-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Rjcf7wpOj7/aS1vJwSV9l8FQHaOYJMN+2VWdS0uyl1abFgrulH3R5xz9B3hQByvg PcXMPSCcOEsfzYrP/DPeqw== 0000912057-99-006419.txt : 19991117 0000912057-99-006419.hdr.sgml : 19991117 ACCESSION NUMBER: 0000912057-99-006419 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19991002 FILED AS OF DATE: 19991116 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CONTINENTAL MATERIALS CORP CENTRAL INDEX KEY: 0000024104 STANDARD INDUSTRIAL CLASSIFICATION: AIR COND & WARM AIR HEATING EQUIP & COMM & INDL REFRIG EQUIP [3585] IRS NUMBER: 362274391 STATE OF INCORPORATION: DE FISCAL YEAR END: 1228 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-03834 FILM NUMBER: 99758552 BUSINESS ADDRESS: STREET 1: 225 WEST WACKER STREET 2: SUITE 1800 CITY: CHICAGO STATE: IL ZIP: 60606 BUSINESS PHONE: 3126617200 MAIL ADDRESS: STREET 1: 225 WEST WACKER STREET 2: SUITE 1800 CITY: CHICAGO STATE: IL ZIP: 60606 FORMER COMPANY: FORMER CONFORMED NAME: CONTINENTAL URANIUM INC DATE OF NAME CHANGE: 19660830 10-Q 1 10-Q 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 OCTOBER 2, 1999 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 November 10, 1999 -- 1,969,817 THE EXHIBIT FILED WITH THIS REPORT IS ON PAGE 11 PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS CONTINENTAL MATERIALS CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS OCTOBER 2, 1999 and JANUARY 2, 1999 (Unaudited) (000's omitted except share data)
OCTOBER 2, JANUARY 2, 1999 1999 ----------- ----------- ASSETS Current assets: Cash and cash equivalents $ 141 $ 7,120 Receivables, net 18,893 16,821 Inventories: Finished goods 7,144 6,761 Work in process 1,221 1,176 Raw materials and supplies 6,112 4,113 Prepaid expenses 3,130 2,695 -------- -------- Total current assets 36,641 38,686 -------- -------- Property, plant and equipment, net 26,326 22,105 -------- -------- Other assets: Investment in mining partnership 100 100 Other 2,830 2,726 -------- -------- $ 65,897 $ 63,617 -------- -------- -------- -------- LIABILITIES Current liabilities: Bank loan payable $ 800 $ -- Current portion of long-term debt 2,576 2,526 Accounts payable and accrued expenses 17,748 16,695 Income taxes 783 1,271 -------- -------- Total current liabilities 21,907 20,492 -------- -------- Long-term debt 3,122 4,284 Deferred income taxes 1,457 1,670 Other long-term liabilities 2,161 933 SHAREHOLDERS' EQUITY Common shares, $0.25 par value; authorized 3,000,000; issued 2,574,264 643 663 Capital in excess of par value 1,899 3,484 Retained earnings 40,272 35,901 Treasury shares, 594,163 and 508,434, at cost (5,564) (3,810) -------- -------- 37,250 36,238 -------- -------- $ 65,897 $ 63,617 -------- -------- -------- --------
See accompanying notes 2 CONTINENTAL MATERIALS CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS FOR THE THREE MONTHS ENDED OCTOBER 2, 1999 AND OCTOBER 3, 1998 (Unaudited) (000's omitted except per share amounts)
OCTOBER 2, OCTOBER 3, 1999 1998 ------------ ------------ Net sales $ 33,426 $ 29,069 -------- -------- Costs and expenses: Cost of sales (exclusive of depreciation, depletion and amortization) 25,367 21,642 Depreciation, depletion and amortization 1,377 1,045 Selling and administrative 4,035 3,817 -------- -------- 30,779 26,504 -------- -------- Operating income 2,647 2,565 Interest (136) (154) Equity loss from mining partnership (21) (7) Other income, net 46 189 -------- -------- Income before income taxes 2,536 2,593 Provision for income taxes 938 908 -------- -------- Net income 1,598 1,685 Retained earnings, beginning of period 38,674 33,094 -------- -------- Retained earnings, end of period $ 40,272 $ 34,779 -------- -------- -------- -------- Basic earnings per share $ .80 $ .79 -------- -------- -------- -------- Average shares outstanding 1,994 2,144 -------- -------- -------- -------- Diluted earnings per share $ .78 $ .77 -------- -------- -------- -------- Average shares outstanding 2,043 2,194 -------- -------- -------- --------
See accompanying notes 3 CONTINENTAL MATERIALS CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS FOR THE NINE MONTHS ENDED OCTOBER 2, 1999 AND OCTOBER 3, 1998 (Unaudited) (000's omitted except per share amounts)
OCTOBER 2, OCTOBER 3, 1999 1998 ------------ ------------ Net sales $ 89,011 $ 80,810 -------- -------- Costs and expenses: Cost of sales (exclusive of depreciation, depletion and amortization) 66,184 61,088 Depreciation, depletion and amortization 3,707 3,094 Selling and administrative 12,020 11,026 -------- -------- 81,911 75,208 -------- -------- Operating income 7,100 5,602 Interest (352) (538) Equity loss from mining partnership (42) (45) Other income, net 232 360 -------- -------- Income before income taxes 6,938 5,379 Provision for income taxes 2,567 1,883 -------- -------- Net income 4,371 3,496 Retained earnings, beginning of period 35,901 31,283 -------- -------- Retained earnings, end of period $ 40,272 $ 34,779 -------- -------- -------- -------- Basic earnings per share $ 2.12 $ 1.63 -------- -------- -------- -------- Average shares outstanding 2,059 2,148 -------- -------- -------- -------- Diluted earnings per share $ 2.08 $ 1.59 -------- -------- -------- -------- Average shares outstanding 2,105 2,196 -------- -------- -------- --------
See accompanying notes 4 CONSOLIDATED MATERIALS CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED OCTOBER 2, 1999 AND OCTOBER 3, 1998 (Unaudited) (000's omitted)
OCTOBER 2, OCTOBER 3, 1999 1998 ----------- ----------- Net cash provided by operating activities $ 4,511 $ 8,135 Investing activities: Capital expenditures (7,793) (4,636) Proceeds from sale of property and equipment 16 37 Investment in mining partnership (42) (45) ------- ------- Net cash used in investing activities (7,819) (4,644) ------- ------- Financing activities: Borrowings under revolving credit facility 800 -- Capital lease obligation 203 -- Repayment of long term debt (1,315) (1,900) Proceeds from exercise of stock options 118 -- Payment to acquire treasury stock (1,887) (238) Payment to purchase and cancel stock (1,590) -- ------- ------- Net cash used in financing activities (3,671) (2,138) ------- ------- Net (decrease) increase in cash and cash equivalents (6,979) 1,353 Cash and cash equivalents: Beginning of period 7,120 1,524 ------- ------- End of period $ 141 $ 2,877 ------- ------- ------- ------- Supplemental disclosures of cash flow items: Cash paid during the nine months for: Interest $ 490 $ 543 Income taxes 3,505 1,218
See accompanying notes 5 CONTINENTAL MATERIALS CORPORATION SECURITIES AND EXCHANGE COMMISSION FORM 10-Q NOTES TO THE QUARTERLY CONSOLIDATED FINANCIAL STATEMENTS QUARTER ENDED OCTOBER 2, 1999 (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 nine months of 1999 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 1998 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 October 2, 1999 and October 3, 1998. Amounts in thousands except per share data.
Three months ended Nine months ended ----------------------------------------- ----------------------------------------- Per-share Per-share Income Shares earnings Income Shares earnings ------------ ---------- ----------- ------------ ---------- ----------- 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 ------------ ---------- ----------- ------------ ---------- ----------- ------------ ---------- ----------- ------------ ---------- ----------- October 3, 1998 Basic EPS $1,685 2,144 $ .79 $3,496 2,148 $ 1.63 =========== =========== Effect of dilutive options -- 50 -- 48 ------------ ---------- ------------ ---------- Diluted EPS $1,685 2,194 $ .77 $3,496 2,196 $ 1.59 ------------ ---------- ----------- ------------ ---------- ----------- ------------ ---------- ----------- ------------ ---------- -----------
Following the market close on June 7,1999, the Company effected a 1-for-50 reverse stock split immediately followed by a 100-for-1 forward stock split. Shares and Earnings per share figures for all periods shown in the table, reflect this split. 5. The following table presents information about reported segments for the nine month and three month periods ended October 2, 1999 and October 3, 1998 along with the items necessary to reconcile the segment information to the totals reported in the financial statements (amounts in thousands). 6
Heating and Air Construction Unallocated Conditioning Materials All Other Corporate Total ------------ --------- --------- --------- ----- 1999 - ------ Nine Months - ----------- Revenues from external customers $ 39,393 $49,482 $ 109 $ 27 $89,011 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 19,941 37 24 33,426 Operating income 1,636 1,716 10 (715) 2,647 1998 - ---- Nine Months - ----------- Revenues from external customers $ 36,054 $44,647 $ 109 $ -- $80,810 Operating income 2,121 5,429 31 (1,979) 5,602 Assets 23,366 31,357 707 3,930 59,360 Three Months - ------------ Revenues from external customers 13,314 15,718 37 -- 29,069 Operating income 1,368 1,920 10 (733) 2,565
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 1999 generated $4,511,000 in cash compared to $8,135,000 in 1998. The diminished cash flow is mainly attributed to an increase in inventories reflecting the build up in the heating and air conditioning segment as a result of abnormally low levels of furnaces at 1998 year-end. The Company estimates that its short-term line of credit (of which $800,000 was outstanding at October 2, 1999) 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 OCTOBER 2, 1999 TO QUARTER ENDED OCTOBER 3, 1998 (SEE PAGE 3) Consolidated net sales increased $4,357,000 (15%). The construction materials segment accounted for virtually all of the increase, $4,223,000 (26.9%) as the construction activity along the Front Range in southern Colorado remained very strong and projects delayed by April's inclement weather were brought current. The heating and air conditioning 7 segment accounted for the remainder of the increase with mixed results in its product lines. The fan coil and furnace lines both registered strong sales increases. A record sales volume in July 1998 due to extremely hot weather coupled with an unseasonably cool 1999 summer lead to a significant decline in evaporative cooler sales in the third quarter of 1999. Consolidated cost of sales (exclusive of depreciation, depletion and amortization) as a percentage of sales increased from 74.5% to 75.9%. The increase was entirely due to the construction materials segment where accounting adjustments to fringe benefits and raw material costs were made in the third quarter. Selling and administrative expenses increased $218,000 (5.7%) but declined as a percentage of sales from 13.1% to 12.1%. The decline in percentage is related to the increase in sales. Depreciation, depletion and amortization expense increased due to the high level of capital expenditures in the last twelve months. Interest expense declined reflecting the lower levels of outstanding debt and a lower average interest rate. OPERATIONS - COMPARISON OF NINE MONTHS ENDED OCTOBER 2, 1999 TO NINE MONTHS ENDED OCTOBER 3, 1998 (SEE PAGE 4) Net sales rose $8,201,000 (10.1%). The increase in the heating and air conditioning segment, $3,339,000 was due to the reasons noted above. The $4,835,000 increase in the construction materials segment can be attributed to mild winter weather and the continuing high level of construction activity along the Front Range in southern Colorado. Consolidated cost of sales (exclusive of depreciation, depletion and amortization) as a percentage of sales decreased from 75.5% to 74.4%. The decrease was realized by the heating and air conditioning segment and is due to the increased sales and cost containment measures. Selling and administrative expenses increased $994,000 (9.0%) but remained relatively constant as a percentage of sales at 13.5% during 1999 and 13.6% during 1998. The effect of increased sales was partially offset by costs associated the introduction of a new combination cooling and heating product earlier in the year. Depreciation, depletion and amortization expense increased due to the above reason. Interest expense declined due to the reason noted above. YEAR 2000 COMPLIANCE The year 2000 issue relates to the way computer hardware and software define calendar dates; many use only two digits to represent the year which could cause failures or miscalculations. In addition, many systems and equipment that are not typically thought of as "computer-related" (referred to as "non-IT") contain imbedded hardware or software that may include a time element. The Year 2000 issue can arise at any point in the Company's supply, manufacturing, processing, distribution and financial chains. As a result, the Company is at risk of disruptions to its business operations from possible miscalculations or system failures occurring not only in its own equipment and software, but those occurring in any business or governmental entity that the Company relies on for goods or services. 8 The Company completed a study in early 1998 with the assistance of external consultants, to evaluate the Company's current internal information and financial systems. The Company concluded that the majority of the existing systems were not Year 2000 compliant. We have therefore undertaken to implement a Year 2000 compliant enterprise resource planning (ERP) system to replace all non-compliant systems as well as to modernize and integrate all of the Company's systems. The majority of the hardware utilized by the Company, including all that may be Year 2000 non-compliant, has been replaced. Work on the project began in the second quarter of 1998 and is expected to be completed during the fourth quarter of 1999. To date the concrete dispatch, general ledger, accounts payable, accounts receivable and payroll packages have been implemented. Sales order processing has been implemented at one location and is running parallel at the other two locations with "go-live" scheduled prior to year-end. The manufacturing and procurement modules are in the final stages of testing and are scheduled to be implemented prior to year-end. Contingency plans have been investigated and are believed to be adequate should the scheduled implementation be delayed. The cost of the entire project is currently estimated at $4,000,000 including hardware, software, consulting fees and other out-of-pocket expenses. Approximately $3,600,000 has been incurred to date. Funding was furnished by a lease of approximately $1,650,000 with the balance provided by operating cash flow. The cost of the project is not expected to have a significant negative impact on the Company's future financial results. A review was also been undertaken to assess and correct Year 2000 issues affecting both our products and non-IT systems and equipment used in our businesses. At the present time, the Company has not identified any products that would not be Year 2000 compliant. We rely on third party suppliers for raw materials, water, utilities, transportation and other key services. Interruption to any of their operations due to Year 2000 issues could affect the operations of our Company. We have initiated efforts to ascertain the level of preparedness of this group. We have found some of these entities less willing to provide information concerning their state of readiness. Alternative sources of raw materials and certain other services have been identified, where possible, to help mitigate any impact due to disruptions at any of our key suppliers. While we believe that the steps we have taken should reduce the adverse effect on our Company of any such disruptions, the interdependent nature of the Company and its suppliers, service providers, utilities and governmental agencies is such that a disruption at one or more suppliers could have material adverse consequences. We are also dependent upon our customers for sales and cash flow. Year 2000 interruptions in our customers' operations could result in reduced sales, increased inventory or receivable levels and cash flow reductions. While these events are possible, we believe our customer base is broad enough to minimize the affects to our Company of system disruptions at some customers' operations. We are, however, taking steps to contact and monitor the status of our larger customers as a means of determining risks and alternatives. At this time, we have not learned of any potential exposures from external, non-compliant third party suppliers or customers. 9 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 October 2, 1999. 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 12, 1999 By: /s/ Joseph J. Sum --------------------------- --------------------------------- Joseph J. Sum, Vice President and Chief Financial Officer 10 EX-27 2 EXHIBIT 27
5 1,000 9-MOS JAN-01-2000 JAN-03-1999 OCT-02-1999 141 0 18,893 0 14,477 36,641 26,326 0 65,897 21,907 0 643 0 0 36,607 65,897 89,011 89,011 66,184 81,911 (190) 0 352 6,938 2,567 4,371 0 0 0 4,371 2.12 2.08 NET OF ALLOWANCE FOR DOUBTFUL ACCOUNTS NET OF ACCUMULATED DEPRECIATION AND DEPLETION EXCLUSIVE OF DEPRECIATION, DEPLETION AND AMORTIZATION
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