10-Q 1 a2030100z10-q.txt 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 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 ------------------------------------------------------ (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 3, 2000................1,848,948 THE EXHIBIT FILED WITH THIS REPORT IS ON PAGE 10 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)
SEPTEMBER 30, JANUARY 1, ASSETS 2000 2000 ------ -------------------------- --------------------- 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 ========================== =====================
See accompanying notes 2 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)
SEPTEMBER 30, 2000 OCTOBER 2, 1999 -------------------------- ------------------- 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 ========================== ===================
See accompanying notes 3 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)
SEPTEMBER 30, OCTOBER 2, 2000 1999 ------------------------- --------------------- 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 ========================= =====================
See accompanying notes 4 CONSOLIDATED MATERIALS CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 AND OCTOBER 2, 1999 (Unaudited) (000's omitted)
SEPTEMBER 30, OCTOBER 2, 2000 1999 -------------------------- --------------------- 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
See accompanying notes 5 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.
Three months ended Nine months ended ----------------------------------------- ----------------------------------------- Per-share Per-share earnings earnings Income Shares Income Shares ------------ ---------- ----------- ------------ ---------- ----------- 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 ============ ========== =========== ============ ========== ===========
6 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).
> Heating and Air Construction Unallocated Conditioning Materials All Other Corporate Total ------------ --------- --------- --------- ----- 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
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 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 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