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 27, 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 October 24, 1997 1,103,211
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
CONTINENTAL MATERIALS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
SEPTEMBER 27, 1997 and DECEMBER 28, 1996
(Unaudited)
(000's omitted except share data)
<TABLE>
<CAPTION>
SEPTEMBER 27, DECEMBER 28,
ASSETS 1997 1996
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 842 $ 379
Receivables, net 17,427 14,584
Inventories:
Finished goods 8,101 8,696
Work in process 1,755 1,800
Raw materials and supplies 5,296 4,688
Prepaid expenses 2,713 2,687
Total current assets 36,134 32,834
Property, plant and equipment, net 18,412 18,818
Other assets:
Investment in mining partnership 600 600
Other 1,875 1,641
$ 57,021 $ 53,893
LIABILITIES
Current liabilities:
Bank loan payable $ 1,000 $ 400
Current portion of long-term debt 1,900 1,500
Accounts payable and accrued expenses 12,749 13,863
Income taxes 711 450
Total current liabilities 16,360 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 30,304 28,173
Treasury shares, 223,377, at cost (2,970) (2,970)
31,481 29,350
$ 57,021 $ 53,893
</TABLE>
See accompanying notes
2
<PAGE>
CONTINENTAL MATERIALS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
FOR THE THREE MONTHS ENDED SEPTEMBER 27, 1997 AND SEPTEMBER 28,1996
(Unaudited)
(000's omitted except per share amounts)
<TABLE>
<CAPTION>
SEPTEMBER 27, SEPTEMBER 28,
1997 1996
<S> <C> <C>
Net sales $ 25,612 $ 21,718
Costs and expenses:
Cost of sales (exclusive of depreciation,
depletion and amortization) 19,677 16,058
Depreciation, depletion and amortization 881 666
Selling and administrative 3,214 3,142
23,772 19,866
Operating income 1,840 1,852
Interest (244) (112)
Equity loss from mining partnership (30) (350)
Other income 209 124
Income before income taxes 1,775 1,514
Provision for income taxes 622 464
Net income 1,153 1,050
Retained earnings, beginning of period 29,151 26,609
Retained earnings, end of period $ 30,304 $ 27,659
Net income per share $ 1.05 $ .95
Average shares outstanding 1,103 1,103
</TABLE>
See accompanying notes
3
<PAGE>
CONTINENTAL MATERIALS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
FOR THE NINE MONTHS ENDED SEPTEMBER 27, 1997 AND SEPTEMBER 28, 1996
(Unaudited)
(000's omitted except per share amounts)
<TABLE>
<CAPTION>
SEPTEMBER 27, SEPTEMBER 28,
1997 1996
<S> <C> <C>
Net sales $ 74,508 $ 66,694
Costs and expenses:
Cost of sales (exclusive of depreciation,
depletion and amortization) 57,749 50,387
Depreciation, depletion and amortization 2,636 1,995
Selling and administrative 10,503 9,924
70,888 62,306
Operating income 3,620 4,388
Interest (748) (441)
Equity loss from mining partnership (87) (1,495)
Other income 494 337
Income before income taxes 3,279 2,789
Provision for income taxes 1,148 948
Net income 2,131 1,841
Retained earnings, beginning of period 28,173 25,818
Retained earnings, end of period $ 30,304 $ 27,659
Net income per share $ 1.93 $ 1.66
Average shares outstanding 1,103 1,106
</TABLE>
See accompanying notes
4
<PAGE>
CONTINENTAL MATERIALS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 27, 1997 AND SEPTEMBER 28, 1996
(Unaudited)
(000's omitted)
<TABLE>
<CAPTION>
SEPTEMBER 27, SEPTEMBER 28,
1997 1996
<S> <C> <C>
Net cash provided by operating activities $ 848 $ 3,878
Investing activities:
Capital expenditures (2,157) (2,073)
Proceeds from sale of property and equipment 9 63
Investment in mining partnership (87) (745)
Net cash used in investing activities (2,235) (2,755)
Financing activities:
Borrowings (repayments) under revolving
credit facility 600 (1,400)
Long-term borrowings 2,000 --
Repayment of long-term debt (750) (511)
Payment to acquire treasury stock -- (286)
Net cash provided (used) by financing activities 1,850 (2,197)
Net increase (decrease) in cash and
cash equivalents 463 (1,074)
Cash and cash equivalents:
Beginning of year 379 1,074
End of period $ 842 $ --
Supplemental disclosures of cash flow items:
Cash paid during the nine months for:
Interest $ 834 $ 500
Income taxes 893 490
</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 27, 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 second quarter, as allowed by the current credit
agreement, the Company elected to convert $2,000,000 of
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 nine 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 nine months of 1997 provided $848,000
in cash compared to $3,878,000 in 1996. The decrease in cash
provided is attributed to higher receivable balances and
reduced accrued expense and payables balances. The increase
in receivables is the result of higher sales volume in the
construction materials segment as well as an earlier preseason
program initiated by Phoenix Manufacturing. The decrease in
accrued expenses is the result of timing of payments.
The Company estimates that its short-term line of credit (of
which $1,000,000 was outstanding at September 27, 1997) 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 September 27, 1997 to
Quarter Ended September 28, 1996 (See page 3)
Consolidated net sales increased $3,894,000 (17.9%) as the
construction materials segment showed strong growth. Sales of
this segment were up $3,893,000 (34.9%) due to the acquisition
of Transit Mix of Pueblo during the last quarter of 1996 and
continued strength in construction activity in the Colorado
Springs, Colorado area. The heating and air-conditioning
segment sales activity was in line with the prior year.
Consolidated cost of sales (exclusive of depreciation and
depletion) as a percentage of sales increased from 73.9% to
76.8% attributed mainly to product mix in the heating and air-
conditioning segment.
Depreciation, depletion and amortization increased $215,000
(32.2%) mainly due to the acquisition of Transit Mix of Pueblo
in the last quarter of 1996.
Selling and administrative expenses increased slightly while
declining as a percentage of sales from 14.5% to 12.5%. The
dollar increase is due to higher sales levels while the
decline in percentage is due to the fixed nature of many of
the costs.
Equity loss from mining partnership was reduced by $320,000.
Production at the mine was halted in February 1996 and only
carrying costs remain. The partners continue their efforts to
sell the project.
During 1996, the Financial Accounting Standards Board (FASB)
issued a new pronouncement, Statement of Financial Accounting
Standards (SFAS) No. 128, "Earnings per share," which is
relevant to the Company's operations. The statement is
effective for financial statements for both interim and annual
periods ending after December 15, 1997. Earlier application
is not permitted. The Company intends to adopt SFAS No. 128
at year end 1997. Its effect is not expected to be material
to earnings per share.
The FASB also issued pronouncements, SFAS No. 130, "Reporting
comprehensive income," and SFAS No. 131, "Disclosures about
segments of an enterprise and related information" which are
relevant to the Company's operations. These statements are
effective for fiscal years beginning after December 15, 1997.
The Company has not yet fully evaluated these pronouncements
but does not believe their effect will be material.
7
<PAGE>
Operations - Comparison of Nine Months Ended September 27,
1997 to Nine Months Ended September 28, 1996 (See page 4)
Net sales increased $7,814,000 (11.7%) as sales in the
construction materials segment rose $8,148,000 (26.5%) due to
the reasons noted above. Unfavorable weather conditions
during the height of Phoenix Manufacturing's selling season
were mainly responsible for the decline in the heating and air-
conditioning segment.
Consolidated cost of sales (exclusive of depreciation and
depletion) as a percentage of sales increased from 75.5% to
77.5% attributable to the events described above.
Depreciation, depletion and amortization increased $641,000
(32.1%) due to the reason noted above.
Selling and administrative expenses increased $579,000 (5.8%)
while the percentage of sales declined from 14.9% to 14.1%.
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 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 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 27, 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: October 24, 1997 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 27, 1997 and September 28, 1996
(Unaudited)
(000's omitted except per share data)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September September September September
27, 1997 28, 1996 27, 1997 28, 1996
<S> <C> <C> <C> <C>
Primary Earnings Per Share:
Net Income $ 1,153 $ 1,050 $ 2,131 $ 1,841
Weighted Average
Shares Outstanding:
Common Shares 1,103 1,103 1,103 1,106
Common Stock Equivalents 31 16 30 10
Total 1,134 1,119 1,133 1,116
Primary Earnings Per Share $ 1.02 $ .94 $ 1.88 $ 1.65
Fully Diluted Earnings Per Share:
Net Income $ 1,153 $ 1,050 $ 2,131 $ 1,841
Weighted Average
Shares Outstanding:
Common Shares 1,103 1,103 1,103 1,106
Common Stock Equivalents 33 18 33 18
Total 1,136 1,121 1,136 1,124
Fully Diluted Income
Per Share $ 1.01 $ .94 $ 1.88 $ 1.64
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>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-03-1998
<PERIOD-END> SEP-27-1997
<CASH> 842
<SECURITIES> 0
<RECEIVABLES> 17,427<F1>
<ALLOWANCES> 0
<INVENTORY> 15,152
<CURRENT-ASSETS> 36,134
<PP&E> 18,412<F2>
<DEPRECIATION> 0
<TOTAL-ASSETS> 57,021
<CURRENT-LIABILITIES> 16,360
<BONDS> 0
0
0
<COMMON> 663
<OTHER-SE> 30,818
<TOTAL-LIABILITY-AND-EQUITY> 57,021
<SALES> 74,508
<TOTAL-REVENUES> 74,508
<CGS> 57,749<F3>
<TOTAL-COSTS> 70,888
<OTHER-EXPENSES> (407)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 748
<INCOME-PRETAX> 3,279
<INCOME-TAX> 1,148
<INCOME-CONTINUING> 2,131
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,131
<EPS-PRIMARY> 1.93
<EPS-DILUTED> 1.93
<FN>
<F1>Net of allowance for doubtful accounts
<F2>Net of accumulated depreciation and depletion
<F3>Exclusive of depreciation, depletion and amortization
</FN>
</TABLE>
