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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 30, 1995
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 (I.R.S. Employer
of incorporation or Identification No.)
organization)
225 West Wacker Drive, Suite 60606
1800 Chicago, Illinois (Zip Code)
(Address of principal
executive offices)
Registrant's telephone number, including area code 312-541-7200
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on
which registered
Common Stock - $.50 par value American Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: NONE
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
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of registrant's knowledge,
in definitive proxy or information statements incorporated by
reference in Part III of the Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value (based on March 20, 1996 closing
price) of voting stock held by non-affiliates of registrant:
Approximately $8,974,000.
Number of common shares outstanding at March 20, 1996: 1,105,921.
Incorporation by reference: Portions of registrant's
definitive proxy statement for the 1996 Annual meeting of
stockholders to be held on May 22, 1996 into Part III of this
Form 10-K. (The definitive proxy statement will be filed with
the Securities and Exchange Commission within 120 days after the
close of the fiscal year covered by this Form 10-K.)
Index to Exhibits: on page 37 hereof.
1
NOTE: References to a "Note" are to the Notes to Consolidated
Financial Statements which are included on pages 16
through 24 of this Annual Report on Form 10-K.
PART I
Item 1. BUSINESS
Continental Materials Corporation, Inc. and its subsidiaries
(collectively referred to as the Company) operate primarily in
two industry segments, the Heating and Air Conditioning segment
and the Construction Materials segment. The Heating and Air
Conditioning segment is comprised of Phoenix Manufacturing, Inc.
of Phoenix, Arizona and Williams Furnace Co. of Colton,
California. The Construction Materials segment is comprised of
Castle Concrete Company and Transit Mix Concrete Co. both of
Colorado Springs, Colorado.
The Heating and Air Conditioning segment manufactures wall
furnaces, console heaters, evaporative air coolers and fan
coil/air handler product lines. Numerous models with differing
heating or cooling capacities as well as exterior appearances are
offered within each line.
The Construction Materials segment is involved in the production
and sale of ready mix concrete and other building materials as
well as the exploration, extraction and sale of limestone, sand
and gravel.
In addition to the above operating segments, a General Corporate
and Other classification is utilized covering the general
expenses of the corporate office which provides treasury,
insurance and tax services as well as strategic business planning
and general management services.
The Company has a 30% interest in Oracle Ridge Mining Partners
(ORMP). ORMP is a general partnership which operates a copper
mine near Tucson, Arizona. The Company is not the managing
partner of ORMP and thus its operations are accounted for on the
equity method with the Company's share of ORMP's operations
presented in the other income and expense section of the
Company's operating statements.
Financial information relating to industry segments appears in
Note 12 on page 24 of this Form 10-K. Summary financial
information on ORMP appears in Note 4 on page 19 and audited
financial statements for ORMP are included in Item 8 of this Form
10-K. See index to Item 8 on page 12.
2
MARKETING, SALES AND SUPPORT
Marketing
The Heating and Air Conditioning segment markets its products
throughout the United States through plumbing, heating and air
conditioning wholesale distributors as well as direct to some
major retail home-centers and other retail outlets. Phoenix and
Williams utilize independent manufacturers' representatives.
Both companies also employ a small staff of sales and sales
support personnel. Sales in this segment are predominantly in
the United States and are concentrated in the Western and
Southwestern states. Sales of Williams' furnaces usually
increase in the months of September through January. Sales of
Phoenix's evaporative coolers usually increase in the months of
February through June. In order to sell wall furnaces and
evaporative coolers during the off season, Williams and Phoenix
offer extended payment terms to their customers.
The Construction Materials segment markets its products primarily
through its own direct sales representatives and confines its
sales to the Colorado Springs area. Sales are made to general
and sub-contractors, government entities and individuals. The
businesses of Castle and Transit Mix are affected by the general
economic conditions in Colorado Springs (as it relates to
construction) and weather conditions. Revenues usually decline
in the winter months as the pace of construction slows.
During 1995, no customer accounted for 10% or more of the total
sales of either segment.
Customer Service and Support
The companies in the Heating and Air Conditioning segment
maintain parts departments and help lines to assist contractors,
distributors and end users in servicing the companies' products.
The Company does not perform installation services, nor are
maintenance or service contracts offered. In addition, Williams
holds training sessions at its plant for distributors,
contractors, utility company employees and other customers. The
companies in this segment do not derive any revenue from after-
sales service and support other than from parts sales. The
companies in the Construction Materials segment routinely take a
leadership role in formulation of the products to meet the
strength requirements of their customers.
BACKLOG
At December 30, 1995, Williams' order backlog was approximately
$600,000 ($900,000 at December 31, 1994) the majority of which
represented orders for furnaces.
At December 30, 1995, Phoenix had a backlog of approximately
$3,100,000 ($3,000,000 at December 31, 1994) representing
primarily preseason cooler orders.
The above backlogs are all related to the heating and air
conditioning segment and are expected to be filled during the
first quarter of 1996.
At December 30, 1995, Transit Mix and Castle had a backlog of
approximately $4,300,000 ($3,100,000 at December 31, 1994)
primarily relating to construction contracts awarded and expected
to be filled during the first half of 1996.
Management does not believe that any of the above backlogs
represent a trend but rather are indicative only of the timing of
orders received or contracts awarded.
3
Research and Development/Patents
In general, companies rely upon, and intend to continue to rely
upon, unpatented proprietary technology and information.
However, recent research and development activities in the
Heating and Air Conditioning segment has lead to patent
applications related to Phoenix' Power Cleaning System for the
evaporative coolers and the configuration of the heat exchanger
for Williams' furnaces which has increased efficiency above that
previously offered by the industry. The amounts expended on
research and development are not material and are expensed as
incurred. The Company believes its interests in its patent
applications, as well as its proprietary knowledge, are
sufficient for its businesses as currently conducted.
Manufacturing
The Company conducts its manufacturing operations through a
number of facilities as more completely described in Item 2,
Properties, below.
Due to the seasonality of its businesses, Williams and Phoenix
build inventory during their off seasons in order to have
adequate wall furnace and evaporative cooler inventory to sell
during the season.
In general, raw materials required by the Company can be obtained
from various sources in the quantities desired. The Company has
no long-term supply contracts and does not consider itself
dependent on any individual supplier.
Compliance with environmental protection laws and regulations has
not had any material effect upon the Company's capital
expenditures, earnings, or competitive position.
Competitive Conditions
Heating and Air Conditioning - Williams is one of four principal
companies producing wall furnaces (excluding units sold to the
recreational vehicle industry). The wall furnace market is only
a small component of the heating industry. Williams' covers its
market area from its plant in Colton, California and a warehouse
in Ohio. The sales force consists of Williams' sales personnel
and manufacturers' representatives. The entire heating industry
is dominated by manufacturers (most of which are substantially
larger than the Company) selling diversified lines of heating and
air conditioning units directed primarily toward central heating
and cooling systems.
Williams also manufactures a line of gas fired console heaters.
Distribution is similar to wall furnaces with the principal
market areas in the South and Southeast. There are five other
manufacturers, none of whom is believed to have a dominant share
of the market.
Williams is also a producer of fan coils. Fan coil sales are
usually obtained through a competitive bidding process. This
market is dominated by International Environmental Corp., a
subsidiary of LSB Industries, Inc., a manufacturer of a
diversified line of commercial and industrial products. There
are also a number of other companies that produce fan coils. All
of the producers compete on the basis of price and timeliness of
delivery.
4
Phoenix produces evaporative air coolers. This market is
dominated by Adobe Air. There is one other principal competitor
plus a number of other small companies that produce evaporative
coolers. All producers of evaporative air coolers compete
aggressively on the basis of price.
Construction Materials - Transit Mix is one of three companies
producing ready mix concrete in the Colorado Springs area.
Although Transit Mix holds a significant share of the market
served, the other two competitors compete aggressively on the
basis of price.
There are a number of producers of aggregates, sand and gravel in
the marketing area served by Transit Mix and Castle who compete
aggressively on the basis of price and service.
Metal doors and door frames, rebar reinforcement and other
building materials sold in the Colorado Springs metropolitan area
are subject to intense competition. Transit Mix competes
aggressively with two larger companies and a number of small
competitors. However, Transit Mix has a slight competitive
advantage in that many of its customers also purchase concrete,
sand and aggregates from Transit Mix and Castle whereas our
competitors for these particular product lines do not offer
concrete, sand or aggregates.
Employees
The Company employed 649 persons as of December 30, 1995.
Employment varies throughout the year due to the seasonal nature
of sales and thus to a lesser extent, production. A breakdown of
the prior three years employment at year end by segment was:
1995 1994 1993
---- ---- ----
Heating and Air Conditioning 421 335 371
Construction Materials 215 203 188
Corporate Office 13 14 14
--- --- ---
Total 649 552 573
=== === ===
Factory employees at the Colton, California plant are represented
by the Amalgamated Industrial Workers Union under a contract that
expires in June 1997. Certain drivers, laborers and mechanics at
the Colorado Springs facilities are represented by the Western
Conference of Teamsters under a contract which expires in
February 1998.
The Company considers relations with its employees and with its
unions to be good.
Item 2. PROPERTIES
The heating and air conditioning segment operates out of one
owned (Colton, California) and one leased (Phoenix, Arizona)
facility. Both manufacturing facilities utilized by this segment
are, in the opinion of management, in good condition and
sufficient for the Company's current needs. Productive capacity
exists at the locations such that the Company could exceed the
highest volumes achieved in prior years or expected in the
foreseeable future and maintain timely delivery.
5
The construction materials segment operates out of two owned
facilities in Colorado Springs, Colorado. Additionally, this
segment owns four mining properties in four counties in the
vicinity of Colorado Springs, Colorado. In the opinion of
management, these four properties contain permitted and minable
reserves sufficient to service sand, rock and gravel requirements
for the foreseeable future.
The corporate office operates out of leased facilities in
Chicago, Illinois.
Item 3. LEGAL PROCEEDINGS
See Management Discussion and Analysis of Financial Condition and
Results of Operations on pages 8 through 10 and Note 6 on page 20
of this Annual Report on Form 10-K.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders
during the fourth quarter of fiscal 1995.
PART II
Item 5. MARKETING FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
Continental Materials Corporation shares are traded on the
American Stock Exchange (AMEX) under the symbol CUO. Closing
share prices for each of the periods set forth below as reported
by the AMEX are:
High Low
---- ---
1995 Fourth 13 11 3/4
Quarter
Third Quarter 13 3/8 12
Second 12 7/8 12
Quarter
First Quarter 12 1/2 10 7/8
1994 Fourth 13 3/4 10 7/8
Quarter
Third Quarter 13 7/8 10 7/8
Second 11 3/8 9 1/8
Quarter
First Quarter 10 3/8 7 7/8
Trading during the two months ended March 1, 1996 ranged from 11
3/4 to 14 7/8.
At December 30, 1995, the Company had approximately 3,200
shareholders of record.
The Company has never paid a dividend. Payment of cash dividends
is either limited or requires prior approval by the lenders (see
Note 5 on page 19). The Company's policy is to reinvest earnings
from operations, and the Company expects to follow this policy
for the foreseeable future.
6
Item 6. SELECTED FINANCIAL DATA
Selected Financial Data (Amounts in thousands, except per share amounts)
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
SUMMARY OF OPERATIONS
Net sales from
continuing operations $75,560 $75,294 $62,495 $60,982 $58,043
------- ------- ------- ------- -------
Net income from
continuing operations 681 1,849 1,187 1,201 1,132
Net (loss) income from
discontinued operation -- (464) 188 (1,064) (534)
Extraordinary item, net -- -- (1,335) -- --
------- ------- ------- ------- -------
Net income $ 681 $1,385 $ 40 $ 137 $ 598
======= ======= ======= ======= =======
PER SHARE DATA
Continuing operations $ .60 $ 1.62 $ 1.02 $ 1.02 $ .96
Discontinued operation -- .16 (.90) (.45) (.41)
Extraordinary item -- -- (1.15) -- --
------- ------- ------- ------- -------
Net income $ .60 $ 1.21 $ .03 $ .12 $ .51
======= ======= ======= ======= =======
Average shares
outstanding during year 1,135 1,140 1,164 1,174 1,174
======= ======= ======= ======= =======
FINANCIAL CONDITION
Current ratio 2.0:1 2.0:1 2.2:1 2.5:1 2.5:1
Total assets $47,223 $48,162 $45,424 $54,916 $55,425
Long-term debt,
including current
portion 4,011 4,923 6,819 16,114 17,950
Shareholders' equity 27,281 26,789 25,404 25,660 25,523
Ratio of net worth to
long-term debt 6.80 5.44 3.73 1.59 1.42
Book value per share $ 24.04 $ 23.50 $ 22.28 $ 21.86 $ 21.73
CASH FLOWS
Net cash provided by (used in):
Operating activities 848 7,191 2,727 4,925 5,132
Investing activities (3,751) (1,884) 6,628 (3,182) (1,134)
Financing activities 1,199 (3,596) (9,914) (1,836) (3,112)
------- ------- ------- ------- -------
Net (decrease) increase
in cash and
cash equivalents $(1,704) $ 1,711 $ (559) $ (93) $ 886
======= ======= ======= ======= =======
7
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(References to a "Note" are to Notes to Consolidated Financial Statements)
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents declined to $1,074,000 at year end
compared to $2,778,000 in the prior year. Cash provided from
operations in 1995 was $848,000 compared to $7,191,000 in 1994
and the $2,727,000 generated in 1993. The decrease in net cash
generated by operating activities in 1995 was mainly due to
decreased levels of accounts payable and accrued expenses. The
expected decrease in accounts payable was due to the early
purchase of raw materials in 1994 for which 1995 price increases
had been announced, and the timing of payments. The decrease in
accruals was also expected and was due primarily to the timing of
payments. The increase in 1994 from the 1993 level was due to
the above items.
Net cash used in investing activities was $3,751,000 in 1995 and
$1,884,000 in 1994. Net cash of $6,628,000 was provided by
investing activities in 1993 primarily as a result of the sale of
Imeco, Inc., which provided $10,750,000, and the receipt of
$704,000 in proceeds from the sale of an equity investment. Cash
invested in Oracle Ridge Mining Partners (ORMP) during 1995, 1994
and 1993 was $883,000, $561,000 and $1,194,000, respectively.
Capital expenditures for 1995, 1994 and 1993 were $3,417,000,
$1,775,000 and $3,677,000, respectively. There were no
significant commitments for capital expenditures at the end of
1995. Budgeted capital expenditures for 1996, exclusive of
equipment that may be acquired under operating leases, are
approximately $3,049,000 (primarily routine replacements and
upgrades), $472,000 more than planned depreciation. The 1996
expenditures will be funded from internal sources and available
borrowing capacity.
In June 1993, the Company sold Imeco for $10,750,000 in cash and
recognized a $1,050,000 pre-tax gain. Imeco had been involved in
the manufacture of thermal transfer equipment, and as such was
the "refrigeration" component of the Company's "Heating, Air
Conditioning and Refrigeration" reportable segment. Subsequent
to the sale of Imeco, the reportable segment has been renamed
"Heating and Air Conditioning." In connection with the sale of
Imeco, the Company retained responsibility for product liability
claims involving Imeco equipment occurring prior to the June 30,
1993 sale date. To date, three suits have been filed against
Imeco for which the Company retained responsibility. As of June
30, 1993, the Company was aware of two of the claims. At that
time, the Company concluded that it was not liable for one of the
claims and not enough information was available for the other
claim to make a reasonable estimate of liability, if any.
Accordingly, no liability was recorded at June 30, 1993 in
connection with these claims. At the end of 1993, management
conducted a complete review of all legal matters and determined
that an accrual of $616,000 was necessary regarding one of the
cases in accordance with the requirements of Statement of
Financial Accounting Standards (SFAS) No. 5, "Accounting for
Contingencies." The fourth quarter 1994 results were reduced by
$726,000, $426,000 after related tax benefits, as a result of new
developments related to these product liability matters. In
March 1995, the Company settled the suit brought by ConAgra and
its insurance carrier. The amount of the settlement was fully
reserved as of December 31, 1994. The suit involving personal
injury was settled during March 1996. The amount of this
settlement was also fully reserved as of December 31, 1994. The
remaining claim against Imeco was withdrawn during 1995. See
Notes 2 and 6.
8
During 1995, cash of $1,199,000 was provided by financing
activities. Borrowings of $2,300,000 against the short-term line
of credit were offset by the net long-term debt repayment of
$912,000. Cash of $189,000 was used to acquire 15,357 shares of
treasury stock. During 1994, cash of $3,596,000 was used to pay
off the short-term line of credit and the scheduled long-term
debt payments. During 1993, cash of $9,914,000 was used in
financing activities. The Company used cash from the sale of
Imeco, $1,700,000 of borrowings under the line of credit and a
portion of the $3,500,000 received from an amendment to the
Company's credit agreement with two banks, to repay $12,795,000
of fixed rate long-term debt and the related prepayment penalty
of $2,023,000. In addition, the Company acquired 34,000 shares
of treasury stock for $296,000 during 1993.
In February 1996, the Company renegotiated its credit agreement
with two banks. The new agreement provides for a term loan of
$4,000,000 to replace the existing term loan, and an increased
revolving credit facility of $14,500,000 for funding of seasonal
sales programs at Williams Furnace Co. and Phoenix Manufacturing,
Inc. The line is also used for stand-by letters of credit to
insurance carriers in support of deductible amounts under the
Company's insurance program. All borrowings under the new
agreement are unsecured and bear interest at prime or an adjusted
LIBOR rate. See Note 5.
The Company anticipates the primary source of cash flow in 1996
to be from its operating subsidiaries. This cash flow,
supplemented by the line of credit, is sufficient to cover normal
and expected future cash needs, including servicing debt and
planned capital expenditures.
The Company purchases insurance coverage for property loss,
workers' compensation, general, product and automobile liability
maintaining certain levels of retained risk (self-insured
portion). Provisions for claims under the self-insured portion
of the policies are recorded in accordance with the requirements
of SFAS No. 5. The accrual for workers' compensation and
automobile liability claims covers occurrences through December
30, 1995. There were no unasserted claims as of December 30,
1995, that required a reserve or disclosure in accordance with
SFAS No. 5.
During 1995, The Financial Accounting Standards Board issued two
new pronouncements, SFAS No. 121 and No. 123, which are relevant
to the Company's operations. SFAS No. 121 addresses "Accounting
for The Impairment of Long-Lived Assets and for Long-Lived Assets
To Be Disposed Of" while SFAS No. 123 addresses "Accounting for
Stock-Based Compensation." Both statements are effective for
fiscal years beginning after December 15, 1995. The Company
intends to adopt both SFAS No. 121 and No. 123 in 1996 and does
not believe either will have a material effect on the Company's
financial position or results of operations.
9
OPERATIONS
1995 vs. 1994
Consolidated net sales from continuing operations increased
$266,000. The net sales of the Heating and Air Conditioning
segment rose slightly while the net sales of the Construction
Materials segment declined slightly compared to the previous
year. Sales at Phoenix rose due to new customers and a strong
pre-season sales program during the fourth quarter. Sales at
Williams declined slightly due to new competitive products. A
decline in sales in the Northern California region was possibly
due to publicity of the heat exchanger matter concerning units
manufactured by Williams prior to 1995 (see Note 6).
The Company experienced a high level of price competition at all
of its subsidiaries which is expected to continue into 1996.
During 1995, inflation was not a significant factor at any of the
operations.
Cost of sales (exclusive of depreciation and depletion) increased
from 76% to 77% due to product mix in the Heating and Air
Conditioning segment.
Selling and administrative expenses increased $995,000 (8%) due
to legal and other expenses incurred in regard to the Williams
Furnace heat exchanger matter, additional costs associated with
new products marketing and the accrual of future compensation to
be paid to the Company's former president. As a percentage of
sales, selling and administrative expense increased from 16% to
17%.
The decrease in the operating income reflects the increase in
cost of sales as well as the higher selling and administrative
expense.
The increase in interest expense of $45,000 reflects a higher
interest rate partially offset by lower average borrowings.
The Company recorded a loss of $922,000 related to its investment
in ORMP. This loss represents the Company's share (30%) of the
loss of the partnership for 1995 as well as a $172,000 write down
of the carrying value of the investment to management's best
estimate of net realizable value, $1,500,000, as of December 30,
1995. Production at the mine was halted in February 1996 as the
partners are reassessing their plans, including a possible sale
of the mine.
There were no charges against the discontinued operation during
1995. See "Financial Condition, Liquidity and Capital Resources"
for further discussion.
The Company's 1995 effective income tax rate on income from
continuing operations (24.8%) reflects federal and state
statutory rates adjusted for non-deductible and other tax items.
The current year was favorably impacted by a substantial
percentage depletion allowance. See Note 10.
10
OPERATIONS
1994 vs. 1993
Consolidated net sales from continuing operations increased
$12,799,000 (21%). A majority of the increase ($7,698,000)
occurred in the Construction Materials segment. Strong economic
conditions and mild weather patterns led to high sales levels
throughout the year, including the normally slow winter months.
The Heating and Air Conditioning segment also realized gains of
$5,100,000. Sales at Williams increased 4% while Phoenix posted
a 28% increase. The latter increase was mainly attributable to
hot and dry weather patterns in the areas serviced.
A high level of price competition was experienced at all of the
Company's subsidiaries during 1994. The Company also experienced
some increases in the cost of key raw materials during 1994.
Selling prices were increased to recover some but not all of such
cost increases.
Cost of sales (exclusive of depreciation and depletion) remained
consistent at 76% between years. The 1.7% decline in the Heating
and Air Conditioning segment, due to price competition and the
raw material cost increases, was offset by 1.5% improvement in
the Construction Materials segment due mainly to increased volume
as a relatively large portion of its operating costs and expenses
are fixed in nature.
Selling and administrative expenses rose $1,297,000 (12%)
although they declined as a percentage of net sales from 17% to
16%.
The increase in operating income is mainly due to the increase in
net sales.
The Company recorded a loss of $545,000 related to its investment
in ORMP compared to $1,188,000 in the prior year. The reduction
in the loss is attributed to increased production and higher
copper prices as well as nonrecurring development costs incurred
in the prior year. In 1993, the project was shut down for a
three-month period to install equipment and facilities to
increase production and improve copper recovery. Copper prices
increased throughout 1994, beginning around 74 cents per pound in
January and ending at $1.38. During 1994, the partnership
entered into a one-year agreement beginning September 1994 which
fixes the price that the partnership receives for the copper it
produces at $1.07 per pound on approximately 50% of ORMP's
production. Copper prices have historically been, and are
expected to remain volatile.
Discussion of the discontinued operation and the prepayment
penalty is presented above under the heading "Financial
Condition, Liquidity and Capital Resources."
The Company's effective income tax rate on income from continuing
operations (34.2%) reflects federal and state statutory rates
adjusted for the effect of non-deductible expenses and other tax
items. The current year was favorably impacted by a
substantially higher percentage depletion allowance. The 1993
rate was favorably influenced by the reversal of $305,000 of
certain income tax contingencies related to matters resolved in
favor of the Company. See Note 10.
11
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
PAGE
Financial Statements and Schedule of Continental
Materials Corporation and report thereon:
Consolidated statements of operations and
retained earnings for fiscal years
1995, 1994 and 1993 13
Consolidated statements of cash flows
for fiscal years ended 1995, 1994 and 1993 14
Consolidated balance sheets at
December 30, 1995 and December 31, 1994 15
Notes to consolidated financial statements 16-24
Report of Independent Accountants 25
Financial Statements of Oracle
Ridge Mining Partners and report thereon:
Independent Auditors' Report 26
Balance sheet at December 31, 1995 and
December 31, 1994 27
Statement of operations for the year ended
December 31, 1995 and fourteen-month
period ended December 31, 1994 28
Statement of partners' deficit for the year
ended December 31, 1995 and fourteen-month
period ended December 31, 1994 29
Statement of cash flows for the year ended
December 31, 1995 and fourteen-month
period ended December 31, 1994 30
Notes to financial statements 31-35
12
Continental Materials Corporation
Consolidated Statements of Operations and Retained Earnings
For Fiscal Years 1995, 1994 and 1993
(Amounts in thousands, except per share data)
1995 1994 1993
-------- -------- --------
NET SALES $ 75,560 $ 75,294 $ 62,495
COSTS AND EXPENSES
Cost of sales (exclusive of
depreciation and depletion) 58,497 57,244 47,648
Depreciation and depletion 2,278 2,311 2,353
Selling and administrative 12,779 11,784 10,487
-------- -------- --------
Operating income 2,006 3,955 2,007
Interest expense (812) (767) (770)
Gain on sale of equity investment -- -- 794
Equity loss from mining partnership (922) (545) (1,188)
Other income, net 634 168 252
-------- -------- --------
Income from continuing operations
before income taxes 906 2,811 1,095
Income tax provision (benefit) 225 962 (92)
-------- -------- --------
Income from continuing operations 681 1,849 1,187
Discontinued operation, net of tax:
(Loss) from discontinued operation -- -- (637)
(Loss) gain on sale of
discontinued operation -- (464) 825
-------- -------- --------
(Loss) gain from discontinued operation -- (464) 188
-------- -------- --------
Income before extraordinary item 681 1,385 1,375
Extraordinary item, net of tax:
Prepayment penalty on early
extinguishment of debt -- -- (1,335)
-------- -------- --------
Net income 681 1,385 40
Retained earnings, beginning of year 25,137 23,752 23,712
-------- -------- --------
Retained earnings, end of year $ 25,818 $ 25,137 $ 23,752
======== ======== ========
Net income (loss) per share:
Continuing operations $ .60 $ 1.62 $ 1.02
Discontinued operation -- (.41) .16
Extraordinary (loss) -- -- (1.15)
-------- -------- --------
Net income per share $ .60 $ 1.21 $ .03
======== ======== ========
Weighted average shares outstanding 1,135 1,140 1,164
======== ======== ========
The accompanying notes are an integral part of the financial statements.
13
Continental Materials Corporation
Consolidated Statements of Cash Flows For Fiscal Years 1995, 1994, and 1993
(Amounts in thousands)
1995 1994 1993
------- ------- -------
Operating activities:
Net income $ 681 $ 1,385 $ 40
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and depletion 2,278 2,311 2,854
Deferred income tax benefit (282) (66) (971)
Provision for doubtful accounts 60 148 79
Gain on disposition of property and equipment (459) (133) (18)
Gain on sale of equity investment -- -- (794)
Gain on sale of discontinued operation -- -- (1,050)
Loss on early retirement of debt -- -- 2,023
Equity loss from mining partnership 922 545 1,188
Changes in operating assets and liabilities,
net of effects from sale of subsidiary:
Receivables (842) (1,395) (841)
Inventories 1,840 (61) 404
Prepaid expenses 8 (92) 38
Income taxes 21 (145) (374)
Accounts payable and accrued expenses (3,267) 5,037 49
Other (112) (343) 100
------- ------- -------
Net cash provided by operating activities 848 7,191 2,727
------- ------- -------
Investing activities:
Capital expenditures (3,417) (1,775) (3,677)
Investment in mining partnership (883) (561) (1,194)
Return of investment in environmental
managment venture -- 250 --
Proceeds from sale of property and equipment 549 202 45
Proceeds from sale of equity investment -- -- 704
Proceeds from sale of discontinued operation -- -- 10,750
------- ------- -------
Net cash (used in) provided by investing (3,751) (1,884) 6,628
------- ------- -------
Financing activities:
Borrowings (repayment) under revolving
credit facilitiy 2,300 (1,700) 1,700
Long-term borrowings 500 -- 3,500
Repayment of long-term debt (1,412) (1,896) (12,795)
Prepayment penalty -- -- (2,023)
Payments to acquire treasury stock (189) -- (296)
------- ------- -------
Net cash provided by (used in)
financing activities 1,199 (3,596) (9,914)
------- ------- -------
Net (decrease) increase in cash and cash
equivalents (1,704) 1,711 (559)
Cash and cash equivalents:
Beginning of year 2,778 1,067 1,626
------- ------- -------
End of year $ 1,074 $ 2,778 $ 1,067
======= ======= =======
Supplemental disclosures of cash flow items:
Cash paid during the year for:
Interest $ 812 $ 773 $ 1,335
Income taxes 500 916 546
Supplemental Schedule of non-cash investing and financing activities:
A portion of the proceeds from the sale of equity investment was in the
form of preferred stock valued at $90.
A portion of the 1995 proceeds from sale of property and equipment was
in the form of a note receivable valued at $162.
The accompanying notes are an integral part of the financial statements.
14
Continental Materials Corporation
Consolidated Balance Sheets December 30, 1995 and December 31, 1994
(Amounts in thousands except share data)
December 30, December 31,
1995 1994
------------ ------------
ASSETS
Current assets:
Cash and cash equivalents $ 1,074 $ 2,778
Receivables less allowance of $259 and $248 12,158 11,376
Inventories 14,657 16,497
Prepaid expenses 2,206 1,505
------------ ------------
Total current assets 30,095 32,156
------------ ------------
Property, plant and equipment:
Land and improvements 1,713 1,713
Buildings and improvements 7,731 7,731
Machinery and equipment 41,078 38,617
Mining properties 2,170 2,329
Less accumulated depreciation and depletion (38,079) (36,664)
------------ ------------
14,613 13,726
Other assets: ------------ ------------
Investment in mining partnership 1,500 1,539
Other 1,015 741
------------ ------------
2,515 2,280
------------ ------------
$ 47,223 $ 48,162
============ ============
LIABILITIES
Current liabilities:
Bank loan payable $ 2,300 $ --
Current portion of long-term debt 1,011 1,411
Accounts payable 4,037 7,017
Income taxes 31 10
Accrued expenses:
Compensation 1,853 1,836
Reserve for self-insured losses 2,984 3,278
Profit sharing 1,031 1,146
Other 1,538 1,433
------------ ------------
Total current liabilities 14,785 16,131
------------ ------------
Long-term debt 3,000 3,512
------------ ------------
Deferred income taxes 2,157 1,730
------------ ------------
Commitments and contingencies (Notes 6 and 8) ------------ ------------
SHAREHOLDERS' EQUITY
Common shares, $.50 par value; authorized
3,000,000 shares; issued 1,326,588 shares 663 663
Capital in excess of par value 3,484 3,484
Retained earnings 25,818 25,137
Treasury shares (2,684) (2,495)
------------ ------------
27,281 26,789
------------ ------------
$ 47,223 $ 48,162
============ ============
The accompanying notes are an integral part of the financial statements.
15
Notes to Consolidated Financial Statements
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include Continental
Materials Corporation and all of its subsidiaries (the Company).
The equity method of accounting is used for the Company's 30%
interest in Oracle Ridge Mining Partners (ORMP). Certain prior
years' amounts have been reclassified to conform with the current
presentation.
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and
liabilities as of December 30, 1995 and December 31, 1994 and the
reported amounts of revenues and expenses during each of the
three years in the period ended December 30, 1995. Actual
results could differ from those estimates.
Inventories
Inventories are valued at the lower of cost or market. Cost is
determined using the last-in, first-out (LIFO) method for
approximately 88% of total inventories at December 30, 1995 (88%
at December 31, 1994). The cost of all other inventory is
determined by the first-in, first-out (FIFO) method.
Property, Plant and Equipment
Property, plant and equipment are carried at cost. Depreciation
is provided over the estimated useful lives of the related assets
using the straight-line method as follows:
Buildings ....................10 to 31 years
Leasehold improvements .......Terms of leases
Machinery and equipment ......3 to 10 years
Depletion of rock and sand deposits is computed by the unit-of-
production method based upon estimated recoverable quantities of
rock and sand.
The cost of property sold or retired and the related accumulated
depreciation or depletion are removed from the accounts and the
resulting gain or loss is reflected in other income. Maintenance
and repairs are charged to expense as incurred. Major renewals
and betterments are capitalized and depreciated over their useful
lives.
Retirement Plans
The Company and certain subsidiaries have various contributory
profit sharing retirement plans for specific employees. The
plans allow qualified employees to make tax deferred
contributions pursuant to Internal Revenue Code Section 401(k).
The Company makes annual contributions, at its discretion, based
primarily on profitability. Costs under the plans are charged to
operations as incurred.
Reserve for Self-Insured Losses
The Company's risk management program provides for certain levels
of loss retention for workers' compensation, automobile liability
and general and product liability claims. The components of the
reserve have been recorded in accordance with the requirements of
Statement of Financial Accounting Standards (SFAS) No. 5,
"Accounting for Contingencies" and represent management's best
estimate of future liability for known claims based upon the
Company's history of claims paid. There were no unasserted
claims as of December 30, 1995 that require a reserve or
disclosure in accordance with SFAS No. 5.
16
Cash and Cash Equivalents
The Company considers all highly liquid debt instruments
purchased with a maturity of three months or less to be cash
equivalents.
Income Taxes
Income taxes are reported consistent with SFAS No. 109,
"Accounting for Income Taxes." Deferred taxes reflect the future
tax consequences associated with the differences between
financial accounting and tax bases of assets and liabilities.
Concentration of Credit Risk
Financial instruments, which potentially subject the Company to
concentrations of credit risk, consist principally of trade
receivables and temporary cash investments. The Company invests
its excess cash in commercial paper of companies with strong
credit ratings. These securities typically mature within 30
days. The Company has not experienced any losses on these
investments.
The Company performs ongoing credit evaluations of its customers
and generally does not require collateral. The Company maintains
reserves for potential credit losses and such losses have been
within management's expectations. See Note 12 for a description
of the Company's customer base and geographical location by
segment.
Fiscal Year End
The Company's fiscal year end is the Saturday nearest December
31. Fiscal 1995, 1994 and 1993 each consist of 52 weeks.
2. DISCONTINUED OPERATION
In June 1993, the Company sold its Imeco, Inc. subsidiary for a
cash payment of $10,750,000. Imeco had been involved in the
manufacture of thermal transfer equipment, and as such was the
"refrigeration" component of the Company's "Heating, Air
Conditioning and Refrigeration" reportable segment. Subsequent
to the sale of Imeco, the reportable segment has been renamed
"Heating and Air Conditioning" representing the businesses of
Williams Furnace Co. and Phoenix Manufacturing, Inc. The sale
resulted in a pre-tax gain of $1,050,000 ($825,000 after-tax or
$0.71 per share).
The Company retained responsibility on product liability claims
involving Imeco equipment occurring prior to the June 30, 1993
sale date. To date, three suits have been filed against Imeco
for which the Company retained responsibility. As of June 30,
1993, the Company was aware of two of the claims. At that time,
the Company concluded that it was not liable for one of the
claims and not enough information was available on the other
claim to make a reasonable estimate of the liability, if any.
Accordingly, no liability was recorded at June 30, 1993 in
connection with these claims. At the end of 1993, management
conducted a complete review of all legal matters and determined
that an accrual of $616,000 was necessary regarding one of the
cases in accordance with the requirements of SFAS No. 5. During
the fourth quarter of 1994, the Company, based on updated
information, recorded an additional $726,000 ($464,000 after-tax
or $0.41 per share). The last of these claims was settled in
early March 1996. See Note 6.
The results of Imeco have been reported separately as a component
of discontinued operations in the Consolidated Statements of
Operations and Retained Earnings. Net sales of Imeco were
$7,513,000 for the six months ended June 30, 1993.
17
3. INVENTORIES
Inventories consisted of the following (amounts in thousands):
December 30, December 31,
1995 1994
------------ ------------
Finished goods $ 8,038 $ 8,882
Work in process 2,282 2,208
Raw materials
and supplies 4,337 5,407
------------ ------------
$ 14,657 $ 16,497
============ ============
If inventories valued on the LIFO basis were valued at current
costs, inventories would be higher as follows: 1995--$2,626,000;
1994--$2,716,000; 1993--$2,456,000.
Reduction in inventory quantities during 1995 resulted in
liquidation of LIFO inventory layers carried at costs which were
lower than the costs of current purchases. The effect of the
reduction in 1995, recorded in the fourth quarter, was to
decrease cost of goods sold by approximately $192,000 and to
increase net earnings by $119,000 or $.10 per share.
4. INVESTMENT IN MINING PARTNERSHIP
The Company has a 30% ownership interest in ORMP, a general
partnership which operates a copper mine primarily situated in
Pima County, Arizona. The equity method of accounting is used to
include 30% of ORMP's income and losses in the Company's
consolidated financial statements.
Production at the mine was halted in February 1996 as the
partners are reassessing their plans including a possible sale of
the mine. The investment in mining partnership has been written
down to management's best estimate of net realizable value,
$1,500,000, as of December 30, 1995. This value is based on the
estimated fair market value of the partnership's property and
assets less liabilities at that date. The related impairment
loss, $172,000, is included in the $922,000 equity loss from
mining partnership. The amounts the Company will ultimately
realize could differ materially in the near term from the amounts
assumed in arriving at the loss included in the current
statements. Concurrently, the partnership also wrote down the
assets to their estimated net realizable value.
18
The Company's interest in the assets, liabilities, and results of
operations of ORMP as of and for the years ended December 31,
1995 and 1994 is summarized as follows (amounts in thousands):
1995 1994
------- -------
Current assets $ 1,259 $ 1,300
Non-current assets 7,054 8,259
Current liabilities (3,044) (2,065)
Equity and advances of other
joint venturer (3,793) (5,350)
------- -------
Interest in net assets 1,476 2,144
Difference between interest in net assets
and carrying value of investment 24 (605)
------- -------
Investment at December 31 $ 1,500 $ 1,539
======= =======
Net sales $ 6,888 $ 5,953
======= =======
Gross profit (1,070) (846)
======= =======
Net loss $(5,177) $(1,973)
======= =======
Share of loss reflected in Company's
Statement of Operations $ (922) $ (545)
======= =======
Included in the partnership net loss of $5,177,000 is an
adjustment to the partnership's asset basis not previously
reflected in the Company's carrying value of the investment.
5. LONG-TERM DEBT
Long-term debt consisted of the following (amounts in thousands):
December 30, December 31,
1995 1994
------------ ------------
Unsecured term loan $ 4,000 $ 4,900
Other 11 23
------------ ------------
4,011 4,923
Less current portion 1,011 1,411
------------ ------------
$ 3,000 $ 3,512
============ ============
The Company signed a new Revolving Credit and Term Loan Agreement
(the Agreement) in February 1996. The above table reflects the
payback schedule in the Agreement. Both facilities are
unsecured. 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 the extension periods.
The loan bears interest at prime or an adjusted LIBOR rate. The
unsecured term loan in effect at December 30, 1995 bore interest
at prime (prime was 8.5% at December 30, 1995).
The Company is required by the Agreement to maintain certain
levels of consolidated tangible net worth, to attain certain
levels of cash flow (as defined) on a rolling four-quarter basis,
and to maintain certain ratios including consolidated debt to
earnings before interest, taxes, depreciation and amortization
and excluding extraordinary items. Additional borrowing,
acquisition of stock of other companies, purchase of treasury
shares and payment of cash dividends are either limited or
require prior approval by the lenders.
19
Aggregate long-term debt matures as follows under the Agreement
(amounts in thousands):
1996 $1,011
1997 1,000
1998 1,000
1999 1,000
------
$4,011
======
During both 1995 and 1994, the Company had a $12,000,000
unsecured line of credit with two banks to be used for short-term
cash needs and standby letters of credit. Interest was charged
at the rate of prime on cash borrowings (prime plus 1/4% in
1994). The weighted average interest rate was 8.9% for fiscal
1995 and 7.2% for fiscal 1994. The outstanding balance at
December 30, 1995 was $2,300,000. There was no outstanding
balance at December 31, 1994. The Agreement, signed in February
1996, provides for a $14,500,000 line of credit through February
15, 1999.
At December 30, 1995, the Company had letters of credit
outstanding totalling approximately $4,158,000 which primarily
guarantee various insurance activities.
6. COMMITMENTS AND CONTINGENCIES
As discussed in Note 2, the Company retained the responsibility
related to incidents involving Imeco products occurring prior to
June 30, 1993. During 1992 ConAgra, Inc. d/b/a Armour Food
Company and its insurance carrier, Arkwright Mutual Insurance
Company, each filed suit against Imeco and Central Ice Machine
Company in the District Court of Douglas County, Nebraska. In
March 1995, the Company settled the suit. The amount of the
settlement was fully reserved as of December 31, 1994. Imeco was
also named as one of the defendants in a product liability matter
in which an individual was seriously injured while servicing
equipment manufactured by Imeco. In March 1996, the Company
settled the suit. The amount of this settlement was also fully
reserved as of December 31, 1994. During 1995, the third suit
was dropped with no settlement cost to the Company. There are
currently no known asserted or unasserted claims involving Imeco
products for which the Company has retained responsibility. See
Note 2.
During 1995, Williams Furnace Co. was notified by Pacific Gas &
Electric (PG&E) that a recent inspection had discovered a higher
than normal incidence of cracks in the heat exchanger of two
models of furnaces manufactured by Williams prior to 1995.
Independent engineering reports indicate that there is no safety
hazard arising from these cracks. However, PG&E has undertaken
the replacement of approximately 5,900 units purchased during the
period. The Consumer Products Safety Commission (CPSC) has been
notified and Williams is working with independent engineering
firms and the CPSC to resolve the matter. To date, Williams is
aware of one claim alleging injury due to a cracked heat
exchanger. Management believes the ultimate resolution of this
matter will not have a material adverse effect on the Company's
results of operations or financial position. Williams is not
aware of any other claims related to these matters and management
has concluded that no additional amounts should be accrued in
accordance with the requirements of SFAS No. 5.
The Company is also involved in other litigation matters related
to its continuing business. In the Company's opinion, none of
these proceedings, when concluded, will have a material adverse
effect on the Company's results of operations or financial
position.
7. SHAREHOLDERS' EQUITY
Four hundred thousand shares of preferred stock ($.50 par value)
are authorized and unissued.
20
There was no treasury shares activity during 1994. Activity for
1995 and 1993 was as follows (dollars in thousands):
Number
of
shares Cost
------- ------
Balance at January 1, 1993 152,310 $2,199
Purchase of treasury shares 34,000 296
------- ------
Balance at January 1
and December 31, 1994 186,310 2,495
Purchase of treasury shares 15,357 189
------- ------
Balance at December 30, 1995 201,667 $2,684
======= ======
A Stock Option Plan (the Plan) provides for grants of options at
option prices established by the Compensation Committee of the
Board of Directors. Option prices may not be less than the fair
market value of the stock at the date of the grant. Options are
exercisable for a period of no more than ten years from the date
of grant depending upon increases in the trading value of the
stock. The Company has reserved 180,000 shares for distribution
under the Plan. No options were outstanding as of December 31,
1994. During 1995, 78,000 options were granted at an exercise
price of $13.125. Of the 78,000 outstanding options at December
30, 1995, none are exercisable.
8. RENTAL EXPENSE, LEASES AND COMMITMENTS
The Company leases certain of its facilities and equipment and is
required to pay the related taxes, insurance and certain other
expenses. Rental expense was $2,006,000, $1,694,000 and
$1,964,000 for 1995, 1994 and 1993, respectively.
Future minimum rental commitments under non-cancelable operating
leases for 1996 and thereafter are as follows: 1996--$1,555,000;
1997--$1,079,000; 1998--$1,026,000; 1999--$882,000; 2000--
$398,000; and thereafter--$917,000.
The Company also receives annual rental income of $145,000 from a
building it owns. The related lease expires in January 2003 and
contains renewal options.
9. RETIREMENT PLANS
As discussed in Note 1, the Company maintains retirement benefit
plans for eligible employees. Total plan expenses charged to
operations were $979,000, $1,165,000 and $745,000 in 1995, 1994
and 1993, respectively.
10. INCOME TAXES
The provision (benefit) for income taxes is summarized as follows
(amounts in thousands):
1995 1994 1993
---- ---- ----
Federal:Current $ 506 $ 785 $ 121
Deferred (253) (131) (842)
State: Current 1 61 25
Deferred (29) (15) (154)
------ ------- -------
$ 225 $ 700 $ (850)
====== ======= =======
21
The provision (benefit) for income taxes has been allocated as
follows (amounts in thousands):
1995 1994 1993
------ ------ ------
Continuing operations $ 225 $ 962 $ (92)
Discontinued operations -- (262) (70)
Extraordinary item -- -- (688)
------ ------ ------
$ 225 $ 700 $ (850)
====== ====== ======
The difference between the tax rate on income from continuing
operations for financial statement purposes and the federal
statutory tax rate was as follows:
1995 1994 1993
------ ------ ------
Statutory tax rate 34.0% 34.0% 34.0%
Percentage depletion (13.0) (5.1) (.7)
State income taxes, net of federal benefit 1.6 1.0 (12.7)
Non-deductible expenses 1.4 .5 .6
Reduction of tax contingency recorded
in the fourth quarter -- -- (27.9)
Other .8 3.8 (1.7)
----- ----- -----
24.8% 34.2% (8.4)%
===== ===== ======
For financial statement purposes, deferred tax assets and
liabilities are recorded at a blend of the current statutory
federal and states' tax rates -- 38%. The principal temporary
differences and their related deferred taxes are as follows
(amounts in thousands):
1995 1994
------ ------
Reserves for self-insured losses $ 904 $ 842
Deferred compensation 405 348
Asset valuation reserves 435 188
Other 50 21
------- -------
Total deferred tax assets $ 1,794 $ 1,399
======= =======
Depreciation $ 1,324 $ 1,300
Investment in mining partnership 807 745
Other 26 --
------- -------
Total deferred tax liabilities $2,157 $2,045
======= =======
Net deferred tax liabilities $ 363 $ 646
======= =======
The net current deferred tax assets are $1,794,000 and $1,084,000
at December 30, 1995 and December 31, 1994, respectively, and are
included with "Prepaid expenses" on the Consolidated Balance
Sheets.
22
11. UNAUDITED QUARTERLY FINANCIAL DATA
The following table provides summarized unaudited quarterly financial data
for 1995 and 1994 (amounts in thousands, except per share amounts):
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
1995
Net sales $16,191 $19,355 $18,183 $21,831
======= ======= ======= =======
Gross profit $ 2,417 $ 3,318 $ 4,366 $ 4,735
======= ======= ======= =======
Depreciation and depletion $ 591 $ 590 $ 569 $ 528
======= ======= ======= =======
Net (loss) income $ (495) $ 52 $ 495 $ 629
======= ======= ======= =======
Net (loss) income per share $ (.43) $ .05 $ .44 $ .56
======= ======= ======= ========
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
1994
Net sales $15,260 $19,265 $19,630 $21,139
======= ======= ======= =======
Gross profit $ 2,354 $ 3,639 $ 4,572 $ 5,333
======= ======= ======= =======
Depreciation and depletion $ 567 $ 568 $ 570 $ 606
======= ======= ======= =======
Net (loss) income
Continuing operations $ (558) $ 392 $ 763 $ 1,252
Discontinued operations -- -- -- (464)
------- ------- ------- -------
$ (558) $ 392 $ 763 $ 788
======= ======= ======= =======
Net (loss) income per share
Continuing operations $ (.49) $ .34 $ .67 $ 1.10
Discontinued operations -- -- -- (.41)
------- ------- ------- -------
$ (.49) $ .34 $ .67 $ .69
======= ======= ======= =======
Earnings per share are computed independently for each of the
quarters presented. Therefore, the sum of the quarterly earnings
per share may not equal the total for the year.
23
12. INDUSTRY SEGMENT INFORMATION
The Heating and Air Conditioning segment produces and sells
heating and cooling equipment mainly for residential applications
which is sold primarily to distributors and retail outlets. Sales
are nationwide, but are concentrated in the Southwestern U.S.
The Construction Materials segment is involved in the production
and sale of concrete and other building materials and the
exploration, extraction and sale of limestone, sand and gravel.
Sales of this segment are confined to the Colorado Springs area.
Operating income is determined by deducting operating expenses
from all revenues. In computing operating income, none of the
following has been added or deducted: unallocated corporate
expenses, interest, income or loss from unconsolidated investees,
other income, income taxes, gain or loss on discontinued
operations and extraordinary items.
General corporate assets are principally cash, accounts
receivable and leasehold improvements.
No customer accounts for 10% or more of consolidated sales.
The industry segment information for fiscal years 1995, 1994 and
1993 is as follows (amounts in thousands):
Depreci-
ation
Identifi- and Capital
Net Operating able Deple- Expendi-
Sales Income Assets tion tures
----- --------- --------- ------- --------
1995
Heating and air
conditioning $43,966 $ 2,316 $25,393 $ 1,027 $ 1,066
Construction materials 31,449 2,912 19,164 1,210 2,337
General corporate
and other 145 (3,222) 2,666 41 14
------- ------- ------- ------- -------
$75,560 $ 2,006 $47,223 $ 2,278 $ 3,417
======= ======= ======= ======= =======
1994
Heating and air
conditioning $43,271 $ 3,718 $27,551 $ 1,087 $ 533
Construction materials 31,878 2,645 18,635 1,183 1,211
General corporate
and other 145 (2,408) 1,976 41 31
------- ------- ------- ------- -------
$75,294 $ 3,955 $48,162 $ 2,311 $ 1,775
======= ======= ======= ======= =======
1993
Heating and air
conditioning $38,171 $ 3,025 $26,197 $ 1,120 $ 1,027
Construction materials 24,180 1,415 18,300 1,173 2,650
General corporate
and other 144 (2,433) 927 60 --
------- ------- ------- ------- -------
$62,495 $ 2,007 $45,424 $ 2,353 $ 3,677
======= ======= ======= ======= =======
24
Report of Independent Accountants
To the Shareholders and Board of Directors of Continental
Materials Corporation
We have audited the accompanying consolidated balance sheets of
Continental Materials Corporation and Subsidiaries as of December
30, 1995 and December 31, 1994, and the related consolidated
statements of operations and retained earnings and cash flows for
each of the three years in the period ended December 30, 1995.
These financial statements are the responsibility of the
Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of Continental Materials Corporation and
Subsidiaries as of December 30, 1995 and December 31, 1994, and
the consolidated results of their operations and their cash flows
for each of the three years in the period ended December 30, 1995
in conformity with generally accepted accounting principles.
COOPERS & LYBRAND
L.L.P.
Chicago, Illinois
March 14, 1996
25
INDEPENDENT AUDITORS' REPORT
Oracle Ridge Mining Partners
Tucson, Arizona
We have audited the accompanying balance sheets of Oracle Ridge
Mining Partners (the "Partnership") as of December 31, 1995 and
1994, and the related statements of operations, partners' deficit
and cash flows for the year ended December 31, 1995 and the
fourteen month period ended December 31, 1994. These financial
statements are the responsibility of the Partnership's
management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all
material respects, the financial position of the Partnership at
December 31, 1995 and 1994, and the results of its operations and
its cash flows for the year ended December 31, 1995 and the
fourteen month period ended December 31, 1994, in conformity with
generally accepted accounting principles.
As discussed in Note 1 to the financial statements, production at
the mine was halted in February 1996, as the partners reassess
their plans for the mine, including a possible sale to a third
party. Accordingly, the value of the mine has been written down
to the estimated net realizable value.
DELOITTE & TOUCHE LLP
Tucson, Arizona
March 4, 1996
26
ORACLE RIDGE MINING PARTNERS
BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
ASSETS 1995 1994
CURRENT ASSETS:
Cash $ 61,415 $ 96,754
Accounts receivable 655,856 793,301
Inventories (Note 3) 541,924 410,102
----------- -----------
Total current assets 1,259,195 1,300,157
PROPERTY AND MINERAL INTERESTS (Notes 4 and 9) 7,000,000 8,197,686
OTHER ASSETS (Note 8) 53,876 47,875
----------- -----------
TOTAL $ 8,313,071 $ 9,545,718
=========== ===========
LIABILITIES AND PARTNERS' DEFICIT
CURRENT LIABILITIES:
Accounts payable $ 1,341,468 $ 870,977
Accrued liabilities 258,460 204,523
Accrued payroll taxes 685,270 315,645
Accrued property taxes 528,827 294,826
Accrued use tax 150,649 133,649
Installment purchase liability (Note 9) 59,579 148,746
Due to Union (Note 10) 20,102 96,755
----------- -----------
Total current liabilities 3,044,355 2,065,121
----------- -----------
DEBT DUE TO PARTNERS:
Subordinated debt due to partners (Note 7) 10,456,842 7,491,745
Senior debt - Union (Note 5) 4,760,978 4,760,978
Senior debt - Continental (Note 5) 2,040,418 2,040,418
Union debt (Note 6) 348,492 348,492
----------- -----------
Total debt due to partners 17,606,730 14,641,633
----------- -----------
COMMITMENT AND CONTINGENCIES (Notes 5 and 8)
PARTNERS' DEFICIT (12,338,014) (7,161,036)
----------- -----------
TOTAL $ 8,313,071 $ 9,545,718
=========== ===========
See notes to financial statements.
- 2 -
ORACLE RIDGE MINING PARTNERS
STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995 AND
FOURTEEN MONTH PERIOD ENDED DECEMBER 31, 1994
1995 1994
REVENUES - Net value of concentrate $ 6,888,499 $ 6,586,717
OPERATING COSTS AND EXPENSES:
Production costs 6,465,757 6,285,941
General and administrative 1,123,150 999,070
Property and other taxes 305,550 264,651
Depreciation, depletion and amortization 1,196,863 1,211,608
Loss on equipment disposals 108,066 19,227
Interest expense 303,102 221,878
Write-down of property and mineral interests
to net realizable value (Note 1) 2,562,989
----------- -----------
Total operating costs and expenses 12,065,477 9,002,375
----------- -----------
NET LOSS $(5,176,978) $(2,415,658)
=========== ===========
See notes to financial statements.
- 3 -
ORACLE RIDGE MINING PARTNERS
STATEMENTS OF PARTNERS' DEFICIT
YEAR ENDED DECEMBER 31, 1995 AND FOURTEEN MONTH PERIOD ENDED
DECEMBER 31, 1994
Union Continental
Copper, Catalina,
Inc. Inc. Total
PARTNERS' DEFICIT, NOVEMBER 1, 1993 $(3,321,765) $(1,423,613) $ (4,745,378)
Net loss (1,690,961) (724,697) (2,415,658)
----------- ----------- ------------
PARTNERS' DEFICIT, DECEMBER 31,1994 (5,012,726) (2,148,310) (7,161,036)
Net loss
(3,623,885) (1,553,093) (5,176,978)
----------- ----------- ------------
PARTNERS' DEFICIT, DECEMBER 31, 1995 $(8,636,611) $(3,701,403) $(12,338,014)
=========== =========== ============
See notes to financial statements.
- 4 -
ORACLE RIDGE MINING PARTNERS
STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1995 AND
FOURTEEN MONTH PERIOD ENDED DECEMBER 31, 1994
1995 1994
OPERATING ACTIVITIES:
Net loss $(5,176,978) $(2,415,658)
Adjustments to reconcile net loss to net
cash used in operating activities:
Write-down of property and mineral
interests to net realizable value 2,562,989
Depreciation, depletion, and
amortization 1,196,863 1,211,608
Loss on equipment disposals 108,066 19,227
Changes in assets and liabilities:
Accounts receivable 137,445 (792,301)
Inventories (131,822) (222,522)
Other assets (6,001) 67,233
Accounts payable and other accrued liabilities 851,601 438,939
Due to Union Copper, Inc. 127,633 91,818
---------- ----------
Net cash used in operating activities (330,204) (1,601,656)
---------- ----------
INVESTING ACTIVITIES:
Additions to plant, equipment and buildings (1,057,087) (578,992)
Proceeds from sale of property, plant and
equipment 54,300
Increase in deferred development costs (1,667,445) (498,166)
----------- ----------
Net cash used in investing (2,670,232) (1,077,158)
----------- ----------
FINANCING ACTIVITIES - Proceeds from
subordinated debt due to partners 2,965,097 2,717,245
----------- ----------
NET (DECREASE) INCREASE IN CASH (35,339) 38,431
CASH, BEGINNING OF PERIOD 96,754 58,323
----------- ----------
CASH, END OF PERIOD $ 61,415 $ 96,754
=========== ==========
SUPPLEMENTAL CASH FLOW INFORMATION -
Interest paid $ 244,746 $ 179,160
=========== ==========
See notes to financial statements.
- 5 -
ORACLE RIDGE MINING PARTNERS
NOTES TO FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1995 AND
FOURTEEN MONTH PERIOD ENDED DECEMBER 31, 1994
1. ORGANIZATION AND BASIS OF PRESENTATION
Organization - Oracle Ridge Mining Partners (the
"Partnership") is a general partnership formed under the
Arizona Uniform Partnership Act on May 24, 1977 pursuant to a
partnership agreement between Union Copper, Inc. (a Maryland
corporation) ("Union") and Continental Catalina, Inc. (an
Arizona corporation) ("Continental").
Union is a wholly-owned subsidiary of Santa Catalina Mining
Corp. (formerly known as South Atlantic Ventures Ltd.) (a
Canadian corporation). Continental is a wholly-owned
subsidiary of Continental Copper, Inc. (an Arizona
corporation) which in turn is a wholly-owned subsidiary of
Continental Materials Corporation (a Delaware corporation).
The Partnership has a copper mining property with an
underground mine and adjacent crushing and grinding equipment
situated in Pima County, Arizona which commenced commercial
production in 1991. Smelting is performed by an unrelated
third party at another location. All concentrate revenues
are from one customer.
The Fifth Amended and Restated Partnership Agreement dated
October 1, 1994 provides, among other things, the following:
a. Union shall be the managing partner of the project.
b. Profits and losses shall generally be allocated 70% to
Union and 30% to Continental. Certain types of gains or
losses may be subject to an alternative allocation.
Basis of Presentation - Production at the mine was halted in
February 1996, as the partners reassess their plans for the
mine, including a possible sale to a third party.
Accordingly, at December 31, 1995, property and mineral
interests have been written down by $2,562,989 to reflect
management's estimate of the net realizable value.
2. SIGNIFICANT ACCOUNTING POLICIES
A summary of significant accounting policies is as follows:
a. Use of Estimates - The preparation of financial statements
in conformity with generally accepted accounting
principles requires management to make estimates and
assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the
reporting periods. Actual results could differ from those
estimates.
b. Inventories of concentrate and supplies are stated at the
lower of average cost or estimated market value.
- 6 -
c. Plant, equipment and buildings are carried at cost less
accumulated depreciation. Depreciation is provided on the
straight-line basis over estimated useful lives which
range from four to fifteen years. Effective December 31,
1995, plant, equipment and buildings are carried at the
lower of cost or net realizable value.
d. Mineral property and claims are carried at cost,
reflecting costs incurred in connection with the
acquisition of the properties, less depletion and write-
downs for recognized impairments in value. The carrying
value of the mineral property and claims will be charged
to operations of the Partnership over future years by
means of depletion charges computed on the basis of actual
ore production and estimated recoverable ore reserves.
Effective December 31, 1995, mineral property and claims
are carried at the lower of cost or net realizable value.
e. Deferred development costs are carried at cost reflecting
all mine development costs incurred since the
recommencement of development in 1989 less depletion and
write-downs of recognized impairments in value. The costs
capitalized include depreciation, only as it relates to
equipment used to develop the mine or install the mill
equipment, interest in accordance with Statement of
Financial Accounting Standards No. 34, Capitalization of
Interest Cost, and administrative expenses that were
directly or indirectly associated with the development and
construction of the mine and related processing
facilities. Through February 1991, there were no proceeds
from production. Since the commencement of production in
March 1991, only direct mine development expenditures have
been deferred. These expenditures include those incurred
to expand the capacity of the mine, develop new ore
bodies, construct access to previously developed ore
bodies and to develop ore zones substantially, in advance
of current production. All deferred development costs
will be charged to operations in the same manner as
mineral property and claims. Effective December 31, 1995,
deferred development costs are carried at the lower of
cost or net realizable value.
f. Revenue recognition - Revenue is recognized when product
is delivered in satisfaction of sales agreements and title
passes to the buyer. Final revenue amounts are adjusted
based on the results of the final assays of the copper
concentrate approximately 60 to 90 days after shipment.
Revenue adjustments have been, and are expected to, remain
immaterial to the reported results of operations.
g. Income taxes - Each partner reflects its share of taxable
income or loss in its tax return and no income taxes are
recorded in the financial statements of the Partnership.
h. Estimated Fair Value of Financial Instruments - The
following disclosure of estimated fair value of the
Company's financial instruments is made in accordance with
the requirements of Statement of Financial Accounting
Standards No. 107, Disclosures About Fair Value of
Financial Instruments. The estimated fair value amounts
have been determined by the Company using available market
information and appropriate valuation methodologies.
However, considerable judgment is required to interpret
the market data in order to develop the estimates of fair
value.
Accordingly, the estimates herein are not necessarily
indicative of the amounts the Company could realized in a
current market exchange. The use of different market
assumptions and/or estimation methodologies may have a
material effect on the estimated fair value amounts.
Management believes that for cash, accounts receivable,
accounts payable, accrued liabilities and other accrued
expenses that the carrying amount is a reasonable estimate
of fair value.
- 7 -
3. INVENTORIES
Inventories consisted of the following at December 31:
1995 1994
Copper concentrate $ 135,000 $ 135,000
Warehouse supplies and stores 206,079 361,739
Other - reagents, explosives 45,185 69,023
---------- ----------
Total inventories $ 541,924 $ 410,102
========== ==========
4. PROPERTY AND MINERAL INTERESTS
Property and mineral interests consisted of the following at
December 31:
1995 1994
Plant, equipment and buildings:
Crushing and processing plant $ 3,938,962 $ 3,935,880
Underground equipment 2,701,197 2,068,442
Mining and service equipment 1,110,856 1,057,125
Tailing pond 736,978 665,377
Vehicles 154,530 117,651
Buildings 386,547 386,546
Office equipment 174,693 153,147
Road improvements 30,153 30,153
----------- -----------
Total plant, equipment and buildings 9,233,916 8,414,321
Less accumulated depreciation (4,528,644) (3,730,253)
----------- -----------
Plant, equipment and buildings - net 4,705,272 4,684,068
Mineral property and claims and
deferred development costs:
Mineral property and claims 954,185 954,185
Deferred development costs 5,126,915 3,459,470
Total mineral property and claims and
deferred development costs 6,081,100 4,413,655
Less accumulated depletion and
amortization (1,223,383) (900,037)
----------- -----------
Mineral property and claims and
deferred development costs - net 4,857,717 3,513,618
----------- -----------
9,562,989 8,197,686
Less write-down to net realizable value (2,562,989)
----------- -----------
Property and mineral interests - net $ 7,000,000 $ 8,197,686
=========== ===========
Depreciation expense for the year ended December 31, 1995 and
the fourteen month period ended December 31, 1994 totaled
$873,517 and $874,513, respectively. Depletion and
amortization expense for the year ended December 31, 1995 and
the fourteen month period ended December 31, 1994 totaled
$323,346 and $337,095, respectively.
- 8 -
5. SENIOR DEBT
As of December 31, 1995 and 1994, the Partnership owed Union
and Continental $4,760,978 and $2,040,418, respectively, as
non-interest bearing senior debt with no defined maturity
date. Such debt is collateralized by substantially all of
the assets of the Partnership.
6. UNION DEBT
As of December 31, 1995 and 1994, the Partnership was
indebted to Union in the amount of $348,492. The loan bears
interest at the prime rate (8.5% at December 31, 1995) plus
2% and does not carry a defined maturity date. Interest is
waived for periods in which the Partnership incurs a net loss
before interest expense for this debt. Interest has been
waived by Union for the year ended December 31, 1995 and the
fourteen month period ended December 31, 1994. This debt is
subordinated to the Senior Debt.
7. SUBORDINATED DEBT DUE TO PARTNERS
As of December 31, 1995 and 1994, the Partnership had
subordinated debt due to the partners of $7,319,578 and
$5,244,011 to Union and $3,137,264 and $2,247,734 to
Continental, respectively. The subordinated debt bears
interest at the prime rate plus 2%. Interest is waived for
periods in which the Partnership incurs a net loss before
interest expense for this debt. Interest has been waived by
Union and Continental for the year ended December 31, 1995
and the fourteen month period ended December 31, 1994. The
debt is subordinated to the Senior Debt (Note 5) and the
Union Debt (Note 6) and does not carry a defined maturity
date.
8. COMMITMENT
Under an arrangement with the State of Arizona, the
Partnership has provided a $45,000 bond to be used for
reclamation purposes. In addition, the agreement requires
that for each ton of ore mined an additional $.05 will be
provided (up to a total of $99,000) for reclamation.
Management believes that the amounts provided under this
agreement will be sufficient to pay for all reclamation
costs.
9. INSTALLMENT PURCHASE
In 1994, the Partnership entered into agreements to purchase
two pieces of equipment on an installment basis. At
December 31, 1995, the remaining liability related to the
purchases was $59,579, all due in 1996. The installment
agreements are collateralized by the related items of
equipment.
10.RELATED PARTY TRANSACTIONS
Related party transactions are disclosed throughout the
financial statements. Additional related party transactions
are as follows for the year ended December 31, 1995 and the
fourteen month period ended December 31, 1994:
1995 1994
Management fees to Union $ 60,000 $ 60,000
======== ========
Reimbursement of expenses incurred by
Union on behalf of the Partnership $164,388 $ 36,755
======== ========
- 9 -
Union is entitled to a management fee equal to $12,000 per
month in connection with the performance of its duties as
managing partner of the partnership. However, the managing
partner shall not be entitled to such fee in the event net
operating income for any given month, calculated on an
accrual basis, is less than $15,000.
* * * * * *
- 10 -
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
There have been no changes of accountants and/or disagreements on
any matter of accounting principle or financial statement
disclosure during the past 24 months which would require a filing
under Item 9.
PART III
Part III has been omitted from this 10-K Report since Registrant
will file, not later than 120 days following the close of its
fiscal year ended December 30, 1995, its definitive 1996 proxy
statement. The information required by Part III will be included
in that proxy statement and such information is hereby
incorporated by reference, but excluding the information under
the headings "Compensation Committee Report" and "Comparison of
Total Shareholders' Return".
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS
ON FORM 8-K
(a) 1 Financial statements required by Item 14 are
included in Item 8 of Part II.
(a) 2 The following is a list of financial statement
schedules filed as part of this Report:
Report of Independent Auditors on Schedule
Schedule II Valuation and Qualifying Accounts & Reserves
For Years Ended December 30, 1995, December 31, 1994
and January 1, 1994
All other schedules are omitted because they are not applicable
or the information is shown in the financial statements or notes
thereto.
36
(a) 3 The following is a list of all exhibits filed as
part of this Report:
Exhibit 3 1975 Restated Certificate of Incorporation dated May
28, 1975 filed as Exhibit 5 to Form 8-K for the month
of May 1975, incorporated herein by reference.
Exhibit 3a Registrant's By-laws as amended September 19, 1975
filed as Exhibit 6 to Form 8-K for the month of
September 1975, incorporated herein by reference.
Exhibit 3b Registrant's Certificate of Amendment of Certificate of
Incorporation dated May 24, 1978 filed as Exhibit 1 to
Form 10-Q for quarter ended June 30, 1978, incorporated
herein by reference.
Exhibit 3c Registrant's Certificate of Amendment of Certificate of
Incorporation dated May 27, 1987 filed as Exhibit 3c to
Form 10-K for the year ended January 1, 1988,
incorporated herein by reference.
Exhibit 10 Continental Materials Corporation Amended and Restated
1994 Stock Option Plan dated May 25, 1994 filed as
Appendix A to the 1994 Proxy Statement, incorporated
herein by reference.*
Exhibit 10a Revolving Credit and Term Loan Agreement between The
Northern Trust Company, LaSalle National Bank and
Continental Materials Corporation dated as of February
28, 1996 (filed herewith).
Exhibit 10b Form of Supplemental Deferred Compensation Agreement
filed as Exhibit 10 to Form 10-Q for the quarter ended
July 1, 1983, incorporated herein by reference.*
Exhibit 10c Continental Materials Corporation Employee Profit
Sharing Retirement Plan Amended and Restated Generally
Effective January 1, 1989 filed as Exhibit 10c to Form
10-K for the year ended December 31, 1994.
Exhibit 11 Computation of Per Share Earnings (filed herewith).
Exhibit 21 Subsidiaries of Registrant (filed herewith).
Exhibit 24 Consent of Independent Accountants (filed herewith).
Exhibit 24a Independent Auditors' Consent (filed herewith).
Exhibit 27 Financial Data Schedule (filed herewith).
Exhibit 28 Continental Materials Corporation Employees Profit
Sharing Retirement Plan on Form 11-K for the year ended
December 30, 1995 (to be filed by amendment).
* - Compensatory plan or arrangement
(b) Reports on Form 8-K:
No reports on Form 8-K were filed during the quarter
ended December 30, 1995.
37
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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
Registrant
By: /S/Joseph J. Sum
-----------------------------
Joseph J. Sum,
Vice President, Finance
Date: March 27, 1996
-----------------------------
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of the registrant and in the capacities and on the
dates indicated.
SIGNATURE CAPACITY(IES) DATE
- ------------------------ ------------- -------------
/S/ James G. Gidwitz
- ------------------------
James G. Gidwitz Chief Executive
Officer
and a Director March 27, 1996
/S/ Joseph J. Sum
- ------------------------
Joseph J. Sum Vice President and
a Director March 27, 1996
/S/ Mark S. Nichter
- ------------------------
Mark S. Nichter Secretary and March 27, 1996
Controller
/S/ Thomas H. Carmody
- ------------------------
Thomas H. Carmody Director March 27, 1996
/S/ Betsy R. Gidwitz
- ------------------------
Betsy R. Gidwitz Director March 27, 1996
/S/ Ralph W. Gidwitz
- ------------------------
Ralph W. Gidwitz Director March 27, 1996
/S/ Ronald J.Gidwitz
- ------------------------
Ronald J. Gidwitz Director March 27, 1996
/S/ William A. Ryan
- ------------------------
William A. Ryan Director March 27, 1996
/S/ William G. Shoemaker
- ------------------------
William G. Shoemaker Director March 27, 1996
/S/ Theodore R. Tetzlaff
- ------------------------
Theodore R. Tetzlaff Director March 27, 1996
38
REPORT OF INDEPENDENT ACCOUNTANTS ON SCHEDULE
Our report on the consolidated financial statements of
Continental Materials Corporation and Subsidiaries is included on
page 25 of this Annual Report on Form 10-K. In connection with
our audits of such financial statements, we have also audited the
related financial statement schedule listed in the index on page
35 of this Form 10-K.
In our opinion, the financial statement schedule referred to
above, when considered in relation to the basic financial
statements taken as a whole, presents fairly, in all material
respects, the information required to be included therein.
COOPERS & LYBRAND L.L.P.
Chicago, Illinois
March 14, 1996
CONTINENTAL MATERIALS CORPORATION
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES (c) (d)
for the fiscal years 1995, 1994 and 1993
COLUMN A COLUMN B COLUMN C(1) COLUMN D COLUMN E
Additions
Balance at Charged to Deductions Balance at
Beginning Costs and - End of
Description of Period Expenses Describe Period
Year 1995
Allowance for
doubtful accounts $248,000 $ 60,000 $ 48,000(a) $260,000
Inventory valuation
reserve $223,000 $232,000 $219,00 (b) $236,000
Year 1994
Allowance for
doubtful accounts $139,000 $148,000 $ 39,000(a) $248,000
Inventory valuation
reserve $420,000 $289,000 $486,000(b) $223,000
Year 1993
Allowance for
doubtful accounts $258,000 $101,000 $220,000(e) $139,000
Inventory valuation
reserve $ 40,000 $398,000 $ 18,000(b) $420,000
[FN]
Notes:
(a) Accounts written off, net of recoveries.
(b) Amounts written off upon disposal of assets.
(c) Reserve deducted in the balance sheet from the asset to which it applies.
(d) Column C(2) has been omitted as the answer would be "none".
(e) Accounts written off, net of recoveries plus $102,000 reserve balance
transferred with sale of subsidiary.