-----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, LMa3N6pwc4N3KS7HvY48ToyckAp0cLhSsl50FRiX2mpYAImz6QxaXCamRhfbTAdU h0SWfDzDmzk5AQ+Sf6Q46Q== 0001047469-99-031892.txt : 19990816 0001047469-99-031892.hdr.sgml : 19990816 ACCESSION NUMBER: 0001047469-99-031892 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990703 FILED AS OF DATE: 19990813 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: 99688607 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 JULY 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 August 8, 1999.............. 1,995,217
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 JULY 3, 1999 and JANUARY 2, 1999 (Unaudited) (000's omitted except share data)
JULY 3, JANUARY 2, 1999 1999 ------------- ------------ ASSETS Current assets: Cash and cash equivalents $ -- $ 7,120 Receivables, net 21,438 16,821 Inventories: Finished goods 7,444 6,761 Work in process 1,112 1,176 Raw materials and supplies 6,935 4,113 Prepaid expenses 3,109 2,695 ---------- ---------- Total current assets 40,038 38,686 ---------- ---------- Property, plant and equipment, net 24,992 22,105 ---------- ---------- Other assets: Investment in mining partnership 100 100 Other 2,595 2,726 ---------- ---------- $ 67,725 $ 63,617 ========== ========== LIABILITIES Current liabilities: Bank loan payable $ 4,500 $ -- Current portion of long-term debt 2,576 2,526 Accounts payable and accrued expenses 17,253 16,695 Income taxes 501 1,271 ---------- ---------- Total current liabilities 24,830 20,492 ---------- ---------- Long-term debt 3,164 4,284 Deferred income taxes 1,457 1,670 Other long-term liabilities 2,206 933 SHAREHOLDERS' EQUITY Common shares, $0.25 par value; authorized 3,000,000; issued 2,574,264 643 663 Capital in excess of par value 1,954 3,484 Retained earnings 38,674 35,901 Treasury shares, 579,047 and 508,434, at cost (5,203) (3,810) ---------- ---------- 36,068 36,238 ---------- ---------- $ 67,725 $ 63,617 ========== ==========
See accompanying notes 2 CONTINENTAL MATERIALS CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS FOR THE THREE MONTHS ENDED JULY 3, 1999 AND JULY 4, 1998 (Unaudited) (000's omitted except per share amounts)
JULY 3, JULY 4, 1999 1998 ------------- ------------ Net sales $ 31,253 $ 28,935 ------------- ------------ Costs and expenses: Cost of sales (exclusive of depreciation, depletion and amortization) 22,442 22,168 Depreciation, depletion and amortization 1,243 1,029 Selling and administrative 4,207 3,699 ------------- ------------ 27,892 26,896 ------------- ------------ Operating income 3,361 2,039 Interest (149) (212) Equity loss from mining partnership (21) (19) Other income, net 81 87 ------------- ------------ Income before income taxes 3,272 1,895 Provision for income taxes 1,233 663 ------------- ------------ Net income 2,039 1,232 Retained earnings, beginning of period 36,635 31,862 ------------- ------------- Retained earnings, end of period $ 38,674 $ 33,094 ============= ============= Basic earnings per share $ .99 $ .58 ============= ============= Average shares outstanding 2,060 2,146 ============= ============= Diluted earnings per share $ .97 $ .56 ============= ============= Average shares outstanding 2,108 2,198 ============= =============
See accompanying notes 3 CONTINENTAL MATERIALS CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS FOR THE SIX MONTHS ENDED JULY 3, 1999 AND JULY 4, 1998 (Unaudited) (000's omitted except per share amounts)
JULY 3, JULY 4, 1999 1998 ------------------ ------------------ Net sales $ 55,585 $ 51,741 ------------- ------------- Costs and expenses: Cost of sales (exclusive of depreciation, depletion and amortization) 40,817 39,446 Depreciation, depletion and amortization 2,330 2,049 Selling and administrative 7,985 7,209 ------------- ------------- 51,132 48,704 ------------- ------------- Operating income 4,453 3,037 Interest (216) (384) Equity loss from mining partnership (21) (38) Other income, net 186 171 ------------- ------------- Income before income taxes 4,402 2,786 Provision for income taxes 1,629 975 ------------- ------------- Net income 2,773 1,811 Retained earnings, beginning of period 35,901 31,283 ------------- ------------- Retained earnings, end of period $ 38,674 $ 33,094 ============= ============= Basic earnings per share $ 1.33 $ .84 ============= ============= Average shares outstanding 2,091 2,150 ============= ============= Diluted earnings per share $ 1.30 $ .83 ============= ============= Average shares outstanding 2,138 2,198 ============= =============
See accompanying notes 4 CONSOLIDATED MATERIALS CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED JULY 3, 1999 AND JULY 4, 1998 (Unaudited) (000's omitted)
JULY 3, JULY 4, 1999 1998 -------------- ------------- Net cash used by operating activities $ (2,477) $ (257) Investing activities: Capital expenditures (5,125) (1,812) Proceeds from sale of property and equipment 16 36 Investment in mining partnership (21) (38) ------------- ----------- Net cash used in investing activities (5,130) (1,814) ------------- ----------- Financing activities: Borrowings under revolving credit facility 4,500 2,500 Capital lease obligation 203 -- Repayment of long term debt (1,273) (950) Proceeds from exercise of stock options 78 -- Payment to acquire treasury stock (1,471) (238) Payment to purchase and cancel stock (1,550) -- ------------- ----------- Net cash (used) provided by financing activities 487 1,312 ------------- ----------- Net decrease in cash and cash equivalents (7,120) (759) Cash and cash equivalents: Beginning of period 7,120 1,524 ------------- ----------- End of period $ -- $ 765 ============= =========== Supplemental disclosures of cash flow items: Cash paid during the three months for: Interest $ 329 $ 378 Income taxes 1,606 293
See accompanying notes 5 CONTINENTAL MATERIALS CORPORATION SECURITIES AND EXCHANGE COMMISSION FORM 10-Q NOTES TO THE QUARTERLY CONSOLIDATED FINANCIAL STATEMENTS QUARTER ENDED JULY 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 six 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 six months ended July 3, 1999 and July 4, 1998. Amounts in thousands except per share data.
Three months ended Six months ended ----------------------------------------- ----------------------------------------- Per-share Per-share Income Shares earnings Income Shares earnings ------------ ---------- ----------- ------------ ---------- ----------- 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 ============ ========== =========== ============ ========== =========== July 4, 1998 Basic EPS $1,232 2,146 $ .58 $1,811 2,150 $ .84 =========== =========== Effect of dilutive options -- 52 -- 48 ------------ ---------- ------------ ---------- Diluted EPS $1,232 2,198 $ .56 $1,811 2,198 $ .83 ============ ========== =========== ============ ========== ===========
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 six month and three month periods ended July 3,1999 and July 4, 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 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 1998 SIX MONTHS Revenues from external customers $ 22,740 $28,929 $ 72 $ -- $51,741 Operating income 753 3,509 21 (1,246) 3,037 Assets 26,384 30,090 714 2,605 59,793 THREE MONTHS Revenues from external customers 12,408 16,491 36 -- 28,935 Operating income 292 2,328 11 (592) 2,039
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 1999 used $2,477,000 in cash compared to $257,000 in 1998. The increase in cash used is mainly attributed to an increase in inventories reflecting the build up 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 $4,500,000 was outstanding at July 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. 7 OPERATIONS - COMPARISON OF QUARTER ENDED JULY 3, 1999 TO QUARTER ENDED JULY 4, 1998 (SEE PAGE 3) Consolidated net sales increased $2,318,000 (8%). The heating and air conditioning segment accounted for the entire increase, $3,429,000 (27.6%), which can be attributed to favorable weather for the heating products, strong sales of the fan coil product line and an improvement in the evaporative cooler market from the prior year level. A $1,112,000 decline in the construction materials segment is attributable to inclement weather during April. Construction activity along the Front Range in southern Colorado, however, remains strong. Consolidated cost of sales (exclusive of depreciation and depletion) as a percentage of sales decreased from 76.8% to 71.8%. The decrease was realized by both segments and is due to the improved sales as well as cost containment measures. Selling and administrative expenses increased $508,000 (13.7%) and as a percentage of sales from 12.8% to 13.5%. The increase in percentage is related compensation matters and higher consulting fees. Interest expense declined reflecting the lower levels of outstanding debt. 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 continues to grow and shows little seasonality. OPERATIONS - COMPARISON OF SIX MONTHS ENDED JULY 3, 1999 TO SIX MONTHS JULY 3, 1998 (SEE PAGE 4) Net sales rose $3,844,000 (7.4%). The increase in the heating and air conditioning segment, $3,229,000 was due to the reasons noted above. The $612,000 increase in the construction materials segment can be attributed to mild weather and the continuing high level of construction activity along the Front Range in southern Colorado slightly offset by the results for April as noted above. Consolidated cost of sales (exclusive of depreciation and depletion) as a percentage of sales decreased from 76.2% to 73.4%. The decrease was realized by both segments and is due to the reasons noted above. Selling and administrative expenses increased $776,000 (10.8%) and as a percentage of sales from 13.9% to 14.4%. The increase in percentage is related to the introduction of a new combination cooling and heating product as well as the reasons noted above. 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 8 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 fourth quarter of 1999. The cost of the entire project is currently estimated at $3,500,000 including hardware, software, consulting fees and other out-of-pocket expenses. Approximately $3,000,000 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 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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS (a) The annual meeting of the stockholders of the Company was held on May 26, 1999. (b) At that meeting, three individuals, all of whom are current directors, were nominated and elected to serve until the 2002 Annual Meeting by the following votes:
Director Shares For Shares Against Shares Withheld - ----------------------------- ------------------- -------------------- ---------------------- Ralph W. Gidwitz 931,864 -- 53,815 William G. Shoemaker 934,747 -- 50,932 Theodore R. Tetzlaff 934,827 -- 50,852
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 -------------------------------- ------------------------ Thomas H. Carmody 2000 Ronald J. Gidwitz 2000 Darrell M. Trent 2000 James G. Gidwitz 2001 Betsy R. Gidwitz 2001 Joseph J. Sum 2001
(c) In addition to the above election, the independent auditing firm of PricewaterhouseCoopers LLP was appointed by the following vote:
For Against Abstain ------------------- ------------------- ------------------- 981,960 2,938 778
There were no broker non-votes. (d) A proposal to amend the Company's Certificate of Incorporation to effect a reverse stock split followed by a forward stock split of the Company's common stock was ratified by the following vote:
For Against Abstain ------------------ --------------- ---------------- 932,620 59,791 2,268
(e) 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 a current report on Form 8-K (Items 5 and 7) dated June 7, 1999. 10 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, 1999 By: /s/ Joseph J. Sum ----------------------- ----------------------------------- Joseph J. Sum, Vice President and Chief Financial Officer 11 EX-27 2 EXHIBIT 27
5 6-MOS JAN-01-2000 JAN-03-1999 JUL-03-1999 0 0 21,438 0 15,491 40,038 24,992 0 67,725 24,830 0 643 0 0 35,425 67,725 55,585 55,585 40,817 51,132 (165) 0 216 4402 1629 2773 0 0 0 2,773 1.33 1.30 Net of allowance for doubtful accounts Net of accumulated depreciation and depletion Exclusive of depreciation, depletion and amortization
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