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 28, 1997
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 30, 1997 1,104,211
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
CONTINENTAL MATERIALS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
JUNE 28, 1997 and DECEMBER 28, 1996
(Unaudited)
(000's omitted except share data)
<CAPTION>
JUNE 28, DECEMBER 28,
ASSETS 1997 1996
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 686 $ 379
Receivables, net 20,862 14,584
Inventories:
Finished goods 9,374 8,696
Work in process 1,905 1,800
Raw materials and supplies 5,833 4,688
Prepaid expenses 2,603 2,687
Total current assets 41,263 32,834
Property, plant and equipment, net 18,456 18,818
Other assets:
Investment in mining partnership 600 600
Other 1,534 1,641
$ 61,853 $ 53,893
LIABILITIES
Current liabilities:
Bank loan payable $ 6,500 $ 400
Current portion of long-term debt 1,900 1,500
Accounts payable and accrued expenses 13,343 13,863
Income taxes 602 450
Total current liabilities 22,345 16,213
Long-term debt 7,350 6,500
Deferred income taxes 1,830 1,830
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 29,151 28,173
Treasury shares, 223,377, at cost (2,970) (2,970)
30,328 29,350
$ 61,853 $ 53,893
</TABLE>
See accompanying notes
2
<PAGE>
<TABLE>
CONTINENTAL MATERIALS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
FOR THE THREE MONTHS ENDED JUNE 28, 1997 AND JUNE 29, 1996
(Unaudited)
(000's omitted except per share amounts)
<CAPTION>
JUNE 28, JUNE 29,
1997 1996
<S> <C> <C>
Net sales $ 27,991 $ 27,124
Costs and expenses:
Cost of sales (exclusive of depreciation,
depletion and amortization) 21,623 20,426
Depreciation, depletion and amortization 876 668
Selling and administrative 3,667 3,614
26,166 24,708
Operating income 1,825 2,416
Interest (309) (181)
Equity loss from mining partnership (29) (138)
Other income, net 85 108
Income before income taxes 1,572 2,205
Provision for income taxes 552 837
Net income 1,020 1,368
Retained earnings, beginning of period 28,131 25,241
Retained earnings, end of period $ 29,151 $ 26,609
Net income per share $ .92 $ 1.24
Average shares outstanding 1,104 1,104
</TABLE>
See accompanying notes
3
<PAGE>
<TABLE>
CONTINENTAL MATERIALS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
FOR THE SIX MONTHS ENDED JUNE 28, 1997 AND JUNE 29, 1996
(Unaudited)
(000's omitted except per share amounts)
<CAPTION>
JUNE 28, JUNE 29,
1997 1996
<S> <C> <C>
Net sales $ 48,896 $ 44,976
Costs and expenses:
Cost of sales (exclusive of depreciation,
depletion and amortization) 38,073 34,329
Depreciation, depletion and amortization 1,755 1,329
Selling and administrative 7,288 6,782
47,116 42,440
Operating income 1,780 2,536
Interest (504) (329)
Equity loss from mining partnership (57) (1,145)
Other income, net 285 213
Income before income taxes 1,504 1,275
Provision for income taxes 526 484
Net income 978 791
Retained earnings, beginning of period 28,173 25,818
Retained earnings, end of period $ 29,151 $ 26,609
Net income per share $ .89 $ .71
Average shares outstanding 1,104 1,107
</TABLE>
See accompanying notes
4
<PAGE>
<TABLE>
CONTINENTAL MATERIALS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 28, 1997 AND JUNE 29, 1996
(Unaudited)
(000's omitted)
<CAPTION>
JUNE 28, JUNE 29,
1997 1996
<S> <C> <C>
Net cash used by operating activities $(5,648) $ (713)
Investing activities:
Capital expenditures (1,347) (1,228)
Proceeds from sale of property
and equipment 9 56
Investment in mining partnership (57) (395)
Net cash used in investing activities (1,395) (1,567)
Financing activities:
Borrowings under revolving credit facility 6,100 2,900
Long-term borrowings 2,000 --
Repayment of long-term debt (750) (510)
Payment to acquire treasury stock -- (286)
Net cash provided by financing activities 7,350 2,104
Net increase (decrease) in cash and
cash equivalents 307 (176)
Cash and cash equivalents:
Beginning of year 379 1,074
End of period $ 686 $ 898
Supplemental disclosures of cash flow items:
Cash paid during the six months for:
Interest $ 555 $ 348
Income taxes 380 1
</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 28, 1997
(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.During the quarter, as allowed by the current credit
agreement, the Company elected to convert $2,000,000
qualifying capital expenditures purchased with funds from the
revolving credit facility to the term loan with a
corresponding decrease in the revolving credit facility and a
proportional increase in the term-loan amortization.
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 1997 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 12 of Notes to Consolidated Financial
Statements in the Company's 1996 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 1997 used $5,648,000 in
cash compared to $713,000 in 1996. The increased use of cash
is attributed to higher inventory balances and reduced accrued
expense and payables balances. The increase in inventories is
the result of a decision by Williams Furnace to carry
additional wall furnaces at this time as well an increase in
Williams' fan coil business. The Company expects to reduce
inventories throughout the second half of the year in line
with current sales demand. The decrease in accrued expenses
reflects the expected payment of certain 1996 year end
accruals while the decrease in accounts payable is the result
of timing of payments.
The Company estimates that its short-term line of credit (of
which $6,500,000 was outstanding at June 28, 1997) will be
adequate to meet its cash requirements for the foreseeable
future. See also the discussion of the credit facility 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 June 28, 1997 to
Quarter Ended June 29, 1996
(See page 3)
Consolidated net sales increased $867,000 (3.2%). The
construction materials segment reported sales up $1,705,000
(14.3%) due to the acquisition of Transit Mix of Pueblo during
the last quarter of 1996 which offset the expected modest
decline in the construction market in the Colorado Springs,
Colorado area. Unfavorable weather conditions during the
height of Phoenix Manufacturing's selling season were mainly
responsible for the decline of $837,000 (5.5%) in the heating
and air-conditioning segment. Williams Furnace showed
improved sales volume attributable to the fan coil product
line, however, this growth was not significant enough to
offset the decline in this segment's other product offerings.
Consolidated cost of sales (exclusive of depreciation,
depletion and amortization) as a percentage of sales increased
from 75.3% to 77.2% as a result of increased volume in the
traditionally lower margin construction materials segment and
a change in product mix in the heating and air-conditioning
segment.
Depreciation, depletion and amortization increased $208,000
(31.1%) mainly due to the acquisition of Transit Mix of Pueblo
in the last quarter of 1996.
7
<PAGE>
Operations - Comparison of Six Months Ended June 28, 1997 to
Six Months June 29, 1996(See page 4)
Net sales rose $3,920,000 (8.7%). The increase in the
construction materials segment, $4,255,000 (21.7%) and the
decrease in the heating and air-conditioning segment $334,000
(1.3%), were due to the reasons noted above.
Consolidated cost of sales (exclusive of depreciation,
depletion and amortization) as a percentage of sales increased
from 76.3% to 77.9% due to reasons noted above.
Depreciation, depletion and amortization increased $426,000
(32.1%) due to the reason noted above.
The prior year equity loss from mining partnership includes a
first quarter write-down in the carrying value of the
investment of $628,000.
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 28, 1997.
(b) At that meeting, three individuals, two of whom are
current directors, were nominated and elected to
serve until the 2000 Annual Meeting by the following
votes:
Director Shares Shares Shares
For Against Withheld
Thomas H. Carmody 992,452 -- 6,377
Ronald J. Gidwitz 984,222 -- 14,607
Darrell M. Trent 992,452 -- 6,377
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
Betsy R. Gidwitz 1998
James G. Gidwitz 1998
Joseph J. Sum 1998
Ralph W. Gidwitz 1999
William G. Shoemaker 1999
Theodore R. Tetzlaff 1999
(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
992,030 2,742 4,057
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 28, 1997.
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: July 31, 1997 By: /S/ Joseph J. Sum
Joseph J. Sum, Vice President
and Chief Financial Officer
10
<TABLE>
Exhibit 11
Computation of Per Share Earnings
For the three and six months ended June 28, 1997 and June 29,
1996
(Unaudited)
(000's omitted except per share amounts)
<CAPTION>
Three Months Ended Six Months Ended
June 28, June 29, June 28, June 29,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Primary Earnings Per Share:
Net Income $ 1,020 $ 1,368 $ 978 $ 791
Weighted Average Shares Outstanding:
Common Shares 1,104 1,104 1,104 1,107
Common Stock Equivalents 30 10 29 6
1,134 1,114 1,133 1,113
Primary Earnings Per Share $ .90 $ 1.23 $ .86 $ .71
Fully Diluted Income Per Share:
Net Income $ 1,020 $ 1,368 $ 978 $ 791
Weighted Average Shares Outstanding:
Common Shares 1,104 1,104 1,104 1,107
Common Stock Equivalents 32 10 32 9
Total 1,136 1,114 1,136 1,116
Fully Diluted Earnings Per Share $ .90 $ 1.23 $ .86 $ .71
</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> JAN-03-1998
<PERIOD-END> JUN-28-1997
<CASH> $ 686
<SECURITIES> 0
<RECEIVABLES> 20,862<F1>
<ALLOWANCES> 0
<INVENTORY> 17,112
<CURRENT-ASSETS> 41,263
<PP&E> 18,456<F2>
<DEPRECIATION> 0
<TOTAL-ASSETS> 61,853
<CURRENT-LIABILITIES> 23,945
<BONDS> 0
0
0
<COMMON> 663
<OTHER-SE> 29,665
<TOTAL-LIABILITY-AND-EQUITY> 61,853
<SALES> 48,896
<TOTAL-REVENUES> 48,896
<CGS> 38,073<F3>
<TOTAL-COSTS> 47,116
<OTHER-EXPENSES> 228
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 504
<INCOME-PRETAX> 1,504
<INCOME-TAX> 526
<INCOME-CONTINUING> 978
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> $ 978
<EPS-PRIMARY> $ .89
<EPS-DILUTED> $ .89
<FN>
<F1>Net of allowance for doubtful accounts
<F2>Net of accumulated depreciation, depletion and amortization
<F3>Exclusive of depreciation, depletion and amortization
</FN>
</TABLE>
