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 March 29, 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 of (I.R.S. Employer
incorporation or organization) Identification No.)
225 West Wacker Drive, Suite 1800, 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 April 25, 1997 1,104,221
THE EXHIBIT FILED WITH THIS REPORT IS ON PAGE 8
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
CONTINENTAL MATERIALS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
MARCH 29, 1997 and DECEMBER 28, 1996
(Unaudited)
(000's omitted except share data)
<TABLE>
<CAPTION>
MARCH 29, DECEMBER 28,
1997 1996
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ -- $ 379
Receivables, net 17,641 14,584
Inventories:
Finished goods 9,775 8,696
Work in process 1,829 1,800
Raw materials and supplies 5,270 4,688
Prepaid expenses 2,776 2,687
-------- --------
Total current assets 37,291 32,834
-------- --------
Property, plant and equipment, net 18,608 18,818
-------- --------
Other assets:
Investment in mining partnership 600 600
Other 1,521 1,641
-------- --------
$ 58,020 $ 53,893
======== ========
LIABILITIES
Current liabilities:
Bank loan payable $ 6,500 $ 400
Current portion of long-term debt 1,500 1,500
Accounts payable and accrued expenses 12,137 13,863
Income taxes 245 450
-------- --------
Total current liabilities 20,382 16,213
-------- --------
Long-term debt 6,500 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 28,131 28,173
Treasury shares, 222,367, at cost (2,970) (2,970)
-------- --------
29,308 29,350
-------- --------
$ 58,020 $ 53,893
======== ========
</TABLE>
See accompanying notes
2
<PAGE>
CONTINENTAL MATERIALS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
FOR THE THREE MONTHS ENDED MARCH 29, 1997 AND MARCH 30, 1996
(Unaudited)
(000's omitted except per share amounts)
<TABLE>
<CAPTION>
MARCH 29, MARCH 30,
1997 1996
<S> <C> <C>
Net sales $ 20,905 $ 17,852
Costs and expenses:
Cost of sales (exclusive of depreciation,
depletion and amortization) 16,450 13,903
Depreciation, depletion and amortization 879 661
Selling and administrative 3,621 3,168
--------- ---------
20,950 17,732
--------- ---------
Operating (loss) income (45) 120
Interest (180) (148)
Equity loss from mining partnership (28) (1,007)
Other income, net 185 105
--------- ---------
Loss before income taxes (68) (930)
Credit for income taxes (26) (353)
--------- ---------
Net loss (42) (577)
Retained earnings, beginning of period 28,173 25,818
--------- ---------
Retained earnings, end of period $ 28,131 $ 25,241
========= =========
Net loss per share $ (.04) $ (.52)
========= =========
Average shares outstanding 1,104 1,110
========= =========
</TABLE>
See accompanying notes
3
<PAGE>
CONSOLIDATED MATERIALS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 29, 1997 AND MARCH 30, 1996
(Unaudited)
(000's omitted)
<TABLE>
<CAPTION>
MARCH 29, MARCH 30,
1997 1996
<S> <C> <C>
Net cash used by operating activities $ (5,814) $ (3,471)
Investing activities:
Capital expenditures (645) (205)
Proceeds from sale of property and equipment 8 29
Investment in mining partnership (28) (257)
-------- --------
Net cash used in investing activities (665) (433)
-------- --------
Financing activities:
Borrowings under revolving credit facility 6,100 3,700
Payment to acquire treasury stock -- (286)
-------- --------
Net cash provided by financing activities 6,100 3,414
Net decrease in cash and cash equivalents (379) (490)
Cash and cash equivalents:
Beginning of period 379 1,074
-------- --------
End of period $ -- $ 584
======== ========
Supplemental disclosures of cash flow items:
Cash paid during the three months for:
Interest $ 199 $ 139
Income taxes 180 1
</TABLE>
See accompanying notes
4
<PAGE>
CONTINENTAL MATERIALS CORPORATION
SECURITIES AND EXCHANGE COMMISSION FORM 10-Q
NOTES TO THE QUARTERLY CONSOLIDATED FINANCIAL STATEMENTS
QUARTER ENDED MARCH 29, 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 (except for the 1996
adjustment discussed in Note 2 below, none of the adjustments
were other than normal recurring adjustments) necessary for a
fair statement of the results for the interim periods.
2.The 1996 equity loss from mining partnership includes the
Company's 30% share of the partnership's operating loss for
the period of $379,000 plus a write down in the carrying value
of the investment of $628,000. During the first quarter of
1997 the Partners, including the Company, signed a Letter of
Intent to sell their interest in ORMP. The agreement is
contingent upon, among other matters, the buyer's satisfactory
completion of due diligence and financing arrangements.
3.The provision for income taxes is based upon the estimated
effective tax rate for the year.
4.During April 1997, the class action suits filed to oppose the
now withdrawn offer of the Gidwitz group to take the Company
private were dismissed without prejudice. No compensation of
any form was paid by the Company to the plaintiffs or their
attorneys.
5.Operating results for the first three 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.)
5
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operation
Financial Condition (See pages 2 and 4)
Operations for the first three months of 1997 used $5,814,000
in cash compared to $3,471,000 in 1996. The greater use of
cash is attributable to higher receivable balances and
inventory levels due to increased sales volume.
The Company estimates that its short-term line of credit (of
which $6,500,000 was outstanding at March 29, 1997) will be
adequate to meet its cash requirements for the foreseeable
future. 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 March 29, 1997 to
Quarter Ended March 30, 1996 (See page 3)
Consolidated net sales increased $3,053,000 (17.1%). The
increase in the construction materials segment of $2,550,000
(33.3%) is attributed to a continuing high level of
construction activity in Colorado Springs, Colorado and the
addition of Transit Mix of Pueblo which was acquired in the
last quarter of 1996. The increase in the heating and air-
conditioning segment sales of $503,000 (5.0%) was realized by
Phoenix Manufacturing Co. and is mainly attributed to several
large motor shipments.
Consolidated cost of sales (exclusive of depreciation and
depletion) as a percentage of sales increased to 78.7% from
77.9%. The increase is due to the motor shipments mentioned
above which are sold at a lower margin, a change in product
mix at Phoenix and the increase in volume in the construction
materials segment which has a higher cost of sales as a
percentage of sales.
Depreciation, depletion and amortization increased $218,000
to $879,000 due to the Transit Mix of Pueblo asset
acquisition in October, 1996.
Selling and administrative expenses increased $453,000
(14.3%) while declining as a percentage of sales from 17.7%
to 17.3%. The dollar increase is mainly attributable to the
addition of Transit Mix of Pueblo and the higher sales
volume, while the percentage decline is due to the fixed
nature of many of the expenses.
The 1996 equity loss from mining partnership includes the
Company's 30% share of the partnership's operating loss for
the period of $379,000 plus a write down in the carrying
value of the investment of $628,000. The 1997 loss of
$28,000 reflects the Company's 30% share of ORMP's carrying
costs as mining was suspended during the first quarter of
1996. During the first quarter of 1997 the Partners,
including the Company, signed a Letter of Intent to sell
their interest in ORMP. A definitive agreement is contingent
upon, among other matters, the buyer's satisfactory
completion of due diligence and financing arrangements.
Historically, the Company has experienced operating losses
during the first 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, though not showing strong seasonality,
experience product mix changes that yield higher gross
profits in the fourth quarter. The break from this trend in
the first quarter of 1996 was mainly due to the strong
performance of the construction materials segment which was
aided by mild weather.
6
<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 March 29, 1997.
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: April 30, 1997 By:/S/ Joseph J. Sum
Joseph J. Sum, Vice President
and Chief Financial Officer
7
EXHIBIT 11
COMPUTATION OF EARNINGS PER SHARE
for the three months ended March 29, 1997 and March 30, 1996
(Unaudited)
(Dollar amounts in thousands, except per share data)
<TABLE>
<CAPTION>
March 29, March 30,
1997 1996
<S> <C> <C>
Primary Loss Per Share:
Net Loss $ (42) $ (577)
========= =========
Weighted Average Shares Outstanding:
Common Shares 1,133 1,113
========= =========
Primary Loss Per Share $ (.04) $ (.52)
========= =========
Fully Diluted Earnings Per Share:
Net Loss $ (42) $ (577)
========= =========
Weighted Average Shares Outstanding:
Common Shares 1,132 1,115
========= =========
Fully Diluted Loss Per Share $ (.04) $ (.52)
========= =========
</TABLE>
Notes:
No separate presentation of primary and fully diluted earnings
per share for 1997 and 1996 is shown on the face of the
Consolidated Statements of Operations and Retained Earnings as
the difference is immaterial.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-03-1998
<PERIOD-END> MAR-29-1997
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 17,641<F1>
<ALLOWANCES> 0
<INVENTORY> 16,874
<CURRENT-ASSETS> 37,291
<PP&E> 18,608<F2>
<DEPRECIATION> 0
<TOTAL-ASSETS> 58,020
<CURRENT-LIABILITIES> 20,382
<BONDS> 0
0
0
<COMMON> 663
<OTHER-SE> 28,645
<TOTAL-LIABILITY-AND-EQUITY> 58,020
<SALES> 20,905
<TOTAL-REVENUES> 20,905<F3>
<CGS> 16,450
<TOTAL-COSTS> 20,950
<OTHER-EXPENSES> (157)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 180
<INCOME-PRETAX> (68)
<INCOME-TAX> (26)
<INCOME-CONTINUING> (42)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (42)
<EPS-PRIMARY> (.04)
<EPS-DILUTED> (.04)
<FN>
<F1> Net of allowance for doubtful accounts
<F2> Net of accumulated depreciation
<F3> Exclusive of depreciation, depletion and amortization
</FN>
</TABLE>
