in these assumptions can materially affect the fair value of the options, and the Company's options do not have the characteristics of traded options, so the option valuation models do not necessarily provide a reliable measure of the fair value of its options. JEWETT-CAMERON TRADING COMPANY LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Expressed in U.S. Dollars) (Unaudited - Prepared by Management) MAY 31, 2002 10. CONTINGENT LIABILITIES AND COMMITMENTS a)The Company established an Employee Stock Ownership Plan, whereby the employees may earn up to 90,000 shares of the Company using a formula based on years of service. The establishment of the plan resulted in the Company forming a trust, which acquired from the Company 90,000 shares at a deemed price of Cdn$5.00 per share. As at May 31, 2002 and 2001 and August 31, 2001, 90,000 of these shares were earned by the employees under this plan but remain in the trust (Note 9). b)At May 31, 2002 and 2001, the Company had an un-utilized line-of-credit of approximately $1,700,000 and $2,000,000, respectively. c)On March 1, 2002 the Company entered into an agreement with Greenwood Forest Products, Inc. ("Greenwood") to acquire certain assets of Greenwood. The assets being acquired consist of nearly $7 million of inventory, purchased in seven installments over the next two years for a price equal to the seller's cost plus 2%; furnishings, equipment and supplies for $260,000 payable at closing (paid); and a license to use all of the intangible assets of the seller for a five year term, with an option to purchase the intangible assets for a nominal amount of $1,000, payable at closing (paid). To date, the Company has made the first instalment for the purchase of inventory in the amount of $729,098. Greenwood is in the business of processing and distribution of industrial wood and other specialty building products, principally to original equipment manufacturers. 11. SEGMENTED INFORMATION The Company has three principal operating segments: the sales of lumber and building materials to home improvement centres in the United States; the sale of pneumatic air tools and industrial clamps in the United States; and the processing and sales of agricultural seeds in the United States. These operating segments were determined based on the nature of the products offered. Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly in deciding how to allocate resources and in assessing performance. The Company evaluates performance based on several factors, of which the primary financial measure is business segment income before taxes. The following tables show the operations of the Company's reportable segments. In computing income from operations by industry segment, unallocable general and administrative expenses have been excluded from each segment's pre-tax operating earnings before interest expense and have been included in general corporate and other operations. JEWETT-CAMERON TRADING COMPANY LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Expressed in U.S. Dollars) (Unaudited - Prepared by Management) MAY 31, 2002 11. SEGMENTED INFORMATION (cont'd...) Following is a summary of segmented information for the nine month periods: May 31, May 31, 2002 2001 -------------- -------------- Sales to unaffiliated customers: Building materials $ 24,631,092 $ 13,958,483 Industrial tools 576,387 716,219 Seed processing services and sales 1,910,913 1,163,369 -------------- -------------- $ 27,118,392 $ 15,838,071 ============== ============== Income from operations: Building materials $ 586,352 $ 571,283 Industrial tools 55,711 60,405 Seed processing services and sales 173,847 (32,538) General corporate (43,883) (81,167) -------------- -------------- $ 772,027 $ 517,983 ============== ============== Identifiable assets: Building materials $ 12,978,512 $ 9,468,694 Industrial tools 123,613 119,922 Seed processing services and sales 908,208 348,330 General corporate 16,969 119,115 -------------- -------------- $ 14,027,302 $ 10,056,061 ============== ============== Depreciation and amortization: Building materials $ 202,269 $ 132,112 Industrial tools - 650 Seed processing services and sales - 27,608 -------------- -------------- $ 202,269 $ 160,370 ============== ============== Capital expenditures: Building materials $ 277,161 $ 69,453 Seed processing services and sales 36,394 1,559,516 -------------- -------------- $ 313,555 $ 1,628,969 ============== ============== Interest expense: Building materials $ 20,360 $ 106,989 Industrial tools - - Seed processing services and sales - - -------------- -------------- $ 20,360 $ 106,989 ============== ============== For the nine month periods ended May 31, 2002 and 2001 the Company made sales of $6,931,865 (2001 - $4,629,764) and $2,491,255 (2001 - $6,352,069) to customers of the building material segments which were in excess of 10% of total sales for the nine month periods. JEWETT-CAMERON TRADING COMPANY LTD. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Expressed in U.S. Dollars) (Unaudited - Prepared by Management) MAY 31, 2002 12. CONCENTRATIONS OF CREDIT RISK Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash and cash equivalents and accounts receivable. The Company places its cash and cash equivalents with high quality financial institutions and limits the amount of credit exposure with any one institution. The Company has concentrations of credit risk with respect to accounts receivable as large amounts of its accounts receivable are concentrated geographically in the United States amongst a small number of customers. At May 31, 2002, one customer totalling $701,180 accounted for accounts receivable greater than 10% of total accounts receivable. The Company controls credit risk through credit approvals, credit limits, and monitoring procedures. The Company performs credit evaluations of its commercial customers but generally does not require collateral to support accounts receivable. 13. SUPPLEMENTAL DISCLOSURES WITH RESPECT TO CASH FLOWS May 31, May 31, 2002 2001 ------------ ------------ Cash paid during the period for: Interest $ 20,360 $ 106,989 Income taxes - - There were no significant non-cash transactions for the nine month periods ended May 31, 2002 and 2001. JEWETT-CAMERON TRADING COMPANY, LTD. FORM 10-Q For the quarterly period ended May 31, 2002 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following information contains certain forward-looking statements that anticipate future trends or events. These statements are based on certain assumptions that may prove to be erroneous and are subject to certain risks including but not limited to the risks of increased competition in the Company's industry and other risks detailed in the Company's Securities and Exchange Commission filings. Accordingly, actual results may differ, possibly materially, from the predictions contained herein. Company operations were up during the third quarter of Fiscal 2002, ended May 31, 2002, as sales increased over the second quarter of Fiscal 2002, ended February 28, 2002. Gross sales increased $12,024,653 during the third quarter of Fiscal 2002 as compared to the third quarter of Fiscal 2001. During the third quarter of Fiscal 2002, the Company experienced an increase in net income of $40,318 as compared to the third quarter of Fiscal 2001. The overall result was net income of $326,427 for the third quarter of Fiscal 2002 and net income for the first nine months of Fiscal 2002 of $491,558. These figures represent increases of $40,318 and $73,990 respectively. RESULTS OF OPERATIONS: THREE MONTHS ENDED May 31, 2002 and 2001: For the third quarter of the current fiscal year, ending May 31, 2002, sales increased 159% to $19,597,409 as compared to $7,572,756 for the same quarter of the previous year. The primary reason for the increase in sales was the contribution of Greenwood Products, Inc. - a newly organized Oregon corporation and wholly-owned subsidiary of Jewett Cameron Lumber Corporation. Greenwood Products, Inc. resulted from the purchase by Jewett-Cameron Lumber Corporation of the business and certain assets of Greenwood Forest Products, Inc. of Portland, Oregon. General and administrative expenses for the Company were $2,180,886 for the third quarter, up from $853,661 for the third quarter of the previous year. The primary reasons for the increase of $1,327,225 in expenses was the increase in corporate activity brought about by the addition of Greenwood Products, Inc. and the increase in the activities of Jewett Cameron Seed Co., a wholly-owned subsidiary of the Company created during Fiscal 2001. Virtually all expense categories increased substantially during the third quarter of Fiscal 2002. Depreciation and amortization increased $12,446 over the prior like period; insurance increased $56,490 over the prior like period; office and miscellaneous increased $82,591 over the prior like period; professional fees increased $40,520 over the prior like period; rent increased $41,313 over the prior like period; repairs and maintenance increased $5,977 over the prior like period; telephone and utilities increased $13,239 over the prior like period; travel, entertainment and advertising increased $23,331 over the prior like period; Warehouse expenses and supplies increased $36,830 over the prior like period; and, wages and employee benefits increased $974,557 over the prior like period. Net income for the quarter was $326,427. This represents an increase of 14% over the third quarter of last year when net income was $286,109. The increase in net income was due primarily to an increase in income from operations and a decrease in interest expense. JEWETT-CAMERON TRADING COMPANY, LTD. FORM 10-Q For the quarterly period ended May 31, 2002 Earnings per share (fully diluted) were $0.32 for the third quarter of Fiscal 2002 compared to $0.28 for the third quarter of fiscal 2001 an increase of 14%. NINE MONTHS ENDED May 31, 2002: Sales for the first nine months of Fiscal 2002 increased 71% to $27,118,392 compared to $15,838,071 in the same period last year. Sales for Jewett-Cameron Lumber were $24,631,092 for the nine months ended May 31, 2002, up 76% compared to sales of $13,958,483 for the same period of last year. Sales for MSI-PRO (pneumatic tools and industrial clamps) were $576,387 for the nine months ended May 31, 2002 compared to $716,219 for the same period of last year, a decrease of $139,832. Sales for Jewett-Cameron Seed Company were $1,910,913 for the nine months ended May 31, 2002 compared to $1,163,369 for the same period last year resulting in an increase of 64%. General and administrative expenses for the Company were $3,808,059 for the nine month period up from $2,267,598 for the same period of last year. The primary reason for the increase of $1,540,461is the addition of the operations of the Company's newest wholly-owned subsidiary, Greenwood Products, Inc. As was the case during the three months ended May 31, 2002 as compared to the three months ended May 31, 2001, all expense categories increased with the exception of foreign exchange (gain) loss because of the increased business activity brought about by the operations of Greenwood Products, Inc. Depreciation increased by $41,899; insurance increased by $61,768; office and miscellaneous increased by $68,676; professional fees increased by $$34,025; rent increased by $41,313; repairs and maintenance increased by $2,881; telephone and utilities increased by $25,046; travel, entertainment and advertising increased by $35,221; warehouse expense and supplies increased by $66,874; and, wages and employee benefits increased by $1,128,166. Net income for the first nine months of Fiscal 2002 was $491,558 which represents an 18% increase over the first nine months of last year when net income was $417,568. The increase in net income was due primarily to higher sales and lower interest expenses. Earnings per share (fully diluted) were $0.48 for the first nine months of Fiscal 2002 compared to $0.40 for the same period of Fiscal 2001. LIQUIDITY AND CAPITAL RESOURCES As of May 31, 2002 the Company had working capital of $3,948,274 which represented an increase of $526,465 as compared to the working capital of $3,421,809 as of May 31, 2001. The increase in working capital was due to a decrease in cash and cash equivalents of $167,336; an increase in accounts receivable of $3,029,515; an increase in inventory of $588,243; and, an increase in prepaid expenses of $64,958. The expansion in business brought about by the addition of Greenwood Products also resulted in an increase in bank indebtedness of $481,135 and an increase in accounts payable and accrued liabilities of $2,842,452. Accounts Receivable and Inventory represented 96% of current assets and both continue to turn over at acceptable rates. JEWETT-CAMERON TRADING COMPANY, LTD. FORM 10-Q For the quarterly period ended May 31, 2002 External sources of liquidity include a bank line from the United States National Bank of Oregon. The total line of credit available is $6.5 million of which there was an outstanding balance as of May 31, 2002 of $2,964,652. As of the end of Fiscal 2001 (August 31st) the Company had an outstanding balance of $297,960. Based on the Company's current working capital position, its policy of retaining earnings, and the line of credit available, the Company has adequate working capital to meet its needs during the current fiscal year. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS: The Company does not have any derivative financial instruments as of May 31, 2002. However, the Company is exposed to interest rate risk. The Company's interest income and expense are most sensitive to changes in the general level of U.S. interest rates. In this regard, changes in U.S. interest rates affect the interest earned on the Company's cash equivalents as well as interest paid on debt. The Company has a line of credit whose interest rate is based on various published rates that may fluctuate over time based on economic changes in the environment. The Company is subject to interest rate risk and could be subject to increased interest payments if market interest rates fluctuate. The Company does not expect any change in the interest rates to have a material adverse effect on the Company's results from operations. FOREIGN CURRENCY RISK N/A PART II - OTHER INFORMATION Item 1. Legal Proceedings - None Item 2. Changes in Securities - None Item 3. Default Upon Senior Securities - None Item 4. Submission of Matters to a Vote of Securities Holders - None Item 5. Other Information - None Item 6 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. Jewett-Cameron Trading Company Ltd. (Registrant) Dated: July 10, 2002 /s/ Donald M. Boone --------------------------------------- Donald M. Boone, President/CEO/Director