UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X]
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended AUGUST 31, 2011
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: 000-19954
JEWETT-CAMERON TRADING COMPANY LTD.
(Name of registrant as specified in its charter)
_________British Columbia, Canada_______ _________N/A_________
(State or Incorporation or Organization) (IRS Employer ID No.)
32275 NW Hillcrest, North Plains, Oregon, USA 97133
(Address of principal executive offices)
Registrants Telephone Number 503-647-0110
Securities to be registered pursuant to Section 12(b) of the Act: None
Securities to be registered pursuant to Section 12(g) of the Act:
Common Shares without par value.
(Title of Class)
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined by Rule 405 of the Securities Act [ ] Yes [X] No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. [ ] Yes [X] No
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve 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. [X] Yes [ ] No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
[ X ] Yes [ ] No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrants knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ]
Indicate by check mark whether the registrant is a large accelerated filer, and accelerated filer, or a non-accelerated filer.
Large accelerated filer [ ]
Accelerated filer [ ]
Non-accelerated filer [ ]
Smaller Reporting Company [ X ]
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).
[ ] Yes [X] No
State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrants most recently completed second fiscal quarter: February 28, 2011 = $9,550,611
Indicate the number of shares outstanding of each of the registrants classes of common stock, as of November 14, 2011: 1,908,457
Jewett-Cameron Trading Company Ltd.
Form 10-K Annual Report
Fiscal Year Ended August 31, 2011
TABLE OF CONTENTS
PART I | ||
Page | ||
Item 1. | Business | 3 |
Item 1A. | Risk Factors | 6 |
Item 2. | Properties | 8 |
Item 3. | Legal Proceedings | 8 |
Item 4. | Submission of Matters to a Vote of Security Holders | 8 |
PART II | ||
Item 5. | Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities | 9 |
Item 6. | Selected Financial Data | 11 |
Item 7. | Management's Discussion and Analysis of Financial Condition and Results of Operations | 11 |
Item 7A. | Quantitative and Qualitative Disclosures About Market Risk | 11 |
Item 8. | Financial Statements and Supplemental Data | 15 |
Item 9. | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure | 16 |
Item 9A. | Controls and Procedures | 39 |
Item 9B. | Other Information | 39 |
PART III | ||
Item 10. | Directors and Executive Officers of the Registrant | 40 |
Item 11. | Executive Compensation | 43 |
Item 12. | Security Ownership of Certain Beneficial Owners and Management | 45 |
Item 13. | Certain Relationships and Related Transactions | 46 |
Item 14. | Principal Accounting Fees and Services | 46 |
PART IV | ||
Item 15. | Exhibits, Financial Statement Schedules | 47 |
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PART I
ITEM 1. BUSINESS
Forward-Looking Statements
This Annual Report on Form 10-K contains forward-looking statements, within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements may be identified by the use of words like plans, expects, aims, believes, projects, anticipates, intends, estimates, will, should, could and similar expressions in connection with any discussion, expectation, or projection of future operating or financial performance, events or trends. Forward-looking statements are based on management's current expectations and assumptions, which are inherently subject to uncertainties, risks and changes in circumstances that are difficult to predict. Actual outcomes and results may differ materially from these expectations and assumptions due to changes in global political, economic, business, competitive, market, regulatory and other factors. We undertake no obligation to publicly update or review any forward-looking information, whether as a result of new information, future developments or otherwise.
These factors include, but are not limited to the fact that the Company is in a highly competitive business and may seek additional financing to expand its business, and are set forth in more detail elsewhere in this Annual Report, including in the sections, ITEM 1A, Risk Factors, and ITEM 7, Management's Discussion and Analysis of Financial Condition and Results of Operations.
Introduction
Jewett-Cameron Trading Company Ltd. is organized under the laws of British Columbia, Canada. In this Annual Report, the Company, we, our and us refer to Jewett-Cameron Trading Company Ltd. and its subsidiaries.
The Companys operations are classified into four reportable segments, which were determined based on the nature of the products offered along with the markets being served. The segments are as follows:
•
Industrial wood products
•
Lawn, garden, pet and other
•
Seed processing and sales
•
Industrial tools and clamps
The industrial wood products segment reflects the business conducted by Greenwood Products, Inc. (Greenwood), a wholly owned subsidiary of Jewett-Cameron Lumber Corporation (JCLC). Greenwood is a processor and distributor of industrial wood products. A major product category is treated plywood that is sold to boat manufacturers and the transportation industry.
The lawn, garden, pet and other segment reflects the business of Jewett-Cameron Lumber Corporation, which is a wholesaler of wood products and a manufacturer and distributor of specialty metal products. Wood products include fencing and landscape timbers, while metal products include dog kennels, proprietary gate support systems, perimeter fencing, and greenhouses. JCLC uses contract manufacturers to make the specialty metal products. Some of the products that JCLC distributes flow through the Companys distribution center located in North Plains, Oregon, and some are shipped direct to the customer from the manufacturer. Primary customers are home centers and other retailers.
The seed processing and sales segment reflects the business of Jewett-Cameron Seed Company (JCSC), a wholly owned subsidiary of JCLC. JCSC processes and distributes agricultural seed. Most of this segments sales come from selling seed to distributors with a lesser amount of sales derived from cleaning seed.
The industrial tools and clamps segment reflects the business of MSI-PRO (MSI), a wholly owned subsidiary of JCLC. MSI imports and distributes products including pneumatic air tools, industrial clamps, and saw blades. These products are primarily sold to retailers that in turn sell to contractors and end users.
Total Company sales were approximately $42.1 and $41.6 million during fiscal years ended August 31, 2011 and 2010, respectively.
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The Company's principal office is located at 32275 NW Hillcrest Street, North Plains, Oregon; and the Companys website address is www.jewettcameron.com. Mail is not delivered to the street address, and the Companys mailing address is P.O. Box 1010, North Plains, OR 97133. The Companys phone number is (503) 647-0110, and the fax number is (503) 647-2272.
The Company files reports and other information with the Securities and Exchange Commission located at 450 Fifth Street N.W., Washington, D.C. 20549. Copies of these filings may be accessed through their website at www.sec.gov. Reports are also filed under Canadian regulatory requirements on SEDAR, and these reports may be accessed at www.sedar.com.
The contact person for the Company is Donald M. Boone, President, Chief Executive Officer, Treasurer and Director.
At the Companys annual meeting, which was held on March 9, 2007, shareholders approved a three for two stock split, which was distributed on or about March 23, 2007 to holders of record on March 19, 2007. The stock started trading on a post-split basis on March 15, 2007. All share counts and per share figures reflect this stock split.
The Companys authorized capital includes 20,000,000 common shares without par value; and 10,000,000 preferred shares without par value. As of August 31, 2011 there were 1,908,457 common shares outstanding. As of November 14, 2011, there were 1,908,457 common shares outstanding. The Company's common shares are listed on the Toronto Stock Exchange in Canada with the symbol JCT. The Company's common shares are also listed on the NASDAQ Capital Market in the United States with the symbol JCTCF.
The Company's fiscal year ends on August 31st.
General Development of Business
Incorporation and Subsidiaries
Jewett-Cameron Trading Company Ltd. was incorporated under the Company Act of British Columbia on July 8, 1987 as a holding company for Jewett-Cameron Lumber Corporation (JCLC), which was incorporated in September 1953. Jewett-Cameron Trading Company, Ltd. acquired all the shares of JCLC through a stock-for-stock exchange on July 13, 1987, and at that time JCLC became a wholly owned subsidiary. JCLC has the following wholly owned subsidiaries. MSI-PRO Co. (MSI), incorporated in April 1996, Jewett-Cameron Seed Company, (JCSC), incorporated in October 2000, and Greenwood Products, Inc. (Greenwood), incorporated in February 2002. Jewett-Cameron Trading Company, Ltd. and its subsidiaries have no assets in Canada.
Corporate Development
Incorporated in 1953, JCLC operated as a small lumber wholesaler based in Portland, Oregon. In September 1984, the original stockholders sold their interest in the corporation to a new group of investors. Two members of that group remain active in the Company. These individuals are Donald Boone, the President, Chief Executive Officer, Treasurer and Director; and Michael Nasser, Corporate Secretary.
In July 1987, the Company acquired JCLC in what was not an arms-length transaction.
In early 1986, prior to JCLC being acquired by the Company, JCLC acquired Material Supply International (Material Supply). Material Supply was engaged in the importation and distribution of pneumatic air tools and industrial clamps. The product line was re-branded as MSI-PRO and MSI was incorporated in 1996 to carry-on the business of Material Supply.
In October 2000, JCSC was incorporated in anticipation of JCLC acquiring the business and certain assets of a firm called Agrobiotech Inc. JCSC operates as a seed storage, processing and sales business.
In February 2002, Greenwood was incorporated in anticipation of JCLC acquiring the business and certain assets of Greenwood Forest Products Inc. Greenwood is involved in the processing and distribution of specialty wood products.
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Narrative Description of Business
The Companys operations are classified into four segments. Sales, income before taxes, assets, depreciation and amortization, capital expenditures, and interest expense by segment are shown in the footnotes to the financial statements.
Industrial Wood Products - Greenwood
Greenwood operated out of leased office space located in a suburb of Portland, Oregon until September 30, 2009. At that time the lease on the office space was terminated and Greenwood co-located its operations in the building utilized by JCLC and MSI. This business involves the wholesale distribution of a variety of specialty wood products. A major product category is treated plywood that is sold to boat manufacturers and the transportation industry.
During fiscal 2011 and 2010, sales to boat manufacturers represented approximately 15% and 11% respectively of total segment sales. Likewise, Greenwoods total sales for fiscal 2011 and 2010 were 20% and 22% respectively of total Company sales.
The markets in which Greenwood competes are sensitive to downturns in the U.S economy.
Inventory is maintained at non-owned warehouse and wood treating facilities throughout the United States and is primarily shipped to customers on a just-in-time basis. There is also some inventory in transit. Inventory is generally not purchased on a speculative basis in anticipation of price changes.
Greenwood has no significant backlog of orders.
Lawn, Garden, Pet and Other - JCLC
JCLC operates out of a 5.6 acre owned facility located in North Plains, Oregon that includes an office, a warehouse, a paved yard, and a remanufacturing plant. This business is a wholesaler of wood products and a manufacturer and distributor of specialty metal products. Wood products include fencing and landscape timbers, while metal products include dog kennels, proprietary gate support systems, perimeter fencing, and greenhouses. JCLC uses contract manufacturers to make the specialty metal products. Some of the products that JCLC distributes flow through the Companys facility in North Plains, Oregon, and some are shipped direct to the customer from the manufacturer. Primary customers are home centers and other retailers.
The home improvement business is seasonal, with higher levels of sales occurring between February and August. Inventory buildup occurs until the start of the season in February and then gradually declines to seasonal low levels at the end of the summer.
JCLC has concentrated on building a customer base for lawn, garden, and pet related products. Management believes this market is less sensitive to downturns in the U.S. economy than is the market for new home construction.
The wood products that JCLC distributes are not unique and are available from multiple suppliers. However, the metal products that JCLC manufactures and distributes may be somewhat differentiated from similar products available from other suppliers.
JCLC owns the patents and manufacturing rights connected with the Adjust-A-Gate products, which are the gate support systems for wood, vinyl, and composite fences. Management believes the ownership of these patents results in an important competitive advantage for these products. JCLC also has two licensing agreements to market pet products.
Backlog orders are a factor in this business as customers may place firm priced orders for both wood and metal products for shipments to take place three to four months in the future.
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Seed Processing and Sales - JCSC
JCSC operates out of an approximately 13 acre owned facility located adjacent to North Plains, Oregon. JCSC processes and distributes agricultural seed. Most of this segments sales come from selling seed to distributors with a lesser amount of sales derived from cleaning seed. Even though the harvest and processing cycle is seasonal, sales of JCSC tend to be fairly uniform throughout the year. However, profitability around the month of August may be unusually high based on a seasonal surge in cleaning sales, which are much more profitable sales than product sales.
JCSC has no backlog of sales orders.
Industrial Tools and Clamps - MSI
This business operates from the same owned facilities as JCLC. MSI imports and distributes products including pneumatic air tools, industrial clamps, and saw blades. These products are primarily sold to retailers that in turn sell to contractors and end users. Sales of these products tend to be relatively uniform throughout the year.
MSIs product line was expanded in 2007 to include saw blades, digital calipers, and laser guides. These newer products carry the Avenger Products brand label.
Customer Concentration
The top ten customers were responsible for 56% and 58% of total Company sales for the years ended August 31, 2011 and August 31, 2010 respectively. Also, the Companys single largest customer was responsible for 18% and 18% of total Company sales for the years ended August 31, 2011 and August 31, 2010 respectively.
Employees
As of August 31, 2011, the Company had 49 full-time employees. By segment these employees were located as follows: Greenwood 4, JCLC 26, JCSC 13, and MSI 6. None of these employees are represented by unions at the Company. Jewett-Cameron Trading Company Ltd. has no direct employees, and the officers of the Company are employed by JCLC.
Item 1A. Risk Factors
Investors should carefully consider the following risk factors and all other information contained in this Annual Report. There is a great deal of risk involved. Any of the following risks could affect our business, its financial condition, its potential profits or losses, and could result in you losing your entire investment if our business became insolvent. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties, including those not presently known to us or that we currently deem immaterial, also may result in decreased revenues, increased expenses or other events which could result in a decline in the price of our common stock.
Risks Related to Our Common Stock
We may decide to acquire assets or enter into business combinations, which could be paid for, either wholly or partially with our common stock and if we decide to do this our current shareholders would experience dilution in their percentage of ownership.
Our Articles of Incorporation give our Board of Directors the right to enter into any contract without the approval of our shareholders. Therefore, our management could decide to make an investment (buy shares, loan money, etc.) without shareholder approval. If we acquire an asset or enter into a business combination, this could include exchanging a large amount of our common stock, which could dilute the ownership interest of present stockholders.
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Future stock distributions could be structured in such a way as to be 1) diluting to our current shareholders or 2) could cause a change in control to new investors.
If we raise additional funds by selling more of our stock, the new stock may have rights, preferences or privileges senior to those of the rights of our existing stock. If common stock is issued in return for additional funds, the price per share could be lower than that paid by our current stockholders. The result of this would be a lessening of each present stockholders relative percentage interest in our company.
The Companys common shares currently trade within the NASDAQ Capital Market in the United States and on the Toronto Stock Exchange in Canada. The average daily trading volume of our common stock was 4,192 shares on NASDAQ for the year ended August 31, 2011 and significantly less in Canada. With this limited trading volume, investors could find it difficult to purchase or sell our common stock.
Risks Related to Our Business
We could experience a decrease in the demand for our products resulting in lower sales volumes.
In the past we have at times experienced decreasing products sales with certain customers. The reasons for this can be generally attributed to: increased competition; general economic conditions; demand for products; and consumer interest rates. If economic conditions deteriorate or if consumer preferences change, we could experience a significant decrease in profitability.
If our top customers were lost, we could experience lower sales volumes.
For the fiscal year ended August 31, 2011 our top ten customers represented 56% of our total sales, and our single largest customer was responsible for 18% of our total sales. We would experience a significant decrease in sales and profitability and would have to cut back our operations, if these customers were lost and could not be replaced. Our top ten customers are in the U.S., Canada and Mexico, and are primarily in the marine and retail home improvement industries.
We could experience delays in the delivery of our products to our customers causing us to lose business.
We purchase our products from other vendors and a delay in shipment from these vendors to us could cause significant delays in our delivery to our customers. This could result in a decrease in sales orders to us and we would experience a loss in profitability.
We could lose our credit agreement and could result in our not being able to pay our creditors.
We have a line of credit with U.S. Bank in the amount of $5 million of which $350,000 is dedicated to standby letters of credit to support international transactions, and $4,650,000 is available. We are currently in compliance with the requirements of our existing line of credit. If we lost this credit it could become impossible to pay some of our creditors on a timely basis.
If we fail to maintain an effective system of internal controls, we may not be able to detect fraud or report our financial results accurately, which could harm our business and we could be subject to regulatory scrutiny.
We have completed a management assessment of internal controls as prescribed by Section 404 of the Sarbanes-Oxley Act, which we were required to do in connection with our year ended August 31, 2011. Based on this process we did not identify any material weaknesses. Although we believe our internal controls are operating effectively, we cannot guarantee that in the future we will not identify any material weaknesses in connection with this ongoing process.
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ITEM 2. PROPERTIES
The Companys executive offices are located at 32775 NW Hillcrest Street, North Plains, OR 97133. The 5.6 acre facility, which is owned, consists of 40,000 square feet of covered space (6,000 office, 10,000 manufacturing, and 24,000 warehouse), a little over three acres of paved yard space, and was completed in October 1995. The facility provides office space for all of the Companys executive offices and is used as a distribution center to service the Companys customer base for JCLC, Greenwood and MSI.
The property associated with JCSC, which is owned, consists of a little over 13 acres of land, 105,000 square feet of buildings, rolling stock, and equipment. It is currently used for seed processing and storage. It is located at 31345 NW Beach Road, Hillsboro, OR 97124, which is adjacent to North Plains, OR. During Fiscal 2010, the Company purchased a seed testing lab located at 31895 NW Hillcrest Street, North Plains, OR 97133. The facility is 2,000 square feet and provides testing facilities for JCSC. The company formerly leased the property for $729 per month until the expiration of the lease on January 4, 2010. At that time, the Company exercised its option to buy the land and building for a total cost of $150,946.
During September 2009, Greenwood functioned out of an approximately 4,000 square foot leased office space located at 5885 SW Meadows Road, Lake Oswego, OR 97035. The lease payment was $7,500 per month, and upon expiration of the lease on September 30, 2009, Greenwood co-located its operations in the building utilized by JCLC and MSI.
We believe that our facilities are currently adequate for our requirements, and that our current equipment is in good condition and is suitable for the operations involved.
ITEM 3. LEGAL PROCEEDINGS
One of our subsidiaries was a plaintiff in a lawsuit filed in Portland, Oregon, entitled, Greenwood Products, Inc. et al v. Greenwood Forest Products, Inc. et al., Case No. 05-02553 (Multnomah County Circuit Court).
During fiscal 2002 the Company entered into a purchase agreement to acquire inventory over a 15 month period with an initial estimated value of $7,000,000 from Greenwood Forest Products, Inc. During the year ended August 31, 2003, the Company completed the final phase of the inventory acquisition. As partial consideration for the purchase of the inventory the Company issued two promissory notes, based on its understanding of the value of the inventory purchased. The Company believes it overpaid the obligation by approximately $820,000. The holder counterclaimed for approximately $2,400,000.
Litigation was completed on March 5, 2007 with the courts general judgment and money award. The net effect was money judgment in favor of Greenwood Forest Products, Inc. for $242,604 and an award of contested intellectual property rights to the Company. The Company accrued reserves to cover the money judgment related to this dispute. Both parties filed appeals for review of the courts opinion.
During the 1st quarter of Fiscal 2011, the Oregon Court of Appeals ruled that the judgment in favor of Jewett Cameron as plaintiffs should be reversed and the judgment in favor of defendants should stand. The judgment in favor of the Company was for $819,000 plus attorneys fees. The judgment against plaintiffs is for $1,187,137. The Company is appealing the decision to the Oregon Supreme Court. Arguments were heard on November 8, 2011, and a decision is forthcoming. In addition to the previously accrued litigation reserve of $225,000, the Company recorded a litigation loss of $962,137 and interest of $440,778 in fiscal 2011 ended August 31, 2011 related to the judgment.
The Company does not know of any other material, active or pending legal proceedings against them; nor is the Company involved as a plaintiff in any other material proceeding or pending litigation. The Company knows of no other active or pending proceedings against anyone that might materially adversely affect an interest of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
--- No Disclosure Necessary ---
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PART II
ITEM 5.
MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Market Information
Our common shares trade on the NASDAQ Capital Market (formerly the NASDAQ Small Cap Market) in the United States. The trading symbol for our common stock is JCTCF and the CUSIP number for the stock is 47733C-20-7. Our common stock began trading on the NASDAQ Small Cap Stock Market in April 1996.
Table No. 1 lists the volume of trading along with the high, low, and closing sales prices on the NASDAQ Capital Market for the Company's common shares. Prices are adjusted to reflect all stock splits.
Table No. 1
NASDAQ Capital Market
Common Shares Trading Activity
(US Dollars)
Period Ended | Volume | High | Low | Closing | |
Monthly | |||||
9/30/11 | 46,500 | $ 9.25 | $ 7.76 | $ 8.70 | |
Quarterly | |||||
8/31/11 | 135,200 | $10.98 | $ 8.68 | $ 9.13 | |
5/31/11 | 264,200 | $10.79 | $ 8.86 | $10.50 | |
2/28/11 | 204,800 | $10.60 | $ 8.77 | $10.60 | |
11/30/10 | 456,400 | $ 9.88 | $ 6.75 | $ 9.35 | |
8/31/10 | 212,400 | $ 7.50 | $ 6.52 | $ 6.85 | |
5/31/10 | 99,500 | $ 8.30 | $ 6.10 | $ 7.00 | |
2/28/10 | 58,300 | $ 7.22 | $ 5.95 | $ 6.30 | |
11/30/09 | 20,100 | $ 7.00 | $ 5.73 | $ 6.65 | |
Annually | |||||
8/31/11 | 1,060,600 | $10.98 | $ 6.75 | $ 9.13 | |
8/31/10 | 390,300 | $ 8.30 | $ 5.73 | $ 6.85 | |
8/31/09 | 239,700 | $ 7.33 | $ 4.00 | $ 5.84 | |
8/31/08 | 432,286 | $10.48 | $ 6.50 | $ 7.34 | |
8/31/07 | 2,821,036 | $12.10 | $ 6.21 | $ 9.15 |
The Companys common shares also trade on the Toronto Stock Exchange in Canada, under the trading symbol JCT. The common stock commenced public trading on the Toronto Stock Exchange in February 1994 following over six years of trading on the Vancouver Stock Exchange.
Table No. 2 lists the volume of trading along with the high, low, and last prices on the Toronto Stock Exchange for the Company's common shares. Prices are adjusted to reflect all stock splits.
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Table No. 2
Toronto Stock Exchange
Common Shares Trading Activity
(Canadian Dollars)
Period Ended | Volume | High | Low | Last | |
Monthly | |||||
9/30/11 | 2,500 | $ 8.75 | $ 8.75 | $ 8.75 | |
Quarterly | |||||
8/31/11 | 6,700 | $10.44 | $ 8.50 | $ 8.50 | |
5/31/11 | 7,100 | $11.00 | $10.00 | $10.45 | |
2/28/11 | 5,000 | $10.09 | $ 8.74 | $10.09 | |
11/30/10 | 3,800 | $ 9.31 | $ 7.00 | $ 9.05 | |
8/31/10 | 1,100 | $ 7.45 | $ 6.95 | $ 7.40 | |
5/31/10 | 3,700 | $ 7.53 | $ 6.45 | $ 7.29 | |
2/28/10 | 3,600 | $ 7.20 | $ 6.45 | $ 6.45 | |
11/30/09 | 2,600 | $ 7.22 | $ 6.25 | $ 7.05 | |
Annually | |||||
8/31/11 | 22,600 | $11.00 | $ 7.00 | $ 8.50 | |
8/31/10 | 11,000 | $ 7.53 | $ 6.25 | $ 7.40 | |
8/31/09 | 9,500 | $ 7.50 | $ 4.00 | $ 6.75 | |
8/31/08 | 7,700 | $ 9.39 | $ 6.49 | $ 7.50 | |
8/31/07 | 65,357 | $11.67 | $ 7.00 | $ 9.50 |
Holders
Computershare Investor Services Inc. which is located in Vancouver, British Columbia, Canada is the registrar and transfer agent for the common shares.
On November 14, 2011 there were 1,908,457 of the Companys common shares outstanding.
Dividends
The Company has not declared any dividends since incorporation and does not anticipate that it will do so in the foreseeable future. The present policy of the Company is to retain earnings for use in its operations, expansion of its business, and the possible repurchase of Company shares. There are no restrictions that limit the ability of the Company to pay dividends on common equity or that are likely to do so in the future.
Recent Sales of Securities: Use of Proceeds from Securities
The Company has sold no securities in the last 3 fiscal years.
Purchases of equity securities by the issuer and affiliated purchasers
During the fiscal years ended August 31, 2010 and 2011, the Company has repurchased common shares through share repurchase plans approved by the Board of Directors in accordance with Rule 10b-18 under the U.S. Securities Exchange Act of 1934.
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On May 25, 2010, the Company announced a share repurchase plan which commenced on June 1, 2010 and terminated on August 17, 2010. Under the Plan, the price paid for any shares was the prevailing market price at the time of the purchase up to a maximum of US$7.00 per share. Other than transactions that may involve the Jewett-Cameron Trading Company Ltd. Employee Stock Ownership Plan, no shares were to be knowingly purchased from Jewett-Cameron insiders or their affiliates. A total of 79,040 common shares were repurchased under this Plan during the 4th quarter of fiscal 2010. Those shares were subsequently cancelled, which reduced the common shares issued and outstanding as of August 31, 2010 to 2,311,937. The average price per share paid was $6.95, and the total cost was $549,151.
On November 3, 2010, the Company announced a share repurchase plan which commenced on November 8, 2010 and terminated on November 30, 2010. 297,072 shares of its common stock were repurchased under the plan and subsequently cancelled. The total cost was $2,450,844 at an average share price of $8.25 per share.
On January 13, 2011, the Company announced a share repurchase plan which commenced on January 24, 2011 and terminated on May 6, 2011. Under this plan, the Company repurchased and cancelled a total of 95,908 common shares, all of which were purchased from the Jewett Cameron Employee Stock Ownership Plan. The total cost of the shares acquired was $911,126 at an average share price of $9.50 per share.
On July 13, 2011, the Company announced the implementation of a new share repurchase plan. Under the new plan, the Company will repurchase and cancel up to 300,000 common shares through the facilities of the NASDAQ Stock Market ("NASDAQ"). Transactions may involve the Jewett-Cameron Trading Company Employee Stock Ownership Plan, and may also involve Jewett-Cameron insiders or their affiliates executed in compliance with Jewett-Cameron's Insider Trading Policy. The share repurchase plan will be effected in accordance with Rule 10b-18 under the U.S. Securities Exchange Act of 1934, which contains restrictions on the number of shares that may be purchased on a single day, subject to certain exceptions for block purchases, based on the average daily trading volumes ("ADTV") of Jewett-Cameron's shares on NASDAQ. Purchases shall be limited to one Block purchase per week in lieu of the 25% of ADTV limitation for compliance with Rule 10b-18(b)(4). A block as defined under Rule 10b-18(a)(5) means a quantity of stock that, among other things, is at least 5,000 shares and has a purchase price of at least US$50,000.
This share repurchase plan commenced on July 25, 2011 and terminated on October 21, 2011. The number of common shares repurchased under the plan is given in the following table.
Month | Number of Shares Repurchased (1) | Average Price Paid | Total Number of Shares Purchased | Maximum Number that may yet be purchased under the Plan |
August 2011 | 10,500 | $ 9.35 | 10,500 | None |
September 2011 | 30,000 * | $ 9.15 | 40,500 | None |
October 2011 | 20,000 | $ 8.99 | 60,500 | None |
(1) Shares were repurchased through the facilities of the NASDAQ Stock Market.
* 28,352 of these shares were purchased from the Jewett Cameron Employee Stock Ownership Plan at an average price of $9.15 per share.
ITEM 6. SELECTED FINANCIAL DATA
--- No Disclosure Necessary for Smaller Reporting Companies ---
ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION
The Companys operations are classified into four reportable segments as follows:
•
Industrial wood products (Greenwood) Distribution of specialty wood products.
•
Lawn, garden, pet and other (JCLC) Wholesaling of wood products and manufacturing and distribution of specialty metal products.
•
Seed processing and sales (JCSC) Processing and distribution of agricultural seed.
•
Industrial tools and clamps (MSI) Importing and distribution of products including pneumatic air tools, industrial clamps, and saw blades.
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Quarterly Results
The following table summarizes quarterly financial results in fiscal 2011 and fiscal 2010. (Figures are thousands of dollars except per share amounts.)
For the Year Ended August 31, 2011 | |||||
First | Second | Third | Fourth | Full | |
Quarter | Quarter | Quarter | Quarter | Year | |
Sales | $ 6,085 | $ 11,860 | $ 12,913 | $ 11,198 | $ 42,056 |
Gross profit | 1,446 | 2,126 | 2,430 | 2,124 | 8,126 |
Net income / (loss) | (846) | 497 | 604 | 647 | 902 |
Basic earnings / (loss) per share | $ (0.37) | $ 0.25 | $ 0.30 | $ 0.34 | $ 0.44 |
Diluted earnings / (loss) per share | $ (0.37) | $ 0.25 | $ 0.30 | $ 0.34 | $ 0.44 |
For the Year Ended August 31, 2010 | |||||
First | Second | Third | Fourth | Full | |
Quarter | Quarter | Quarter | Quarter | Year | |
Sales | $ 7,375 | $ 7,675 | $ 12,487 | $ 14,035 | $ 41,572 |
Gross profit | 1,616 | 1,762 | 2,875 | 2,820 | 9,073 |
Net income | 73 | 204 | 797 | 909 | 1,983 |
Basic earnings per share | $ 0.03 | $ 0.09 | $ 0.33 | $ 0.38 | $ 0.83 |
Diluted earnings per share | $ 0.03 | $ 0.09 | $ 0.33 | $ 0.38 | $ 0.83 |
RESULTS OF OPERATIONS
Fiscal Years Ended August 31, 2011 and August 31, 2010
Sales totaled $42,056,470 in fiscal 2011 compared to sales of $41,572,336 in fiscal 2010, which was an increase of $484,134, or 1%. Sales increased at both JCLC and JCSC due to our efforts to increase our market share, but were somewhat offset due to lower sales at Greenwood from continuing weak demand from boat manufactures and lower sales at MSI.
Gross margin for 2011 was 19.3% in fiscal 2011 compared to 21.8% in fiscal 2010. The gross margins for the current year were negatively affected by higher material and transportation costs. Operating expenses decreased by $523,355 from $5,813,468 in fiscal 2010 to $5,290,113 in fiscal 2011. The decline was primarily due to effective cost controls, particularly in Selling, General and Administrative, which fell to $1,680,428 from $2,162,812. Wages and Employee Benefits was declined slightly to $3,348,143 from $3,386,353 in fiscal 2010. Depreciation and Amortization was largely unchanged at $261,542 in fiscal 2011 compared to $264,303 in fiscal 2010. Due to the higher cost of sales, Income from Operations fell to $2,836,248 from $3,259,102.
Income before income taxes was $1,430,703 in fiscal 2011 compared to $3,258,102 in fiscal 2010. The lower income in the current fiscal year was due to the adverse decision against the Company in its legal proceedings Greenwood Products, Inc. et al v. Greenwood Forest Products, Inc. et al. During the year, the Company recorded a litigation loss of $962,137 and interest expense related to the reserve of $440,778 while the Company appeals the decision to the Oregon Supreme Court. Income tax expense was $528,309 compared to $1,275,288 in the prior fiscal year. The lower expense for the current year was due to an income tax recovery recorded in the second quarter related to the Company's litigation reserve which had the effect of lowering the overall income tax expense for the current year. The Company calculates income tax expense based on combined federal and state rates that are currently in effect.
Net income for 2011 was $902,394, or $0.44 per basic and diluted share, compared to $1,982,814, or $0.83 per basic and diluted share, for 2010. The weighted number of shares outstanding was 2,060,587 in fiscal 2011 compared to 2,389,894 in fiscal 2010. The lower weighted number of shares for the current year was due to the repurchase and cancellation of 403,480 common shares by the Company during fiscal 2011.
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Industrial Wood Products - Greenwood
Sales at Greenwood in fiscal 2011 were $8,498,680 compared to sales of $9,037,087 in fiscal 2010, which was a decrease of $538,407, or 6%. The year over year decline was largely due to continued weak demand for our products. Sales of plywood to boat manufacturers represented approximately 15% and 11% of Greenwoods total sales during 2011 and 2010 respectively, and demand from these customers has been severely affected by weak economic conditions. Boat manufacturers continue to work down excess inventory accumulated over the several years, and until such point, we do not foresee an industry recovery. We continue to develop a readiness to participate when the market rebounds. In the meantime, we have been searching for alternative uses for our industrial wood products and developing new customer relationships. Greenwood had an operating loss of ($343,400) in fiscal 2011 compared to an operating loss of ($534,798) in 2010. The smaller operating loss reflects management's operating expense control at Greenwood, but the current depressed economic conditions continues to be a challenge for this segment.
Lawn, Garden, Pet and Other - JCLC
Sales at JCLC were $26,461,084 in fiscal 2011 compared to sales of $25,468,133 in fiscal 2010, which was an increase of $992,951, or 4%. The increase was primarily due to our ability to increase market share of existing products among current customers. The following table shows a breakdown between the metal and wood categories in this segment.
Sales in Millions of Dollars
Percent of Total Sales
Fiscal Year
Metal
Wood
Total
Metal
Wood
Total
2011
$20.2
$6.3
$26.5
76%
24%
100%
2010
$19.5
$6.0
$25.5
76%
24%
100%
Operating income at JCLC for 2011 was $2,967,668 compared to operating income of $4,072,649 in 2010. Although sales in the segment increased by 4%, operating income decreased by 27% due to higher raw materials and transportation costs.
Seed Processing and Sales - JCSC
Sales at JCSC were $5,197,530 in fiscal 2011 compared to sales of $4,335,392 in fiscal 2010, which represents an increase of $862,138, or 20%. The increase is due to successful sales efforts of existing products to new customers. Higher cereal and livestock feed prices have caused a shift by some growers to grains, which have begun to have a positive effect on surpluses and wholesale prices. However, demand remains relatively weak, primarily from the new home construction and golf course industry in North America. Operating income at JCSC was $215,910 compared to an operating loss of ($316,513) in 2010. The fiscal 2010 results were negatively affected by a one-time ($463,498) inventory write-down due to the significant decrease in market value which was recorded in November 2009.
Industrial Tools and Clamps - MSI
Sales at MSI were $1,899,176 in fiscal 2011 compared to sales of $2,731,725 in fiscal 2010, which was a decrease of $832,549 or 30%. Operating income at MSI was $97,974 in fiscal 2011 compared to operating income of $129,640 in 2010, which was a decrease of $31,666 or 24%. These decreases were due to weak economic conditions, primarily in the housing industry.
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LIQUIDITY AND CAPITAL RESOURCES
Fiscal Year Ended August 31, 2011
As of August 31, 2011, the Company had working capital of $14,970,148 compared to working capital of $17,336,242 as of August 31, 2010, which represents a decrease of $2,366,094. The largest changes affecting working capital were a decrease in cash of ($1,936,187) which was primarily due to the expenditure of ($3,460,145) for the repurchase and cancellation of shares. Prepaid expenses increased $791,644, primarily due to an increase in prepayments made to contract manufacturers on inventory purchase orders. Prepaid income taxes also increased by $682,527. Current Liabilities increased to $3,089,026 as of August 31, 2011 from $1,612,164 as of August 31, 2010. The largest component of the increase was the Litigation Reserve of $1,627,915 related to the adverse decision against the Company in its legal proceedings. Accounts Payable increased by $54,100 and Accrued Liabilities fell by $197,020. The ratio of current assets to current liabilities or current ratio as of August 31, 2011 was 5.85.
For the fiscal year ended August 31, 2011, the accounts receivable collection period or DSO was 34 days compared to 34 days for the year ended August 31, 2010. Inventory turnover for the year ended August 31, 2011 was 65 days compared to 74 days for the year ended August 31, 2010.
Based on the Companys 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 for the coming fiscal year.
Short-term and Long-term Debt
External sources of liquidity include a line of credit from U.S. Bank of $5,000,000 of which $350,000 is presently dedicated to standby letters of credit to support international transactions. At August 31, 2011, the Company had no borrowing balance leaving $4,650,000 available. Borrowing under the line of credit is secured by an assignment of accounts receivable and inventory. The interest rate is calculated solely on the one month LIBOR rate plus 200 basis points. As of August 31, 2011 the one month LIBOR rate plus 200 basis points was 2.21% (0.21% + 2.00%). The line of credit has certain financial covenants. The Company is in compliance with these covenants.
During 2009, the Company repaid in full the remaining balance on a promissory note payable to U.S. Bank due on June 15, 2010. This loan was secured by the property at the Companys headquarters location in North Plains, Oregon. The interest rate on this loan was 6.52%, and monthly payments including principal and interest was $16,601.
OTHER MATTERS
Contractual Obligations and Commercial Commitments
The Company currently has no contractual obligations or commercial commitments.
Inflation
The Company does not believe that inflation had a material impact during fiscal 2011 or 2010. Typically the Company passes price increases on to the customer.
Critical Accounting Policies
Management is required to make judgments, estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements, the disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. On a regular basis, we evaluate our estimates and assumptions. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Actual results may differ from these estimates under different assumptions or conditions.
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During the year ended August 31, 2011, the Company did not adopt any new accounting policy that would have a material impact on the consolidated financial statements, nor did it make changes to accounting policies. Senior Management has discussed with the Audit Committee the development, selection and disclosure of accounting estimates used in the preparation of the consolidated financial statements.
Recent Accounting Pronouncements
In January 2010, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2010-06, Improving Disclosures about Fair Value Measurements, which amends existing disclosure requirements under ASC 820. ASU No. 2010-06 requires new disclosures for significant transfers between Levels 1 and 2 in the fair value hierarchy and separate disclosures for purchases, sales, issuances, and settlements in the reconciliation of activity for Level 3 fair value measurements. This ASU also clarifies the existing fair value disclosures regarding the level of disaggregation and the valuation techniques and inputs used to measure fair value. ASU No. 2010-06 will only impact disclosures and is effective for interim and annual reporting periods beginning after December 15, 2009, except for the disclosures on purchases, sales, issuances and settlements in the roll forward of activity for Level 3 fair value measurements. Those disclosures are effective for interim and annual periods beginning after December 15, 2010. Other than requiring additional disclosures, adoption of this new guidance did not have and is not expected to have a material impact on the Companys financial statements.
In April 2010, the FASB issued ASU No. 2010-17, "Revenue RecognitionMilestone Method" which provides guidance on applying the milestone method of revenue recognition for milestone payments for achieving specific performance measures when those payments are related to uncertain future events. The guidance is effective on a prospective basis to milestones achieved in fiscal years, and interim periods within those years, beginning on or after June 15, 2010. The adoption of this new guidance did not have a material impact on the Companys financial statements.
In May 2011, the FASB issued ASU No. 2011-04, "Fair Value Measurement Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRS", which provides guidance to achieve common fair value measurement and disclosure requirements between GAAP and International Financial Reporting Standards. This guidance amends current fair value measurement and disclosure guidance to include increased transparency around valuation inputs and investment categorization. The guidance is effective for fiscal years and interim periods beginning after December 15, 2011. We do not believe our adoption of this new guidance in the first quarter of 2012 will have a material impact on the Companys financial statements.
In June 2011, the FASB issued ASU No. 2011-05, "Presentation of Comprehensive Income" which provides guidance regarding presentation of other comprehensive income in the financial statements. This guidance will eliminate the option under GAAP to present other comprehensive income in the statement of changes in equity. Under the guidance, the Company will have the option to present the components of net income and comprehensive income in either one or two consecutive financial statements. The guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. The adoption of this new guidance is not expected to have a material impact on the Companys financial statements.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate Risk
The Company did not have any derivative financial instruments as of August 31, 2011, and the Company does not use derivative instruments for trading purposes.
Changes in U.S. interest rates affect the interest earned on the Companys cash equivalents as well as interest paid on debt. The Company has a line of credit with an interest rate based on 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 Companys results from operations.
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Foreign Currency Risk
The Company operates primarily in the United States. However, a relatively small amount of business is conducted in currencies other than U.S. dollars. Also, to the extent that the Company uses contract manufacturers in China, currency exchange rates can influence the Companys purchasing costs.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
The financial statements and notes thereto are attached hereto. The audit report of Davidson & Company, LLP is included herein immediately preceding the audited financial statements.
Audited Financial Statements: fiscal 2011 and 2010
Report of Independent Registered Accounting Firm dated November 14, 2011
Consolidated Balance Sheets
Balance Sheets at 8/31/2011 and 8/31/2010
Consolidated Statements of Operations
For the years ended 8/31/2011 and 8/31/2010
Consolidated Statements of Stockholders Equity
For the years ended 8/31/2011 and 8/31/2010
Consolidated Statements of Cash Flows
For the years ended 8/31/2011 and 8/31/2010
Notes to Financial Statements
Report of Independent Registered Accounting Firm dated November 14, 2011
Schedule II: Valuation and Qualifying Accounts
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JEWETT-CAMERON TRADING COMPANY LTD. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars)
AUGUST 31, 2011
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and the Board of Directors of
Jewett-Cameron Trading Company Ltd. and Subsidiaries
We have audited the accompanying consolidated balance sheets of Jewett-Cameron Trading Company Ltd. and Subsidiaries as of August 31, 2011 and 2010, and the related consolidated statements of operations, stockholders' equity and cash flows for the years then ended. Jewett-Cameron Trading Company Ltd. and Subsidiaries' management is responsible for these financial statements. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, 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 financial statements referred to above present fairly, in all material respects, the financial position of Jewett-Cameron Trading Company Ltd. and Subsidiaries as of August 31, 2011 and 2010, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.
DAVIDSON & COMPANY LLP
Vancouver, Canada | Chartered Accountants |
November 14, 2011 |
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JEWETT-CAMERON TRADING COMPANY LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Expressed in U.S. Dollars)
AS OF AUGUST 31
2011 | 2010 | ||
ASSETS | |||
Current assets | |||
Cash and cash equivalents | $ 6,774,127 | $ 8,710,314 | |
Accounts receivable, net of allowance of $0 (August 31, 2010 - $17,593) | 3,897,086 | 3,874,114 | |
Inventory, net of allowance of $204,860 (August 31, 2010 - $221,200) (note 3) | 5,815,593 | 6,265,782 | |
Note receivable | 41,500 | 41,500 | |
Prepaid expenses | 848,341 | 56,696 | |
Prepaid income taxes | 682,527 | - | |
Total current assets | 18,059,174 | 18,948,406 | |
Property, plant and equipment, net (note 4) | 1,850,037 | 1,926,031 | |
Intangible assets, net (note 5) | 510,771 | 585,714 | |
Deferred income taxes (note 6) | 157,862 | 198,582 | |
Total assets | $ 20,577,844 | $ 21,658,733 |
- Continued -
The accompanying notes are an integral part of these consolidated financial statements.
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JEWETT-CAMERON TRADING COMPANY LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Expressed in U.S. Dollars)
AS OF AUGUST 31
2011 | 2010 | ||
Continued | |||
LIABILITIES AND STOCKHOLDERS EQUITY | |||
Current liabilities | |||
Accounts payable | $ 519,265 | $ 465,165 | |
Litigation reserve (Note 13(a)) | 1,627,915 | - | |
Accrued liabilities | 941,846 | 1,138,866 | |
Accrued income taxes | - | 8,133 | |
Total current liabilities | 3,089,026 | 1,612,164 | |
Contingent liabilities and commitments (note 13) | |||
Stockholders equity | |||
Capital stock (note 8) | |||
Authorized | |||
20,000,000 common shares, without par value | |||
10,000,000 preferred shares, without par value | |||
Issued | |||
1,908,457 common shares (August 31, 2010 - 2,311,937) | 1,801,043 | 2,181,814 | |
Additional paid-in capital | 600,804 | 600,804 | |
Retained earnings | 15,086,971 | 17,263,951 | |
| |||
Total stockholders equity | 17,488,818 | 20,046,569 | |
| |||
Total liabilities and stockholders equity | $ 20,577,844 | $ 21,658,733 | |
|
The accompanying notes are an integral part of these consolidated financial statements.
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JEWETT-CAMERON TRADING COMPANY LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Expressed in U.S. Dollars)
YEAR ENDED AUGUST 31
2011 | 2010 | ||
SALES | $ 42,056,470 | $ 41,572,336 | |
COST OF SALES | 33,930,109 | 32,499,766 | |
GROSS PROFIT | 8,126,361 | 9,072,570 | |
OPERATING EXPENSES | |||
Selling, general and administrative | 1,680,428 | 2,162,812 | |
Depreciation and amortization | 261,542 | 264,303 | |
Wages and employee benefits | 3,348,143 | 3,386,353 | |
5,290,113 | 5,813,468 | ||
Income from operations | 2,836,248 | 3,259,102 | |
OTHER ITEMS | |||
Gain (loss) on sale of property, plant and equipment | (2,652) | 3,008 | |
Interest and other income (loss) | (30) | 12,223 | |
Interest expense | (440,726) | (16,231) | |
Litigation loss (note 13(a)) | (962,137) | - | |
(1,405,545) | (1,000) | ||
Income before income taxes | 1,430,703 | 3,258,102 | |
Income taxes (note 6) | |||
Current | 487,589 | 1,212,090 | |
Deferred | 40,720 | 63,198 | |
Net income for the year | $ 902,394 | $ 1,982,814 | |
Basic earnings per common share | $ 0.44 | $ 0.83 | |
Diluted earnings per common share | $ 0.44 | $ 0.83 | |
Weighted average number of common shares outstanding: | |||
Basic | 2,060,587 | 2,389,894 | |
Diluted | 2,060,587 | 2,389,894 |
The accompanying notes are an integral part of these consolidated financial statements.
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JEWETT-CAMERON TRADING COMPANY LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(Expressed in U.S. Dollars)
YEAR ENDED AUGUST 31
Common Stock | |||||
Number of Shares | Amount | Additional paid-in capital | Retained earnings | Total | |
August 31, 2009 | 2,390,977 | $ 2,256,112 | $ 600,804 | $ 15,755,990 | $ 18,612,906 |
Shares repurchased and cancelled (note 9) | (79,040) | (74,298) | - | (474,853) | (549,151) |
Net income | - | - | - | 1,982,814 | 1,982,814 |
August 31, 2010 | 2,311,937 | 2,181,814 | 600,804 | 17,263,951 | 20,046,569 |
Shares repurchased and cancelled (note 9) | (403,480) | (380,771) | - | (3,079,374) | (3,460,145) |
Net income | - | - | - | 902,394 | 902,394 |
August 31, 2011 | 1,908,457 | $ 1,801,043 | $ 600,804 | $ 15,086,971 | $ 17,488,818 |
The accompanying notes are an integral part of these consolidated financial statements.
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JEWETT-CAMERON TRADING COMPANY LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Expressed in U.S. Dollars)
YEAR ENDED AUGUST 31
2011 | 2010 | ||
CASH FLOWS FROM OPERATING ACTIVITIES | |||
Net income | $ 902,394 | $ 1,982,814 | |
Items not affecting cash: | |||
Depreciation and amortization | 261,542 | 264,303 | |
Gain (loss) on sale of property, plant and equipment | 2,652 | (3,008) | |
Deferred income taxes | 40,720 | 63,198 | |
Changes in non-cash working capital items: | |||
Increase in accounts receivable | (22,972) | (270,198) | |
Decrease in inventory | 450,189 | 689,029 | |
(Increase) decrease in prepaid expenses | (791,645) | 104,113 | |
Increase in prepaid income taxes | (682,527) | - | |
Increase (decrease) in accounts payable and accrued liabilities | 1,484,995 | (212,491) | |
Increase (decrease) in accrued income taxes | (8,133) | 51,938 | |
Net cash provided by operating activities | 1,637,215 | 2,669,698 | |
CASH FLOWS FROM INVESTING ACTIVITIES | |||
Proceeds on sale of property, plant and equipment | 5,450 | 6,500 | |
Purchase of property, plant and equipment | (118,707) | (245,380) | |
Net cash used in investing activities | (113,257) | (238,880) | |
CASH FLOWS FROM FINANCING ACTIVITIES | |||
Redemption of common stock | (3,460,145) | (549,075) | |
Net cash used in financing activities | (3,460,145) | (549,075) | |
Net increase / (decrease) in cash and cash equivalents | (1,936,187) | 1,881,743 | |
Cash and cash equivalents, beginning of year | 8,710,314 | 6,828,571 | |
Cash and cash equivalents, end of year | $ 6,774,127 | $ 8,710,314 |
Supplemental disclosure with respect to cash flows (note 16)
The accompanying notes are an integral part of these consolidated financial statements.
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JEWETT-CAMERON TRADING COMPANY LTD. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars)
1.
NATURE OF OPERATIONS
Jewett-Cameron Trading Company Ltd. was incorporated in British Columbia on July 8, 1987 as a holding company for Jewett-Cameron Lumber Corporation (JCLC), incorporated September 1953. Jewett-Cameron Trading Company, Ltd. acquired all the shares of JCLC through a stock-for-stock exchange on July 13, 1987, and at that time JCLC became a wholly owned subsidiary. JCLC has the following wholly owned subsidiaries: MSI-PRO Co. (MSI), incorporated April 1996, Jewett-Cameron Seed Company, (JCSC), incorporated October 2000, and Greenwood Products, Inc. (Greenwood), incorporated February 2002. Jewett-Cameron Trading Company, Ltd. and its subsidiaries (the Company) have no significant assets in Canada.
The Company, through its subsidiaries, operates out of facilities located in North Plains, Oregon. JCLCs business consists of warehouse distribution and direct sales of wood products and specialty metal products to home centers and other retailers located primarily in the United States. Greenwood is a processor and distributor of industrial wood and other specialty building products principally to customers in the marine and transportation industries in the United States. MSI is an importer and distributor of pneumatic air tools and industrial clamps in the United States. JCSC is 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 conformity with generally accepted accounting principles of the United States of America.
Principles of consolidation
These consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries, JCLC, MSI, JCSC, and Greenwood, 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 consolidated financial statements in conformity with generally accepted accounting principles in the United States of America 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. Significant estimates incorporated into the Companys consolidated financial statements include the estimated useful lives for depreciable and amortizable assets, the estimated allowances for doubtful accounts receivable and inventory obsolescence, possible product liability and possible product returns, and litigation contingencies and claims. Actual results could differ from those estimates.
Cash and cash equivalents
The Company considers cash and cash equivalents to be highly liquid in nature. At August 31, 2011, cash and cash equivalents were $6,774,127 compared to $8,710,314 at August 31, 2010.
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JEWETT-CAMERON TRADING COMPANY LTD. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars)
2.
SIGNIFICANT ACCOUNTING POLICIES (contd )
Accounts receivable
Trade and other accounts receivable are reported at face value less any provisions for uncollectible accounts considered necessary. Accounts receivable primarily includes trade receivables from customers. The Company estimates doubtful accounts on an item-by-item basis and includes over aged accounts as part of allowance for doubtful accounts, which are generally ones that are ninety days or greater overdue.
The Company extends credit to domestic customers and offers discounts for early payment. When extension of credit is not advisable, the Company relies on either prepayment or a letter of credit.
Inventory
Inventory, which consists primarily of finished goods, is recorded at the lower of cost, based on the average cost method, and market. Market is defined as net realizable value. An allowance for potential non-saleable inventory due to excess stock or obsolescence is based upon a review of inventory components.
Property, plant and equipment
Property, plant and equipment are recorded at cost less accumulated depreciation. 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 |
Intangibles
The Companys intangible assets have a finite life and are recorded at cost. The most significant intangible assets are two patents related to gate support systems. Amortization is calculated using the straight-line method over the remaining lives of 78 months and 90 months, respectively, and are reviewed annually for impairment.
Asset retirement obligations
The Company records the fair value of an asset retirement obligation as a liability in the period in which it incurs a legal obligation associated with the retirement of tangible long-lived assets that result from the acquisition, construction, development, and normal use of the long-lived assets. The Company also records a corresponding asset which is amortized over the life of the asset. Subsequent to the initial measurement of the asset retirement obligation, the obligation is adjusted at the end of each period to reflect the passage of time (accretion expense) and changes in the estimated future cash flows underlying the obligation (asset retirement cost). The Company does not have any significant asset retirement obligations.
Impairment of long-lived assets and long-lived assets to be disposed of
Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount and the fair value less costs to sell.
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JEWETT-CAMERON TRADING COMPANY LTD. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars)
2.
SIGNIFICANT ACCOUNTING POLICIES (contd )
Currency and foreign exchange
These financial statements are expressed in U.S. dollars as the Company's operations are based only in the United States. Any amounts expressed in Canadian dollars are indicated as such.
The Company does not have non-monetary or monetary assets and liabilities that are in a currency other than the U.S. dollar. Any income statement transactions in a foreign currency are translated at rates that approximate those in effect at the time of translation. Gains and losses from translation of foreign currency transactions into U.S. dollars are included in current results of operations.
Earnings per share
Basic earnings per common share is computed by dividing net income available to common shareholders by the weighted average number of common shares outstanding in the period. Diluted earnings per common 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 fiscal years ended August 31, 2011 and 2010 are as follows:
2011 | 2010 | |||
Net income | $ 902,394 | $ 1,982,814 | ||
Basic weighted average number of common shares outstanding | 2,060,587 | 2,389,894 | ||
Effect of dilutive securities | ||||
Stock options | - | - | ||
Diluted weighted average number of common shares outstanding | 2,060,587 | 2,389,894 | ||
Comprehensive income
The Company has no items of other comprehensive income in any period presented. Therefore, net income presented in the consolidated statements of operations equals comprehensive income.
Stock-based compensation
All stock-based compensation is recognized as an expense in the financial statements and such costs are measured at the fair value of the award.
No options were granted during the year ended August 31, 2011, and there were no options outstanding on August 31, 2011.
- 26 -
JEWETT-CAMERON TRADING COMPANY LTD. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars)
2.
SIGNIFICANT ACCOUNTING POLICIES (contd )
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 cash equivalents - the carrying amount approximates fair value because the amounts consist of cash held at a bank and cash held in short term investment accounts.
Accounts receivable - the carrying amounts approximate fair value due to the short-term nature and historical collectability.
Notes receivable - the carrying amounts approximate fair value due to the short-term nature of the amount.
Accounts payable and accrued liabilities - the carrying amount approximates fair value due to the short-term nature of the obligations.
The estimated fair values of the Company's financial instruments as of August 31, 2011 and 2010 follows:
2011 | 2010 | |||||
Carrying | Fair | Carrying | Fair | |||
Amount | Value | Amount | Value | |||
Cash and cash equivalents | $6,774,127 | $6,774,127 | $8,710,314 | $8,710,314 | ||
Accounts receivable | 3,897,086 | 3,897,086 | 3,874,114 | 3,874,114 | ||
Note receivable | 41,500 | 41,500 | 41,500 | 41,500 | ||
Accounts payable and accrued liabilities | 1,461,111 | 1,461,111 | 1,604,031 | 1,604,031 |
The following table presents information about the assets that are measured at fair value on a recurring basis as of August 31, 2011, and indicates the fair value hierarchy of the valuation techniques the Company utilized to determine such fair value. In general, fair values determined by Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets. Fair values determined by Level 2 inputs utilize data points that are observable such as quoted prices, interest rates and yield curves. Fair values determined by Level 3 inputs are unobservable data points for the asset or liability, and included situations where there is little, if any, market activity for the asset:
|
| August 31, 2011 |
| Quoted Prices |
| Significant |
| Significant |
| |||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
| |
Cash and cash equivalents |
| $ | 6,774,127 |
| $ | 6,774,127 |
| $ | |
| $ | |
|
The fair values of cash and cash equivalents are determined through market, observable and corroborated sources.
- 27 -
JEWETT-CAMERON TRADING COMPANY LTD. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars)
2.
SIGNIFICANT ACCOUNTING POLICIES (contd )
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.
The Company incurs certain expenses related to preparing, packaging and shipping its products to its customers, mainly third-party transportation fees. All costs related to these activities are included as a component of cost of goods sold in the consolidated statement of operations. All costs billed to the customer are included as revenue in the consolidated statement of operations.
.
Revenue recognition
The Company recognizes revenue from the sales of lumber, building supply products, industrial wood products and specialty metal products and other specialty products and tools, when the products are shipped, title passes, and the ultimate collection is reasonably assured. Revenue from the Company's seed operations is generated from 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.
Reclassifications
Certain reclassifications have been made to prior periods financial statements to conform to the classifications used in the current period.
Recent Accounting Pronouncements
In January 2010, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2010-06, Improving Disclosures about Fair Value Measurements, which amends existing disclosure requirements under ASC 820. ASU No. 2010-06 requires new disclosures for significant transfers between Levels 1 and 2 in the fair value hierarchy and separate disclosures for purchases, sales, issuances, and settlements in the reconciliation of activity for Level 3 fair value measurements. This ASU also clarifies the existing fair value disclosures regarding the level of disaggregation and the valuation techniques and inputs used to measure fair value. ASU No. 2010-06 will only impact disclosures and is effective for interim and annual reporting periods beginning after December 15, 2009, except for the disclosures on purchases, sales, issuances and settlements in the roll forward of activity for Level 3 fair value measurements. Those disclosures are effective for interim and annual periods beginning after December 15, 2010. Other than requiring additional disclosures, adoption of this new guidance did not have and is not expected to have a material impact on the Companys financial statements.
- 28 -
JEWETT-CAMERON TRADING COMPANY LTD. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars)
2.
SIGNIFICANT ACCOUNTING POLICIES (contd )
In April 2010, the FASB issued ASU No. 2010-17, "Revenue RecognitionMilestone Method" which provides guidance on applying the milestone method of revenue recognition for milestone payments for achieving specific performance measures when those payments are related to uncertain future events. The guidance is effective on a prospective basis to milestones achieved in fiscal years, and interim periods within those years, beginning on or after June 15, 2010. The adoption of this new guidance did not have a material impact on the Companys financial statements.
In May 2011, the FASB issued ASU No. 2011-04, "Fair Value Measurement Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRS", which provides guidance to achieve common fair value measurement and disclosure requirements between GAAP and International Financial Reporting Standards. This guidance amends current fair value measurement and disclosure guidance to include increased transparency around valuation inputs and investment categorization. The guidance is effective for fiscal years and interim periods beginning after December 15, 2011. We do not believe our adoption of this new guidance in the first quarter of 2012 will have a material impact on the Companys financial statements.
In June 2011, the FASB issued ASU No. 2011-05, "Presentation of Comprehensive Income" which provides guidance regarding presentation of other comprehensive income in the financial statements. This guidance will eliminate the option under GAAP to present other comprehensive income in the statement of changes in equity. Under the guidance, the Company will have the option to present the components of net income and comprehensive income in either one or two consecutive financial statements. The guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. The adoption of this new guidance is not expected to have a material impact on the Companys financial statements.
3.
INVENTORY
A summary of inventory as of August 31, 2011 and 2010 follows:
2011 | 2010 | |||
Wood products and metal products | $ 4,926,121 | $ 5,656,361 | ||
Industrial tools | 456,523 | 479,494 | ||
Agricultural seed products | 432,949 | 129,927 | ||
$ 5,815,593 | $ 6,265,782 |
- 29 -
JEWETT-CAMERON TRADING COMPANY LTD. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars)
4.
PROPERTY, PLANT AND EQUIPMENT
A summary of property, plant, and equipment as of August 31, 2011 and 2010 follows:
2011 | 2010 | |||
Office equipment | $ 612,709 | $ 638,030 | ||
Warehouse equipment | 1,136,002 | 1,321,884 | ||
Buildings | 2,339,815 | 2,181,990 | ||
Land | 615,213 | 635,381 | ||
4,703,739 | 4,777,285 | |||
Accumulated depreciation | (2,853,702) | (2,851,254) | ||
Net book value | $ 1,850,037 | $ 1,926,031 |
In the event that facts and circumstances indicate that the carrying amount of an asset may not be recoverable and an estimate of future discounted 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 in its assets. 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.
INTANGIBLE ASSETS
A summary of intangible assets as of August 31, 2011 and 2010 follows:
2011 | 2010 | |||
Patent | $ 850,000 | $ 850,000 | ||
Other | 30,605 | 30,605 | ||
880,605 | 880,605 | |||
Accumulated amortization | (369,834) | (294,891) | ||
Net book value | $ 510,771 | $ 585,714 |
- 30 -
JEWETT-CAMERON TRADING COMPANY LTD. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars)
6.
INCOME TAXES
A reconciliation of the provision for income taxes with amounts determined by applying the statutory U.S. federal income tax rate to income before income taxes is as follows:
2011 | 2010 | |||
Computed tax at the federal statutory rate | $ 429,518 | $ 1,028,104 | ||
State taxes, net of federal benefit | 40,164 | 158,207 | ||
Depreciation | 18,456 | (7,964) | ||
Inventory reserve | 15,365 | 76,597 | ||
Other | 24,806 | 20,344 | ||
Provision for income taxes | $ 528,309 | $ 1,275,288 | ||
Current income taxes | $ 487,589 | $ 1,212,090 | ||
Deferred income taxes | 40,720 | 63,198 | ||
$ 528,309 | $ 1,275,288 |
Deferred income tax assets as of August 31, 2011 of $157,862 (August 31, 2010 - $198,582) 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.
2011 | 2010 | |||
Deferred tax assets: | ||||
Allowance for inventory | $ 140,202 | $ 155,567 | ||
Allowance for bad debts | - | 6,899 | ||
Difference between book and tax depreciation | 17,660 | 36,116 | ||
Total deferred tax assets | 157,862 | 198,582 | ||
Valuation allowance | - | - | ||
Net deferred tax assets | $ 157,862 | $ 198,582 |
7.
BANK INDEBTEDNESS
There was no bank indebtedness under the Companys line of credit as of August 31, 2011 or August 31, 2010.
Bank indebtedness, when it exists, is secured by an assignment of accounts receivable and inventory. Interest is calculated solely on the one month LIBOR rate plus 200 basis points.
8.
CAPITAL STOCK
Common 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.
- 31 -
JEWETT-CAMERON TRADING COMPANY LTD. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars)
9.
CANCELLATION OF CAPITAL STOCK
Treasury stock may be kept based on an acceptable inventory method such as average cost basis. Upon disposition of cancellation, the treasury stock account is credited for an amount equal to the number of shares cancelled, multiplied by the cost per share and the difference is treated as paid-in-capital in excess of stated value.
During the 4th quarter of Fiscal 2011, the Company repurchased and cancelled a total of 10,500 shares of its common stock under a 10b5-1 share re-purchase plan. The total cost was $98,175 at an average share price of $9.35 per share. The premium paid to acquire these shares over their per share book value in the amount of $88,266 was recorded as a decrease to retained earnings.
During the 3rd quarter of Fiscal 2011, the Company repurchased and cancelled a total of 95,908 shares of its common stock under a 10b5-1 share re-purchase plan. The total cost was $911,126 at an average share price of $9.50 per share. The premium paid to acquire these shares over their per share book value in the amount of $820,616 was recorded as a decrease to retained earnings.
During the 1st quarter of Fiscal 2011, the Company repurchased and cancelled a total of 297,072 shares of its common stock under a 10b5-1 share re-purchase plan. The total cost was $2,450,844 at an average share price of $8.25 per share. The premium paid to acquire these shares over their per share book value in the amount of $2,170,492 was recorded as a decrease to retained earnings.
During the 4th quarter of Fiscal 2010, the Company re-purchased and cancelled a total of 79,040 shares of its common stock under a 10b5-1 share re-purchase plan. The total cost was $549,151 at an average share price of $6.95 per share. The premium paid to acquire these shares over their per share book value in the amount of $474,853 was recorded as a decrease to retained earnings.
10.
STOCK OPTIONS
The Company has a stock option program 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 favor 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. Generally, no option can be for a term of more than 10 years from the date of the grant.
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. Options vest at the discretion of the board of directors.
The Company had no stock options outstanding as of the years ended August 31, 2011 and August 31, 2010.
- 32 -
JEWETT-CAMERON TRADING COMPANY LTD. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars)
11.
EMPLOYEE STOCK OWNERSHIP PLAN (ESOP)
The Company sponsors an 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, or voting control 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 records compensation expense based on the market price of the Company shares when they are allocated. Any dividends on allocated ESOP shares are recorded as a reduction of retained earnings. ESOP compensation expense was $141,518 and $146,677 for the fiscal years ended August 31, 2011 and 2010, respectively, and is included in wages and employee benefits. The ESOP shares as of August 31 were as follows:
2011 | 2010 | |||
Shares owned by ESOP | 224,939 | 349,456 |
12.
PENSION AND PROFIT-SHARING PLANS
The Company has a deferred compensation 401(k) plan for all employees with at least 12 months of service pending a semi-annual enrollment time. For the years ended August 31, 2011 and 2010 the 401(k) compensation expense was $53,432 and $75,366, respectively. In 2009, the Company contributed 3% of the first $100,000 of eligible compensation. In 2010, the plan was amended to allow for a non-elective discretionary contribution based on the first $60,000 of eligible compensation.
13.
CONTINGENT LIABILITIES AND COMMITMENTS
a)
A subsidiary was a plaintiff in a lawsuit filed in Portland, Oregon, entitled, Greenwood Products, Inc. et al v. Greenwood Forest Products, Inc. et al., Case No. 05-02553 (Multnomah County Circuit Court).
During fiscal 2002 the Company entered into a purchase agreement to acquire inventory over a 15 month period with an initial estimated value of $7,000,000 from Greenwood Forest Products, Inc. During the year ended August 31, 2003, the Company completed the final phase of the inventory acquisition. As partial consideration for the purchase of the inventory the Company issued two promissory notes, based on its understanding of the value of the inventory purchased. The Company believes it overpaid the obligation by approximately $820,000. The holder counterclaimed for approximately $2,400,000.
Litigation was completed on March 5, 2007, with the courts general judgment and money award. The net effect was money judgment in favor of Greenwood Forest Products, Inc. for $242,604. The Company accrued reserves to cover the money judgment related to this dispute. Both parties filed appeals for review of the courts opinion.
During the 1st quarter of Fiscal 2011, the Oregon Court of Appeals ruled that the judgment in favor of Jewett Cameron as plaintiffs should be reversed and the judgment in favor of defendants should stand. The judgment in favor of the Company was for $819,000 plus attorneys fees. The judgment against plaintiffs is for $1,187,137. The Company is appealing the decision to the Oregon Supreme Court. Arguments were heard on November 8, 2011, and a decision is forthcoming. During the 1st quarter of fiscal 2011, the Company recorded a litigation loss of $962,137 and interest of $391,988 in addition to the existing litigation reserve of $225,000. Additional interest of $48,790 was recorded during the remainder of the fiscal year.
- 33 -
JEWETT-CAMERON TRADING COMPANY LTD. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars)
13.
CONTINGENT LIABILITIES AND COMMITMENTS (contd )
A summary of the litigation reserve is as follows:
August 31, 2011 | August 31, 2010 | |||
Litigation loss | $ 962,137 | $ - | ||
Litigation reserve | 225,000 | 225,000 | ||
Interest | 440,778 | - | ||
Total | $ 1,627,915 | $ 225,000 | * |
*
As of August 31, 2010, this amount is included in accrued liabilities.
b)
Greenwood formerly leased office premises pursuant to operating leases. During September 2009, Greenwood functioned out of an approximately 4,000 square foot leased office space located at 5885 SW Meadows Road, Lake Oswego, OR 97035. Upon expiration of the lease on September 30, 2009, Greenwood co-located its operations in the building utilized by JCLC and MSI. For the years ended August 31, 2011 and 2010 rental expense was $Nil and $8,082, respectively.
JCLC formerly leased office premises pursuant to an operating lease which expired on January 4, 2010. At that time, JCLC purchased the building it had formerly been leasing. For the years ended August 31, 2011 and 2010 rental expense was $Nil and $4,275, respectively.
c)
At August 31, 2011 and August 31, 2010 the Company had an un-utilized line-of-credit of $5,000,000 (note 7). The line-of-credit has certain financial covenants. The Company is in compliance with these covenants.
14.
SEGMENT INFORMATION
The Company has four principal reportable segments. These reportable segments were determined based on the nature of the products offered. Reportable segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker 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.
Following is a summary of segmented information for the years ended August 31:
2011 | 2010 | |||
Sales to unaffiliated customers: | ||||
Industrial wood products | $ 8,498,680 | $ 9,037,087 | ||
Lawn, garden, pet and other | 26,461,084 | 25,468,133 | ||
Seed processing and sales | 5,197,530 | 4,335,392 | ||
Industrial tools and clamps | 1,899,176 | 2,731,724 | ||
$ 42,056,470 | $ 41,572,336 |
- 34 -
JEWETT-CAMERON TRADING COMPANY LTD. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars)
14.
SEGMENT INFORMATION (contd )
Income (loss) before income taxes: | ||||
Industrial wood products | $ (350,378) | $ (551,713) | ||
Lawn, garden, pet and other | 2,882,208 | * | 4,001,621 | |
Seed processing and sales | 180,527 | (353,174) | ||
Industrial tools and clamps | 73,218 | 103,243 | ||
Unallocated overhead | 48,043 | 58,125 | ||
$ 2,833,618 | $ 3,258,102 | |||
Identifiable assets: | ||||
Industrial wood products | $ 2,814,024 | $ 2,974,842 | ||
Lawn, garden, pet and other | 16,265,811 | 17,635,898 | ||
Seed processing and sales | 917,012 | 425,348 | ||
Industrial tools and clamps | 586,897 | 608,520 | ||
Unallocated overhead | (5,900) | 14,125 | ||
$ 20,577,844 | $ 21,658,733 | |||
Depreciation and amortization: | ||||
Industrial wood products | $ 1,737 | $ 3,014 | ||
Lawn, garden, pet and other | 236,484 | 242,588 | ||
Seed processing and sales | 20,378 | 14,255 | ||
Industrial tools and clamps | 2,943 | 4,446 | ||
$ 261,542 | $ 264,303 | |||
Capital expenditures: | ||||
Industrial wood products | $ - | $ - | ||
Lawn, garden, pet and other | 82,932 | 215,604 | ||
Seed processing and sales | 35,775 | 27,763 | ||
Industrial tools and clamps | - | 2,013 | ||
118,707 | $ 245,380 | |||
Interest expense: | ||||
Industrial wood products | $ - | $ 16,231 | ||
Lawn, garden, pet and other | 440,726 | - | ||
Seed processing and sales | - | - | ||
Industrial tools and clamps | - | - | ||
$ 440,726 | $ 16,231 |
*
For comparability purposes, this amount excludes one-time charges for litigation reserve ($962,137) and related interest ($440,778).
The following table lists sales made by the Company to customers which were in excess of 10% of total sales for the years ended August 31.
2011 | 2010 | |||
Sales | $ 14,578,000 | $ 12,016,257 |
- 35 -
JEWETT-CAMERON TRADING COMPANY LTD. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in U.S. Dollars)
14.
SEGMENT INFORMATION (contd )
The Company conducts business primarily in the United States, but also has limited amounts of sales in foreign countries. The following table lists sales by country for the fiscal years ended August 31:
2011 | 2010 | |||
United States | $ 37,275,697 | $ 36,161,640 | ||
Canada | 2,735,212 | 3,164,559 | ||
Mexico/Latin America | 1,002,259 | 994,152 | ||
Europe | 481,388 | 454,237 | ||
Asia/Pacific | 527,533 | 797,748 | ||
Africa | 34,381 | - |
All of the Companys significant identifiable assets were located in the United States as of August 31, 2011 and 2010.
15.
CONCENTRATIONS
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 a high quality financial 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 August 31, 2011, three customers accounted for accounts receivable greater than 10% of total accounts receivable for a combined total of 57%. At August 31, 2010, three customers accounted for accounts receivable greater than 10% of total accounts receivable for a combined total of 48%. The Company controls credit risk through credit approvals, credit limits, credit insurance and monitoring procedures. The Company performs credit evaluations of its commercial customers but generally does not require collateral to support accounts receivable.
Volume of business
The Company has concentrations in the volume of purchases it conducts with its suppliers. For the fiscal year ended August 31, 2011, there were three suppliers which each accounted for greater than 10% of total purchases, and the aggregate purchases amounted to $16,523,308. For the fiscal year ended August 31, 2010, there were three suppliers which each accounted for greater than 10% of total purchases, and the aggregate purchases amounted to $14,128,458.
16.
SUPPLEMENTAL DISCLOSURE WITH RESPECT TO CASH FLOWS
Certain cash payments for the years ended August 31, 2011 and 2010 are summarized as follows:
2011 | 2010 | |||
Cash paid during the year for: | ||||
Interest | $ - | $ 16,231 | ||
Income taxes | $ 1,159,779 | $ 1,172,119 |
There were no non-cash investing or financing activities during the years presented.
- 36 -
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and the Board of Directors of
Jewett-Cameron Trading Company Ltd. and Subsidiaries
Our report on the consolidated financial statements of Jewett-Cameron Trading Company Ltd. and Subsidiaries as at August 31, 2011 and 2010 and for the years then ended is included on Page 18 of this Form 10-K. In connection with our audits of such consolidated financial statements, we have also audited the related consolidated financial statement schedule II for the years ended August 31, 2011 and 2010 included in this Form 10-K.
In our opinion, the consolidated financial statement schedule referred to above for the years ended August 31, 2011 and 2010, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly in all material respects the information required to be included therein.
DAVIDSON & COMPANY LLP
Vancouver, Canada | Chartered Accountants |
November 14, 2011 |
- 37 -
JEWETT-CAMERON TRADING COMPANY LTD. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENT SCHEDULE
SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS
AUGUST 31, 2011
Additions | Deductions | |||||
Balance at | Charged to | Credited to | Deductions | |||
Beginning | Costs and | Costs and | From | Balance at | ||
of Year | Expenses | Expenses | Reserves | End of Year | ||
August 31, 2010 | ||||||
Allowance deducted from related Balance sheet account: | ||||||
Inventory | $ 313,000 | $ - | $ - | $ (91,800) | $ 221,200 | |
Deferred tax valuation account | $ - | $ - | $ - | $ - | - | |
August 31, 2011 | ||||||
Allowance deducted from related Balance sheet account: | ||||||
Inventory | $ 221,200 | $ - | $ - | $ (16,340) | $ 204,860 | |
Deferred tax valuation account | $ - | $ - | $ - | $ - | $ - |
- 38 -
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
--- No Disclosure Necessary ---
ITEM 9A. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
Management has evaluated, under the supervision and with the participation of our Chief Executive Officer and our Chief Financial Officer, the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report as defined in Rule 13a-15(e) or Rule 15d-15(e) under the Securities Exchange Act of 1934 (the Exchange Act). Based on that evaluation our Chief Executive Officer and our Chief Financial Officer have concluded that as of the end of the period covered by this report our disclosure controls and procedures are effective in ensuring that information required to be disclosed in our Exchange Act reports is (1) recorded, processed, summarized, and reported in a timely manner, and (2) accumulated and communicated to our management including our Chief Executive Officer and our Chief Financial Officer as appropriate to allow timely decisions regarding required disclosure.
Managements Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f). Under supervision and with the participation of our management including our Chief Executive Officer and our Chief Financial Officer we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our evaluation our management concluded that our internal control over financial reporting was effective as of August 31, 2011.
This Annual Report on Form 10-K does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Managements report was not subject to attestation by our registered public accounting firm pursuant to rules of the Securities and Exchange Commission that permit us to provide only managements report in this Annual Report on Form 10-K.
Changes in Internal Controls
There has been no change in our internal control over financial reporting that occurred during our most recent fiscal year that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
ITEM 9B. OTHER INFORMATION
--- No Disclosure Necessary ---
- 39 -
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Table No. 4 lists as of November 14, 2011 the names of the Directors of the Company. The Directors will serve until the next Annual Shareholders Meeting or until a successor is duly elected, unless the office is vacated in accordance with the Articles/By-Laws of the Company.
Table No. 4
Directors
Name | Age | Date First Elected Or Appointed |
Donald M. Boone (2) | 71 | July 1987 |
Ted A. Sharp (1) (2) | 63 | September 2004 |
Jeffrey G. Wade (1) (2) | 70 | March 2007 |
Ralph E. Lodewick (1) (2) | 76 | February 2008 |
(1)
Member of Audit Committee.
(2)
Resident of Oregon, USA and citizen of the United States.
Table No. 5 lists, as of November 14, 2011, the names of the executive officers of the Company. The executive officers serve at the pleasure of the board of directors. All executive officers are residents and citizens of the United States and spend 100% of their time on the affairs of the Company, with the exception of the CFO who spends 50% of his time on the affairs of the Company.
Table No. 5
Executive Officers
Name | Position | Age | Date of Board Approval |
Donald M. Boone | President, Chief Executive Officer and Treasurer | 71 | July 1987 |
Murray G. Smith | Chief Financial Officer | 40 | September 2009 |
Michael C. Nasser | Corporate Secretary | 65 | July 1987 |
Family Relationships/Other Relationships/Arrangements
There are no arrangements or understandings between any two or more directors or executive officers, pursuant to which he/she was selected as a director or executive officer. There are no family relationships, material arrangements or understandings between any two or more directors or executive officers.
Written Management Agreements
--- No Disclosure Necessary ---
Business Experience
Donald M. Boone has over 43 years of management experience and has been Chief Executive Officer of the Company since its beginning in 1987. Before this he worked for companies including Sunrise Forest Products, Oregon Pacific Industries, and Tektronix.
Murray G. Smith is a licensed CPA with over 19 years of accounting and finance leadership experience. Prior to joining Jewett-Cameron as Chief Financial Officer, he led the Companys Sarbanes-Oxley compliance program the past two years. Previous employers have included Intel, Arthur Andersen, & Teledyne, and he currently serves as Chief Financial Officer of Paulson Capital Corporation, an investment company whose common shares are traded on NASDAQ. Mr. Smith is a graduate of the University of Washington.
- 40 -
Michael C. Nasser has over 38 years of experience in sales and sales management and has worked in this capacity for the Company since its inception. Prior to this he worked for companies including Sunrise Forest Products and Oregon Pacific Industries. Mr. Nasser is a graduate of Portland State University.
Ted A. Sharp is Chairman of the Companys Audit Committee. He has been a Certified Public Accountant since 1978 and since 2002 has been Controller for Cherry City Electric in Salem, Oregon. Previously he was Chief Financial Officer of Cord Communications, and before that he worked for companies including Westower Communications. Mr. Sharp is a graduate of the University of Oregon.
Jeffrey G. Wade has approximately 38 years of business experience holding a variety of positions. These have included Finance Director International Operations for Novell, Chief Financial Officer of Univel, and Group Controller International Operations for Tektronix. Mr. Wade has an MBA from Northeastern University, and his undergraduate degree is from Willamette University.
Ralph E. Lodewick has an extensive business and governance background covering over 42 years. Employers have included Tektronix, and he has owned businesses involved in art and music. He has served on the board of directors of City Arts and the Mt. Hood Festival of Jazz. Also, he has been a board member and board president of the Jazz Society of Oregon and the Multnomah Arts Center Association.
Involvement in Certain Legal Proceedings
There have been no events during the last five years that are material to an evaluation of the ability or integrity of any director, person nominated to become a director, executive officer, or control person including:
1)
Any bankruptcy petition filed by or against any business of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time;
2)
Any conviction in a criminal proceeding or being subject to a pending criminal proceeding (excluding traffic violations/other minor offenses);
3)
Being subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently enjoining, barring, suspending or otherwise limiting his/her involvement in any type of business, securities or banking activities; and
4)
Being found by a court of competent jurisdiction (in a civil action), the Commission or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended, or vacated.
Audit Committee Financial Expert
Our Board of Directors has determined that Ted Sharp is the audit committee financial expert, as defined in Item 401(h) of Regulation S-K. Mr. Sharp is independent as that term is used in Section 240.14a-101 under the Exchange Act and as defined under NASDAQ Rule 4200 9a) (15).
Audit Committees
The Company has an audit committee, which recommends to the board of directors the engagement of the independent auditors of the Company and reviews with the independent auditors the scope and results of the Companys audits, the Companys internal accounting controls, and the professional services furnished by the independent auditors to the Company. The board of directors, in light of the increased responsibilities placed on the audit committee during 2002 by the Sarbanes-Oxley Act and the SEC, adopted an Amended and Restated Charter in late 2002.
The audit committee is directly responsible for the appointment, compensation and oversight of auditors; and concerns about accounting and auditing matters; and has the authority to engage independent counsel and other outside advisors.
The audit committee may delegate to one or more designated members of the audit committee the authority to grant pre-approvals required by this policy / procedure. The decisions of any audit committee member to whom authority is delegated to pre-approve a service shall be presented to the audit committee at its next scheduled meeting.
- 41 -
In accordance with the requirements of the U.S. Sarbanes-Oxley Act of 2002 and rules issued by the Securities and Exchange Commission, we introduced a procedure for the review and pre-approval of any services performed by Davidson & Company, LLP, including audit services, audit related services, tax services and other services. The procedure requires that all proposed engagements of Davidson & Company, LLP for audit and permitted non-audit services are submitted to the audit committee for approval prior to the beginning of any such services.
The current members of the audit committee are Ted Sharp, Jeff Wade, and Ralph Lodewick. All current members of the audit committee are independent within the meaning of the new regulations from the SEC regarding audit committee membership.
The audit committee met five times in Fiscal 2009, and three times in Fiscal 2010, and three times in Fiscal 2011.
Compliance with Section 16(a) of the Exchange Act.
In September 2011, it was determined that a Form 5 for Donald Boone had not been filed for the fiscal year ended August 31, 2010. During the year, Mr. Boone had gifted a total of 3,800 common shares. The required Form 5 was filed late on September 19, 2011.
Code of Ethics
The Company has a written code of ethics that meets the United States' Sarbanes-Oxley standards. The code is posted on the Companys website.
Limitation of Liability and Indemnification
Our certificate of incorporation limits the personal liability of our board members for breaches by them of their fiduciary duties. Our bylaws also require us to indemnify our directors and officers to the fullest extent permitted by British Columbia law. British Columbia law provides that directors of a corporation will not be personally liable for monetary damages for breach of their fiduciary duties as directors, except liability for any of the following acts:
a.
any breach of their duty of loyalty to the Company or its stockholders;
b.
acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law;
c.
unlawful payments of dividends or unlawful stock repurchases, redemptions or other distributions; and
d.
any transaction from which the director derived an improper personal benefit.
Such limitation of liability may not apply to liabilities arising under the federal securities laws and does not affect the availability of equitable remedies such as injunctive relief or rescission. In addition, British Columbia laws also permit us to secure insurance on behalf of any officer, director, employee or other agent for any liability arising out of his or her actions in such capacity, regardless of whether indemnification would be permitted under British Columbia law. We currently maintain liability insurance for our directors and executive officers.
Among other things, this will provide for indemnification of our directors and executive officers for certain expenses (including attorneys fees), judgments, fines and settlement amounts incurred by any such person in any action or proceeding, including any action by or in the right of the Company, arising out of such persons services as a director or executive officer of ours, any subsidiary of ours or any other company or enterprise to which the person provided services at our request. We believe that these provisions and agreements are necessary to attract and retain qualified persons as directors and executive officers.
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ITEM 11. EXECUTIVE COMPENSATION
Table No. 6 details compensation paid or accrued for fiscal 2011, 2010 and 2009 for the Companys chief executive officer, each of the Companys most highly compensated executive officers who were serving as executive officers at the end of the most recently completed financial year and whose total salary and bonus exceeds $100,000 per year.
Table No. 6
Summary Compensation Table
Executive Officers
Long-term Compensation | ||||||||
Awards | Payouts | |||||||
Annual Compensation | Securities | |||||||
Name and | Other | Restricted | Underlying | All | ||||
Principal | Fiscal | Annual | Stock | Options/ | LTIP | Other | ||
Position | Year | Salary | Bonus | Comp. | Awards | SARS (#) | Payouts | Comp. |
Donald Boone, President, Chief Executive Officer, Treasurer | ||||||||
2011 | $36,000 | $ - | $ - | $ - | $ - | $ - | $ 3,960 | |
2010 | $36,000 | $ - | $ - | $ - | $ - | $ - | $ 2,841 | |
2009 | $36,000 | $ - | $ - | $ - | $ - | $ - | $ 3,600 | |
Michael Nasser, Corporate Secretary | ||||||||
2011 | $177,000 | $60,000 | $ - | $ - | $ - | $ - | $ 9,400 | |
2010 | $177,000 | $40,000 | $ - | $ - | $ - | $ - | $ 7,141 | |
2009 | $177,000 | $60,885 | $ - | $ - | $ - | $ - | $ 10,000 | |
Murray Smith, Chief Financial Officer | ||||||||
2011 | $87,000 | $ - | $ - | $ - | $ - | $ - | $ 6,090 | |
2010 | $87,000 | $ - | $ - | $ - | $ - | $ - | $ 6,213 |
The Company may grant stock options to directors, executive officers and employees. The Company established an ESOP that covers all eligible employees. Also, the Company has a 401(k) Plan. In 2009, the Company contributed 3% of the first $100,000 of eligible compensation to the 401(k) plan, and in 2010, the 401(k) plan was amended to allow for a non-elective discretionary contribution based on the first $60,000 of eligible compensation.
Other than participation in the Companys stock option plan, ESOP, and 401(k), no funds were set aside or accrued during fiscal 2011 to provide pension, retirement or similar benefits for directors or executive officers.
The Company has no plans or arrangements with respect to remuneration received or that may be received by executive officers of the Company to compensate such executive officers in the event of termination of employment (as a result of resignation, retirement, change of control) or a change of responsibilities following a change of control.
No executive officer or director received other compensation in excess of the lesser of $25,000 or 10% of such officer's cash compensation, and all executive officers or directors as a group did not receive other compensation, which exceeded $25,000 times the number of persons in the group or 10% of the compensation.
Except for our ESOP and 401(k) Plan we have no material stock option plan, bonus or profit sharing plans pursuant to which cash or non-cash compensation is or may be paid to our directors or executive officers. Michael Nasser received bonuses, which were determined by the Chief Executive Officer.
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Stock Options
The Company may grant stock options to purchase securities to directors and employees on terms and conditions acceptable to the regulatory authorities in Canada, notably the Toronto Stock Exchange, the Ontario Securities Commission and British Columbia Securities Commission. The Company has no formal written stock option plan.
Under our stock option program, stock options for up to 10% of the number of our issued and outstanding common shares may be granted from time to time, provided that stock options in favor of any one individual may not exceed 5% of our 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, and the maximum term of each stock option may not exceed ten years and are determined in accordance with Toronto Stock Exchange (TSX) guidelines.
No options were granted during Fiscal 2009, Fiscal 2010 or Fiscal 2011, and as of August 31, 2011 there were no options outstanding.
401(k) Plan
The Company has a 401(k) Plan. In 2009, the Company contributed 3% of the first $100,000 of eligible compensation to the 401(k) plan. In 2010, the 401(k) plan was amended to allow for a non-elective discretionary contribution based on the first $60,000 of eligible compensation. For the years ended August 31, 2011 and 2010 the 401(k) compensation expense was $53,432 and $75,366, respectively. The contributions for Donald Boone were $1,440 and $270 for the fiscal years ended August 31, 2011 and 2010 respectively. The contributions for Michael Nasser were $2,400 and $0 for the fiscal years ended August 31, 2011 and 2010 respectively. The contributions for Murray Smith were $0 and $0 for the fiscal years ended August 31, 2011 and 2010, respectively. There are no un-funded liabilities.
Employee Stock Ownership Plan (ESOP)
The Company sponsors an ESOP that covers all U.S. employees who are employed by the Company on August 31st 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 records compensation expense based on the market price of the shares acquired on the open market or on the price of shares purchased from the Company. ESOP compensation expense was $141,518 and $146,677 for the fiscal years ended August 31, 2011 and 2010 respectively. The ESOP shares allocated as of August 31, 2011 and 2010 were 0 and 0 respectively. The contributions for Donald Boone were $2,520 and $2,571 for the fiscal years ended August 31, 2011 and 2010 respectively. The contributions for Michael Nasser were $7,000 and $7,141 for the fiscal years ended August 31, 2011 and 2010 respectively. The contributions for Murray Smith were $6,090 and $6,213 for the fiscal years ended August 31, 2011 and 2010, respectively. There are no un-funded liabilities.
Starting for the first time in the fiscal year ended August 31, 2008 the compensation expense associated with the ESOP has been invested on behalf of the plan participants in the Vanguard Star Fund, which is a low cost, broadly diversified mutual fund that owns both stocks and bonds. This move by the Company is designed to provide plan participants with some degree of diversification in their ownership stake in the ESOP.
Long-Term Incentive Plan / Defined Benefit or Actuarial Plan
During fiscal 2011 the Company had no Long-Term Incentive Plan (LTIP) and no LTIP awards were made. Also, during Fiscal 2011 the Company had no Defined Benefit or Actuarial Plan.
- 44 -
Compensation Committee Interlocks and Insider Participation
The Company has no compensation committee, and the independent members of the board of directors perform equivalent functions.
No board of director member and none of our executive officers have a relationship that would constitute an interlocking relationship with executive officers and directors of another entity.
Employment Contracts
Termination of Employment and Change-in-Control Arrangements
--- No Disclosure Necessary ---
Director Compensation
The Company has no formal plan for compensating its directors for their service in their capacity as directors. Directors are entitled to reimbursement for reasonable travel and other out-of-pocket expenses incurred in connection with attendance at meetings of the board of directors. The board of directors may award special remuneration to any director undertaking any special services on behalf of the Company other than services ordinarily required of a director. During fiscal 2011 the following cash payments were paid to directors to compensate them for board meetings attended: Ted Sharp $3,700, Jeff Wade $2,400 and Ralph Lodewick $3,700.
Executive Officer Compensation
The Company has no compensation committee and a majority of the board of directors performs equivalent functions.
As in prior years all judgments regarding executive compensation for fiscal 2011 were based primarily upon our assessment of each executive officers performance and contribution towards enhancing long-term shareowner value. We rely upon judgment and not upon rigid guidelines or formulas or short-term changes in our stock price in determining the amount and mix of compensation for each executive officer.
Decisions concerning 2011 compensation considered each executive officers level of responsibility and performance. As noted above, specific decisions involving 2011 executive officer compensation were ultimately based on a judgment about the individual executive officers performance and contribution towards enhancing long-term shareholder value.
The board of directors basis for Donald Boones compensation was set many years ago, and this compensation has remained unchanged at his request. This amount of compensation is substantially less than what would ordinarily be considered as normal compensation for being Chief Executive Officer of the Company.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The Company is a publicly owned corporation. It is not controlled directly or indirectly by another corporation or any foreign government.
Table No. 7 shows directors, executive officers, and 5% shareholders who beneficially owned the Companys common stock and the amount of the Companys voting stock owned as of November 14, 2011.
- 45 -
Table No. 7.
Shareholdings of Directors, Executive Officers,
and 5% Shareholders
Class | Name and Address of of Beneficial Owner | Amount of Beneficial and Voting Ownership | Percent of Class (1) |
Common | Donald M. Boone (2) 12615 S.W. Parkway Portland, Oregon 97225 | 545,481 | 28.6% |
Common | Michael C. Nasser (3) 3150 S.W. 72nd Avenue Portland, Oregon 97225 | 227,184 | 11.9% |
Common | Murray G. Smith (4) 13318 Hidden Bay Court Lake Oswego, Oregon 97035 | 0 | Nil |
Common | Jewett-Cameron ESOP and Trust (5) 32275 N.W. Hillcrest North Plains, Oregon 97133 | 224,939 | 11.8% |
Total directors, executive officers, and 5% shareholders | 997,604 | 52.3% |
(1)
Based on 1,908,457 shares outstanding as of November 14, 2011.
(2)
In addition to what is shown in this table Mr. Boone also owned 15,076 shares through his participation in the Companys ESOP.
(3)
In addition to what is shown in this table Mr. Nasser also owned 46,569 shares through his participation in the Companys ESOP.
(4)
Mr. Smith owns 364 shares through his participation in the Company's ESOP
(5)
Donald M. Boone is the sole Trustee for the Jewett-Cameron Trading Co. Ltd. Employee Stock Option and Trust.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
There have been no transactions or proposed transactions, which have materially affected or will materially affect the Company in which any director, executive officer, or beneficial holder of more than 5% of the outstanding common stock, or any of their respective relatives, spouses, associates or affiliates has had or will have any direct or material indirect interest.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
The audit committee is directly responsible for the appointment, compensation and oversight of auditors; and has the authority and the funding to engage independent counsel and other outside advisors.
The audit committee may delegate to one or more designated members of the audit committee the authority to grant pre-approvals required by this policy and procedure. The decisions of any audit committee member to whom authority is delegated to pre-approve a service shall be presented to the audit committee at its next meeting.
In accordance with the requirements of the U.S. Sarbanes-Oxley Act of 2002 and rules issued by the Securities and Exchange Commission, we introduced a procedure for the review and pre-approval of any services performed by Davidson & Company, LLP, including audit services, audit related services, tax services and other services. The procedure requires that all proposed engagements of Davidson & Company, LLP for audit and permitted non-audit services are submitted to the finance and audit committee for approval prior to the beginning of any such services.
- 46 -
Fees, including reimbursements for expenses and for professional services rendered by Davidson & Company, LLP to the Company were:
Fiscal Year | ||
Principal Accountant Fees and Services | 2011 | 2010 |
Audit fees | $ 90,000 | $ 122,000 |
Tax fees | 1,000 | 3,500 |
All other fees (1) | 24,750 | 24,750 |
Total | $ 115,750 | $ 150,250 |
(1) FY2011:
$8,250 to review the Q1 Form 10Q
$8,250 to review the Q2 Form 10Q
$8,250 to review the Q3 Form 10Q
FY2010:
$8,250 to review the Q1 Form 10Q
$8,250 to review the Q2 Form 10Q
$8,250 to review the Q3 Form 10Q
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
(A) Financial Statements and Schedules:
(B) Exhibits:
2. Plan of acquisition, reorganization, arrangement, liquidation or succession:
No Disclosure Necessary
3. Articles of Incorporation/By-Laws:
Incorporated by reference to Form 10 Registration Statement, as amended.
4. Instruments defining the rights of holders, including indentures
--- Refer to Exhibit #3 ---
9. Voting Trust Agreements: No Disclosure Necessary.
10. Material Contracts:
Incorporated by reference to Form 10 Registration Statement, as amended.
11. Statement re Computation of Per Share Earnings: No Disclosure Necessary
12. Statements re computation of ratios: No Disclosure Necessary
13. Annual Report to security holders, Form 10-Q or
quarterly report to security holders: No Disclosure Necessary
14. Code of Ethics: No Disclosure Necessary
16. Letter on Change of Certifying Accountant: No Disclosure Necessary
18. Letter on change in accounting principles: No Disclosure Necessary
21. Subsidiaries of the Registrant: Refer to page 4 of this Form 10-K
22. Published report regarding matters submitted to vote
No Disclosure Necessary
23. Consent of Experts and Counsel: No Disclosure Necessary
24. Power of Attorney: No Disclosure Necessary
31. Rule 13a-14a/15d-14(a) Certifications
32. Section 1350 Certifications
99. Additional Exhibits: No Disclosure Necessary
- 47 -
SIGNATURE PAGE
Pursuant to the requirements of Section 13 or 15(d) 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: November 14 , 2011 | By: /s/ "Donald M. Boone" Donald M. Boone, President/CEO/Treasurer/Director |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Dated: November 14 , 2011 | By: /s/ "Donald M. Boone" Donald M. Boone, President/CEO/Treasurer/Director |
Dated: November 14 , 2011 | By: /s/ "Murray G. Smith" Murray G. Smith, Chief Financial Officer |
Dated: November 14 , 2011 | By: /s/ "Michael C. Nasser" Michael C. Nasser, Corporate Secretary |
Dated: November 14 , 2011 | By: /s/ "Ted A. Sharp" Ted A. Sharp, Director |
Dated: November 14 , 2011 | By: /s/ "Jeffrey G. Wade" Jeffrey G. Wade, Director |
Dated: November 14 , 2011 | By: /s/ "Ralph E. Lodewick" Ralph E. Lodewick, Director |
- 48 -
CERTIFICATIONS
I, Donald M. Boone, certify that:
1.
I have reviewed this Annual Report on Form 10-K of Jewett Cameron Trading Company Ltd for the period ended August 31, 2011;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principals;
c)
Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the end of the period covered by this report based on such evaluation; and
d)
Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and
5.
The registrants other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions):
a)
all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and
b)
any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting.
Date:
November 14, 2011
By:
/s/ "Donald M. Boone"
Donald M. Boone,
Chief Executive Officer
CERTIFICATIONS
I, Murray G. Smith, certify that:
1.
I have reviewed this Annual Report on Form 10-K of Jewett Cameron Trading Company Ltd for the period ended August 31, 2011;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principals;
c)
Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the end of the period covered by this report based on such evaluation; and
d)
Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and
5.
The registrants other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions):
a)
all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and
b)
any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting.
Date:
November 14, 2011
By:
/s/ "Murray G. Smith"
Murray G. Smith,
Chief Financial Officer
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE U.S. SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Jewett-Cameron Trading Company Ltd. (the Company) on Form 10-K for the period ended August 31, 2011 as filed with the Securities and Exchange Commission on the date hereof (the Report), each of the undersigned officers of the Company does hereby certify, to such officers knowledge, that, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1)
The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2)
The information contained in this Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: November 14, 2011 | Signed: /s/ "Donald M. Boone" |
Donald M. Boone, President and CEO |
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE U.S. SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Jewett-Cameron Trading Company Ltd. (the Company) on Form 10-K for the period ended August 31, 2011 as filed with the Securities and Exchange Commission on the date hereof (the Report), each of the undersigned officers of the Company does hereby certify, to such officers knowledge, that, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1)
The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2)
The information contained in this Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: November 14, 2011 | Signed: /s/ "Murray G. Smith" |
Murray G. Smith, Chief Financial Officer |
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