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 March 30, 1996
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 April 26, 1996 1,103,211
---------
THE EXHIBIT FILED WITH THIS REPORT IS ON PAGE 8
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
CONTINENTAL MATERIALS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
MARCH 30, 1996 and DECEMBER 30, 1995
(Unaudited)
(000's omitted except share data)
MARCH 30, DECEMBER 30,
1996 1995
------------ ------------
Current assets:
Cash and cash equivalents $ 584 $ 1,074
Receivables, net 14,194 12,158
Refundable income taxes 323 --
Inventories:
Finished goods 8,945 8,038
Work in process 2,083 2,282
Raw materials and supplies 4,146 4,337
Prepaid expenses 2,307 2,206
---------- ----------
Total current assets 32,582 30,095
---------- ----------
Property, plant and equipment, net 14,154 14,613
Other assets:
Investment in mining partnership 750 1,500
Other 1,004 1,015
---------- ----------
$ 48,490 $ 47,223
========== ==========
LIABILITIES
Current liabilities:
Bank loan payable $ 6,000 $ 2,300
Current portion of long-term debt 1,011 1,011
Accounts payable and accrued expenses 9,904 11,443
Income taxes -- 31
---------- ----------
Total current liabilities 16,915 14,785
---------- ----------
Long-term debt 3,000 3,000
Deferred income taxes 2,157 2,157
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 25,241 25,818
Treasury shares, 1,103,211, at cost (2,970) (2,684)
---------- ----------
26,418 27,281
---------- ----------
$ 48,490 $ 47,223
========== ==========
See accompanying notes
2
CONTINENTAL MATERIALS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
FOR THE THREE MONTHS ENDED MARCH 30, 1996 AND APRIL 1, 1995
(Unaudited)
(000's omitted except per share amounts)
MARCH 30, APRIL 1,
1996 1995
--------- ---------
Net sales $ 17,852 $ 16,191
Costs and expenses:
Cost of sales (exclusive of
depreciation and depletion) 13,903 13,222
Depreciation and depletion 661 591
Selling and administrative 3,168 3,107
--------- ---------
17,732 16,920
--------- ---------
Operating income (loss) 120 (729)
Interest (148) (165)
Equity (loss) income from mining partnership (1,007) 6
Other income, net 105 90
--------- ---------
Loss before income taxes (930) (798)
--------- ---------
Credit for income taxes (353) (303)
--------- ---------
Net loss (577) (495)
Retained earnings, beginning of period 25,818 25,137
--------- ---------
Retained earnings, end of period $ 25,241 $ 24,642
========= =========
Net loss per share $ (.52) $ (.43)
========= =========
Average shares outstanding 1,110 1,140
========= =========
See accompanying notes
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CONSOLIDATED MATERIALS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 30, 1996 AND APRIL 1, 1995
(Unaudited)
(000's omitted)
MARCH 30, APRIL 1,
1996 1995
--------- ---------
Net cash used by operating activities $ (3,471) $ (5,260)
Investing activities:
Capital expenditures (205) (658)
Proceeds from sale of property and equipment 29 45
Investment in mining partnership (257) (103)
Other -- (27)
--------- ---------
Net cash used in investing activities (433) (743)
--------- ---------
Financing activities:
Borrowings under revolving credit facility 3,700 3,200
Borrowings (repayment) of long-term debt -- 499
Payment to acquire treasury stock (286) (11)
--------- ---------
Net cash provided by financing activities 3,414 3,688
Net decrease in cash and cash equivalents (490) (2,315)
Cash and cash equivalents:
Beginning of period 1,074 2,778
--------- ---------
End of period $ 584 $ 463
========= =========
Supplemental disclosures of cash flow items:
Cash paid during the three months for:
Interest $ 139 $ 144
Income taxes 1 7
See accompanying notes
4
CONTINENTAL MATERIALS CORPORATION
SECURITIES AND EXCHANGE COMMISSION FORM 10-Q
NOTES TO THE QUARTERLY CONSOLIDATED FINANCIAL STATEMENTS
QUARTER ENDED MARCH 30, 1996
(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 (except
as discussed in Note 3 below, none of the adjustments were other
than normal recurring adjustments) necessary for a fair statement
of the results for the interim periods.
2.As discussed in Note 5 of Notes to Consolidated Financial
Statements in the Company's 1995 Annual Report, the Company signed
a new Revolving Credit and Term Loan Agreement (the Agreement) in
February 1996. The term loan is payable in semi-annual principal
installments of $500,000 with final payment of all then unpaid
principal, on February 15, 1999, including extension periods. The
loan bears interest at prime or an adjusted LIBOR rate. The
Agreement also provides for a $14,500,000 line of credit through
February 15, 1999.
3.The equity loss from mining partnership includes the Company's 30%
share of the partnership's operating loss for the period of
$379,000 plus a write down in the carrying value of the investment
of $628,000. The project remains shut down as the partners
continue to hold discussions with third parties regarding a sale of
the mine. Due to the lack of progress in these discussions,
management concluded a further write-down was necessary. The
remaining value of $750,000 carried on the balance sheet is
management's best estimate of the investment's current market
value.
4.The provision for income taxes is based upon the estimated
effective tax rate for the year.
5.Operating results for the first three months of 1996 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 1995
Annual Report.)
5
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 1996 used $3,471,000 in
cash compared to $5,260,000 in 1995. As noted in the Financial
Condition, Liquidity and Capital Resources discussion in the 1995
Annual Report, a planned reduction in accounts payable and accrued
expenses occurred during the first quarter of 1995 and accounted
for approximately $3,700,000 of the 1995 cash used in operations.
In March 1996, the Imeco product liability matter involving
personal injury was settled. This amount was fully reserved as of
December 31, 1994 and thus had no impact on the operations of the
Company during the periods presented although the settlement
required the payment of $1,000,000.
As noted in Note 2 to this Form 10-Q, in February 1996, the
Company renegotiated its credit agreement with two banks. The
Company estimates that its short-term line of credit (of which
$6,000,000 was outstanding at March 30, 1996) will be adequate to
meet its cash requirements for the foreseeable future.
Historically, the Company's borrowings against the short-term line
have peaked during the second quarter and decline over the
remainder of the year.
Operations - Comparison of Quarter Ended March 30, 1996 to Quarter
Ended April 1, 1995 (See page 3)
Consolidated net sales increased $1,661,000 (10.3%). The increase
in the construction materials segment of $1,287,000 (20.2%) is
attributed to favorable weather and a high level of construction
activity in Colorado Springs, Colorado. The increase in the
heating and air-conditioning segment sales of $374,000 (3.8%) was
realized by Williams Furnace Co. and is mainly attributed to
colder weather during the first quarter of 1996 in the areas
served.
Consolidated cost of sales (exclusive of depreciation and
depletion) as a percentage of sales decreased from 81.7% to 77.9%.
Increased sales, increased production levels and manufacturing
cost savings at all locations were responsible for this
improvement.
The equity loss from mining partnership includes the Company's 30%
share of the partnership's operating loss for the period of
$379,000 plus a write down in the carrying value of the investment
of $628,000. The project remains shut down as the partners
continue to hold discussions with third parties regarding a sale
of the mine. Due to the uncertainty of the project's future,
management believes an additional write down of the investment's
carrying value was warranted. The remaining value of $750,000
carried on the balance sheet is management's best estimate of the
investment's current market value.
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 quarter of 1996
was mainly due to the strong performance of the construction
materials segment which was aided by mild weather.
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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 March 30, 1996.
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: May 14, 1996 By: /S/ Joseph J. Sum
------------------ -------------------------------
Joseph J. Sum, Vice President
and Chief Financial Officer
7