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