UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT UNDER SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended September 30, 2003
Commission File Number 33-98404
T.J.T., INC.
(Exact name of registrant as specified in its charter)
WASHINGTON |
|
82-0333246 |
|
(State or other jurisdiction of incorporation or organization) |
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(IRS Employer Identification No.) |
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843 North Washington, P.O. Box 278, Emmett, Idaho 83617 |
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(Address of principal executive offices) |
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(208) 365-5321 |
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(Registrant’s telephone number) |
Securities registered under Sections 12 (b) and 12 (g) of the Exchange Act:
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Title of each class |
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Name of each exchange on which registered |
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Common Stock, $.001 par value |
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OTC Bulletin Board |
|
|
|
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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 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 ý No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o
Indicate by check mark whether the registrant is an accelerated filer (as defined in the Exchange Act Rule 12d-2). Yes o No ý
Registrant’s revenues for the fiscal year ended September 30, 2003 were $19,727,889.
As of December 19, 2003, there were 4,504,939 shares of the registrant’s $.001 par value common stock outstanding. Based on the stock’s closing price of $.70 on December 19, 2003, non-affiliated market capital was approximately $1,926,219.
Portions of the registrant’s definitive proxy statement to be dated on or after January 20, 2004, for use in connection with the annual meeting of stockholders to be held on February 17, 2004, are hereby incorporated by reference into Part III of the Form 10-K.
PART I
This Form 10-K contains certain forward-looking statements which are based on management’s current expectations. These forward-looking statements are subject to certain risks and uncertainties. The words “believe,” “expect,” “anticipate,” “intend,” “estimate,” “will,” “should,” “could,” and other expressions that indicate future events and trends identify forward-looking statements. The Company has identified risk factors which could cause actual results to differ substantially from the forward-looking statements. These risk factors include, but are not limited to, general economic conditions, changes in interest rates, availability of financing for both manufactured home buyers and suppliers, real estate values, adverse weather conditions, the economic viability of our customers and vendors, and availability of qualified employees. In addition, industry conditions that may have an adverse impact on future results include, but are not limited to, low barriers of entry, changes and/or enforcement in legislation or regulations, and competitive pressure on both the purchasing of used axles and tires from manufactured housing dealers and the selling of refurbished axles and tires to manufactured housing factories.
All tabular dollar amounts are in thousands and all period references are to the Company’s fiscal period unless otherwise indicated.
ITEM 1. BUSINESS
T.J.T., Inc., an Idaho corporation, was established in 1977. T.J.T., Inc. merged with and into T.J.T., Inc., a Washington corporation on December 13, 1994. The Company’s corporate office is located at 843 N. Washington Street, Emmett, Idaho 83617. Information about the Company is available on the internet at www.tjt-inc.com. Information contained or referenced on our website is not incorporated by reference and does not form a part of this Annual Report on Form 10-K. Copies of our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, and the Executive Officers’ Code of Ethics is available free of charge by calling 1-800-458-3555.
The Company has recycling and distribution locations in Emmett, Idaho; Woodland, California; Chehalis, Washington, and Platteville, Colorado. The Company’s recycling and distribution plant in Centralia, Washington was relocated to Chehalis, Washington in December 2003. The Company also manufactures hanger parts in Eugene, Oregon which are used by the manufactured housing producers to attach axles to homes. The Company maintained a sales office in Salem, Oregon and a recycling and distribution plant in Phoenix, Arizona until June of 2003 when both locations were closed. The Company operates in Arizona, New Mexico, and Texas through NewCo Tire and Axle, L.L.C. (NewCo), a joint venture limited liability corporation.
T.J.T., Inc. has two business lines: repairing and reconditioning axles and tires for the manufactured housing industry, and distribution of after-market accessory products to manufactured housing dealers and set-up contractors, as well as siding to site builders.
Recent Events
The manufactured housing industry continues to experience an overabundance of new and used homes more recently as a result of repossessions as well as a decrease in consumer demand due to a tightening of credit standards. Manufactured housing production facilities as well as numerous sales centers have closed and/or filed for bankruptcy. In the Company’s market area the decrease in manufactured housing production was approximately 14 percent from fiscal 2002 to 2003 according to statistics from the National Conference of States on Building Codes and Standards.
2
In July of 2003, the Phoenix, Arizona operation was closed. The location was consistently operating at a loss primarily due to the higher cost of inventory in a market area with very limited supply. The Company did not incur significant closure costs and will sublease the property through January of 2004. To expand the market area and supply, the Company entered into a joint venture with West States Recycling, Inc. NewCo plans to engage in the manufactured housing axle and tire recycling business in the Arizona, New Mexico, and Texas market areas. The Company has a 50 percent ownership interest and will receive 40 percent of future net profits. In addition, the Company leases trucks and equipment to the joint venture.
In August of 2003, the Salem, Oregon sales office was closed. Since the Salem location focused only on dealer accessory sales, the volume of sales in the surrounding market area was not sufficient to maintain an additional sales office. Instead, the Salem customer base is being serviced out of the Chehalis, Washington or Eugene, Oregon facilities. Closure costs were insignificant and the property lease expired upon consolidation of the Chehalis, Salem, and Eugene facilities.
The injunction granted in January of 2002 prohibiting certain former employees and directors of the Company (the “Bradley Group”) from competing against the Company’s axle and tire business will expire on January 1, 2004. Consequently, the property lease for the Centralia, Washington location will expire on January 1, 2004 as well. Therefore, in December 2003, the Centralia operation was relocated to Chehalis, Washington.
Axle and Tire Reconditioning
The Company buys used axles and tires from manufactured housing dealers which are detached from the manufactured homes after they are placed on a pad or foundation. The Company also buys used axles and tires from independent brokers.
The used axles are dismantled at the Company’s recycling facilities. All major parts are inspected, cleaned and replaced as required. Approximately 30 axles are rebuilt for each eight man-hour shift. Tires are graded and repaired. Axles and tires are then sold to manufactured housing factories. Each axle and tire assembly is used and recycled approximately three times a year. The tires and axles are sold principally to manufactured housing factories and are delivered to their sites.
Sales of reconditioned axles and tires were 77 percent, 76 percent, and 72 percent of total revenues for the years ended September 30, 2003, 2002, and 2001, respectively.
T.J.T., Inc. sells manufactured housing accessories such as vinyl skirting, piers, and other ancillary products to manufactured housing dealers and set-up contractors. The Company sells vinyl siding to the site-built housing market.
Sales of accessories were 23 percent, 24 percent, and 28 percent of total revenues for the years ended September 30, 2003, 2002, and 2001 respectively.
Regulatory Matters
HUD regulations govern the maximum load limit per tire, which in turn dictates the number of axles needed to transport a manufactured home. The number of axles required to transport a manufactured home averages approximately seven axles. HUD requires periodic inspection at the recycling facility by an approved third party inspector.
3
In January of 2002, the manufactured home load limit per tire, set by the Department of Transportation and the Department of Housing and Urban Development, decreased from an 18 percent allowable overload to no allowable overload. Standard practice among the producers of manufactured homes was to utilize the 18 percent allowable overload as needed. Producers of manufactured homes are either adding an extra axle and two tires to their homes, or increasing the rated capacity of the tires that they are using. Many producers chose to use the higher rated capacity new tires.
There were no regulatory changes made in 2003 and the impact of the regulatory changes made in 2002 had a minimal affect in 2003.
Target Market
The Company’s target market is the manufactured housing industry and the site-built construction industry. The Company sells to manufactured housing factories, manufactured housing dealers, set-up contractors, and site-built contractors and remodelers. The Company’s major customers are manufactured housing factories. Two manufacturers represented more than 10 percent of sales, Oakwood Homes Corporation with 17 percent and Fleetwood Enterprises, Inc. with 14 percent of total sales during 2003. The Company has no single supplier of axles and tires or accessories that represents 10 percent or more of total purchases.
Competition
Axles and Tires
The Company operates in Idaho, Oregon, Washington, California, Colorado, Utah, Nevada, Montana, Wyoming, Minnesota, Nebraska, North Dakota, and South Dakota. In that thirteen-state market area, price competition is intense for both the purchase and sale of axles and tires. The Company has two major competitors within its market area. However, barriers to entry are low for the axle and tire business, which could result in additional major competitors. In addition, the permanent injunction prohibiting all members of the Bradley Group from competing against the Company’s axle and tire business, as well as the housing accessories business, will expire on January 1, 2004. Therefore, the Bradley Group will be allowed to compete with the Company freely, as further described in Item 3 - Legal Proceedings.
The Company believes it has greater financial resources, a larger geographical presence, and a better reputation for quality, honesty, reliability, and service than its competitors. The Company believes its competitors have a lower cost structure that enables them to acquire market share where price is the customers’ primary concern.
The Company has two major competitors and numerous smaller competitors, with all competitors believed to be privately held companies having between one and twenty-five employees. The Company estimates that it has a 65 percent market share, and is roughly two times larger than its largest competitor. Since the Company is the only company with readily discernable revenues and industry totals are unknown, estimating market share involves extrapolating numerous estimates and results in a market share number subject to questionable accuracy.
Accessories and Siding
The Company competes for accessory and siding sales with building materials distributors and manufactured housing wholesale suppliers which are numerous in all of the Company’s market areas.
4
The Company competes with numerous competitors for accessories and siding sales with availability and price being the principal methods of competition. The Company believes it has lower prices than local stores providing immediate access to accessories and higher prices than regional distributors providing two to fourteen day access.
Production of manufactured housing continued to decline during 2003 with sales of homes continuing to be restricted by tighter credit standards. Shipments of manufactured homes declined 14 percent in the Company’s market area while sales of the Company declined by only 3 percent. The Company expects the volume of shipments to remain low in the short term and gradually increase as the excess inventories of repossessed homes diminish and the economy improves.
The Company had a total of 99, 103, and 103 employees as of September 30, 2003, 2002, and 2001, respectively.
The Company leases nine properties and owns two properties. The two properties owned by the Company are a warehouse in Emmett, Idaho, and a processing facility in Platteville, Colorado. The Magna, Utah property, previously owned and used as a small sales office by the Company, was sold in 2003. The Company continues to service the Utah area through consignment arrangements.
The Company leases three properties located in Idaho, California, and Washington that are utilized for the collection and refurbishing of axles and tires. Property located in Emmett, Idaho is leased from T.J.T. Enterprises and from Sheldon-Homedale Family, L.P. The property located in Centralia, Washington will be leased through January 1, 2004. Effective, December 15, 2003, the recycling and distribution center located in Centralia will be operated at a facility leased in Chehalis, Washington. The property previously leased for the Phoenix, Arizona facility is now subleased as a result of closing that location in July of 2003; the lease expires January of 2004. The property leased and located in Eugene, Oregon is utilized for manufacturing hanger parts as well as sales of accessories. Upon expiration of the lease for the Salem sales office, the office was closed in August of 2003. All properties are adequate and suitable for the needs of the location and are being fully utilized.
On July 9, 2001, the Company instituted legal action in the District Court of the Third Judicial District, State of Idaho, against Patricia I. Bradley, Darren M. Bradley, B. Kelly Bradley, Mark T. Wilson, Richard L. Morris, Mark W. Bradley, George Bayn and Mary Carter (the “Bradley Group”) who are all former employees and/or shareholders of the Company. The lawsuit sought monetary damages and injunctive relief based upon the defendants’ breach of covenants not to compete with the Company which were granted to the Company by members of the Bradley Group in November 1996 when the Company acquired Bradley Enterprises, Inc. by merger from the Bradley Group. The Bradley Group began directly competing with the Company in June, 2001, and the Company’s business and operations was negatively impacted by competition from the Bradley Group, primarily in the states of Washington and Oregon during the first quarter of 2002.
The defendant removed the case to the Federal District Court for the State of Idaho on November 15, 2001, where an evidentiary hearing related to a preliminary injunction sought by the Company against the Bradley Group was concluded. On January 10, 2002 a preliminary injunction was granted in favor of the Company prohibiting all members of the Bradley Group from competing against the Company’s axle and tire business. As a result, the parties entered into a stipulated permanent injunction whereby the Bradley Group is enjoined from competing against the Company’s axle and tire and housing accessories business which the Bradley Group has agreed will be replaced by a permanent injunction lasting until January 1, 2004.
5
Shareholders were not asked to vote on any matters during the quarter ended September 30, 2003.
EXECUTIVE OFFICERS OF THE REGISTRANT
The schedule below shows the names and certain information regarding all of the executive officers of TJT as of September 30, 2003. Each executive officer has a one-year term of office.
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Name |
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Age |
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Position |
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Terrence J. Sheldon |
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61 |
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President, Chief Executive Officer, Chief Operating Officer from December 1998 through December 1999, Chairman of the Board of Directors, Trustee of the Company’s 401(k) Profit Sharing Plan, Chairman of the Directors Compensation Committee and Member of the Directors Executive Committee |
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Larry B. Prescott |
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55 |
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Senior Vice President, Chief Financial Officer and Treasurer, Member of the Board of Directors, Trustee of the Company’s 401(k) Profit Sharing Plan, Secretary of the Directors Executive Committee, and non-voting Secretary of the Directors Audit Committee |
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Cindy M. Truchot |
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32 |
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Vice President and Controller |
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John W. Eames III |
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63 |
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Corporate Secretary |
Terrence J. Sheldon - Mr. Sheldon is the founder and principal stockholder of the Company and has served as President since October 1986 and Chief Executive Officer since 1994.
Larry B. Prescott — Mr. Prescott has served as Senior Vice President, Chief Financial Officer and Treasurer since January 1999. Previously, he served as Vice President and Portfolio Manager at U.S. Bancorp in Portland. Mr. Prescott received a B.A. in Business from Boise State University.
Cindy M. Truchot — Ms. Truchot is a CPA and has served as Vice President and Controller since February 2002. Previously, she served as Controller of a privately owned technology based company as well as serving several years in the public accounting sector. Ms. Truchot received a B.S. in Business Administration, accounting emphasis, from Idaho State University.
John W. Eames III - Mr. Eames has served the Company in various positions since 1991. Most recently, he was appointed Corporate Secretary in August 2001 and as an Executive Officer in August 2002. Previously, Mr. Eames served as National Sales Manager for a log home manufacturer in Idaho and held several management positions with Boise Cascade Corporation’s Housing Division.
6
PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company’s Common Stock is registered on the OTC Bulletin Board under the symbol “AXLE”. The table below shows the high and low sales prices of the Common Stock for each of the last eight fiscal quarters:
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Quarter |
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Quarter |
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Quarter |
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Quarter |
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Common Stock: |
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|
|
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|
|
|
|
|
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High |
|
.51 |
|
.62 |
|
.58 |
|
.45 |
|
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Low |
|
.33 |
|
.32 |
|
.27 |
|
.22 |
|
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Quarter-end |
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.51 |
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.35 |
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.51 |
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.27 |
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|
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Quarter |
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Quarter |
|
Quarter |
|
Quarter |
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|
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|
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Common Stock: |
|
|
|
|
|
|
|
|
|
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High |
|
.49 |
|
.50 |
|
.45 |
|
.40 |
|
|
Low |
|
.28 |
|
.33 |
|
.26 |
|
.23 |
|
|
Quarter-end |
|
.28 |
|
.40 |
|
.33 |
|
.26 |
|
The over-the-counter market quotations reflect inter-dealer prices, without retail mark-up, mark-down, or commission and may not necessarily represent actual transactions.
The table below shows the approximate number of holders of record of the Company’s Common Stock at December 19, 2003:
|
Title of Class |
|
Number of registered owners |
|
Common Stock, $.001 par value |
|
640 |
The Company has never paid dividends to shareholders and does not expect to pay dividends in the foreseeable future. The Company intends to use future earnings for reinvestment in its business. The Company is prohibited from paying cash dividends by the revolving line of credit agreement with its principal lender.
Information relating to compensation plans under which equity securities of the Company are authorized for issuance are set forth under “Equity Compensation Plan Information” in the Company’s definitive Proxy Statement which is incorporated herein by reference.
7
ITEM 6. SELECTED FINANCIAL DATA
|
|
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Fiscal Year Ended September 30 |
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|||||||||||||
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|
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2003 |
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2002 |
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2001 |
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2000 |
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1999 |
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Operating data: |
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|
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|
|
|
|
|
|
|
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Sales |
|
$ |
19,728 |
|
$ |
20,386 |
|
$ |
21,219 |
|
$ |
26,881 |
|
$ |
34,642 |
|
|
Cost of goods sold |
|
15,481 |
|
16,072 |
|
16,939 |
|
22,502 |
|
28,446 |
|
|||||
|
Selling, general and administrative expenses |
|
4,259 |
|
4,709 |
|
4,840 |
|
5,957 |
|
6,369 |
|
|||||
|
Impairment loss |
|
— |
|
— |
|
— |
|
847 |
|
— |
|
|||||
|
Cumulative effect of accounting change, net of tax |
|
— |
|
(748 |
) |
— |
|
— |
|
— |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
|
Net income(loss) |
|
132 |
|
(887 |
) |
(242 |
) |
(1,720 |
) |
(207 |
) |
|||||
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Share data |
|
|
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|
|
|
|
|
|
|||||
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Net income (loss) |
|
.03 |
|
(.20 |
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