<PAGE>
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 ending October 1, 1994
---------------
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 1-3834
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CONTINENTAL MATERIALS CORPORATION
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(Exact name of registrant as specified in its charter)
Delaware 36-2274391
- - ----------------------------------- --------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization
225 West Wacker Drive, Chicago, Illinois 60606
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(Address of principal executive office)
(Zip Code)
(312) 541-7200
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(Registrant's telephone number, including area code)
(Former name, former address and former
year, if changed since last report)
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 X No
------ ------
Number of common shares outstanding at November 1, 1994.......... 1,140,278
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NO EXHIBITS ARE FILED WITH THIS REPORT
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONTINENTAL MATERIALS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
OCTOBER 1, 1994 and JANUARY 1, 1994
(000's omitted)
<TABLE>
<CAPTION>
(Unaudited)
OCTOBER 1, JANUARY 1,
ASSETS 1994 1994
------ --------------- ---------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 1,240 $ 1,067
Receivables, net 12,588 10,129
Inventories:
Finished goods 8,263 9,521
Work in process 1,781 1,802
Raw materials and supplies 5,950 5,112
Prepaid expenses 1,522 1,291
--------------- ---------------
Total current assets 31,344 28,922
--------------- ---------------
Property, plant and equipment, net 13,708 14,329
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Other assets:
Investment in mining partnership 1,476 1,523
Other 467 650
$ 46,995 $ 45,424
--------------- ---------------
--------------- ---------------
LIABILITIES
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Current liabilities:
Bank loan payable $ 1,800 $ 1,700
Current portion of long-term debt 1,857 1,896
Accounts payable and accrued expenses 11,408 9,673
Income taxes 49 155
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Total current liabilities 15,114 13,424
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Long-term debt 4,207 4,923
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Deferred income taxes 1,673 1,673
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SHAREHOLDERS' EQUITY
--------------------
Common shares, $0.50 par value; authorized
3,000,000; issued 1,326,588 663 663
Capital in excess of par value 3,484 3,484
Retained earnings 24,349 23,752
Treasury shares, 186,310, at cost (2,495) (2,495)
--------------- ---------------
26,001 25,404
--------------- ---------------
$ 46,995 $ 45,424
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--------------- ---------------
</TABLE>
See accompanying notes
2
<PAGE>
CONTINENTAL MATERIALS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
FOR THE THREE MONTHS ENDED OCTOBER 1, 1994 AND OCTOBER 2, 1993
(Unaudited)
(000's omitted except per share amounts)
<TABLE>
<CAPTION>
OCTOBER 1, OCTOBER 2,
1994 1993
--------------- ---------------
<S> <C> <C>
Net sales $ 19,630 $ 15,951
--------------- ---------------
Costs and expenses:
Cost of sales (exclusive of depreciation and
depletion) 14,529 11,473
Depreciation and depletion 570 562
Selling and administrative 3,079 2,722
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18,178 14,757
--------------- ---------------
Operating income 1,452 1,194
Interest (210) (192)
Equity loss from mining partnership (140) (387)
Other income (expense) 54 145
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Income from continuing operations before income taxes 1,156 760
Provision for income taxes 393 257
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Income from continuing operations 763 503
Discontinued operations:
Loss on sale of discontinued operation, net of tax -- (34)
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Net income 763 469
Retained earnings, beginning of period 23,586 22,205
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Retained earnings, end of period $ 24,349 $ 22,674
--------------- ---------------
--------------- ---------------
Net income (loss) per share:
Continuing operations $ .67 $ .43
Discontinued operations -- (.03)
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Net income per share $ .67 $ .40
--------------- ---------------
--------------- ---------------
Average shares outstanding 1,140 1,165
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--------------- ---------------
</TABLE>
See accompanying notes
3
<PAGE>
CONTINENTAL MATERIALS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
FOR THE NINE MONTHS ENDED OCTOBER 1, 1994 AND OCTOBER 2, 1993
(Unaudited)
(000's omitted except per share amounts)
<TABLE>
<CAPTION>
OCTOBER 1, OCTOBER 2,
1994 1993
------------------ -------------------
<S> <C> <C>
Net sales $ 54,155 $ 46,216
------------------ -------------------
Costs and expenses:
Cost of sales (exclusive of depreciation and
depletion) 42,006 36,301
Depreciation and depletion 1,705 1,689
Selling and administrative 8,842 8,110
------------------ -------------------
52,553 46,100
------------------ -------------------
Operating income 1,602 116
Interest (626) (573)
Gain on sale of equity investment -- 719
Equity loss from mining partnership (305) (910)
Other income 233 200
------------------ -------------------
Income (loss) from continuing operations before
income taxes 904 (448)
Provision (credit) for income taxes 307 (172)
------------------ -------------------
Income (loss) from continuing operations 597 (276)
Discontinued operations:
Loss from discontinued operations, net of tax -- (637)
Gain on sale of discontinued operations, net of tax -- 1,210
------------------ -------------------
Gain from discontinued operations -- 573
------------------ -------------------
Income before extraordinary item 597 297
Extraordinary item:
Prepayment penalty on early extinguishment of debt,
net of tax -- (1,335)
------------------ -------------------
Net income (loss) 597 (1,038)
Retained earnings, beginning of period 23,752 23,712
------------------ -------------------
Retained earnings, end of period $ 24,349 $ 22,674
------------------ -------------------
------------------ -------------------
Net income (loss) per share:
Continuing operations $ .52 $ (.24)
Discontinued operations -- .49
Extraordinary item -- (1.14)
------------------ -------------------
Net income (loss) per share $ .52 $ (.89)
------------------ -------------------
------------------ -------------------
Average shares outstanding 1,140 1,171
------------------ -------------------
------------------ -------------------
</TABLE>
See accompanying notes
4
<PAGE>
CONTINENTAL MATERIALS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED OCTOBER 1, 1994 AND OCTOBER 2, 1993
(Unaudited)
(000's omitted)
<TABLE>
<CAPTION>
OCTOBER 1, OCTOBER 2,
1994 1993
--------------- ---------------
<S> <C> <C>
Net cash provided (used) by operating activities $ 1,828 $ (222)
-------------- ---------------
Investing activities:
Capital expenditures (1,130) (3,146)
Proceeds from sale of property and equipment 138 --
Investment in mining partnership (258) (813)
Proceeds from sale of equity investment 250 629
Proceeds from sale of subsidiary -- 10,750
--------------- ---------------
Net cash (used) provided by investing activities (1,000) 7,420
--------------- ---------------
Financing activities:
Borrowings under revolving credit facility 100 2,500
Long-term borrowings -- 3,500
Repayment of long-term debt (755) (12,077)
Prepayment penalty -- (2,023)
Payments to acquire treasury stock -- (263)
--------------- ---------------
Net cash used by financing activities (655) (8,363)
--------------- ---------------
Net increase (decrease) in cash and cash equivalents 173 (1,165)
Cash and cash equivalents:
Beginning of year 1,067 1,626
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End of period $ 1,240 $ 461
--------------- ---------------
--------------- ---------------
Supplemental disclosures of cash flow items:
Cash paid during the nine months for:
Interest $ 602 $ 1,109
Income taxes 408 384
</TABLE>
See accompanying notes
5
<PAGE>
CONTINENTAL MATERIALS CORPORATION
NOTES TO THE QUARTERLY CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
QUARTER ENDED OCTOBER 1, 1994
(Unaudited)
1. The unaudited interim consolidated financial statements included herein are
prepared pursuant to the rules and regulations for reporting on Form 10-Q.
Accordingly, certain information and footnote disclosures normally
accompanying the annual financial statements have been omitted. The
interim financial statements and notes should be read in conjunction with
the consolidated financial statements and notes thereto included in the
Company's latest annual report on Form 10-K. In the opinion of management,
the consolidated financial statements include all adjustments (none of
which were other than normal recurring adjustments) necessary for a fair
statement of the results for the interim periods.
2. In June 1993, the Company sold its Imeco, Inc. ("Imeco") subsidiary. Imeco
is treated as a discontinued operation and accordingly, its operating
results are reported in this manner for all periods presented in the
accompanying consolidated statements of earnings.
3. As discussed in Note 6 of Notes to Consolidated Financial Statements in the
Company's 1993 Annual Report, the Company retained the exposure, if any,
related to incidents involving Imeco products occurring prior to June 30,
1993. There have been no significant developments in the two previously
disclosed claims currently in litigation.
4. Income taxes are based upon the estimated effective tax rate for the year.
5. Operating results for the first nine months of 1994 are not necessarily
indicative of performance for the entire year. Historically, sales of
construction materials are higher in the second and third quarters.
Overall, sales of heating and air-conditioning products have not shown
strong seasonal fluctuations in recent years although product mix has
historically yielded higher gross profit margins in the fourth quarter.
(See Note 11 of Notes to Consolidated Financial Statements in the Company's
1993 Annual Report.)
6
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION
FINANCIAL CONDITION (SEE PAGES 2 AND 5)
Operations for the first three quarters of 1994 provided $1,828,000 in cash
compared to using $222,000 in 1993. Improved earnings and an increase in
accrued expenses account for a significant portion of the increase.
Current earnings were used for investing activities and to pay down the
Company's long term debt. The Company estimates that its short-term line
of credit (of which $1,800,000 was outstanding at October 1, 1994) will be
adequate for the remainder of 1994.
OPERATIONS - COMPARISON OF QUARTER ENDED OCTOBER 1, 1994 TO QUARTER ENDED
OCTOBER 2, 1993 (SEE PAGE 3)
Consolidated net sales increased $3,679,000 (23.1%) as both of the
Company's segments showed improvement. The increase in the construction
materials segment, $2,304,000 (32.7%) is attributed to the continued
strength in the Colorado Springs, Colorado area economy. A favorable
construction market in the Southwest and hot and dry weather in the area
served by Phoenix Manufacturing led to an increase of $1,377,000 (15.5%) in
the heating and air-conditioning segment.
Consolidated cost of sales (exclusive of depreciation and depletion) as a
percentage of sales increased from 71.9% to 74.0%. The increase was
primarily due to the heating and air-conditioning segment which experienced
higher material costs related to product mix as well as recent product
upgrades.
Consolidated selling and administrative expenses increased $357,000 (13.1%)
mainly due to increased sales.
Consolidated interest expense rose $18,000 (9.4%) due to higher average
interest rates.
The Company's loss from its equity investment in Oracle Ridge Mining
Partners was reduced significantly due to higher copper prices, decreased
costs achieved through a mill renovation project completed in late 1993 and
a smelter contract which has resulted in lower smelting and refining costs.
OPERATIONS - COMPARISON OF NINE MONTHS ENDED OCTOBER 1, 1994 TO NINE MONTHS
ENDED OCTOBER 2, 1993 (SEE PAGE 4)
Consolidated net sales increased $7,939,000 (17.2%) due to the reasons
noted above.
Sales and administrative expenses increased $732,000 (9.0%) due to
increased sales levels as well as additional costs incurred for a
consulting project in the construction materials segment.
Consolidated interest expense increased $53,000 (9.2%) due to higher
average interest rates.
The loss attributable to the Oracle Ridge Mining Partners investment was
significantly reduced from $910,000 to $305,000 (66.5%) due to the reasons
noted above.
Historically, the Company has experienced operating losses during the first
quarter. The following three quarters have generally improved over the
previous quarter. This trend is expected to continue as sales of
construction materials are generally higher in the second and third
quarters while sales of heating and air-conditioning products, while not
showing strong seasonality, experience product mix changes that yield
higher gross profits in the third and fourth quarters.
7
<PAGE>
PART II - Other Information
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits: None
(b) Registrant filed no reports on Form 8-K during the quarter ended
October 1, 1994.
SIGNATURE
Pursuant to the requirement 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.
CONTINENTAL MATERIALS CORPORATION
Date: November 4, 1994 By: /S/ Joseph J. Sum
------------------------- ------------------------
Joseph J. Sum, Vice President
and Chief Financial Officer
8
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-02-1994
<PERIOD-END> OCT-1-1994
<CASH> 1240
<SECURITIES> 0
<RECEIVABLES> 12588<F1>
<ALLOWANCES> 0
<INVENTORY> 15994
<CURRENT-ASSETS> 31344
<PP&E> 13708<F2>
<DEPRECIATION> 0
<TOTAL-ASSETS> 46995
<CURRENT-LIABILITIES> 15114
<BONDS> 0
<COMMON> 663
0
0
<OTHER-SE> 25338
<TOTAL-LIABILITY-AND-EQUITY> 46995
<SALES> 54155
<TOTAL-REVENUES> 54155
<CGS> 42006
<TOTAL-COSTS> 52553
<OTHER-EXPENSES> 698
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 626
<INCOME-PRETAX> 904
<INCOME-TAX> 307
<INCOME-CONTINUING> 597
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 597
<EPS-PRIMARY> .52
<EPS-DILUTED> .52
<FN>
<F1>Net of Allowance
<F2>Net of Accumulated Depreciation
</FN>
</TABLE>
