<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 September 30, 1995
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
CONTINENTAL MATERIALS CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 36-2274391
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
225 West Wacker Drive, Chicago, Illinois 60606
(Address of principal executive office)
(Zip Code)
(312) 541-7200
(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, 1995 1,129,911
NO EXHIBITS ARE FILED WITH THIS REPORT
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
CONTINENTAL MATERIALS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1995 and DECEMBER 31, 1994
(000's omitted)
<TABLE>
<CAPTION>
(Unaudited)
SEPTEMBER 30, DECEMBER 31,
1995 1994
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 408 $ 2,778
Receivables, net 12,377 11,376
Refundable income taxes 124 --
Inventories:
Finished goods 9,207 8,882
Work in process 2,245 2,208
Raw materials and supplies 5,351 5,407
Prepaid expenses 1,641 1,505
Total current assets 31,353 32,156
Property, plant and equipment, net 14,025 13,726
Other assets:
Investment in mining partnership 1,940 1,539
Other 612 741
$ 47,930 $ 48,162
LIABILITIES
Current liabilities:
Bank loan payable $ 3,100 $ --
Current portion of long-term debt 709 1,411
Unsecured term loan due on April 20, 1996
expected to be refinanced 4,000 --
Accounts payable and accrued expenses 11,672 14,710
Income taxes -- 10
Total current liabilities 19,481 16,131
Long-term debt 4 3,512
Deferred income taxes 1,730 1,730
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 25,189 25,137
Treasury shares, 196,677, and 186,310
respectively at cost (2,621) (2,495)
26,715 26,789
$ 47,930 $ 48,162
</TABLE>
See accompanying notes
2
<PAGE>
CONTINENTAL MATERIALS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1995 AND OCTOBER 1, 1994
(Unaudited)
(000's omitted except per share amounts)
<TABLE>
<CAPTION>
SEPTEMBER 30, OCTOBER 1,
1995 1994
<S> <C> <C>
Net sales $ 18,183 $ 19,630
Costs and expenses:
Cost of sales (exclusive of
depreciation and depletion) 13,288 14,529
Depreciation and depletion 569 570
Selling and administrative 3,455 3,079
17,312 18,178
Operating income 871 1,452
Interest (215) (210)
Equity income (loss) from mining partnership (229) (140)
Other income 371 54
Income before income taxes 798 1,156
Provision for income taxes 303 393
Net income 495 763
Retained earnings, beginning of period 24,694 23,586
Retained earnings, end of period $ 25,189 $ 24,349
Net income per share $ .44 $ .67
Average shares outstanding 1,131 1,140
</TABLE>
See accompanying notes
3
<PAGE>
CONTINENTAL MATERIALS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND OCTOBER 1, 1994
(Unaudited)
(000's omitted except per share amounts)
<TABLE>
<CAPTION>
SEPTEMBER 30, OCTOBER 1,
1995 1994
<S> <C> <C>
Net sales $ 53,729 $ 54,155
Costs and expenses:
Cost of sales (exclusive of
depreciation and depletion) 41,995 42,006
Depreciation and depletion 1,750 1,705
Selling and administrative 9,639 8,842
53,384 52,553
Operating income 345 1,602
Interest (644) (626)
Equity loss from mining partnership (345) (305)
Other income 728 233
Income before income taxes 84 904
Provision for income taxes 32 307
Net income 52 597
Retained earnings, beginning of period 25,137 23,752
Retained earnings, end of period $ 25,189 $ 24,349
Net income per share $ .05 $ .52
Average shares outstanding 1,137 1,140
</TABLE>
See accompanying notes
4
<PAGE>
CONTINENTAL MATERIALS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND OCTOBER 1, 1994
(Unaudited)
(000's omitted)
<TABLE>
<CAPTION>
SEPTEMBER 30, OCTOBER 1,
1995 1994
<S> <C> <C>
Net cash (used) provided by operating activities $ (2,824) $ 1,828
Investing activities:
Capital expenditures (2,209) (1,130)
Proceeds from sale of property and equipement 672 138
Investment in mining partnership (746) (258)
Proceeds from sale of equity investment -- 250
Other (27) --
Net cash used by investing activities (2,610) (1,000)
Financing activities:
Borrowings under revolving credit facility 3,100 100
Long-term borrowings 500 --
Repayment of long-term debt (710) (755)
Payments to acquire treasury stock (126) --
Net cash provided (used) by financing activities 2,764 (655)
Net (decrease) increase in cash and cash equivalents (2,370) 173
Cash and cash equivalents:
Beginning of year 2,778 1,067
End of period $ 408 $ 1,240
Supplemental disclosures of cash flow items:
Cash paid during the nine months for:
Interest $ 633 $ 602
Income taxes 179 408
</TABLE>
See accompanying notes
5
<PAGE>
CONTINENTAL MATERIALS CORPORATION
SECURITIES AND EXCHANGE COMMISSION FORM 10-Q
NOTES TO THE QUARTERLY CONSOLIDATED FINANCIAL STATEMENTS
QUARTER ENDED SEPTEMBER 30, 1995
(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.The Company's credit agreement with two banks expires April
20, 1996. This agreement covers both the unsecured term loan
with a remaining balance of $4,700,000 and an unsecured line
of credit of $12,000,000. At September 30, 1995, the Company
has $3,100,000 outstanding under the unsecured line of credit.
In addition, the line of credit supports approximately
$4,400,000 of standby letters of credit. The Company intends
to enter into a new credit agreement with the banks prior to
issuing the financial statements for the year ending December
30, 1995. The Company expects to maintain a similar portion
of the debt as long term, however, the requirements for long
term classification of short-term obligations expected to be
refinanced, as specified in Statement of Financial Accounting
Standards No. 6, have not yet been met. Accordingly, the
entire term debt under the existing credit agreement has been
classified as a current liability. (See Note 5 of Notes to
Consolidated Financial Statements in the Company's 1994 Annual
Report.)
3.The provision for income taxes is based upon the estimated
effective tax rate for the year.
4.Operating results for the first nine months of 1995 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 1994 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 nine months of 1995 used $2,824,000
in cash compared to a positive cash flow of $1,828,000 in
1994. A reduction in accounts payable and accrued expenses in
the current year, including the settlement of the ConAgra
claim (See Note 6 of Notes to Consolidated Financial
Statements in the Company's 1994 Form 10-K) accounts for most
of the cash consumption. A modest increase in inventories
since year end also was a contributing factor.
During the second quarter of 1995, Williams Furnace ("WFC")
was notified by Pacific Gas & Electric ("PG&E") that a recent
inspection had discovered a higher than normal incidence of
cracks in the heat exchanger of two models of furnaces
manufactured by WFC. These furnaces were purchased by PG&E
during the years 1985 to 1991. Initial engineering reports
indicate that there is no safety hazard arising from these
cracks. However, PG&E announced its intent to replace
approximately 5,900 units purchased during the period. The
Consumer Products Safety Commission ("CPSC") was notified and
WFC continues to work with an independent engineering firm and
the CPSC to determine the cause of the cracks which, as of
this date, is still undetermined. To date, no claims have
been asserted against the Company by PG&E or the actual users
of the furnaces with respect to cracked heat exchangers being
replaced by PG&E. As such, no loss accrual has been
established at this time.
The Company estimates that its short-term line of credit (of
which $3,100,000 was outstanding at September 30, 1995) will
be adequate to meet its cash requirements for the foreseeable
future. See also the discussion of the unsecured term loan
and the line of credit in Note 2 of the accompanying Notes to
the Quarterly Consolidated Financial Statements.
Historically, the Company's borrowings against the short-term
line peak during the second quarter and decline over the
second half of the year.
Operations - Comparison of Quarter Ended September 30, 1995 to
Quarter Ended October 1, 1994 (See page 3)
Consolidated net sales declined $1,447,000 (7.4%). The
decrease in the heating and air-conditioning segment was
$894,000 (8.7%). Hot, dry weather in the area served by
Phoenix Manufacturing in the third quarter of 1994 led to
significantly higher sales in the prior year period. Williams
Furnace also experienced a decline in sales due to new
competitive products. The construction materials segment
decline of $552,000 (5.9%) was primarily due to a slow down in
single-family home construction and an absence of two large
municipal jobs served by Transit Mix in the prior year.
Consolidated cost of sales (exclusive of depreciation and
depletion) as a percentage of sales declined slightly from
74.0% to 73.1% due mostly to higher production levels at
Williams Furnace.
7
<PAGE>
Selling and administrative expenses increased $376,000
(12.2%). This increase is due to continuing legal and other
expenses related mainly to the Williams Furnace heat exchanger
matter and the accrual of future compensation to be paid to
the Company's former president.
The Company reported a $279,000 loss from its investment in
Oracle Ridge Mining Partners compared to a loss of $140,000 in
the prior year quarter. The increase from the prior year loss
is due in large part to lower production levels and ore grades
as construction of a ramp to access additional mining areas
was delayed. The ramp was completed in September and mining
of the new area has begun.
Other income for the current quarter includes a $300,000 gain
on the sale of the Company's interest in Oracle Ridge surface
rights to Union Copper, Inc., the majority partner of Oracle
Ridge Mining Partners.
Operations - Comparison of Nine Months Ended September 30,
1995 to Nine Months Ended October 1, 1994 (See page 4)
Net sales decreased $426,000 (.8%). The increase of $669,000
(2.3%) in the heating and air-conditioning segment was due
mainly to improvements at Phoenix Manufacturing where new
customers contributed to higher sales levels. The decline in
the construction materials segment, $1,125,000 (4.7%) was due
to the reasons noted above.
Sales and administrative expenses increased $797,000 (9.0%)
due to expanded sales and marketing programs in the heating
and air-conditioning segment in addition to the reasons noted
above.
The increase in other income of $495,000 is due to gains on
the sale of Oracle Ridge surface rights, noted above, and the
sale of real property in Colorado Springs.
Historically, the Company has experienced operating losses
during the first quarter. The following three quarters have
generally each improved on 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, although not showing
strong seasonality, experience product mix changes that have
historically yielded higher gross profit margins in the fourth
quarter.
8
<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 September 30, 1995.
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 2, 1995 By: /S/ Joseph J. Sum
------------------- ---------------------------
Joseph J. Sum, Vice President
and Chief Financial Officer
9
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-30-1995
<PERIOD-END> SEP-30-1995
<CASH> 408
<SECURITIES> 0
<RECEIVABLES> 12,377<F1>
<ALLOWANCES> 0
<INVENTORY> 16,803
<CURRENT-ASSETS> 31,353
<PP&E> 14,025<F2>
<DEPRECIATION> 0
<TOTAL-ASSETS> 47,930
<CURRENT-LIABILITIES> 19,481
<BONDS> 0
<COMMON> 663
0
0
<OTHER-SE> 26,052
<TOTAL-LIABILITY-AND-EQUITY> 47,930
<SALES> 53,729
<TOTAL-REVENUES> 53,729
<CGS> 41,995<F3>
<TOTAL-COSTS> 53,384
<OTHER-EXPENSES> (383)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 644
<INCOME-PRETAX> 84
<INCOME-TAX> 32
<INCOME-CONTINUING> 52
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 52
<EPS-PRIMARY> .05
<EPS-DILUTED> .05
<FN>
<F1>Net of allowance for doubtful accounts.
<F2>Net of accumulated depreciation.
<F3>Exclusive of depreciation and depletion.
</FN>
</TABLE>
