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 28, 1996
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 (I.R.S. Employer
of 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 October 25, 1996 1,103,211
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
CONTINENTAL MATERIALS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
SEPTEMBER 28, 1996 and DECEMBER 30, 1995
(Unaudited)
(000's omitted except share data)
<TABLE>
<CAPTION>
SEPTEMBER 28, DECEMBER 30,
1996 1995
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ -- $ 1,074
Receivables, net 14,174 12,158
Inventories:
Finished goods 8,284 8,038
Work in process 2,114 2,282
Raw materials and supplies 4,339 4,337
Prepaid expenses 2,988 2,206
-------- --------
Total current assets 31,899 30,095
-------- --------
Property, plant and equipment, net 14,694 14,613
Other assets:
Investment in mining partnership 750 1,500
Other 838 1,015
-------- --------
$ 48,181 $ 47,223
======== ========
LIABILITIES
Current liabilities:
Bank loan payable $ 900 $ 2,300
Current portion of long-term debt 1,000 1,011
Accounts payable and accrued expenses 12,287 11,443
Income taxes 501 31
-------- --------
Total current liabilities 14,688 14,785
-------- --------
Long-term debt 2,500 3,000
Deferred income taxes 2,157 2,157
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 27,659 25,818
Treasury shares, 223,377, at cost (2,970) (2,684)
-------- --------
28,836 27,281
-------- --------
$ 48,181 $ 47,223
======== ========
</TABLE>
See accompanying notes
2
<PAGE>
CONTINENTAL MATERIALS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
FOR THE THREE MONTHS ENDED SEPTEMBER 28, 1996 AND SEPTEMBER 30, 1995
(Unaudited)
(000's omitted except per share amounts)
<TABLE>
<CAPTION>
SEPTEMBER 28, SEPTEMBER 30,
1996 1995
<S> <C> <C>
Net sales $ 21,718 $ 18,183
Costs and expenses:
Cost of sales (exclusive of
depreciation and depletion) 16,058 13,288
Depreciation and depletion 666 569
Selling and administrative 3,142 3,455
-------- --------
19,866 17,312
-------- --------
Operating income 1,852 871
Interest (112) (215)
Equity loss from mining partnership (350) (229)
Other income 124 371
-------- --------
Income before income taxes 1,514 798
Provision for income taxes 464 303
-------- --------
Net income 1,050 495
Retained earnings, beginning of period 26,609 24,694
-------- --------
Retained earnings, end of period $ 27,659 $ 25,189
======== ========
Net income per share $ .95 $ .44
======== ========
Average shares outstanding 1,103 1,131
======== ========
</TABLE>
See accompanying notes
3
<PAGE>
CONTINENTAL MATERIALS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
FOR THE NINE MONTHS ENDED SEPTEMBER 28, 1996 AND SEPTEMBER 30, 1995
(Unaudited)
(000's omitted except per share amounts)
<TABLE>
<CAPTION>
SEPTEMBER 28, SEPTEMBER 30,
1996 1995
<S> <C> <C>
Net sales $ 66,694 $ 53,729
Costs and expenses:
Cost of sales (exclusive of
depreciation and depletion) 50,387 41,995
Depreciation and depletion 1,995 1,750
Selling and administrative 9,924 9,639
-------- --------
62,306 53,384
-------- --------
Operating income 4,388 345
Interest (441) (644)
Equity loss from mining partnership (1,495) (345)
Other income 337 728
-------- --------
Income before income taxes 2,789 84
Provision for income taxes 948 32
-------- --------
Net income 1,841 52
Retained earnings, beginning of period 25,818 25,137
-------- --------
Retained earnings, end of period $ 27,659 $ 25,189
======== ========
Net income per share $ 1.66 $ .05
======== ========
Average shares outstanding 1,106 1,131
======== ========
</TABLE>
See accompanying notes
4
<PAGE>
CONTINENTAL MATERIALS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 28, 1996 AND SEPTEMBER 30, 1995
(Unaudited)
(000's omitted)
<TABLE>
<CAPTION>
SEPTEMBER SEPTEMBER
28, 1996 30, 1995
<S> <C> <C>
Net cash provided (used) by operating activities $ 3,878 $ (2,824)
Investing activities:
Capital expenditures (2,073) (2,209)
Proceeds from sale of property and equipment 63 672
Investment in mining partnership (745) (746)
Other -- (27)
-------- --------
Net cash used in investing activities (2,755) (2,310)
Financing activities:
(Repayments) borrowings under revolving
credit facility (1,400) 3,100
Long-term borrowings -- 500
Repayment of long-term debt (511) (710)
Payment to acquire treasury stock (286) (126)
-------- --------
Net cash (used) provided by financing activities (2,197) 2,764
Net decrease in cash and cash equivalents (1,074) (2,370)
Cash and cash equivalents:
Beginning of year 1,074 2,778
-------- --------
End of period $ -- $ 408
======== ========
Supplemental disclosures of cash flow items:
Cash paid during the nine months for:
Interest $ 500 $ 633
Income taxes 490 179
</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 28, 1996
(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 provision for income taxes is based upon the estimated
effective tax rate for the year. This rate was revised during
the quarter ended September 28, 1996.
3.Operating results for the first nine months of 1996 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 1995 Annual Report.)
4.On October 21, 1996 the Company purchased the assets of Valco,
Inc.'s (Valco's) Pueblo, Colorado ready-mix concrete and
aggregates operation for approximately $5,300,000 in cash
including $500,000 for a noncompetition agreement with Valco
and one of its shareholders. Additionally, the Company
entered into a long-term lease to mine aggregates from
properties in Pueblo owned by Valco. These transactions will
expand the area serviced by the Company's ready-mix and
aggregates operations in central and southern Colorado as well
as provide additional aggregate reserves.
5.Concurrent with the purchase, the Company signed an Amended
and Restated Revolving Credit and Term Loan Agreement (the
Agreement) with its existing lending banks. The new term loan
of $8,500,000 was used to fund the Valco transaction and to
refinance the $3,500,000 loan previously outstanding. The new
term loan is payable in increasing semi-annual principal
installments with final payment of all then unpaid principal
on June 15, 2001. The loan bears interest at prime or an
adjusted LIBOR rate. The Agreement also provides for a
$13,500,000 line of credit through June 15, 1998. Other terms
and conditions of the loan agreement are similar to the prior
agreement.
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 1996 provided
$3,878,000 in cash compared to using $2,824,000 in 1995.
Improved earnings accounted for approximately $1,789,000 of
the difference. Additionally, cash flows improved due to a
planned reduction in accounts payable and accruals in the
prior year of over $3,000,000 compared to an increase of
$1,300,000 in the current year. The current year growth in
payables and accruals was the result of the increased level of
business.
The Company estimates that its short-term line of credit (of
which $900,000 was outstanding at September 28, 1996) will be
adequate to meet its cash requirements for the foreseeable
future. See also the discussion of the line of credit in Note
5 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 September 28, 1996 to
Quarter Ended September 30, 1995 (See page 3)
Consolidated net sales increased $3,535,000 (19.4%) as both
industry segments showed strong growth. Sales of the
construction materials segment were up $2,344,000 (26.6%) as
construction activity in the Colorado Springs, Colorado area
increased from the prior year. Improved furnace sales at
Williams Furnace, as well as several large fan coil contracts,
lead to the $1,191,000 (12.8%) improvement in the heating and
air-conditioning segment.
Selling and administrative expenses decreased $313,000 (9.1%)
while declining as a percentage of sales from 19.0% to 14.5%.
The decrease is attributable to the inclusion of non-recurring
litigation related costs and the accrual of compensation for
the Company's former president in the prior year.
Other income for the prior year 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.
7
<PAGE>
Operations - Comparison of Nine Months Ended September 28,
1996 to Nine Months Ended September 30, 1995 (See page 4)
Net sales increased $12,965,000 (24.1%). The heating and air-
conditioning segment reported an increase of $5,167,000
(16.8%) as sales rose at both Williams Furnace and Phoenix
Manufacturing attributable to new customers and the reasons
noted above. The increase in the construction materials
segment, $7,798,000 (25.4%) was due to the reasons noted
above.
Consolidated cost of sales (exclusive of depreciation and
depletion) as a percentage of sales improved from 78.2% to
75.5% due to higher sales volume and production levels
combined with cost improvements at all locations.
Selling and administrative expenses increased $285,000 (3.0%)
while the percentage of sales declined from 17.9% to 14.9%.
The dollar increase is attributable to the higher sales volume
while the percentage decline is due to the fixed nature of
many of the expenses.
The equity loss from mining partnership includes a first
quarter write-down in the carrying value of the investment of
$628,000. The project remains shut down. The remaining value
of $750,000 carried on the balance sheet is management's best
estimate of the investment's current market value.
Other income in the prior year included gains on the sale of
Oracle Ridge surface rights and the sale of real property in
Colorado Springs.
Historically, the Company has experienced operating losses
during the first quarter. The subsequent quarters have
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 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit 11: Computation of per share earnings
Exhibit 27: Financial data schedule
(b) Registrant filed no reports on Form 8-K during
the quarter ended September 28, 1996.
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: October 25, 1996 By: /S/ Joseph J. Sum
---------------------- ----------------------
Joseph J. Sum, Vice President
and Chief Financial Officer
9
Exhibit 11
Computation of Per Share Earnings
For the three and nine months ended September 28, 1996 and September 30, 1995
(Unaudited)
(000's omitted except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
---------------------- ---------------------
September September September September
28, 1996 30, 1995 28, 1996 30, 1995
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Primary Earnings Per Share:
Net Income $1,050 $ 495 $1,841 $ 52
Weighted Average Shares Outstanding:
Common Shares 1,103 1,131 1,105 1,131
Common Stock Equivalents 16 0 10 0
------ ------ ------ ------
1,119 1,131 1,115 1,131
====== ====== ====== ======
Primary Earnings Per Share $ .94 $ .44 $ 1.65 $ .05
====== ====== ====== ======
Fully Diluted Earnings Per Share:
Net Income $1,050 $ 495 $1,841 $ 52
====== ====== ====== ======
Weighted Average Shares Outstanding:
Common Shares 1,103 1,131 1,106 1,131
Common Stock Equivalents 18 0 18 0
------ ------ ------ ------
Total 1,121 1,131 1,124 1,131
====== ====== ====== ======
Fully Diluted Earnings Per Share $ .94 $ .44 $ 1.64 $ .05
====== ====== ====== ======
</TABLE>
Notes:
Primary and fully diluted amounts are not reflected on the
face of the Consolidated Statements of Operations and
Retained Earnings because they differ from basic earnings
per share by less than 3%. Therefore, basic earnings per
share are presented on the face of the statements.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-28-1996
<PERIOD-END> SEP-28-1996
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 14,174<F1>
<ALLOWANCES> 0
<INVENTORY> 14,737
<CURRENT-ASSETS> 31,899
<PP&E> 14,694<F2>
<DEPRECIATION> 0
<TOTAL-ASSETS> 48,181
<CURRENT-LIABILITIES> 14,688
<BONDS> 0
0
0
<COMMON> 663
<OTHER-SE> 28,173
<TOTAL-LIABILITY-AND-EQUITY> 48,181
<SALES> 66,694
<TOTAL-REVENUES> 66,694
<CGS> 50,387<F3>
<TOTAL-COSTS> 62,306
<OTHER-EXPENSES> 1,158
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 441
<INCOME-PRETAX> 2,789
<INCOME-TAX> 948
<INCOME-CONTINUING> 1,841
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,841
<EPS-PRIMARY> 1.66
<EPS-DILUTED> 1.66
<FN>
<F1>Net of allowance for doubtful accounts
<F2>Net of accumulated depreciation
<F3>Exclusive of depreciation and depletion
</FN>
</TABLE>
