<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 July 1, 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
------------------------------------------------------
(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
----------------------------------------------------------
(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 August 7, 2000.................1,864,607
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
JULY 1, 2000 and JANUARY 1, 2000
(Unaudited)
(000's omitted except share data)
<TABLE>
<CAPTION>
JULY 1, JANUARY 1,
2000 2000
-------- ----------
<S> <C> <C>
ASSETS
------
Current assets:
Cash and cash equivalents $ -- $ 347
Receivables, net 20,603 20,161
Inventories:
Finished goods 7,748 7,557
Work in process 1,591 1,642
Raw materials and supplies 8,281 6,767
Prepaid expenses 2,501 2,592
-------- --------
Total current assets 40,724 39,066
-------- --------
Property, plant and equipment, net 25,940 26,891
-------- --------
Other assets 1,657 1,794
-------- --------
$ 68,321 $ 67,751
======== ========
LIABILITIES
-----------
Current liabilities:
Bank loan payable $ 2,300 $ 1,600
Current portion of long-term debt 2,150 2,582
Accounts payable and accrued expenses 14,503 17,948
Income taxes 836 927
-------- --------
Total current liabilities 19,789 23,057
-------- --------
Long-term debt 6,226 1,875
Deferred income taxes 1,054 1,227
Other long-term liabilities 3,155 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 1,774 1,983
Retained earnings 44,226 42,803
Treasury shares, 703,972 and 556,250, at cost (8,546) (6,386)
-------- --------
38,097 39,043
-------- --------
$ 68,321 $ 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 JULY 1, 2000 AND JULY 3, 1999
(Unaudited)
(000's omitted except per share amounts)
<TABLE>
<CAPTION>
JULY 1, JULY 3,
2000 1999
-------- --------
<S> <C> <C>
Net sales $ 28,760 $ 31,253
-------- --------
Costs and expenses:
Cost of sales (exclusive of depreciation,
depletion and amortization) 21,516 22,442
Depreciation, depletion and amortization 1,371 1,243
Selling and administrative 4,218 4,207
-------- --------
27,105 27,892
-------- --------
Operating income 1,655 3,361
Interest (199) (149)
Other income, net 195 60
-------- --------
Income before income taxes 1,651 3,272
Provision for income taxes 611 1,233
-------- --------
Net income 1,040 2,039
Retained earnings, beginning of period 43,186 36,635
-------- --------
Retained earnings, end of period $ 44,226 $ 38,674
======== ========
Basic earnings per share $ .56 $ .99
======== ========
Average shares outstanding 1,871 2,060
======== ========
Diluted earnings per share $ .55 $ .97
======== ========
Average shares outstanding 1,904 2,108
======== ========
</TABLE>
See accompanying notes
3
<PAGE>
CONTINENTAL MATERIALS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
FOR THE SIX MONTHS ENDED JULY 1, 2000 AND JULY 3, 1999
(Unaudited)
(000's omitted except per share amounts)
<TABLE>
<CAPTION>
JULY 1, JULY 3,
2000 1999
------- -------
<S> <C> <C>
Net sales $ 53,135 $ 55,585
-------- --------
Costs and expenses:
Cost of sales (exclusive of depreciation,
depletion and amortization) 40,011 40,817
Depreciation, depletion and amortization 2,723 2,330
Selling and administrative 8,196 7,985
-------- --------
50,930 51,132
-------- --------
Operating income 2,205 4,453
Interest (338) (216)
Other income, net 392 165
-------- --------
Income before income taxes 2,259 4,402
Provision for income taxes 836 1,629
-------- --------
Net income 1,423 2,773
Retained earnings, beginning of period 42,803 35,901
-------- --------
Retained earnings, end of period $ 44,226 $ 38,674
======== ========
Basic earnings per share $ .76 $ 1.33
======== ========
Average shares outstanding 1,881 2,091
======== ========
Diluted earnings per share $ .74 $ 1.30
======== ========
Average shares outstanding 1,916 2,138
======== ========
</TABLE>
See accompanying notes
4
<PAGE>
CONSOLIDATED MATERIALS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JULY 1, 2000 AND JULY 3, 1999
(Unaudited)
(000's omitted)
<TABLE>
<CAPTION>
JULY 1, JULY 3,
2000 1999
-------- --------
<S> <C> <C>
Net cash used in operating activities $ (949) $(3,464)
Investing activities:
Capital expenditures (1,724) (5,125)
Proceeds from sale of property and equipment 76 16
Investment in mining partnership -- (21)
------- -------
Net cash used in investing activities (1,648) (5,130)
------- -------
Financing activities:
Borrowings under revolving credit facility 700 4,500
Long-term borrowings 4,000 203
Repayment of long term debt (81) (1,273)
Proceeds from exercise of stock options 164 78
Payment to acquire treasury stock (2,533) (1,471)
Payment to purchase and cancel stock -- (563)
------- -------
Net cash provided by financing activities 2,250 1,474
------- -------
Net decrease in cash and cash equivalents (347) (7,120)
Cash and cash equivalents:
Beginning of period 347 7,120
------- -------
End of period $ -- $ --
======= =======
Supplemental disclosures of cash flow items:
Cash paid during the six months for:
Interest $ 358 $ 329
Income taxes 952 1,606
</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 JULY 1, 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.
2. The provision for income taxes is based upon the estimated effective tax
rate for the year.
3. Operating results for the first six 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 six months ended July 1, 2000
and July 3, 1999. Amounts in thousands except per share data.
<TABLE>
<CAPTION>
Three months ended Six months ended
----------------------------------------- -----------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Per-share Per-share
Income Shares earnings Income Shares earnings
------------ ---------- ----------- ------------ ---------- -----------
July 1, 2000
Basic EPS $1,040 1,871 $ .56 $1,423 1,881 $ .76
=========== ===========
Effect of dilutive options -- 33 -- 35
============ ========== ============ ==========
Diluted EPS $1,040 1,904 $ .55 $1,423 1,916 $ .74
============ ========== =========== ============ ========== ===========
July 3, 1999
Basic EPS $2,039 2,060 $ .99 $2,773 2,091 $ 1.33
=========== ===========
Effect of dilutive options -- 48 -- 47
============ ========== ============ ==========
Diluted EPS $2,039 2,108 $ .97 $2,773 2,138 $ 1.30
============ ========== =========== ============ ========== ===========
</TABLE>
5. The following table presents information about reported segments for the
six month and three month periods ended July 1, 2000 and July 3, 1999 along
with the items necessary to reconcile the segment information to the totals
reported in the financial statements (amounts in thousands).
6
<PAGE>
<TABLE>
<CAPTION>
Heating and Air Construction Unallocated
Conditioning Materials All Other Corporate Total
--------------- ------------ --------- ----------- -------
<S> <C> <C> <C> <C> <C>
2000
----
SIX MONTHS
----------
Revenues from external
customers $ 21,799 $31,259 $ 72 $ 5 $53,135
Operating income 555 3,268 (25) (1,593) 2,205
Assets 31,662 34,618 30 2,011 68,321
------
THREE MONTHS
------------
Revenues from external
customers 12,400 16,319 36 5 28,760
Operating income 370 2,093 (12) (796) 1,655
1999
----
SIX MONTHS
----------
Revenues from external
customers $ 25,969 $29,541 $ 72 $ 3 $55,585
Operating income 2,025 3,872 22 (1,466) 4,453
Assets 31,351 34,216 148 2,010 67,725
------
THREE MONTHS
------------
Revenues from external
customers 15,837 15,379 36 1 31,253
Operating income 1,671 2,428 11 (749) 3,361
</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 six months of 2000 used $949,000 in cash
compared to $3,464,000 in 1999. The decrease in cash used is mainly
attributed to receivables, inventories and accounts payable and accruals.
As compared to the 2000 period, receivables grew at faster pace during
the first six months of 1999 due to the increase in sales. Inventories
also increased more during the first six months of 1999 reflecting the
build up in the heating and air conditioning segment related to
abnormally low levels of furnaces at 1998 year end. Accounts payable and
accruals declined more during the first six months of 2000 as a result of
the payment of certain accruals and the timing of raw material purchases.
The Company estimates that its short-term line of credit (of which
$2,300,000 was outstanding at July 1, 2000) 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.
7
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OPERATIONS - COMPARISON OF QUARTER ENDED JULY 1, 2000 TO QUARTER ENDED
JULY 3, 1999 (SEE PAGE 3)
Consolidated net sales decreased $2,493,000 (8%). The heating and air
conditioning segment accounted for the entire decrease, $3,437,000
(21.7%), with sales of the evaporative cooler, fan coil and furnace lines
all reporting declines. The decrease was primarily due to evaporative
coolers as the result of 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. Partially offsetting
this decline was a $940,000 (6.1%) increase in the construction materials
segment which is attributable to the continued strong construction
activity along the Front Range in southern Colorado and favorable
weather.
Consolidated cost of sales (exclusive of depreciation and depletion) as a
percentage of sales increased from 71.8% to 74.8%. The increase was
experienced by both segments and is due to the decreased sales in the
heating and air conditioning segment and heightened competition and
increased costs, including wages and fuel, in the construction materials
segment.
Selling and administrative expenses increased $11,000 and as a percentage
of sales from 13.5% to 14.7%. The increase in percentage is related to
compensation matters and higher consulting fees.
Interest expense increased reflecting both higher levels of outstanding
debt and interest rates.
The historical pattern of operating losses during the first quarter
followed by stronger second and third quarters with a slight decline
during the fourth quarter has changed in recent years. The main causes
are the strong performance of the construction materials segment which
has benefited from the continuing strong economy and mild winter weather
along the Front Range of southern Colorado. Additionally, the fan coil
product line of the heating and air conditioning segment, has grown in
recent years and shows little seasonality.
OPERATIONS - COMPARISON OF SIX MONTHS ENDED JULY 1, 2000 TO SIX MONTHS
JULY 3, 1999 (SEE PAGE 4)
Net sales declined $2,450,000 (4.4%). The decrease in the heating and air
conditioning segment, $4,170,000, was due to the reasons noted above. The
$1,718,000 increase in the construction materials segment was also due to
the reasons noted above.
Consolidated cost of sales (exclusive of depreciation and depletion) as a
percentage of sales increased from 73.4% to 75.3%. The decrease was
realized by both segments and is due to the reasons noted above.
Selling and administrative expenses increased $211,000 (2.6%) and as a
percentage of sales from 14.4% to 15.4%. The increase in percentage is
related the reasons noted above.
Interest expense increased due to the reasons noted above.
8
<PAGE>
YEAR 2000 COMPLIANCE
There have not been any disruptions to the Company resulting from the
year 2000 issue during the current quarter nor is there any meaningful
update regarding this issue from the discussion in the Company's latest
annual report on Form 10-K. The Company has not identified any products
that would not be Year 2000 compliant.
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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) The annual meeting of the stockholders of the Company was held on
May 24, 2000.
(b) At that meeting, three individuals, all of whom are current
directors, were nominated and elected to serve until the 2003
Annual Meeting by the following votes:
Director Shares For Shares Against Shares Withheld
------------------ ---------- -------------- ----------------
Thomas H. Carmody 1,779,922 -- 7,388
Ronald J. Gidwitz 1,784,030 -- 3,280
Darrell M. Trent 1,784,030 -- 3,280
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
-------------------------------- --------------------------
James G. Gidwitz 2001
Betsy R. Gidwitz 2001
Joseph J. Sum 2001
Ralph W. Gidwitz 2002
William G. Shoemaker 2002
Theodore R. Tetzlaff 2002
9
<PAGE>
(c) In addition to the above election, the independent auditing firm
of PricewaterhouseCoopers LLP was appointed by the following
vote:
For Against Abstain
--------- --------- ---------
1,784,590 2,520 200
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 27: Financial data schedule
(b) Registrant filed no reports on Form 8-K during the quarter
ended July 1, 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: August 10, 2000 By: /s/ Joseph J. Sum
------------------------------- ---------------------------------
Joseph J. Sum, Vice President
and Chief Financial Officer
10
