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 June 29, 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 July 22, 1996 1,103,211
-------------
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
CONTINENTAL MATERIALS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
JUNE 29, 1996 and DECEMBER 30, 1995
(Unaudited)
(000's omitted except share data)
<TABLE>
<CAPTION>
JUNE 29, DECEMBER 30,
1996 1995
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 898 $ 1,074
Receivables, net 19,921 12,158
Inventories:
Finished goods 7,484 8,038
Work in process 1,930 2,282
Raw materials and supplies 3,661 4,337
Prepaid expenses 2,375 2,206
-------- --------
Total current assets 36,269 30,095
-------- --------
Property, plant and equipment, net 14,514 14,613
Other assets:
Investment in mining partnership 750 1,500
Other 803 1,015
-------- --------
$ 52,336 $ 47,223
======== ========
LIABILITIES
Current liabilities:
Bank loan payable $ 5,200 $ 2,300
Current portion of long-term debt 1,001 1,011
Accounts payable and accrued expenses 13,166 11,443
Income taxes 526 31
-------- --------
Total current liabilities 19,893 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 26,609 25,818
Treasury shares, 223,377, at cost (2,970) (2,684)
-------- --------
27,786 27,281
-------- --------
$ 52,336 $ 47,223
======== ========
</TABLE>
See accompanying notes
2
<PAGE>
CONTINENTAL MATERIALS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
FOR THE THREE MONTHS ENDED JUNE 29, 1996 AND JULY 1, 1995
(Unaudited)
(000's omitted except per share amounts)
<TABLE>
<CAPTION>
JUNE 29, JULY 1,
1996 1995
<S> <C> <C>
Net Sales $ 27,124 $ 19,355
Costs and expenses:
Cost of sales (exclusive of
depreciation and depletion) 20,426 15,485
Depreciation and depletion 668 590
Selling and administrative 3,614 3,077
24,708 19,152
-------- --------
Operating income 2,416 203
-------- --------
Interest (181) (264)
Equity loss from mining partnership (138) (122)
Other income, net 108 267
-------- --------
Income before income taxes 2,205 84
Provision for income taxes 837 32
-------- --------
Net income 1,368 52
Retained earnings, beginning of period 25,241 24,642
-------- --------
Retained earnings, end of period $ 26,609 $ 24,694
======== ========
Net income per share $ 1.24 $ .05
======== ========
Average shares outstanding 1,103 1,139
======== ========
</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>
JUNE 29, JULY 1,
1996 1995
<S> <C> <C>
Net sales $ 44,976 $ 35,546
Costs and expenses:
Cost of sales (exclusive of
depreciation and depletion) 34,329 28,707
Depreciation and depletion 1,329 1,181
Selling and administrative 6,782 6,184
-------- --------
42,440 36,072
-------- --------
Operating income (loss) 2,536 (526)
Interest (329) (429)
Equity loss from mining partnership (1,145) (116)
Other income 213 357
-------- --------
Income (loss) before income taxes 1,275 (714)
Provision (credit) for income taxes 484 (271)
-------- --------
Net income (loss) 791 (443)
Retained earnings, beginning of period 25,818 25,137
-------- --------
Retained earnings, end of period $ 26,609 $ 24,694
======== ========
Net income (loss) per share $ .71 $ (.39)
======== ========
Average shares outstanding 1,107 1,139
======== ========
</TABLE>
See accompanying notes
4
<PAGE>
CONTINENTAL MATERIALS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 29, 1996 AND JULY 1, 1995
(Unaudited)
(000's omitted)
<TABLE>
<CAPTION>
JUNE 29, JULY 1,
1996 1995
<C> <S> <S>
Net cash used by operating activities $ (713) $ (6,555)
Investing activities:
Capital expenditures (1,228) (1,239)
Proceeds from sale of property and equipment 56 365
Investment in mining partnership (395) (320)
Other -- (27)
-------- --------
Net cash used in investing activities (1,567) (1,221)
-------- --------
Financing activities:
Borrowings under revolving credit facility 2,900 5,900
Long-term borrowings -- 500
Repayment of long-term debt (510) (709)
Payment to acquire treasury stock (286) (11)
-------- --------
Net cash provided by financing activities 2,104 5,680
-------- --------
Net decrease in cash and cash equivalents (176) (2,096)
Cash and cash equivalents:
Beginning of year 1,074 2,778
-------- --------
End of period $ 898 $ 682
======== ========
Supplemental disclosures of cash flow items:
Cash paid during the six months for:
Interest $ 348 $ 276
Income taxes 1 41
</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 JUNE 29, 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.As discussed in Note 5 of Notes to Consolidated Financial
Statements in the Company's 1995 Annual Report, the Company
signed a new Revolving Credit and Term Loan Agreement (the
Agreement) in February 1996. The term loan is payable in semi-
annual principal installments of $500,000 with final payment
of all then unpaid principal, on February 15, 1999, including
extension periods. The loan bears interest at prime or an
adjusted LIBOR rate. The Agreement also provides for a
$14,500,000 line of credit through February 15, 1999.
3.The provision for income taxes is based upon the estimated
effective tax rate for the year.
4.Operating results for the first six 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.)
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 1996 used $713,000 in
cash compared to $6,555,000 in 1995. Improved earnings
accounted for approximately $1,200,000 of the difference.
Additionally, a planned reduction in accounts payable and
accruals in the prior year of over $4,000,000 compared to an
increase of $1,700,000 in payables and accruals in the current
year contributed to the improved cash flows. The current year
growth in payables and accruals was the result of the
increased level of business. Both periods included settlement
payouts related to suits brought against the Company. The
1996 settlement involved a $1,000,000 payment while the 1995
payout was $250,000. Both amounts were fully reserved as of
December 31, 1994 and therefore had no impact on either
period's operations.
The Company estimates that its short-term line of credit (of
which $5,200,000 was outstanding at June 29, 1996) 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. The Company expects
to liquidate all short term borrowings by the end of the year.
Operations - Comparison of Quarter Ended June 29, 1996 to
Quarter Ended July 1, 1995
(See page 3)
Consolidated net sales increased $7,769,000 (40.1%) as both
segments showed substantial growth. The construction
materials segment reported sales up $4,167,000 (53.9%) as the
construction market in the Colorado Springs, Colorado area
continues at a robust level. Phoenix Manufacturing's sales
increase attributed to new customers as well as hot dry
weather in the areas serviced resulted in a $3,602,000 (31.1%)
improvement in the heating and air-conditioning segment.
Consolidated cost of sales (exclusive of depreciation and
depletion) as a percentage of sales decreased from 80.0% to
75.3%. Increased sales and production combined with cost
savings at all locations lead to the improvement.
Selling and administrative expenses increased $537,000 (17.5%)
while declining as a percentage of sales from 15.9% to 13.3%.
The dollar increase is attributable mainly to higher sales
volume while the percentage decline is due to the fixed nature
of many of the expenses.
7
<PAGE>
Operations - Comparison of Six Months Ended June 29, 1996 to
Six Months Ended July 1, 1995 (See page 4)
Net sales increased $9,430,000 (26.5%). The increase of
$3,976,000 (18.6%) in the heating and air-conditioning segment
and the increase in the construction materials segment,
$5,454,000 (38.6%) were due to the reasons noted above.
Consolidated cost of sales (exclusive of depreciation and
depletion) as a percentage of sales improved from 80.8% to
76.3% due to reasons noted above.
Selling and administrative expenses increased $598,000 (9.7%)
while the percentage of sales declined from 17.4% to 15.1%.
The changes are due to the reasons noted above.
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 as the partners
continue to hold discussions with third parties regarding a
sale of the mine. Due to the uncertainty of the project's
future, management believes an additional write down of the
investment's carrying value was warranted. The remaining
value of $750,000 carried on the balance sheet is management's
best estimate of the investment's current market value.
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 22, 1996
(b) At that meeting, three individuals, all of whom are current
directors, were nominated and elected to serve until the
1999 Annual Meeting by the following votes:
Director Shares For Shares Against Shares Withheld
-------- ---------- -------------- ----------------
Ralph W. Gidwitz 989,212 -- 37,931
William G. Shoemaker 989,082 -- 38,061
Theodore R. Tetzlaff 989,182 -- 37,961
There were no broker non votes.
The following directors' terms of office contineud after
the meeting until the Annual Meeting of the years as noted:
Directors Expiration of Term
--------------------- ----------------------
Thomas H. Carmody 1997
Ronald J. Gidwitz 1997
William A. Ryan 1997
Betsy R. Gidwitz 1998
James G. Gidwitz 1998
Joseph J. Sum 1998
(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
--------- ----------- -----------
1,009,473 1,059 16,611
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:
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 June 29, 1996.
9
<PAGE>
SIGNATURE
Pursuant to the requirement of the Securities and Exchange Act of 1934,
the registrant had duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
CONTINENTAL MATERIALS CORPORATION
Date: July 25, 1996 By: /S/ Joseph J. Sum
-------------------- -----------------------------
Joseph J. Sum, Vice President
and Chief Financial Officer
10
EXHIBIT 11
Computation of Per Share Earnings
For the three and six months ended June 29, 1996 and July 1, 1995
(Unaudited)
(000's omitted except per share data)
<TABLE>
<CAPTION>
Three Months Six Months
Ended Ended
-------------------- --------------------
June 29, July 1, June 29, July 1,
1996 1995 1996 1995
-------- ------- -------- -------
<S> <C> <C> <C> <C>
Primary Earnings (Loss) Per Share:
Net Income (Loss) $ 1,368 $ 52 $ 791 $ (443)
======= ======= ======= =======
Weighted Average Shares Outstanding:
Common Shares 1,103 1,139 1,139 1,107
Common Stock Equivalents 10 0 0 6
------- ------- ------- -------
Total 1,113 1,139 1,139 1,113
======= ======= ======= =======
Primary Earnings (Loss) Per Share $ 1.23 $ .05 $ .71 $ (.39)
======= ======= ======= =======
Fully Diluted Earnings (Loss) Per Share:
Net Income (Loss) $ 1,368 $ 52 $ 791 $ (443)
Weighted Average Shares Outstanding:
Common Shares 1,103 1,139 1,107 1,139
Common Stock Equivalents 10 0 0 9
------- ------- ------- -------
Total 1,113 1,139 1,116 1,139
======= ======= ======= =======
Fully Diluted Income (Loss)
Per Share: $ 1.23 $ .05 $ .71 $ (.39)
======= ======= ======= =======
</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> 6-MOS
<FISCAL-YEAR-END> DEC-28-1996
<PERIOD-END> JUN-29-1996
<CASH> 898
<SECURITIES> 0
<RECEIVABLES> 19,921<F1>
<ALLOWANCES> 0
<INVENTORY> 13,075
<CURRENT-ASSETS> 36,269
<PP&E> 14,514<F2>
<DEPRECIATION> 0
<TOTAL-ASSETS> 52,336
<CURRENT-LIABILITIES> 19,893
<BONDS> 0
0
0
<COMMON> 663
<OTHER-SE> 27,123
<TOTAL-LIABILITY-AND-EQUITY> 52,336
<SALES> 44,976
<TOTAL-REVENUES> 44,976
<CGS> 34,329<F3>
<TOTAL-COSTS> 42,440
<OTHER-EXPENSES> 932
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 329
<INCOME-PRETAX> 1,275
<INCOME-TAX> 484
<INCOME-CONTINUING> 791
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 791
<EPS-PRIMARY> .71
<EPS-DILUTED> .71
<FN>
<F1>Net of allowance for doubtful accounts
<F2>Net of accumulated depreciation
<F3>Net of depreciation and depletion
</FN>
</TABLE>
