US SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED
JUNE 25, 1998. TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM
__________________ TO ________________.
Commission File Number 0-18353
THE COEUR D'ALENES COMPANY
(Exact name of registrant as specified in its charter)
Idaho 82-0109390
(State or other jurisdiction of IRS Employer incorporation or
Identification No.) organization)
PO Box 2610,
Spokane, Washington 99220-2610
(Address of principal executive offices) (Zip code)
(509) 924-6363
(Registrant's telephone number, including area code)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days.
Yes X _ No ___
Applicable only to issuers involved in bankruptcy proceedings during the
preceding five years.
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court. Yes___No___
Applicable only to corporate issuers.
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date.
5,352,553 shares of common stock, no par value, were outstanding as of
June 30, 1998.
PART I. FINANCIAL INFORMATION.
Item 1. Financial Statements.
The condensed financial statements of The Coeur d'Alenes Company
(sometimes referred to herein as the "Company") included herein have been
prepared by the Company without audit or review by the Company's
accountants pursuant to the rules and regulations of the Securities and
Exchange Commission. In the opinion of management, all adjustments
necessary to a fair statement of the results of operations for the interim
periods ended June 25, 1998 and June 25, 1997 have been made. The
results of operations for the interim periods are not necessarily indicative of
the results to be expected for the full fiscal year. Certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed
or omitted pursuant to such rules and regulations, although the Company
believes that the disclosures are adequate to make the information presented
not misleading. These condensed financial statements should be read in
conjunction with the financial statements and the notes thereto included in
The Coeur d'Alenes Company's latest audited financial statements for the
fiscal year ended September 27, 1997.
Index of Financial Statements
Page
Consolidated Balance Sheets -
June 25, 1998 and September 27, 1997
3
Unaudited Consolidated Income Statements -
Six Months Ended June 25, 1998 and June 25, 1997 4
Unaudited Consolidated Income Statements -
Three Months Ended June 25, 1998 and June 25, 1997 5
Unaudited Consolidated Statement of Cash Flows -
Six Months Ended June 25, 1998 and June 25, 1997 6
Condensed Notes to Unaudited Consolidated Financial Statement 7
THE COEUR D'ALENES COMPANY
CONSOLIDATED BALANCE SHEET
June 25, 1998 and September 27, 1997
June 25, September 27
1998 1997
(Unaudited) (Audited)
ASSETS
Current Assets:
Cash $ 32,657 $
89,495
Accounts receivable 1,478,666
1,240,996
Inventory 3,125,215
2,342,671
Other current assets 65,511 70,004
Total current assets 4,702,049 3,743,166
Plant, Property and Equipment 4,822,634 4,735,715
Less accumulated depreciation 1,540,632 1,400,291
Net plant property and equipment 3,282,002 3,335,424
Other assets 54,389 73,365
Total assets $8,038,440 $7,151,955
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Short term bank borrowings $ 947,972 $
833,656
Accounts payable 1,269,822 613,608
Accrued expenses 336,493 307,520
Debentures payable to related
parties 128,000
Current amount on long-term debt 103,663 103,663
Total current liabilities 2,785,950 1,858,447
Long-term debt:
Deferred tax liability 65,000
65,000
Long term debt less current
maturities 2,390,409 2,393,822
Long term debt to related parties 0 128,000
Total long term liabilities 2,455,409 2,586,822
Total liabilities 5,241,359 4,445,269
Stockholders' Equity:
Capital Stock 1,186,192 1,186,192
Retained earnings 1,615,829 1,524,294
2,802,021 2,710,486
Less Treasury Stock at cost 4,940 3,800
Total stockholders' equity 2,797,081 2,706,686
Total liabilities and
stockholders' equity $8,038,440 $7,151,955
THE COEUR DALENES COMPANY
UNAUDITED CONSOLIDATED INCOME STATEMENT
Nine Months Ended June 25, 1998 and June 25, 1997
1998
1997
Net sales $10,488,212 $9,293,019
Cost of sales 7,927,801
6,904,820
Gross profit on sales 2,560,411
2,388,199
Selling, general and administrative
expenses 2,246,617
2,287,321
Operating income 313,794
100,878
Other income (expense)
Interest income 25,091
20,433
Interest expense ( 230,404)
(237,846)
Other income 36,810 85,487
Total other expense ( 168,503)
(131,926)
Income (loss) before income tax expense 145,291 (
31,048)
Income tax expense (benefit) 53,757 ( 11,488)
Net income (loss) $ 91,534 $ ( 19,560)
Earnings (loss) per share $ 0.02 $ ( 0.00 )
Shares outstanding 5,352,553
5,353,561
THE COEUR D'ALENES COMPANY
UNAUDITED CONSOLIDATED STATEMENT OF CASH FLOWS
Three Months Ended June 25, 1998 and June 25, 1997
1998
1997
Net sales $3,918,292
$3,239,065
Cost of sales 2,945,030
2,431,820
Gross profit on sales 973,262
807,245
Selling, general and administrative
expenses 774,278 698,687
Operating income 198,984 108,558
Other income (expense)
Interest income 8,772
7,625
Interest expense (80,522) ( 79,278)
Other income 26,789
37,611
Total other expense (44,961) ( 34,042)
Income (loss) before income tax
expense 154,023 74,516
Income tax expense 56,988 27,571
Net income $ 97,034
$ 46,945
Earnings per share $ 0.02 $
0.01
Shares outstanding 5,352,553 5,353,561
THE COEUR D'ALENES COMPANY
UNAUDITED CONSOLIDATED STATEMENT OF CASH FLOWS
Nine Months Ended June 25, 1998 and June 25, 1997
1998 1997
Cash flows from operating activities:
Net income (loss) 91,534
(19,560)
Adjustments to reconcile net income
to cash provided (used) by
operating activities:
Depreciation 194,909
164,884
Gain on disposal of assets ( 1,000) (
35,723)
Changes in assets and liabilities
Accounts and notes receivable ( 237,670)
56,196
Inventories ( 782,544)
218,060
Prepaid expense and other
current assets 4,493 (
30,141)
Other assets 18,976 (
8,761)
Accounts payable 656,214
(214,787)
Accrued expenses 28,973
(217,912)
Cash used by operating activities ( 26,115)
( 87,744)
Cash flows from investing activities:
Proceeds from sale of assets 1,000
98,860
Additions to property and equipment ( 141,487)
(292,624)
Cash used by investing activities ( 140,487)
(193,764)
Cash flows from financing activities:
Purchase of Treasury shares ( 1,140)
(0)
Net borrowing (repayment)
under line of credit 114,316
5,248
Principal repayment of long-term debt ( 70,412) (
42,404)
New long term note 67,000
262,000
Cash provided by financing activities 109,764 224,844
Net increase (decrease) in cash ( 56,838) (
56,664)
Cash, beginning of period 89,495
68,645
Cash, end of period $ 32,657 $
11,981
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 June 25,
1998 are the same as those contained in the Summary of Significant
Accounting Policies from the Company's audited financial statements as
of September 27, 1997 and September 28, 1996.
(2) Inventories.
Inventories are summarized as follows:
June 25, September 27,
1998
1997
Fabrication inventories:
Raw materials $ 44,515 $ 74,501
Work-in-progress 217,759 293,181
Inventories, at FIFO cost 262,274 367,682
LIFO reserve ( 50,538) ( 50,538)
Inventories, at LIFO cost 211,736 317,144
Distribution inventories, at FIFO 2,913,479 2,025,527
Total inventories 3,125,215 2,342,671
(3) Short-term bank borrowings.
The Company has $1,850,000 in bank credit lines which mature on May 1,
1999. Interest is charged at the lenders prime rate plus .25%, 8.75% at June
25, 1998. Outstanding borrowings are collateralized by accounts receivable
and inventories.
The credit line agreement contains covenants under which the Company may
not pay dividends in excess of 10% of annual net (after tax) profit, or enter
into mergers, acquisitions or any major sales of assets or corporate
reorganizations without prior consent of the bank. The Company is also
required to maintain certain financial ratios concerning working capital and
debt to equity, as well as a minimum net worth of $2,200,000.
(4) Capital Stock.
The Company conducted two tender offers which expired during the current
fiscal year. The offers resulted in 1,008 shares being repurchased as treasury
stock with a total cost to the Company of $1,140. The purpose of the tender
offers was to buy out odd lot holders of stock with diminimus value which cost
the Company more to service than the value of the stock held. A third tender
offer is currently open for holders of 49 or fewer shares. The offer will
expire on August 31, 1998 unless extended by the Company. The total cost to
repurchase the stock is expected to be less than $4,000.
(5) Federal Income Tax Expense
As of June 25, 1998 and September 27, 1997, the Company has a deferred
long term tax liability of $65,000 resulting primarily from the use of
accelerated methods of depreciation of fixed assets and a deferred tax asset
of $46,000 resulting from vacation accrual and bad debt allowance. A
valuation allowance on the Company's deferred tax assets has been established
to the extent the Company believes it is more likely than not that the
deferred tax assets will not be realized.
There were no extraordinary items to be reported for any of the above
accounting periods.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Liquidity and Capital Resources
During the first nine months of the current fiscal year, the Company's
working capital has increased slightly from approximately $1,885,000 at the end
of the prior fiscal year to approximately $1,916,000 as of June 25, 1998. The
2% improvement is the result of operating profits retained in the Company to
help finance accounts receivable and inventory growth.
The Company has debentures in the amount of $128,000 that will
mature on October 31, 1998. These debentures are convertible to common
stock at the rate of $0.20 per share, however, any that have not converted by
October 31 will be repaid. The operating line is adequate to retire this
debt and currently has an interest rate _% lower than the rate carried by the
debentures.
On January 26, 1998 the Company converted the real estate loan from a
variable rate loan to an 8-1/2% fixed rate loan for the 228 months that
remained on the term of the loan.
The Company is dependent on an operating line of credit, secured by
accounts receivable and inventories, to meet its daily financial obligations.
A $1.85 million operating line is currently in place through May 1, 1999.
Results of Operations:
Nine Months Ended June 25, 1998
Sales of approximately $10,488,000 for the nine-month period ended
June 25, 1998 are 13% higher than approximately $9,293,000 for the same
nine-month period of the prior fiscal year. The steel service center sales
represent approximately 85% of the total sales for the first nine months of the
current year compared to 82% for the first nine months of the prior fiscal
year. This represents a 17% increase in the steel service center's sales
volume over the first nine months of last year. Of the 17%, approximately
one-third is the result of the press brake work being performed by the
steel service business during the current year whereas historically it has
been done by the fabrication business. The change was made because the
customer base and the type of required processing more closely fit with
the distribution business than the fabrication business. The remaining
two thirds, or 12%, is real sales growth. After factoring out the shift of
the press brake business, the fabrication business (contributing 15% and 18%
of the total sales in the first nine months of 1998 and 1997 respectively)
experienced a sales increase of 10%. The increase in fabrication sales
volume was achieved despite a sales decline during the first two quarters of
the current fiscal year.
Gross margins for the first nine months of the current year exceed the
gross margins for the same period of time during the prior year by
approximately $172,000, but as a percentage of net sales the current year's
results were 1.3 percentage points lower. The percentage point decline is
primarily the result of the fabrication business that was unable to attract
the higher margin work that was available during the prior fiscal year. As
a result, the fabrication gross margins declined by 8 percentage points. The
increased sales volume, however, helped to make up some of the shortfall.
Operating expenses at approximately $2,247,000 for the nine month
period ended June 25, 2998 were 2% lower than approximately $2,287,000 for
the nine-month period ended June 25, 1997. The decline was possible, as the
current year was not plagued by the severe weather conditions and equipment
repairs that were reflected in the results of operation during the 1996/97
fiscal year. The expense load for the current year does include the cost of
moving the distribution business' plate inventory to be closer to the
processing equipment through which much of it passes. The move eliminated
a costly transfer problem to get the material from one building to the
equipment location in another building. The change will make the operation
more efficient going forward.
Interest expense at approximately $230,000 for the nine-month period
ended June 25, 1998 is 3% lower than approximately $238,000 for the same
nine-month period of the prior fiscal year. Slightly lower interest rates
in the current fiscal year resulted in lower interest expense despite a
higher level of borrowing.
Other income at approximately $37,000 is 58% lower than approximately
$85,000 for the same period of the prior fiscal year. The decline is
primarily the result of the prior year figures being reflective of gain on
the sale of a lot of surplus equipment which was disposed of at an auction
just after the fabrication business moved out of the Spokane Industrial Park
during the summer and fall of 1996.
Higher sales and gross margins for the first nine months of the current
fiscal year compared to the first nine months of the prior fiscal year along
with a reduced expense load resulted in an after tax net income of $91,534
compared to a net loss of $19,560.
Three months ended June 25, 1998
Sales of approximately $3,918,000 for the three-month period ended
June 25, 1998 were approximately 21% higher than the same three-month
period of the prior fiscal year. The increase was primarily the result of
some large fabrication work during the current third quarter, which was not
available the prior year. The sales volume for the fabrication business
during its current year third quarter was 117% higher than the third quarter
of the prior fiscal year. During the three months of the current year's
third quarter the steel service center business represented 81% of the total
sales and the fabrication business accounted for the remaining 19%. This
compares to 87% and 13% respectively for the same period of the prior fiscal
year. The steel service center business also posted a sales volume increase
for the three months ended June 25, 1998 over the three-month period ended
June 25, 1997.
Gross margins for the three-month period ended June 25, 1997, at
24.8% of sales were 21% higher than the gross margins for the third quarter of
the prior fiscal year which were also at 24.8% of sales. The increase is the
direct result of the sales volume increase.
Operating expenses, at approximately $774,000 for the three-month
period ended June 25, 1998 are 11% higher than approximately $699,000 for
the same period of the prior fiscal year. The increase was related to the
sales volume increase and is reflected in labor costs, supplies, repairs and
delivery as well as other volume sensitive variable expenses. As a percent
of sales, the operating expense for third quarter of the current year is
19.8% compared to 21.6% for the period ended June 25, 1997.
Interest expense for the third quarter of the current year exceeds that of
the third quarter of the prior year by only 2%. The slight increase is the
result of a combination of higher debt levels and lower interest rates. New
long-term debt was incurred during the fourth quarter of the fiscal year
ended in September 1997 in the amount of $195,000 and during the third
quarter of the current fiscal year in the amount of $67,000. The proceeds
from these two loans were used to purchase new equipment.
Higher sales volume and gross margins for the third quarter of the
current fiscal year resulted in an increase in net income of approximately 107%
over the third quarter of the prior fiscal year. The earnings per share were
$0.02 compared to $0.01 for the prior year.
PART II. OTHER INFORMATION.
Item 1. Legal Proceedings.
None.
Item 2. Changes in Securities.
The Company had sold $250,000 of convertible debentures,
collateralized by land and building, held by related parties, with annual
interest at 9.25% and due October 31, 1998. The instruments are convertible
to no-par common stock after October 31, 1994 at $0.125 per share with 20%
per year incremental conversion price increases over the life of the
debentures. The Company, at its option, may call any or all outstanding
debentures for redemption after January 2, 1994.
During October 1995, $122,000 of the debentures were converted at
$0.125 per share for which 976,000 shares were issued. $128,000 remains
as long-term debt. This conversion increased the number of outstanding
shares by 22%.
The company conducted two tender offers, one from August 1997
through October 15, 1997 and another from January 15, 1998 through June 15,
1998. These tender offers were made to holders of odd lot shares of 24 or
fewer shares. As a result of the offers the Company purchased 1008 shares at
a total cost of $1,140. Another tender offer is currently open for all
holders of 49 or fewer shares. The offer will expire on August 31, 1998
unless extended by the Company. At this time it is the Company's intention
to extend the offer. The total cost to repurchase the stock is expected to
be less than $4,000.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
Item 5. Other Information.
None.
Item 6. Exhibits and Reports on Form 8-K (249.308).
(a) Exhibits.
None.
(b) Reports on Form 8-K.
None.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE COEUR D'ALENES COMPANY
(Registrant)
Dated: April 29, 1998
/s/ Marilyn A. Schroeder
Marilyn A. Schroeder, Vice-President
Treasurer and Chief Financial Officer
(Authorized Officer and Principal
Accounting and Financial Officer)