US SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY
PERIOD ENDED MARCH 25, 2002.
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION
PERIOD
FROM _________________ TO ________________.
Commission File Number 1-10676
THE COEUR D'ALENES COMPANY
(Exact name of registrant as specified in its charter)
Idaho 82-0109390
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
PO BOX 2610,
Spokane, Washington 99220-2610
(Address of principal executive offices) (Zip Code)
(509) 924-6363
(Registrant's telephone number, including area code)
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date.
5,335,530 shares of common stock, no par value, were outstanding as of
April 23, 2002.
Transitional Small Business Disclosure Format (Check One)
Yes [ ] No [X]
PART I. FINANCIAL INFORMATION.
Item 1. Financial Statements.
The accompanying condensed consolidated financial
statements of The Coeur d'Alenes Company (sometimes referred to
herein as the "Company") should be read in conjunction with the
audited consolidated financial statements and related notes included in
the Corporation's Annual Report on Form 10-KSB for the year ended
September 29, 2001. The comparative consolidated balance sheet and
related disclosures at September 29, 2001 have been derived from the
audited consolidated balance sheet and financial statement footnotes.
The accompanying condensed consolidated financial statements
reflect all adjustments that in the opinion of management are
necessary for a fair presentation of the financial position, results of
operations and cash flows for the interim periods presented. The
results of operations for the six month period ended March 25, 2002
and the three month period ended March 25, 2002 are not necessarily
indicative of the operating results to be expected for the full year.
The preparation of the Company's consolidated financial
statements in conformity with generally accepted accounting
principles necessarily requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
at the balance sheet dates and reported amounts of revenue and cost
during the reporting periods. Actual results could differ from those
estimates. On an ongoing basis, management reviews its estimates
based on information that is currently available. Changes in facts and
circumstances may result in revised estimates.
Condensed Consolidated Financial Statements
Consolidated Balance Sheets at March 25, 2002
(unaudited) and September 29, 2001 (audited)
Unaudited Consolidated Statements of Operations for the
Six Months Ended March 25, 2002 and March 25, 2001
Unaudited Consolidated Statements of Operations for the
Three Months Ended March 25, 2002 and March 25, 2001
Unaudited Consolidated Statements of Cash Flows for
the Six Months Ended March 25, 2002 and March 25, 2001
Condensed Notes to Unaudited Consolidated Financial Statements
THE COEUR D ALENES COMPANY
CONSOLIDATED BALANCE SHEET
March 25, 2002 and September 29, 2001
March 25, 2002 September 29, 2001
ASSETS (Unaudited) (Audited)
Current assets:
Cash and cash equivalents $ 151,216 $ 168,928
Accounts and notes receivable 778,891 1,262,384
Inventories 1,721,805 1,739,273
Other current assets 170,990 104,629
Total current assets 2,822,902 3,275,214
Property and equipment 5,667,615 5,626,188
Less accumulated depreciation 2,282,673 2,164,441
Net property and equipment 3,384,942 3,461,747
Other assets 42,062 80,298
Total assets $6,249,906 $6,817,259
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable 573,076 691,040
Accrued expenses 264,415 323,542
Current maturities on
long-term debt 251,220 268,916
Total current liabilities 1,088,711 1,283,498
Long-term debt:
Deferred tax liability 220,000 220,000
Long term-debt,
less current maturities 2,073,072 2,199,494
Total long term liabilities 2,293,072 2,419,494
Total liabilities 3,381,783 3,702,992
Stockholders' equity:
Common Stock 1,186,192 1,186,192
Retained earnings 1,695,721 1,939,605
2,881,913 3,125,797
Less treasury stock at cost 13,790 11,530
Total stockholders' equity 2,868,123 3,114,267
Total liabilities and
stockholder's equity $6,249,906 $6,817,259
THE COEUR D ALENES COMPANY
UNAUDITED CONSOLIDATED STATEMENT OF OPERATIONS
Six Months Ended March 25, 2002 and March 25, 2001
2002 2001
Net sales $4,758,631 $6,322,548
Costs of sales 3,584,173 4,707,224
Gross profit on sales 1,174,458 1,615,324
Selling, general and
administrative expenses 1,434,098 1,632,771
Operating (loss) (259,640) (17,447)
Other income (expense)
Interest income 13,441 16,214
Interest expense (99,094) (138,301)
Other income 3,131 338
Net other expense (82,522) (121,749)
Loss before income tax expense (342,162) (139,196)
Income tax benefit (98,278) (51,503)
Net loss $(243,884) $ (87,693)
Loss per share (basic and diluted) $ ( 0.05) $ ( 0.02)
Weighted average shares outstanding 5,336,409 5,342,067
THE COEUR D ALENES COMPANY
UNAUDITED CONSOLIDATED STATEMENT OF OPERATIONS
Three Months Ended March 25, 2002 and March 25, 2001
2002 2001
Net sales $2,391,536 3,113,793
Costs of sales 1,769,765 2,264,134
Gross profit on sales 621,771 849,659
Selling, general and
administrative expenses 704,573 838,199
Operating income (loss) (82,802) 11,460
Other income (expense)
Interest income 5,646 6,563
Interest expense (51,207) (71,503)
Other income 2,429 131
Net other expense (43,132) (64,809)
Loss before income tax expense (125,934) (53,349)
Income tax benefit (67,183) (19,739)
Net loss $(58,751) $ (33,610)
Loss per share (basic and diluted) ( 0.01) $ ( 0.01)
Weighted average shares outstanding 5,335,530 5,341,969
THE COEUR D'ALENES COMPANY
UNAUDITED CONSOLIDATED STATEMENT OF CASH FLOWS
Six Months Ended March 25, 2002 and March 25, 2001
Increase (Decrease) in Cash and Cash Equivalents
2002 2001
Cash flows from operating activities:
Net loss $(243,884) $(87,693)
Adjustments to reconcile net income
to cash (used in) provided by operating activities:
Depreciation 119,000 143,580
Changes in assets and liabilities
Accounts and notes receivable 483,493 198,840
Inventories 17,468 213,158
Other current assets ( 66,361) ( 42,879)
Other assets 38,237 40,319
Accounts payable (117,964) 74,498
Accrued expenses ( 59,127) (107,926)
Net Cash provided by operating 170,862 431,897
Cash flows from investing activities:
Additions to property and equipment ( 42,196) ( 72,650)
Net cash used in investing activities (42,196) ( 72,650)
Cash flows from financing activities:
Treasury shares repurchased (2,260) (320)
Net borrowing (repayment)
under line of credit 0 (345,526)
Borrowings of long-term debt 0 36,043
Principal repayment of long-term debt (144,118) ( 83,961)
Net cash used in financing activities (146,378) (393,764)
Net decrease in cash and cash equivalents (17,712) (34,517)
Cash and cash equivalents,
beginning of period 168,928 115,532
Cash and cash equivalents, end of period $151,216 $81,015
THE COEUR D ALENES COMPANY
CONDENSED NOTES TO UNAUDITED
CONSOLIDATED FINANCIAL STATEMENTS
(1) Summary of Significant Accounting Policies.
Significant accounting policies followed for the six months
ended March 25, 2002 include those contained in the Summary of
Significant Accounting Policies from the Company's audited financial
statements as of September 29, 2001 and September 30, 2000.
Amounts charged to customers as delivery income have been
included in Sales. Delivery costs have been included in cost of sales.
Delivery costs included in cost of sales for the first six months of the
current year are $224,817 and $282,020 for the same period of the
prior fiscal year.
(2) Inventories.
Inventories are summarized as follows:
Unaudited Audited
March 25, September 29,
2002 2001
Fabrication inventories:
Raw materials $ 0 $ 5,095
Work-in-progress 20,676 62,302
Inventories at FIFO cost 20,676 67,397
LIFO reserve (1,531) (1,531)
Inventories at LIFO cost 19,145 65,866
Distribution inventories at FIFO 1,702,660 1,673,407
Total inventories $1,721,805 $1,739,273
(3) Short-term bank borrowings.
The Company has $1,500,000 in bank credit lines which will
mature on February 16, 2003. Interest is charged at the lenders'
prime rate plus 1/2% (5-1/4% as of March 25, 2002). Outstanding
borrowings are collateralized by accounts receivable and inventories.
There was no outstanding balance as of March 25, 2002 or as of
September 29, 2001.
The credit line agreement contains covenants under which the
Company may not pay dividends in excess of 10% of annual net (after
tax) profit, or enter into mergers, acquisitions or any major sales of
assets or corporate reorganizations without prior consent of the bank.
The Company is also required to maintain certain financial ratios
concerning working capital and debt to equity, as well as a minimum
tangible net worth of $2,200,000. The Company was in compliance
with all of these covenants as of their most recent respective
measurement date.
(4) Capital Stock.
The Company conducted a tender offer to shareholders with
holdings of two hundred or fewer shares beginning in June 2001
which expired on October 31, 2001. The offer resulted in 5,274
shares being repurchased as treasury stock during the current fiscal
year with a total cost to the Company of $2,260. The purpose of the
tender offer was to buy out odd lot holders of stock with diminimus
value which cost the Company more to service than the value of the
stock held by the shareholder.
(5) Federal Income Tax Expense
As of March 25, 2002 and September 29, 2001, the Company
has a deferred long term tax liability of $220,000 (unaudited) and
$220,000 (audited) respectively resulting primarily from the use of
accelerated methods of depreciation of fixed assets and a deferred tax
current asset of $44,000 (unaudited) and $44,000 (audited)
respectively resulting from vacation accrual and bad debt allowance.
A valuation allowance on the Company's non current deferred tax
assets has been established to the extent the Company believes it is
more likely than not that the deferred tax assets will not be realized.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
THE FOLLOWING DISCUSSION OF THE FINANCIAL
CONDITIONS AND RESULTS OF OPERATIONS OF THE
COMPANY SHOULD BE READ IN CONJUNCTION WITH THE
COMPANY'S FINANCIAL STATEMENTS AND NOTES
THERETO INCLUDED ELSEWHERE IN THIS REPORT.
This report contains forward-looking statements regarding,
among other items, anticipated trends in the Company's business.
These forward-looking statements are based largely on the Company's
expectations and are subject to a number of risks and uncertainties,
certain of which are beyond the Company's control. Actual results
could differ materially from these forward-looking statements as a
result of the factors described elsewhere herein. In light of these risks
and uncertainties, there can be no assurance that the forward-looking
information contained in this report will in fact transpire or prove to
be accurate.
LIQUIDITY AND CAPITAL RESOURCES
The Company anticipates that it will continue operating the
steel distribution business much as it has for the past year during the
twelve month period beginning March 26, 2002. In December, 2001,
the Company signed a one year lease on a 3,600 sq. ft. facility in
Dalton Gardens, ID. At this location, the Company is operating a
metals convenience store similar to the retail steel business in Spokane
and Wenatchee. The operation opened January 22, 2002. Required
inventories are expected to be in the $50,000 to $75,000 range during
the next twelve month period.
The replacement cost of metal inventories is showing signs of
improvement. In the wake of the energy crisis and the low price of
aluminum, demand for the Company's products has declined within
its' market area. As a result, inventories are currently smaller both in
dollars and in tons compared to prior years. As the cost of steel from
the mill improves, more dollars will be invested in inventories.
Likewise, as business conditions improve, inventories will increase.
The demand for fabricated metal products in our niche market (heavy
weldments for the aluminum smelter industry) has all but
disappeared. In anticipation of an eventual rebound in that segment
of the market, the Company maintains a very small investment in
work in process. Effective January 28, 2002, the Company merged
Union Iron Works, Inc. of Spokane, dba Stock Steel back into The
Coeur d'Alenes Company and plans to operate in the future as only
one business. The fabrication process, in our niche market, is another
service provided by the metals distribution business. This
restructuring allows the Company as a whole to be more efficient and
reduce the number of internal transactions that do not add value to the
ultimate sale to the customer.
In an effort to offset the sales decline brought about by the
erosion of the customer base in the metals distribution business, the
Company added new products to the inventory mix. Aluminum,
stainless steel, copper and brass are items now in inventory. As these
product lines are fleshed out, it will increase the overall size of our
inventories by as much as $200,000.
The Company currently has no plans for any major capital asset
additions or replacements for the remainder of the fiscal year.
Therefore, it is unlikely the Company will need to acquire any new
long-term debt.
The Company has filed a preliminary proxy statement with the
Securities and Exchange Commission that contains a proposal for a
1,000:1 reverse split. The proposal will go to a vote by the
shareholders at the next annual meeting, the date for which has not
yet been determined. If the shareholders approve the transaction, the
cost to the Company to buy out the fractional shareholders will likely
be around $20,000. The cost of the filing is anticipated to be around
$20,000 for professional fees, printing and mailing. The Company
intends to use working capital to finance these costs. The purpose of
the reverse split is to eliminate the disproportionately high
administrative costs to maintain shareholder accounts for small
shareholdings. If the proposal is approved by shareholders, the
Company intends to withdraw its registration of the common stock
with the Securities and Exchange Commission and cease to be a
reporting company. If the Company's registration with the SEC
pursuant to Section 12(g) of the Securities Exchange Act of 1934 (the
SEA") is withdrawn, then officers, Directors and shareholders owning
more than 5% of the outstanding shares of the Company's common
stock will not be required to file reports presently required by Section
13 and 16 of the SEA. The Company will also not be required to file
proxy material with the SEA pursuant to Section 14 of the SEA.
During the first six months of the current fiscal year, cash flows
of $171,000 were provided by operations, compared to cash flows of
$432,000 provided by operations during the same six month period of
the prior fiscal year. Cash flows from operations during the current
fiscal year were impacted primarily by an operating loss of $244,000
adjusted by depreciation of $119,000, a decrease in accounts
receivable of $483,000 and a decrease in accounts payable of
$118,000. Cash flows provided by operations for the same period of
the prior fiscal year primarily consisted of a net loss of $88,000,
adjusted by depreciation of $144,000, a decrease in accounts
receivable of $199,000, a decrease of $213,000 in inventories, an
increase in accounts payable of $75,000 and a decrease in accrued
expenses of $108,000. Cash flows used in investing activities for the
first six months of the current and prior fiscal years of $42,000 and
$73,000 respectively were used to finance the purchase of new
equipment. Cash flows used in financing activities for the current
fiscal year consisted primarily of principal repayments of long term
debt in the amount of $144,000. During the first six months of the
prior fiscal year, cash flows used in financing activities of $394,000
consisted of $346,000 net repayments on the operating line of credit
and $36,000 in new long-term borrowings, offset by $84,000
payments on existing long-term debt. The resulting decrease in cash
of $18,000 during the first six months of the current fiscal year
compares to a $35,000 decrease in cash for the same period of the
prior fiscal year.
During the first six months of the current fiscal year, the
Company's working capital decreased by 13% from approximately
$1,992,000 at the end of the prior fiscal year to approximately
$1,734,000 as of March 25, 2001.
The Company continues to be dependent on an operating line of
credit to meet its daily financial obligations. The operating line of
credit of $1,500,000 which is currently in place through February 16,
2003 is considered by management to be adequate.
Results of Operations
Six Months Ended March 25, 2002 compared to Six Months
Ended March 25, 2001.
Sales of approximately $4,759,000 for the six month period
ended March 25, 2002 are 25% lower than approximately $6,323,000
for the same period of the prior fiscal year. The decrease is due to a
significant decline in demand for the Company's products resulting
from the shut down of the aluminum companies within our market
area. Gross margins decreased by 27% from approximately
$1,615,000 during the first six months of the prior fiscal year
compared to approximately $1,174,000 for the first six months of the
current year. As a percent of sales, gross margins declined from 26%
in 2001 to 25% in 2002. The declines in dollars and percentages are
due to the lower sales volume coupled with a lack of any appreciable
fabrication business in the mix.
Operating expenses at approximately $1,434,000 for the six-month
period ended March 25, 2002 are $199,000 or 12% below
approximately $1,633,000 for the same period of the prior fiscal year.
The decrease is the result of cost cutting measures implemented to
offset the declining available gross margins. The process of
identifying additional opportunities to decrease the expense load
continues.
Interest expense of $99,000 for the first six months of the current
fiscal year compares to $138,000 for the first six months of the prior
fiscal year. The decrease is the result of lower interest rates, less
borrowing to finance smaller accounts receivable and inventories and
no new long-term borrowings.
An income tax benefit of $98,000 for the six month period ended
March 25, 2002 compares to a benefit of 52,000 for the first six
months of the prior year. The benefit in both cases is the result of
carrying operating losses back to prior years in order to obtain a
refund of taxes paid in profitable years.
A net loss for the first half of the current year at $244,000 is 178%
higher than approximately $88,000 for the first half of the prior year.
Three Months Ended March 25, 2001 compared to Three
Months Ended March 25, 2000.
Sales of approximately $2,392,000 for the three month period
ended March 25, 2002 are 23% lower than approximately $3,114,000
for the same period of the prior fiscal year. Gross profits decreased by
27% from approximately $850,000 during the second quarter of the
prior fiscal year to approximately $622,000 for the second quarter of
the current fiscal year. The decrease was primarily the result of no
appreciable fabrication business. With the disappearance of most of
the customer base for our fabrication niche market, the fabrication
service is no longer accounted for as a separate business. The steel
service center sales of approximately $2,587,000 represented 83% of
the total Company's sales for the second quarter of the prior fiscal
year with the fabrication business providing the other 17% or
approximately $527,000. Fabrication was only a very minor portion
of the total sales during the first quarter of the current year.
Selling, general and administrative expenses at approximately
$705,000 for the quarter ended March 25, 2002 are roughly $133,000
lower than approximately $838,000 for the same period of the prior
fiscal year. The change is primarily the result of elimination of
overhead expense associated with the fabrication business along with
other reductions in personnel. All expenses are continuously being
analyzed with the objective of eliminating discretionary expense and
deferring expense that is not currently essential.
Interest expense at approximately $51,000 for the three month
period ended March 25, 2002 is 28% lower than approximately
$72,000 for the three month period ended March 25, 2001. The
decrease is the result of lower interest rates coupled with less
dependence on the operating line of credit resulting from decreased
inventories and receivables.
Income tax benefit is estimated at 53% for the second quarter of
the current fiscal year and at 37% for the same period of time during
the prior fiscal year.
A 23% lower sales volume in combination with an operating
cost reduction of only 16% resulted in a net loss after tax for the
second quarter of the current year of $59,000 compared to a net loss
after tax of $34,000 for the same period last year.
PART II. OTHER INFORMATION.
Item 1. Legal Proceedings.
None.
Item 2. Changes in Securities.
The Company conducted a tender offer on odd lot shares that
expired on October 31, 2001. As a result of the offer, the Company
purchased 5,274 shares at a total cost of $2,260 during the first
quarter of the current fiscal year. The Company is currently in the
process of filing a preliminary proxy statement for review by the
Securities and Exchange Commission that contains a proposal for a
1,000:1 reverse split followed immediately by a 1,000:1 forward split.
Under the plan, Shareholders holding fewer than 1,000 shares will be
cashed out. The proposal will be voted on by the shareholders at the
next annual meeting. The Company would benefit from a substantial
cost savings as a result of the reverse split. If the proposal passes, the
total number of shares to be cashed out and the total cost to the
Company are unknown because the offer includes shares held in
depositories. The Company's best estimate is that the 63,287 shares
held by holders of record with fewer than 1,000 shares will be cashed
out at a cost to the Company of approximately $16,000. The cost of
the transaction not including the cash out of shareholders is estimated
at approximately $20,000.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
The Company intends to propose for a vote by the shareholders
a 1,000:1 reverse stock split followed immediately by a 1,000:1
forward stock split at the annual shareholders' meeting on April 15,
2002. All shareholders of record holding 1,000 or fewer shares will
be cashed out at a purchase price of $0.25 per share. The details of
the transaction have been included as Proposal No. 3 in a preliminary
proxy statement filed with the Securities and Exchange Commission
on February 6, 2002 and also in a Schedule 13E3 filed on February 6,
2002. Both the preliminary proxy statement and the Schedule 13E3
are incorporated herein by reference.
Item 5. Other Information.
The Company has had to change the date of its annual meeting in
2002 by more than thirty (30) days from the date of the annual
meeting in 2001. Notice of a Shareholder Proposal for the 2003
Annual Meeting must be received on or before November 15, 2002, or
it will be considered untimely. Proposals of Shareholders intended to
be presented at the 2003 annual meeting should be submitted by
certified mail, return receipt requested, and must be received by the
Company at its headquarters in Spokane, Washington on or before
that date to be eligible for inclusion in the Company's proxy
statements and former proxy card relating to that meeting.
Shareholder proposals should be submitted to the Secretary of The
Coeur d'Alenes Company, P.O. Box 2610, Spokane, WA 99220-
2610. Any such proposal should comply with the Securities and
Exchange Commission rules governing shareholder proposals
submitted for inclusion in proxy material.
Item 6. Exhibits and Reports on Form 8-K (249.308).
(a) Exhibits.
None.
(b) Reports on Form 8-K.
None.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
THE COEUR D'ALENES COMPANY
(Registrant)
Dated: May 7, 2002
/s/ Marilyn A. Schroeder
Marilyn A. Schroeder, Treasurer and
Chief Financial Officer
(Authorized Officer and Principal
Accounting and Financial Officer