<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 July 1, 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 Identification No.)
incorporation or organization
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 July 28, 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
JULY 1, 1995 and DECEMBER 31, 1994
(Unaudited)
(000's omitted except share data)
<TABLE>
<CAPTION>
JULY 1, DECEMBER 31,
ASSETS 1995 1994
------ ----------------- ----------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 682 $ 2,778
Receivables, net 15,202 11,376
Refundable income taxes 289 --
Inventories:
Finished goods 7,535 8,882
Work in process 2,125 2,208
Raw materials and supplies 5,587 5,407
Prepaid expenses 1,750 1,505
---------------- ----------------
Total current assets 33,170 32,156
---------------- ----------------
Property, plant and equipment, net 13,621 13,726
---------------- ----------------
Other assets:
Investment in mining partnership 1,743 1,539
Other 800 741
---------------- ----------------
$ 49,334 $ 48,162
---------------- ----------------
---------------- ----------------
LIABILITIES
-----------
Current liabilities:
Bank loan payable $ 5,900 $ --
Current portion of long-term debt 711 1,411
Unsecured term loan due on April 20,
1996 expected to be refinanced 4,000 --
Accounts payable and accrued expenses 10,655 14,710
Income taxes -- 10
---------------- ----------------
Total current liabilities 21,266 16,131
---------------- ----------------
Long-term debt 3 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 24,694 25,137
Treasury shares, 187,310 and 186,310
respectively at cost (2,506) (2,495)
---------------- ----------------
26,335 26,789
---------------- ----------------
$ 49,334 $ 48,162
---------------- ----------------
---------------- ----------------
</TABLE>
See accompanying notes
2
<PAGE>
CONTINENTAL MATERIALS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
FOR THE THREE MONTHS ENDED JULY 1, 1995 AND JULY 2, 1994
(Unaudited)
(000's omitted except per share amounts)
<TABLE>
<CAPTION>
JULY 1, JULY 2,
1995 1994
-------------- --------------
<S> <C> <C>
Net sales $ 19,355 $ 19,265
-------------- --------------
Costs and expenses:
Cost of sales (exclusive of
depreciation and depletion) 15,485 15,097
Depreciation and depletion 590 568
Selling and administrative 3,077 2,825
-------------- --------------
19,152 18,490
-------------- --------------
Operating income 203 775
Interest (264) (246)
Equity loss from mining partnership (122) (95)
Other income, net 267 159
-------------- --------------
Income before income taxes 84 593
Provision for income taxes 32 201
-------------- --------------
Net income 52 392
Retained earnings, beginning of period 24,642 23,194
-------------- --------------
Retained earnings, end of period $ 24,694 $ 23,586
-------------- --------------
-------------- --------------
Net income per share $ .05 $ .34
-------------- --------------
-------------- --------------
Average shares outstanding 1,139 1,140
-------------- --------------
-------------- --------------
</TABLE>
See accompanying notes
3
<PAGE>
CONTINENTAL MATERIALS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
FOR THE SIX MONTHS ENDED JULY 1, 1995 AND JULY 2, 1994
(Unaudited)
(000's omitted except per share amounts)
<TABLE>
<CAPTION>
JULY 1, JULY 2,
1995 1994
-------------- --------------
<S> <C> <C>
Net sales $ 35,546 $ 34,525
-------------- --------------
Costs and expenses:
Cost of sales (exclusive of
depreciation and depletion) 28,707 27,477
Depreciation and depletion 1,181 1,135
Selling and administrative 6,184 5,763
-------------- --------------
36,072 34,375
-------------- --------------
Operating (loss) income (526) 150
Interest (429) (416)
Equity loss from mining partnership (116) (165)
Other income 357 179
-------------- --------------
Loss before income taxes (714) (252)
Credit for income taxes (271) (86)
-------------- --------------
Net loss (443) (166)
Retained earnings, beginning of period 25,137 23,752
-------------- --------------
Retained earnings, end of period $ 24,694 $ 23,586
-------------- --------------
-------------- --------------
Net loss per share $ (.39) $ (.15)
-------------- --------------
-------------- --------------
Average shares outstanding 1,139 1,140
-------------- --------------
-------------- --------------
</TABLE>
See accompanying notes
4
<PAGE>
CONTINENTAL MATERIALS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JULY 1, 1995 AND JULY 2, 1994
(Unaudited)
(000's omitted)
<TABLE>
<CAPTION>
JULY 1, JULY 2,
1995 1994
-------------- --------------
<S> <C> <C>
Net cash used by operating activities $ (6,555) $ (2,943)
-------------- --------------
Investing activities:
Capital expenditures (1,239) (629)
Proceeds from sale of property and equipment 365 111
Investment in mining partnership (320) (236)
Proceeds from sale of equity investment -- 244
Other (27) --
-------------- --------------
Net cash used in investing activities (1,221) (510)
-------------- --------------
Financing activities:
Borrowings under revolving credit facility 5,900 3,900
Long-term borrowings 500 --
Repayment of long-term debt (709) (740)
Payment to acquire treasury stock (11) --
-------------- --------------
Net cash provided by financing activities 5,680 3,160
-------------- --------------
Net decrease in cash and cash equivalents (2,096) (293)
Cash and cash equivalents:
Beginning of year 2,778 1,067
-------------- --------------
End of period $ 682 $ 774
-------------- --------------
-------------- --------------
Supplemental disclosures of cash flow items:
Cash paid during the six months for:
Interest $ 276 $ 381
Income taxes 41 16
</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 JULY 1, 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 July 1, 1995,
the Company has $5,900,000 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 credit for income taxes is based upon the estimated effective tax rate
for the year.
4. Operating results for the first six 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 yields higher gross profit
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 six months of 1995 used $6,555,000 in cash compared to
$2,943,000 in 1994. The increased use of cash is attributable mainly to
decreases in accounts payable and accrued expenses. As noted in the Financial
Condition, Liquidity and Capital Resources discussion in the 1994 Annual Report,
the increases in accounts payable and accruals at December 31, 1994 were due to
the early purchase of raw materials for 1995 production and timing of payments,
respectively. The reduction in these amounts occurred, as expected, during the
first six months of 1995. In addition, cash was used in April 1995 to pay the
settlement of the suit brought by ConAgra and its insurance carrier. The amount
of the settlement had been fully reserved as of December 31, 1994 and thus had
no effect on the operations of the six months ended July 1, 1995.
During the 1995 quarter, 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 has announced its intent to
replace approximately 5,900 units purchased during the period. The Consumer
Products Safety Commission ("CPSC") has been notified and WFC is working with
an independent engineering firm and the CPSC to determine the cause of the
cracks. To date, WFC is not aware of any claims related to these matters and
as such no amounts have been accrued.
The Company estimates that its short-term line of credit (of which $5,900,000
was outstanding at July 1, 1995) will be adequate to meet its cash requirements
for the foreseeable future. See also the discussion of 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 remainder of the year.
OPERATIONS - COMPARISON OF QUARTER ENDED JULY 1, 1995 TO QUARTER ENDED JULY 2,
1994 (SEE PAGE 3)
Consolidated net sales improved $90,000 (.5%). The increase in the heating and
air-conditioning segment of $784,000 (7.3%) occurred at both Phoenix
Manufacturing and Williams Furnace and is attributable to new customers.
Partially offsetting the increase was the construction materials segment decline
of $695,000 (8.2%) primarily due to the second quarter of 1994 including two
large municipal projects that were non-recurring in 1995.
Consolidated cost of sales (exclusive of depreciation and depletion) as a
percentage of sales rose from 78.4% to 80.0% due to decreased production levels
at Williams Furnace and increased raw materials costs in the heating and
air-conditioning segment which, due to competitive pressures, the Company was
unable to fully pass through to its customers.
7
<PAGE>
Selling and administrative expenses increased $252,000 (8.9%) and are
attributable to expanded sales and marketing programs in the heating and air-
conditioning segment and legal expenses related mainly to product liability
matters.
The Company's loss from its equity investment in Oracle Ridge Mining Partners
increased slightly as lower production offset the stronger market price of
copper.
The increase in other income of $108,000 is due to gains on sales of certain
excess equipment.
OPERATIONS - COMPARISON OF SIX MONTHS ENDED JULY 1, 1995 TO SIX MONTHS ENDED
JULY 2, 1994 (SEE PAGE 4)
Net sales increased $1,021,000 (3.0%). The increase of $1,593,000 (8.1%) 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, $573,000 (4.0%) was due to the
reasons noted above.
Sales and administrative expenses increased $421,000 (7.3%) due to the overall
sales increase and the reasons noted above.
The loss attributable to the Oracle Ridge Mining Partners investment was reduced
due to higher average copper prices.
The increase in other income of $178,000 is due to the reason noted above.
Historically, the Company has experienced operating losses during the first
quarter. The second quarter has historically improved over the first quarter's
operating results. 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 yield higher gross profits in the fourth
quarter.
8
<PAGE>
PART II - OTHER INFORMATION
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) The annual meeting of the stockholders of the Company was held on
May 24, 1995.
(b) At that meeting, three individuals, all of whom are current
directors, were nominated and elected to serve until the Annual
Meeting by the following votes:
Director Shares For Shares Against Shares Withheld
- -------------------- ------------- ------------------ -------------------
James G. Gidwitz 1,031,233 -- 20,119
Joseph L. Gidwitz 1,031,170 -- 20,181
Joseph J. Sum 1,031,326 -- 20,025
There were no broker non votes.
The following directors' terms of office continued after the
meeting until the Annual Meetings of the years as noted:
Directors Expiration of Term
--------------------- -----------------------
Ralph W. Gidwitz 1996
William M. Shoemaker 1996
Theodore R. Tetzlaff 1996
Thomas H. Carmody 1997
Ronald J. Gidwitz 1997
Joseph J. Sum 1997
(c) In addition to the above election, the independent auditing firm
of Coopers & Lybrand L.L.P. was appointed by the following vote:
For Against Abstain
----------- -------------- ------------
1,034,386 13,103 3,862
There were no broker non votes.
(d) No other matters were submitted for vote.
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 July 1, 1995.
9
<PAGE>
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: August 3, 1995 By: /S/ Joseph J. Sum
------------------------------ ----------------------------------
Joseph J. Sum, Vice President
and Chief Financial Officer
10
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-30-1995
<PERIOD-END> JUL-01-1995
<CASH> 682
<SECURITIES> 0
<RECEIVABLES> 15,202<F1>
<ALLOWANCES> 0
<INVENTORY> 15,247
<CURRENT-ASSETS> 33,170
<PP&E> 13,621<F2>
<DEPRECIATION> 0
<TOTAL-ASSETS> 49,334
<CURRENT-LIABILITIES> 21,266
<BONDS> 0
<COMMON> 663
0
0
<OTHER-SE> 25,672
<TOTAL-LIABILITY-AND-EQUITY> 49,334
<SALES> 35,546
<TOTAL-REVENUES> 35,546
<CGS> 28,707<F3>
<TOTAL-COSTS> 36,072
<OTHER-EXPENSES> 241
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 429
<INCOME-PRETAX> (714)
<INCOME-TAX> (271)
<INCOME-CONTINUING> (443)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (443)
<EPS-PRIMARY> (.39)
<EPS-DILUTED> (.39)
<FN>
<F1>(RECEIVABLES) IS NET OF ALLOWANCE FOR DOUBTFUL ACCOUNTS
<F2>(PP&E) IS NET OF ACCUMULATED DEPRECIATION
<F3>(CGS) IS EXCLUSIVE OF DEPRECIATION AND DEPLETION
</FN>
</TABLE>
