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, 1999. 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
organization)
Identification No.)
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.
5,345,419 shares of common stock, no par value, were outstanding as of
June 30, 1999.
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, 1999 and June 25, 1998 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 26, 1998.
Index of Financial Statements
Page
Consolidated Balance Sheets -
June 25, 1999 and September 26, 1998 3
Unaudited Consolidated Income Statements -
Six Months Ended June 25, 1999 and June 25, 1998 4
Unaudited Consolidated Income Statements -
Three Months Ended June 25, 1999 and June 25, 1998 5
Unaudited Consolidated Statement of Cash Flows -
Six Months Ended June 25, 1999 and June 25, 1998 6
Condensed Notes to Unaudited Consolidated Financial Statement 7
THE COEUR D'ALENES COMPANY
CONSOLIDATED BALANCE SHEET
June 25, 1999 and September 26, 1998
June 25, September 26
1999 1998
(Unaudited) (Audited)
ASSETS
Current Assets:
Cash $ 9,319 $ 39,486
Accounts receivable 1,007,036 1,417,269
Inventory 2,210,137 2,553,384
Other current assets 68,882 56,000
Total current assets 3,295,374 4,066,139
Plant, Property and Equipment 5,042,383 4,896,087
Less accumulated depreciation 1,710,183 1,539,044
Net plant property and equipment 3,332,200 3,357,043
Other assets 51,268 72,010
Total assets $6,678,842 $7,495,192
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Short term bank borrowings $ 127,231 $ 842,826
Accounts payable 633,730 585,811
Accrued expenses 270,100 400,509
Debentures payable to related parties 128,000 0
Current amount on long-term debt 147,247 134,714
Total current liabilities 1,306,308 1,963,860
Long-term debt:
Deferred tax liability 120,000 120,000
Long term debt less current
maturities 2,317,734 2,328,170
Long term debt to related parties 0 128,000
Total long term
liabilities 2,437,734 2,576,170
Total liabilities 3,744,042 4,540,030
Stockholders' Equity:
Capital Stock 1,186,192 1,186,192
Retained earnings 1,755,958 1,775,320
2,942,150 2,961,512
Less Treasury Stock at cost 7,350 6,350
Total stockholders' equity 2,934,800 2,955,162
Total liabilities and stockholders'
equity $6,678,842 $7,495,192
THE COEUR DALENES COMPANY
UNAUDITED CONSOLIDATED INCOME STATEMENT
Nine Months Ended June 25, 1999 and June 25, 1998
1999 1998
Net sales $ 9,386,402 $10,488,212
Cost of sales 7,080,475 7,927,801
Gross profit on sales 2,305,927 2,560,411
Selling, general and administrative
Expenses 2,211,765 2,246,617
Operating income 94,162 313,794
Other income (expense)
Interest income 31,339 25,091
Interest expense ( 199,036) (230,404)
Other income 42,800 36,810
Total other expense ( 124,897) (168,503)
Income (loss) before income tax expense ( 30,735) 145,291
Income tax expense (benefit) ( 11,372) 53,757
Net income (loss) $ ( 19,363) $ 91,534
Earnings (loss) per share $ ( 0.00 ) $ 0.02
Shares outstanding 5,348,735 5,352,553
THE COEUR D'ALENES COMPANY
UNAUDITED CONSOLIDATED INCOME STATEMENT
Three Months Ended June 25, 1999 and June 25, 1998
1999 1998
Net sales $3,037,938 $3,918,292
Cost of sales 2,259,821 2,945,030
Gross profit on sales 778,117 973,262
Selling, general and
administrative expenses 719,519 774,278
Operating income 58,598 198,984
Other income (expense)
Interest income 9,475 8,772
Interest expense (56,155) ( 80,522)
Other income 21,687 26,789
Total other expense (24,993) ( 44,961)
Income (loss) before income
tax expense 33,605 154,023
Income tax expense 12,434 56,989
Net income $ 21,171 $97,034
Earnings per share $ 0.00 $ 0.02
Shares outstanding 5,348,735 5,352,553
THE COEUR D'ALENES COMPANY
UNAUDITED CONSOLIDATED STATEMENT OF CASH FLOWS
Nine Months Ended June 25, 1999 and June 25, 1998
1999 1998
Cash flows from operating activities:
Net income (loss) ( 19,363) $ 91,534
Adjustments to reconcile net
income to cash provided
(used) by operating activities:
Depreciation 194,076 194,909
Gain on disposal of assets ( 250) ( 1,000)
Changes in assets and
liabilities
Accounts and notes
receivable 410,233 (237,670)
Inventories 343,247 (782,544)
Prepaid expense and other
current assets ( 12,882) 4,493
Other assets 20,742 18,976
Accounts payable 47,919 656,214
Accrued expenses (130,409) 28,973
Cash provided (used) by
operating activities 853,313 ( 26,115)
Cash flows from investing activities:
Proceeds from sale of assets 250 1,000
Additions to property
and equipment ( 169,233) (141,487)
Cash used by investing activities ( 168,983) (140,487)
Cash flows from financing activities:
Purchase of Treasury shares ( 1,000) ( 1,140)
Net borrowing (repayment)
under line of credit ( 715,595) 114,316
Principal repayment of
long-term debt ( 75,902) ( 70,412)
New long term note 78,000 67,000
Cash provided (used) by
financing activities (714,497) 109,764
Net increase (decrease) in cash ( 30,167) ( 56,838)
Cash, beginning of period 39,486 89,495
Cash, end of period $ 9,319 $ 32,657
THE COEUR D'ALENES COMPANY
CONDENSED NOTES TO UNAUDITED
CONSOLIDATED FINANCIAL STATEMENTS
(1) Summary of Significant Accounting Policies.
Significant accounting policies followed for the nine months ended
June 25, 1999 are the same as those contained in the Summary of Significant
Accounting Policies from the Company's audited financial statements as
of September 26, 1998 and September 27, 1997.
(2) Inventories.
Inventories are summarized as follows:
June 25, September 26,
1999 1998
Fabrication inventories:
Raw materials $ 47,345 $ 31,826
Work-in-progress 322,351 67,293
Inventories, at FIFO cost 369,696 99,119
LIFO reserve ( 19,861) ( 19,861)
Inventories, at LIFO cost 349,835 79,258
Distribution inventories, at FIFO 1,860,302 2,474,126
Total inventories $2,210,137 $2,553,384
(3) Short-term bank borrowings.
The Company has $1,850,000 in bank credit lines which mature on May 1,
2000. Interest is charged at the lenders prime rate plus .25%, 8% at June
25, 1999. 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 $2,400,000.
(4) Capital Stock.
The Company conducted three tender offers which expired during the
current fiscal year. The offers resulted in 3,416 shares being repurchased
as treasury stock with a total cost to the Company of $2,240. 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. An extension of the third tender offer is currently open for holders
of 100 or fewer shares. The offer will expire on November 30, 1999 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, 1999 and September 26, 1998, the Company has a deferred
long term tax liability of $120,000 resulting primarily from the use of
accelerated methods of depreciation of fixed assets and a deferred tax asset of
$56,000 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 decreased from approximately $2,102,000 at the end of the prior
fiscal year to approximately $1,990,000 as of June 25, 1999. The 5% decline is
the result of debentures in the amount of $128,000 moving from long term to
current liabilities. These debentures are due on October 31, 1999. They are
convertible to common stock at the rate of $.28 per share, however, any
debentures that have not been 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 8-3/4% carried by the debentures.
On January 26, 1998 the Company converted a real estate loan with a
variable rate to an 8-1/2% fixed rate loan for the remaining term.
The Company is dependent on an operating line of credit, secured by
accounts receivable and inventory, to meet its daily financial obligations.
The cost of metal from the mills has declined significantly over the last
eighteen months. Because fewer dollars have been invested in the same
tonnage required to be carried in inventory, the Company has relied to a
much lesser extent on its operating line. When the prices go back up the
Company will once again resume a heavier dependence on borrowed funds. A
$1.85 million operating line is currently in place through May 1, 2000.
Results of Operations:
Nine Months Ended June 25, 1999
Sales of approximately $9,386,000 for the nine month period ended
June 25, 1999 are approximately 11% lower than approximately $10,488,000
for the same nine month period of the prior fiscal year. The sales decline was
accompanied by a similar decline of 10% in gross margins over the same period
of time from approximately $2,560,000 for the nine month period ended June
25, 1998 to approximately $2,306,000 for the nine month period ended June 25,
1999. The steel service center sales of approximately $8,471,000 represent
90% of the total Company's sales for the first nine months of the current
fiscal year. Likewise, service center sales of approximately $9,096,000 for
the same period of the prior year represent 87% of the total Company's sales.
This 7% decline in sales volume is due to low metal prices and lower than
expected demand. This trend can likely be expected to continue during the
last quarter of the fiscal year. The fabrication business, contributing 10%
of the total sales for the first nine months of the current fiscal year and
13% for the same period of the prior year experienced a 30% decline in sales
volume from approximately $1,590,000 to $1,107,000. The demand for
fabricated metal products within the Company' s market area has been
extremely low for the last two years. Indications are that the market is
slowly improving. Backlogs are beginning to build up slowly.
Operating expenses at approximately $2,212,000 for the nine month
period ended June 25, 1999 are roughly 35,000 lower than the approximately
$2,246,000 for the same period of the prior fiscal year. The 2% decrease is
primarily related to the lower sales volume. Crane repairs are also down
significantly from the prior year due to capital expenditures on crane
upgrades.
Interest expense, at approximately $199,000 for the nine month period
ended June 25, 1999 is down 13% from approximately $230,000 for the same
period of time during the prior fiscal year. The decrease was possible as a
result of declining inventory replacement prices. With fewer dollars invested
in inventories, borrowing on the operating line of credit is much lower than
for the prior year. If the supply of low priced foreign metal products
declines, the cost of metal may go back up, resulting in renewed dependence
on the operating line of credit.
Other income at approximately $43,000 for the first nine months of the
current fiscal year compares to approximately $37,000 for the same period of
time during the prior fiscal year. The increase is the result of an industrial
insurance dividend paid by the State of Washington based on higher than usual
investment returns on these reserves. The Company also participates in a
purchasing cooperative for the steel service center industry. The first
purchase rebate was paid during the current year. While the first rebate
was small, the impact on future years may be greater.
Lower sales volume without a similar decrease in operating expense
resulted in a year to date net loss of approximately $19,000 compared to a net
income of approximately $92,000 for the same period of time during the prior
year. While the third quarter net income was not large, the price of metal in
the
marketplace shows signs of stabilizing and it that should be the case, fourth
quarter will be much improved.
Three Months Ended June 25, 1999
Sales volume for the third quarter of the current fiscal year lags behind
that of the third quarter of the prior year by 22%. Over half of the
approximately
$880,000 decrease was in the fabrication business. The fabrication business
posted sales volume of just over $750,000 during the third quarter of last year
and just under $279,000 for the third quarter of the current year. The
remaining
$410,000 decrease was in the steel service center business. The comparative
combined third quarter sales figures are approximately $3,038,000 for the
current year and approximately $3,918,000 for the prior year. Continuing
depressed metal prices and increased competition accounts for the decrease.
The limited demand for fabricated metal products continued throughout the third
quarter of the current year. Orders already placed for the fourth quarter
indicated that the final quarter of the fiscal year will be more profitable
than the third quarter for the fabrication business.
Gross margins for the three month period ended June 25, 1999 at 26.6%
of sales compare to 24.4% for third quarter of the prior year. Even with gross
margins at 2 percentage points higher than last year, the total gross margin
dollars for the third quarter of the current year are 20% lower than the same
period of time during the prior year. At approximately $778,000 for the
current year, third quarter margins lag the prior year by approximately
$195,000.
Operating expenses at approximately $720,000 for the three month
period ended June 25, 1999 are 7% lower than approximately $774,000 for the
same period of the prior fiscal year. The $54,000 decrease was possible
because of the decline in sales volume (tonnage) and the lower repair expense
resulting from capital improvements.
Interest expense for the three month period ended June 25, 1999 at
approximately $56,000 is 30% lower than approximately $81,000 for the same
period of time during the preceding fiscal year. Lower inventory values
allowed the Company to borrow less money. This is expected to be a short
term benefit as the price from supply sources firms up. Any increase in
interest expense due to higher cost inventories should be offset by better
gross margins.
Lower sales volume resulted in a net income for the third quarter of the
current year significantly lower than that of the same quarter of the prior
fiscal
year. At 1.1% of sales, the third quarter net income for the current year of
approximately $12,000 compares to .9% of sales or approximately $92,000 for
the prior year.
PART II. OTHER INFORMATION.
Item 1. Legal Proceedings.
None.
Item 2. Changes in Securities.
At December 25, 1998 and September 26, 1998, the Company owed $128,000 to
related parties pursuant to the terms of a convertible debenture agreement.
The debentures require semi-annual interest payments and are secured by the
Company's land and building. In October 1998, the agreement was amended
from an interest rate of 9.25% to 8.75% and from a due date of October 31,
1998 to October 31, 1999. Accordingly, the related party debt has been
classified as a current liability at March 25, 1999 and a noncurrent
liability at September 26, 1998. The debentures are convertible into shares
of the Company's common stock at a per share rate of $.28 through maturity.
The Company, at its option, may call any or all outstanding debentures for
redemption.
The Company conducted tender offers on odd lot shares from October 1998
through June 30, 1999. As a result of the offers, the Company purchased 7,123
shares for a total cost of $2,240. An extended tender offer is currently
active for shareholders with 100 or fewer shares and expires on November 30,
1999.
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: July 29, 1999
/s/ Marilyn A. Schroeder
Marilyn A. Schroeder, Vice-President,
Treasurer and Chief Financial Officer
(Authorized Officer and Principal
Accounting and Financial Officer)
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: July 29, 1999
__________________________________________
Marilyn A. Schroeder, Vice-President,
Treasurer and Chief Financial Officer
(Authorized Officer and Principal
Accounting and Financial Officer)
Page 13 of 13
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<FISCAL-YEAR-END> SEP-25-1999 SEP-26-1998
<PERIOD-END> JUN-25-1999 SEP-26-1998
<CASH> 9,319 39,486
<SECURITIES> 0 0
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<ALLOWANCES> 78,454 56,848
<INVENTORY> 2,210,137 2,553,384
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<PP&E> 5,042,383 4,896,087
<DEPRECIATION> 1,710,183 1,539,044
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0 0
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<INTEREST-EXPENSE> 199,036 301,817
<INCOME-PRETAX> (30,735) 361,511
<INCOME-TAX> (11,372) 110,485
<INCOME-CONTINUING> (30,735) 361,511
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