-----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, Ob8yzHcAZRFGNE/xdsJl9GSY8RLJgqX482nnPVdwE0vDMpAsaLEnQfWSRJRo9aFB RnQJ5ukFO3ZlLV3llhxsgg== 0000024104-99-000002.txt : 19990518 0000024104-99-000002.hdr.sgml : 19990518 ACCESSION NUMBER: 0000024104-99-000002 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990403 FILED AS OF DATE: 19990517 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: 99625870 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 FORM 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 April 3, 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 April 11, 1999 1,043,963 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 APRIL 3, 1999 and JANUARY 2, 1999 (Unaudited) (000's omitted except share data)
APRIL 3, JANUARY 2, 1999 1999 ASSETS Current assets: Cash and cash equivalents $ -- $ 7,120 Receivables, net 16,361 16,821 Inventories: Finished goods 8,761 6,761 Work in process 1,430 1,176 Raw materials and supplies 6,254 4,113 Prepaid expenses 2,945 2,695 Total current assets 35,751 38,686 Property, plant and equipment, net 22,694 22,105 Other assets: Investment in mining partnership 100 100 Other 2,760 2,726 $ 61,305 $ 63,617 LIABILITIES Current liabilities: Current portion of long-term debt $ 2,554 $ 2,526 Accounts payable and accrued expenses 14,904 16,695 Income taxes 878 1,271 Total current liabilities 18,336 20,492 Long-term debt 4,307 4,284 Deferred income taxes 1,670 1,670 Other long-term liabilities 982 933 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 36,635 35,901 Treasury shares, 278,125 and 254,217, at cost (4,772) (3,810) 36,010 36,238 $ 61,305 $ 63,617
See accompanying notes 2 CONTINENTAL MATERIALS CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS FOR THE THREE MONTHS ENDED APRIL 3, 1999 AND APRIL 4, 1998 (Unaudited) (000's omitted except per share amounts)
APRIL 3, APRIL 4, 1999 1998 Net sales $ 24,332 $ 22,806 Costs and expenses: Cost of sales (exclusive of depreciation, depletion and amortization) 18,375 17,278 Depreciation, depletion and amortization 1,087 1,020 Selling and administrative 3,778 3,510 23,240 21,808 Operating income 1,092 998 Interest (67) (172) Equity loss from mining partnership -- (19) Other income, net 105 84 Income before income taxes 1,130 891 Provision for income taxes 396 312 Net income 734 579 Retained earnings, beginning of period 35,901 31,283 Retained earnings, end of period $ 36,635 $ 31,862 Basic earnings per share $ .69 $ .54 Average shares outstanding 1,061 1,077 Diluted earnings per share $ .68 $ .53 Average shares outstanding 1,086 1,099
See accompanying notes 3 CONSOLIDATED MATERIALS CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED APRIL 3, 1999 AND APRIL 4, 1998 (Unaudited) (000's omitted)
APRIL 3, APRIL 4, 1999 1998 Net cash used by operating activities $(4,572) $(1,673) Investing activities: Capital expenditures (1,636) (637) Proceeds from exercise of stock options 78 -- Proceeds from sale of property and equipment -- 32 Investment in mining partnership -- (19) Net cash used in investing activities (1,558) (624) Financing activities: Borrowings under revolving credit facility -- 1,000 Capital lease obligation 101 -- Repayment of long term debt (50) -- Payment to acquire treasury stock (1,041) (142) Net cash (used) provided by financing activities (990) 858 Net decrease in cash and cash equivalents (7,120) (1,439) Cash and cash equivalents: Beginning of period 7,120 1,524 End of period $ -- $ 85 Supplemental disclosures of cash flow items: Cash paid during the three months for: Interest $ 240 $ 175 Income taxes 774 93
See accompanying notes 4 CONTINENTAL MATERIALS CORPORATION SECURITIES AND EXCHANGE COMMISSION FORM 10-Q NOTES TO THE QUARTERLY CONSOLIDATED FINANCIAL STATEMENTS QUARTER ENDED APRIL 3, 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 three 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 months ended April 3, 1999 and April 4, 1998.
Per-share Income earnings (loss) Shares (loss) April 3, 1999 Basic EPS $ 734 1,061 $ .69 Effect of dilutive options -- 25 Diluted EPS $ 734 1,086 $ .68 April 4, 1998 Basic EPS $ 579 1,077 $ .54 Effect of dilutive options -- 22 Diluted EPS $ 579 1,099 $ .53
5.The following table presents information about reported segments for the three months ended April 3, 1999 and April 4, 1998 along with the items necessary to reconcile the segment information to the totals reported in the financial statements. 5
Heating and Air Construction All Unallocated Conditioning Materials Other Corporate Total 1999 Revenues from external customers $10,132 $14,162 $ 36 $ 2 $24,332 Segment operating income 354 1,444 11 (717) 1,092 Segment assets 28,416 31,035 173 1,681 61,305 1998 Revenues from external customers $10,332 $12,438 $ 36 $ - $22,806 Segment operating income 488 1,151 10 (651) 998 Segment assets 27,094 27,616 731 1,567 57,008
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. 6.On April 14,1999, the Company's Board of Directors approved a 1-for-50 reverse stock split to be immediately followed by a 100-for-1 forward stock split. The splits are subject to shareholder approval. If approved, the stock splits would occur following the market close on June 7, 1999, or as soon thereafter as practicable. 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 1999 used $4,572,000 in cash compared to $1,673,000 in 1998. The increase in cash used is mainly attributed to changes in accounts receivable, inventories and accrued expense and payables balances. The decrease in the accounts receivable and increase in liability balances is largely due to the timing of receipts and payments, while the increase in inventories reflects the build up of inventory levels in the heating and air conditioning segment related to abnormally low levels of furnaces at 1998 year end. The Company estimates that its short-term line of credit (of which none was outstanding at April 3, 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 April 3, 1999 to Quarter Ended April 4, 1998 (See page 3) Consolidated net sales increased $1,526,000 (6.7%). The construction materials segment accounted for the entire increase, $1,724,000 (13.9%), which can be attributed to mild weather and the continuing high level of construction activity along the Front Range in southern Colorado. A small decrease in the sales of the heating and air conditioning segment, $200,000 (2.0%), dampened the overall growth. 6 Consolidated cost of sales (exclusive of depreciation and depletion) as a percentage of sales decreased slightly from 75.8% to 75.5%. The decrease was due to the improved sales in the construction materials segment. Selling and administrative expenses increased $268,000 (7.6%) and as a percentage of sales from 15.4% to 15.5%. The slight increase in percentage is related to the introduction of a new combination cooling and heating product. Although, historically, the Company has experienced operating losses during the first quarter, this pattern has changed in recent years mainly due to the strong performance of the construction materials segment which has benefited from the continuing strong economy and mild weather along the Front Range of southern Colorado. Additionally, the fan coil product line, of the heating and air conditioning segment, continues to grow and shows little seasonality. 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. The Company has completed a study, 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 third quarter of 1999. The cost of the entire project is currently estimated at $3,300,000 including hardware, software, consulting fees and other out-of-pocket expenses. Approximately $2,800,000 has been incurred to date. Funding will be furnished by a lease of approximately $1,500,000 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 has 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 7 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. 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 3, 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: May 13, 1999 By: /S/ Joseph J. Sum Joseph J. Sum, Vice President and Chief Financial Officer 8 EX-27 2 FINANCIAL DATA SCHEDULE
5 1000 3-MOS JAN-01-2000 APR-03-1999 0 0 16,361 0 16,445 35,751 22,694 0 61,305 18,336 0 0 0 663 35,347 61,305 24,332 24,332 18,375 23,240 (105) 0 67 1,130 396 734 0 0 0 734 $ .69 $ .68 Net of allowance for doubtful accounts. Net of accumulated depreciation and depletion. Exclusive of depreciation, depletion and amortization.
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