<PAGE>
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 30, 2000
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
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(Exact name of registrant as specified in its charter)
Delaware 36-2274391
----------------------------------- -----------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
225 West Wacker Drive, Suite 1800, Chicago, Illinois 60606
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(Address of principal executive office)
(Zip Code)
(312) 541-7200
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(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 November 3, 2000................1,848,948
THE EXHIBIT FILED WITH THIS REPORT IS ON PAGE 10
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONTINENTAL MATERIALS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 2000 and JANUARY 1, 2000
(Unaudited)
(000's omitted except share data)
<TABLE>
<CAPTION>
SEPTEMBER 30, JANUARY 1,
ASSETS 2000 2000
------
-------------------------- ---------------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 1,606 $ 347
Receivables, net 18,272 20,161
Inventories:
Finished goods 7,705 7,557
Work in process 1,556 1,642
Raw materials and supplies 8,511 6,767
Prepaid expenses 2,405 2,592
-------------------------- ---------------------
Total current assets 40,055 39,066
-------------------------- ---------------------
Property, plant and equipment, net 25,344 26,891
-------------------------- ---------------------
Other assets 1,635 1,794
-------------------------- ---------------------
$ 67,034 $ 67,751
========================== =====================
LIABILITIES
Current liabilities:
Bank loan payable $ -- $ 1,600
Current portion of long-term debt 2,150 2,582
Accounts payable and accrued expenses 13,919 17,948
Income taxes 1,287 927
-------------------------- ---------------------
Total current liabilities 17,356 23,057
-------------------------- ---------------------
Long-term debt 6,200 1,875
Deferred income taxes 1,054 1,227
Other long-term liabilities 3,417 2,549
SHAREHOLDERS' EQUITY
Common shares, $0.25 par value; authorized
3,000,000; issued 2,574,264 643 643
Capital in excess of par value 1,810 1,983
Retained earnings 45,165 42,803
Treasury shares, 712,016 and 556,250, at cost (8,611) (6,386)
---------------------
--------------------------
39,007 39,043
-------------------------- ---------------------
$ 67,034 $ 67,751
========================== =====================
</TABLE>
See accompanying notes
2
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CONTINENTAL MATERIALS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2000 AND OCTOBER 2, 1999
(Unaudited)
(000's omitted except per share amounts)
<TABLE>
<CAPTION>
SEPTEMBER 30, 2000 OCTOBER 2, 1999
-------------------------- -------------------
<S> <C> <C>
Net sales $ 27,453 $ 31,426
-------------------------- -------------------
Costs and expenses:
Cost of sales (exclusive of depreciation,
depletion and amortization) 20,077 23,367
Depreciation, depletion and amortization 1,605 1,377
Selling and administrative 4,138 4,035
-------------------------- -------------------
25,820 28,779
-------------------------- -------------------
Operating income 1,633 2,647
Interest (179) (136)
Other income, net 36 25
-------------------------- -------------------
Income before income taxes 1,490 2,536
Provision for income taxes 551 938
-------------------------- -------------------
Net income 939 1,598
Retained earnings, beginning of period 44,226 38,674
-------------------------- -------------------
Retained earnings, end of period $ 45,165 $ 40,272
========================== ===================
Basic earnings per share $ .50 $ .80
========================== ===================
Average shares outstanding 1,866 1,994
========================== ===================
Diluted earnings per share $ .49 $ .78
========================== ===================
Average shares outstanding 1,904 2,043
========================== ===================
</TABLE>
See accompanying notes
3
<PAGE>
CONTINENTAL MATERIALS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 AND OCTOBER 2, 1999
(Unaudited)
(000's omitted except per share amounts)
<TABLE>
<CAPTION>
SEPTEMBER 30, OCTOBER 2,
2000 1999
------------------------- ---------------------
<S> <C> <C>
Net sales $ 80,588 $ 87,011
------------------------- ---------------------
Costs and expenses:
Cost of sales (exclusive of depreciation,
depletion and amortization) 60,088 64,184
Depreciation, depletion and amortization 4,328 3,707
Selling and administrative 12,334 12,020
------------------------- ---------------------
76,750 79,911
------------------------- ---------------------
Operating income 3,838 7,100
Interest (517) (352)
Other income, net 428 190
------------------------- ---------------------
Income before income taxes 3,749 6,938
Provision for income taxes 1,387 2,567
------------------------- ---------------------
Net income 2,362 4,371
Retained earnings, beginning of period 42,803 35,901
------------------------- ---------------------
Retained earnings, end of period $ 45,165 $ 40,272
========================= =====================
Basic earnings per share $ 1.26 $ 2.12
========================= =====================
Average shares outstanding 1,876 2,059
========================= =====================
Diluted earnings per share $ 1.24 $ 2.08
========================= =====================
Average shares outstanding 1,913 2,105
========================= =====================
</TABLE>
See accompanying notes
4
<PAGE>
CONSOLIDATED MATERIALS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 AND OCTOBER 2, 1999
(Unaudited)
(000's omitted)
<TABLE>
<CAPTION>
SEPTEMBER 30, OCTOBER 2,
2000 1999
-------------------------- ---------------------
<S> <C> <C>
Net cash provided by operating activities $ 3,729 $ 3,617
-------------------------- ---------------------
Investing activities:
Capital expenditures (2,441) (7,793)
Proceeds from sale of property and equipment 76 16
Investment in mining partnership -- (42)
-------------------------- ---------------------
Net cash used in investing activities (2,365) (7,819)
-------------------------- ---------------------
Financing activities:
Repayment of revolving credit facility (1,600) 800
Long-term borrowings 4,000 203
Repayment of long term debt (107) (1,315)
Proceeds from exercise of stock options 203 118
Payment to acquire treasury stock (2,601) (1,887)
Payment to purchase and cancel stock -- (696)
-------------------------- ---------------------
Net cash used in financing activities (105) (2,777)
-------------------------- ---------------------
Net decrease in cash and cash equivalents 1,259 (6,979)
Cash and cash equivalents:
Beginning of period 347 7,120
-------------------------- ---------------------
End of period $ 1,606 $ 141
========================== =====================
Supplemental disclosures of cash flow items:
Cash paid during the nine months for:
Interest $ 534 $ 490
Income taxes 1,912 3,505
</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 30, 2000
(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. To be consistent with
current presentation, certain reclassifications have been made to sales and
cost of sales (exclusive of depreciation, depletion and amortization) for
the three months and nine month period ended October 2, 1999 to eliminate
intercompany sales and cost of sales in the construction materials segment.
The reclassification had no impact on net income.
2. The provision for income taxes is based upon the estimated effective tax
rate for the year.
3. Operating results for the first nine months of 2000 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
1999 Annual Report.)
4. The following is a reconciliation of the calculation of basic and diluted
earnings per share (EPS) for the three and nine months ended September 30,
2000 and October 2, 1999. Amounts in thousands except per share data.
<TABLE>
<CAPTION>
Three months ended Nine months ended
----------------------------------------- -----------------------------------------
Per-share Per-share
earnings earnings
Income Shares Income Shares
------------ ---------- ----------- ------------ ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
September 30, 2000
Basic EPS $ 939 1,866 $ .50 $2,362 1,876 $ 1.26
=========== ===========
Effect of dilutive options -- 38 -- 37
------------ ---------- ------------ ----------
Diluted EPS $ 939 1,904 $ .49 $2,362 1,913 $ 1.24
============ ========== =========== ============ ========== ===========
October 2, 1999
Basic EPS $1,598 1,994 $ .80 $4,371 2,059 $ 2.12
=========== ===========
Effect of dilutive options -- 49 -- 46
------------ ---------- ------------ ----------
Diluted EPS $1,598 2,043 $ .78 $4,371 2,105 $ 2.08
============ ========== =========== ============ ========== ===========
</TABLE>
6
<PAGE>
5. The following table presents information about reported segments for the
nine month and three month periods ended September 30, 2000 and October 2,
1999 along with the items necessary to reconcile the segment information to
the totals reported in the financial statements (amounts in thousands).
<TABLE>
<CAPTION>
>
Heating and Air Construction Unallocated
Conditioning Materials All Other Corporate Total
------------ --------- --------- --------- -----
<S> <C> <C> <C> <C> <C>
2000
NINE MONTHS
Revenues from external
customers $ 32,310 $ 48,164 $ 109 $ 5 $ 80,588
Operating income 1,380 4,731 (25) (2,248) 3,838
Assets 29,387 33,132 43 4,472 67,034
THREE MONTHS
Revenues from external
customers 10,511 16,905 37 -- 27,453
Operating income 825 1,491 -- (683) 1,633
1999
NINE MONTHS
Revenues from external
customers $ 39,393 $ 47,482 $ 109 $ 27 $ 87,011
Operating income 3,661 5,588 32 (2,181) 7,100
Assets 28,785 34,775 160 2,177 65,897
THREE MONTHS
Revenues from external
customers 13,424 17,941 37 24 31,426
Operating income 1,636 1,716 10 (715) 2,647
</TABLE>
There are no differences in the basis of segmentation or in the basis of
measurement of segment profit or loss from the last annual report.
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 nine months of 2000 generated $3,729,000 in cash
compared to $3,617,000 in 1999. The small increase in cash flow is mainly
attributed to a smaller working capital requirement in 2000 as a result of
lower sales.
During June 2000, the Company converted $4,000,000 of its borrowings under
the short-term line of credit to term debt. The cash had been used for
capital expenditures and the purchase of treasury shares. The Company
estimates that its short-term line of credit (which was unused at September
30, 2000) will be adequate to meet 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.
7
<PAGE>
OPERATIONS - COMPARISON OF QUARTER ENDED SEPTEMBER 30, 2000 TO QUARTER
ENDED OCTOBER 2, 1999 (SEE PAGE 3)
Consolidated net sales decreased $3,973,000 (12.6%). Sales in the heating
and air conditioning segment declined $2,913,000 (21.7%), with sales of the
evaporative cooler, fan coil and furnace lines all reporting declines. The
decrease in evaporative coolers was primarily due to the loss of two large
retail customers, a carryover into the 2000 season of evaporative cooler
inventory at customers' locations as a result of the unseasonably cool 1999
spring and summer and the early arrival of humid conditions in 2000 which
traditionally signals a slowdown in cooler sales. Fan coil sales declined
due to a slowdown of construction activity in Las Vegas, a traditionally
strong market for this product. Furnace sales were down, as the
particularly strong sales of September 1999 were not repeated. Sales in the
construction materials segment also were lower than the prior year's
quarter, $1,036,000 (5.8%). The decline was primarily due to increased
competition.
Consolidated cost of sales (exclusive of depreciation and depletion) as a
percentage of sales declined from 74.4% to 73.1%. The construction
materials segment realized the decline.
Depreciation, depletion and amortization expense increased due to the high
level of capital expenditures in 1999 for which a full year of depreciation
is being taken in 2000.
Selling and administrative expenses increased $103,000. The increase is
related to the Company's new computer and information systems.
Interest expense increased reflecting both higher levels of outstanding
debt and interest rates.
Recently, sales in the heating and air conditioning segment have
demonstrated little seasonality with the exception that first quarter sales
tend to be slightly lower than the latter quarters. Sales in the
construction materials segment are generally stronger in the second and
third quarters as winter weather often dampens the construction activity
along the Front Range of southern Colorado.
OPERATIONS - COMPARISON OF NINE MONTHS ENDED SEPTEMBER 30, 2000 TO NINE
MONTHS ENDED OCTOBER 2, 1999 (SEE PAGE 4)
Net sales declined $6,423,000 (7.4%). The decrease in the heating and air
conditioning segment, $7,083,000, was due to the reasons noted above. The
$682,000 increase in the construction materials segment was due to the
continued strong construction activity along the Front Range in southern
Colorado and favorable weather during the first quarter of the year.
Consolidated cost of sales (exclusive of depreciation and depletion) as a
percentage of sales increased from 73.8% to 74.6%. The increase in the
heating and air conditioning segment was partially offset by an improvement
in the construction materials segment.
Selling and administrative expenses increased $314,000 (2.6%) due to the
reasons noted above.
Interest expense increased due to the reasons noted above.
8
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FORWARD-LOOKING STATEMENTS
This Form 10-Q contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended. Such forward-looking
statements are based on the beliefs of the Company's management as well as
on assumptions made by and information available to the Company at the time
such statements were made. When used in this Report, words such as
"estimates," "anticipates," "contemplates," "expects" and similar
expressions are intended to identify forward-looking statements. Actual
results could differ materially from those projected in the forward-looking
statements as a result of factors including but not limited to: weather,
interest rates, availability of raw materials and their related costs and
competitive forces.
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 September 30, 2000.
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: November 6, 2000 By: /s/ Joseph J. Sum
-------------------------------- ------------------------------------
Joseph J. Sum, Vice President
and Chief Financial Officer
9
