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 April 4,1998
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 21, 1998......1,075,149
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
APRIL 4, 1998 and JANUARY 3, 1998
(Unaudited)
(000's omitted except share data)
<TABLE>
<CAPTION>
APRIL 4, JANUARY 3,
1998 1998
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 85 $ 1,524
Receivables, net 16,992 13,882
Inventories:
Finished goods 9,179 8,562
Work in process 1,527 1,471
Raw materials and supplies 4,573 4,260
Prepaid expenses 2,612 2,343
Total current assets 34,968 32,042
Property, plant and equipment, net 19,224 19,581
Other assets:
Investment in mining partnership 600 600
Other 2,216 2,132
$ 57,008 $ 54,355
LIABILITIES
Current liabilities:
Bank loan payable $ 1,000 $ --
Current portion of long-term debt 1,900 1,900
Accounts payable and accrued expenses 12,393 11,327
Income taxes 441 222
Total current liabilities 15,734 13,449
Long-term debt 6,400 6,400
Deferred income taxes 1,722 1,722
Other long-term liabilities 857 926
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 31,862 31,283
Treasury shares, 251,439, at cost (3,714) (3,572)
32,295 31,858
$ 57,008 $ 54,355
</TABLE>
See accompanying notes
2
<PAGE>
CONTINENTAL MATERIALS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
FOR THE THREE MONTHS ENDED APRIL 4, 1998 AND MARCH 29, 1997
(Unaudited)
(000's omitted except per share amounts)
<TABLE>
<CAPTION>
APRIL 4, MARCH 29,
1998 1997
<S> <C> <C>
Net sales $ 22,806 $ 20,905
Costs and expenses:
Cost of sales(exclusive of depreciation,
depletion and amortization) 17,278 16,450
Depreciation, depletion and amortization 1,020 879
Selling and administrative 3,510 3,621
21,808 20,950
Operating income (loss) 998 (45)
Interest (172) (180)
Equity loss from mining partnership (19) (28)
Other income, net 84 185
Income (loss) before income taxes 891 (68)
Provision (credit) for income taxes 312 (26)
Net income (loss) 579 (42)
Retained earnings, beginning of period 31,283 28,173
Retained earnings, end of period $ 31,862 $ 28,131
Basic earnings (loss) per share $ .54 $ (.04)
Average shares outstanding 1,077 1,103
Diluted earnings (loss) per share $ .53 $ (.04)
Average shares outstanding 1,098 1,121
</TABLE>
See accompanying notes
3
<PAGE>
CONSOLIDATED MATERIALS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED APRIL 4, 1998 AND MARCH 29, 1997
(Unaudited)
(000's omitted)
<TABLE>
<CAPTION>
APRIL 4, MARCH 29,
1998 1997
<S> <C> <C>
Net cash used by operating activities $ (1,673) $ (5,814)
Investing activities:
Capital expenditures (637) (645)
Proceeds from sale of property and equipment 32 8
Investment in mining partnership (19) (28)
Net cash used in investing activities (624) (665)
Financing activities:
Borrowings under revolving credit facility 1,000 6,100
Payment to acquire treasury stock (142) --
Net cash provided by financing activities 858 6,100
Net decrease in cash and cash equivalents (1,439) (379)
Cash and cash equivalents:
Beginning of period 1,524 379
End of period $ 85 $ --
Supplemental disclosures of cash flow items:
Cash paid during the three months for:
Interest $ 175 $ 199
Income taxes 93 180
</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 APRIL 4, 1998
(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.
3.Operating results for the first three months of 1998 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 1997 Annual Report.)
4.The following is a reconciliation of the calculation of basic
and diluted earnings per share (EPS) for the three months ended
April 4, 1998 and March 29, 1997.
<TABLE>
<CAPTION>
Per-share
Income (loss) Shares earnings (loss)
<S> <C> <C> <C>
April 4, 1998
Basic EPS $ 579 1,077 $ .54
Effect of dilutive options -- 21
Diluted EPS $ 579 1,098 $ .53
March 29, 1997
Basic EPS $ (42) 1,103 $ (.04)
Effect of dilutive options -- 18
Diluted EPS $ (42) 1,121 $ (.04)
</TABLE>
5.The Company adopted Statement of Financial Accounting Standards (SFAS) No.
130, "Reporting Comprehensive Income" as of January 4, 1998. Since the
Company has no components of comprehensive income for the periods
presented, there is no effect of the adoption reflected in the financial
statements.
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 1998 used $1,673,000
in cash compared to $5,814,000 in 1997. The decrease in cash
used is mainly attributed to changes in accrued expense and
payables balances. The increase in these balances is largely
due to the timing of paymemts.
The Company estimates that its short-term line of credit (of
which $1,000,000 was outstanding at April 4, 1998) 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.
In June 1997, the Financial Accounting Standards Board (FASB)
issued SFAS No. 131, "Disclosures about Segments of an Enterprise
and Related Information." In February 1998, the FASB issued
SFAS No. 132, "Employers' Disclosure about Pensions and Other
Postretirement Benefits." The Company has not yet adopted these
pronouncements, but does not expect that they will have a material
impact on the Company's financial position or results of operations.
Operations - Comparison of Quarter Ended April 4, 1998 to
Quarter Ended March 29, 1997 (See page 3)
Consolidated net sales increased $1,901,000 (9.1%). The
increase in the construction materials segment of $2,219,000
(21.7%) is attributed to mild weather and the continuing high
level of construction activity along the Front Range in
southern Colorado. A decrease in the heating and air-conditioning
segment sales of $318,000 (3.0%) was due to depressed sales
in the area serviced by Phoenix Manufacturing, Inc. which has
experienced unfavorable weather patterns.
Consolidated cost of sales (exclusive of depreciation and
depletion) as a percentage of sales decreased from 78.7% to
75.8%. The decrease was due to improved margins in Williams
Furnace Co.'s fan coil line combined with improved sales in
the construction materials segment.
Selling and administrative expenses decreased $111,000 (3.1%)
and as a percentage of sales from 17.3% to 15.4%. The
decrease in expenses was realized in numerous categories in
the construction materials segment and at Williams Furnace
Co. The percentage decline is due to the increase in net
sales and the fixed nature of many of the expenses.
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 quarters of 1998 and 1997 was mainly due to the
strong performance of the construction materials segment
which has benefited from the continuing strong economy and
was aided by mild weather. Additionally, Williams' furnace
sales were boosted by the damp, cool weather in the western
states in 1998.
6
<PAGE>
PART II - Other Information
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit 27: Financial data schedule
(b) Registrant filed no reports on Form 8-K during the
quarter ended April 4, 1998.
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 23, 1998 By: /S/ Joseph J. Sum
Joseph J. Sum, Vice President
and Chief Financial Officer
7
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<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-02-1999
<PERIOD-END> APR-04-1998
<CASH> 85
<SECURITIES> 0
<RECEIVABLES> 16,992<F1>
<ALLOWANCES> 0
<INVENTORY> 15,279
<CURRENT-ASSETS> 34,968
<PP&E> 19,224<F2>
<DEPRECIATION> 0
<TOTAL-ASSETS> 57,008
<CURRENT-LIABILITIES> 15,734
<BONDS> 0
0
0
<COMMON> 663
<OTHER-SE> 31,632
<TOTAL-LIABILITY-AND-EQUITY> 57,008
<SALES> 22,806
<TOTAL-REVENUES> 22,806
<CGS> 17,278<F3>
<TOTAL-COSTS> 21,808
<OTHER-EXPENSES> (65)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 172
<INCOME-PRETAX> 891
<INCOME-TAX> 312
<INCOME-CONTINUING> 579
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 579
<EPS-PRIMARY> .54
<EPS-DILUTED> .53
<FN>
<F1>Net of allowance for doubtful accounts
<F2>Net of accumulated depreciation and depletion
<F3>Exclusive of depreciation, depletion and amortization
</FN>
</TABLE>
