Back to GetFilings.com
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 30, 2000
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______________ to _____________________
Commission file number 1-3834
CONTINENTAL MATERIALS CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 36-2274391
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
225 West Wacker Drive, Suite 1800 60606
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 - $.25 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 21, 2001 closing price) of
voting stock held by non-affiliates of registrant: Approximately $17,090,000.
Number of common shares outstanding at March 21, 2001: 1,815,097.
Incorporation by reference: Portions of registrant's definitive proxy
statement for the 2001 Annual meeting of stockholders to be held on May 23, 2001
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 27 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
There have been no significant changes in the business during the past five
years other than the purchase of substantially all of the assets of Valco,
Inc.'s (Valco) ready-mix concrete and aggregates operation in Pueblo, Colorado
on October 21, 1996. The Company formed a new subsidiary, Transit Mix of Pueblo,
Inc. to hold and operate these acquired assets. Subsequent to the fiscal 2000
year-end, the Company acquired all of the stock of Rocky Mountain Ready Mix
Concrete, Inc., a ready-mix concrete producer in the metropolitan Denver,
Colorado area. Accordingly, results for 2000 do not include any activity for
this new company.
The Company operates primarily in two industry segments, the Heating and Air
Conditioning segment and the Construction Materials segment. The Heating and
Air Conditioning segment is comprised principally of wall furnaces, console
heaters, evaporative coolers and fan coils which are manufactured by Phoenix
Manufacturing, Inc. of Phoenix, Arizona and Williams Furnace Co. of Colton,
California. The Construction Materials segment is comprised of ready mix
concrete, construction aggregates, building supplies and doors which are
offered by Castle Concrete Company and Transit Mix Concrete Co. both of
Colorado Springs, Colorado, and Transit Mix of Pueblo, Inc. of Pueblo,
Colorado.
In addition to the above operating segments, an Other classification is
utilized to cover a small real estate operation and the holding costs for
certain mining interests that remain from the period the Company maintained
significant interests in mining operations. The expenses of the corporate
office, which provides treasury, insurance and tax services as well as
strategic business planning and general management services, are not
allocated to the segments. Expenses related to the Management Information
Systems group are allocated to all locations, including the corporate office,
based upon a formula that is intended to capture use of the system and time
spent by MIS staff.
The Company has a 30% interest in Oracle Ridge Mining Partners (ORMP). ORMP is a
general partnership that owns an inactive 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
included in other income and expense in the Company's statement of operations.
See Note 3 on page 18 for further discussion of the Company's accounting for and
valuation of the investment in ORMP.
Financial information relating to industry segments appears in Note 12 on pages
23 and 24 of this Form 10-K.
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 directly to some major retail home-centers and other
retail outlets. Fan coils are also sold to HVAC installing contractors and
equipment manufacturers for commercial applications. Independent
2.
manufacturers' representatives are utilized for all products. The Company also
employs and utilizes 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 furnaces and console heaters
usually increase in the months of August through January. Sales of evaporative
coolers usually increase in the months of March through July. Sales of the fan
coil product line are more evenly distributed throughout the year although the
highest volume typically occurs during the late spring and summer. In order to
sell wall furnaces and evaporative coolers during the off season, extended
payment terms are offered to customers.
The Construction Materials segment markets its products primarily through its
own direct sales representatives and confines its sales to the Front Range area
in southern Colorado. Sales are made to general and sub-contractors, government
entities and individuals. Sales are affected by the general economic conditions
in the areas serviced (as it relates to construction) and weather conditions.
Revenues usually decline in the winter months as the pace of construction slows.
During 2000, no customer accounted for 10% or more of the total sales of the
Company.
CUSTOMER SERVICE AND SUPPORT
The Heating and Air Conditioning segment offers parts departments and help lines
to assist contractors, distributors and end users in servicing the products. The
Company does not perform installation services, nor are maintenance or service
contracts offered. In addition, training and product information sessions for
the furnace, cooler and fan coil product lines are offered at our plants and
other sites for distributors, contractors, utility company employees and other
customers. This segment does not derive any revenue from after-sales service and
support other than from parts sales. The personnel in the Construction Materials
segment routinely take a leadership role in formulation of the products to meet
the specifications of the customers.
BACKLOG
The order backlog at December 30, 2000 and January 1, 2000 for the Heating and
Air Conditioning segment were as follows:
December 30, 2000 January 1, 2000
------------------- ------------------
Furnaces $ 366,000 $ 25,000
Console heaters 20,000 5,000
Evaporative coolers 1,100,000 750,000
Fan coil 1,469,000 2,100,000
------------------- ------------------
Total $ 2,955,000 $ 2,880,000
=================== ==================
The above backlogs are expected to be substantially filled during the first
quarter of 2001.
At December 30, 2000, the Construction Materials segment had a backlog of
approximately $5,225,000 ($2,785,000 at January 1, 2000) primarily relating to
construction contracts awarded and expected to be filled during the first half
of 2001.
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, the companies rely upon, and intend to continue to rely upon,
unpatented proprietary technology and information. However, research and
development activities in the Heating and Air Conditioning segment have resulted
in a patent related to the Power Cleaning System (expiring January 2014) for the
evaporative coolers and a patent entitled "Wall Furnace With Side Vented Draft
Hood" (expiring November 2011) which has increased efficiency above that
previously offered by the industry. A patent is pending related to the Company's
new combination cooling and heating product. 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 the businesses, furnaces and evaporative coolers build
inventory during their off seasons in order to have adequate supplies to sell
during the season.
In general, raw materials required by the Company can be obtained from various
sources in the quantities desired. The Construction Materials companies have
historically purchased most of their cement requirements from a single supplier.
These companies experienced some difficulty in obtaining cement during the
latter half of 1998 and 1999 but were able to purchase sufficient quantities
from non-traditional sources, which are expected to remain available in the
future. The Company has no long-term supply contracts and does not consider
itself dependent on any individual supplier.
In connection with permits to mine properties in Colorado, the Company is
obligated to reclaim the mined areas. In recent years, reclamation costs have
had a more significant effect on the results of operations compared to prior
years.
COMPETITIVE CONDITIONS
HEATING AND AIR CONDITIONING - The Company is one of four principal companies
producing wall furnaces (excluding units sold to the recreational vehicle
industry) and gas fired console heaters. The wall furnace and console heater
markets are only a small component of the heating industry. The Company serves
these market areas from a plant in Colton, California. The sales force consists
of in-house sales personnel and external 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. All of the producers compete on a basis of price, service and
timeliness of delivery.
Fan coils are also produced at the Colton plant. Fan coil sales are usually
obtained through a competitive bidding process. International Environmental
Corp., a subsidiary of LSB Industries, Inc., a manufacturer of a diversified
line of commercial and industrial products, dominates this market. There are
also a number of other companies that produce fan coils. All of the producers
compete on the basis of price, ability to meet customers' specific requirements
and timeliness of delivery.
The Company manufactures evaporative air coolers at a plant located in Phoenix,
Arizona. The cooler market is dominated by Adobe Air. The other principal
competitor is Champion/Essick. All producers of evaporative air coolers compete
aggressively on the basis of price and service.
4.
CONSTRUCTION MATERIALS - The Company is one of five companies producing ready
mix concrete in the Colorado Springs area, and one of three companies producing
ready mix concrete in the Pueblo area. Although we hold a significant share of
both of the markets served, the other competitors compete aggressively on the
basis of price, service and product features.
The Company is one of six producers of aggregates in the marketing area served.
All producers compete aggressively on the basis of price, quality of material
and service.
Sales of metal doors and door frames, rebar reinforcement and other building
materials in the Colorado Springs and Pueblo metropolitan areas are subject to
intense competition from two larger companies from Denver, one large company in
Colorado Springs and a number of small local competitors. However, the Company
has a slight competitive advantage in that many of our customers also purchase
concrete, sand and aggregates from us whereas our competitors for these
particular product lines do not offer concrete, sand or aggregates. In addition,
our Pueblo location has a slight competitive advantage with respect to the two
Denver companies based upon delivery costs.
EMPLOYEES
The Company employed 758 people as of December 30, 2000. Employment varies
throughout the year due to the seasonal nature of the businesses. A breakdown of
the prior three years employment at year-end by segment was:
2000 1999 1998
----------- ---------- ----------
Heating and Air 397 433 402
Conditioning
Construction Materials 347 354 332
Corporate Office 14 14 12
----------- ---------- ----------
Total 758 801 746
=========== ========== ==========
The factory employees at the Colton, California plant are represented by the
Carpenters Local 721 Union under a contract that expires in June 2002.
Certain drivers and mechanics at the Pueblo facility are represented by
Teamsters Local 435 under a contract that expired in December 2000. No
settlement on a new contract has been reached.
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.
The Company serves the southern Colorado ready-mix concrete market from seven
owned batch plants. In addition, the Company currently operates aggregate
processing facilities on three owned and three leased mining properties.
These facilities are, in the opinion of management, in good condition and
sufficient for the Company's current needs. The Company also owns or leases
other aggregate deposits not currently in production.
5.
In the opinion of management, the owned and leased properties contain
permitted and minable reserves sufficient to service sand, rock and gravel
requirements for the foreseeable future.
In the opinion of management, all of the facilities of the Company can be
subject to seasonal fluctuations but are believed to be generally well utilized.
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 11 and Note 5 on page 19 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 2000.
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
Continental Materials Corporation shares are traded on the American Stock
Exchange under the symbol CUO. Market prices (restated for the stock split, see
Note 6 on pages 19 through 21) for the past two years are:
High Low
2000 Fourth Quarter $14 $10.75
Third Quarter 17.25 12.63
Second Quarter 23 16
First Quarter 23 3/4 21 5/8
1999 Fourth Quarter $23 1/8 $21
Third Quarter 23 19 1/4
Second Quarter 20 17 13/16
First Quarter 18 7/16 15 7/8
At March 16, 2001, the Company had approximately 325 shareholders of record.
The Company has never paid a dividend. 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
(Amounts in thousands, except per share amounts)
- ------------------------------------------------
2000 1999 1998 1997 1996
SUMMARY OF OPERATIONS
Sales $ 116,002 $ 123,886 $ 113,210 $ 101,852 $ 95,138
Earnings before interest,
taxes, depreciation and
amortization (EBITDA) 14,300 16,209 11,570 9,224 6,703
Net income $ 5,335 $ 6,902 $ 4,618 $ 3,110 $ 2,355
PER SHARE DATA
Basic earnings per share $ 2.86 $ 3.39 $ 2.15 $ 1.41 $ 1.06
Weighted average shares
outstanding 1,869 2,035 2,147 2,200 2,210
Diluted earnings per share $ 2.81 $ 3.32 $ 2.10 $ 1.39 $ 1.05
Weighted average shares
outstanding 1,901 2,082 2,196 2,239 2,228
FINANCIAL CONDITION
Current ratio 2.4:1 1.7:1 2.0:1 2.4:1 2.1:1
Total assets $ 68,250 $ 67,751 $ 63,617 $ 54,355 $ 53,550
Long-term debt, including
current portion 7,305 4,457 6,810 8,300 8,000
Shareholders' equity 41,813 39,043 36,238 31,858 29,350
Long-term debt to net worth .18 .11 .19 .26 .27
Book value per diluted share $ 22.00 $ 18.75 $ 16.50 $ 14.23 $ 13.17
CASH FLOWS
Net cash provided by (used in):
Operating activities $ 10,108 $ 6,328 $ 14,223 $ 6,086 $ 6,676
Investing activities (2,749) (9,038) (6,899) (4,239) (9,174)
Financing activities (1,490) (4,063) (1,728) (702) 1,803
--------- --------- ---------- ---------- --------
Net (decrease) increase
in cash and cash equivalents $ 5,869 $ (6,773) $ 5,596 $ 1,145 $ (695)
========= ========= ========== ========== ========
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 increased to $6,216,000 at year-end compared to
$347,000 in the prior year. Operations in 2000 provided $10,108,000 of cash
compared to $6,328,000 in 1999 and the $14,223,000 generated in 1998. The
increase in net cash generated by operating activities in 2000 compared to 1999
was due primarily to the net change in receivables. The decrease in net cash
generated by operations in 1999 was primarily due to an increase in inventories.
This increase in inventories was due to the low level of finished goods furnace
inventory on hand at year-end 1998. Raw materials and work-in-process also
increased in 1999 due to the higher fan coil volume.
Net cash used in investing activities was $2,749,000 in 2000, $9,038,000 in
1999, and $6,899,000 in 1998. Capital expenditures for 2000, 1999 and 1998 were
$3,306,000, $9,024,000 and $6,464,000, respectively. The capital expenditures
were principally to support the continuing strong business demand that has been
experienced by the companies in the construction materials segment although some
projects planned for 2000 were postponed. The 1999 and 1998 capital additions
include approximately $1,100,000 and $1,300,000, respectively, related to the
implementation of a Year 2000 compliant enterprise planning system as well as
the modernization and integration of Company systems. Also during 1999, the
Company invested approximately $1,237,000 in new office and warehouse space in
Phoenix while during 1998, the Company invested $470,000 to acquire a new
product line for the heating and air conditioning segment.
Budgeted capital expenditures for 2001 are approximately $9,300,000 ($7,000,000
for the construction materials segment and $2,300,000 for the heating and air
conditioning segment), which is approximately $3,300,000 more than planned
depreciation. The construction materials budget includes approximately
$2,100,000 for new batch plant sites and expansions of existing plants,
$1,500,000 for a new aggregates crushing and screening plant for the east side
of Pueblo and $1,250,000 for a new sand plant that is expected to increase
yield, improve quality and reduce costs. The heating and air conditioning budget
includes approximately $1,350,000 for new office space in Colton with the
balance primarily for routine replacement and upgrades. The Company expects that
the 2001 expenditures will be funded from existing cash balances, operating cash
flow and leasing capacity.
During 2000, cash of $1,490,000 was used in financing activities. The Company
increased its term debt by $4,000,000. Scheduled long-term debt repayments of
$1,152,000 were made during the year and the $1,600,000 balance outstanding on
the revolving line of credit at the end of 1999 was repaid. Cash of $2,770,000
was used to acquire 146,032 shares of treasury stock partially offset by
proceeds from the exercise of stock options which generated $32,000. During
1999, cash of $4,063,000 was used in financing activities. Scheduled long-term
debt repayments of $2,556,000 were made during the year. Costs and expenses
associated with the June cancellation of 79,096 (post-split) shares were
$1,595,000. An additional $2,746,000 was used to acquire 139,574 shares of
treasury stock. Borrowings against the revolving credit facility of $1,600,000
and an increase in the capital lease of $203,000 provided a portion of the above
cash while proceeds from the exercise of stock options generated $144,000.
During 1998, cash of $1,728,000 was used in financing activities. Scheduled
long-term debt repayments of $1,900,000 were made during the year and cash of
$238,000 was used to acquire 16,060 shares of treasury stock.
8.
The Company maintains a term loan and revolving credit facility with two banks.
At December 30, 2000 $7,000,000 was outstanding on the term loan. A revolving
credit facility of up to $10,000,000 is available for seasonal needs including
the funding of seasonal sales programs related to the furnace and evaporative
cooler product lines. The line is also used for stand-by letters of credit to
insurance carriers in support of self-insured amounts under the Company's
insurance program. Borrowings are unsecured and bear interest at prime or an
adjusted LIBOR rate. Effective January 3, 2001, the Company amended the credit
agreement with its two banks to increase the unsecured term loan portion to
$19,000,000. The additional $12,000,000 of funds was used to purchase the
capital stock of Rocky Mountain Ready Mix Concrete, Inc., see Note 13. The
amended agreement provides for semi-annual principal repayments of $1,500,000
beginning June 15, 2001 with final payment of $2,500,000 due on December 15,
2006. Terms and conditions of the amended agreement remain similar to those of
the previous agreement.
Other than the funds provided for the acquisition by the increased term loan
noted above, the Company anticipates the primary source of cash flow in 2001 to
be from its operating subsidiaries. The existing cash balances and anticipated
cash flow in 2001, supplemented by the revolving line of credit, will be
sufficient to cover expected cash needs, including servicing debt and planned
capital expenditures.
The Company purchases insurance coverage for workers' compensation, general,
product and automobile liability, maintaining certain levels of retained risk
(self-insured portion). Provisions for both claims and unasserted claims that
would be covered under the self-insured portion of the policies are recorded in
accordance with the requirements of Statement of Financial Accounting Standards
(SFAS) No. 5, "Accounting for Contingencies."
OPERATIONS 2000 vs. 1999
Consolidated sales declined $7,884,000, or 6% to $116,002,000. The sales of the
heating and air conditioning segment declined $7,685,000 (14%) while sales of
the construction materials segment were off $195,000, less than 1%, compared to
the previous year. The decline in the heating and air conditioning segment was
experienced by all three of the product lines.
The Company experienced a high level of price competition in all of its product
lines, which the Company expects to continue into 2001. During 2000, inflation
was not a significant factor at any of the operations.
Cost of sales (exclusive of depreciation, depletion and amortization), as a
percent of sales, remained relatively constant at approximately 70%. The slight
increase is primarily due to the decline in sales in the heating and air
conditioning segment although heightened competition in the Pueblo, Colorado
ready-mix concrete market and increased costs at two construction aggregate
operations affected profit margins in the construction materials segment.
Depreciation, depletion and amortization increased from $4,998,000 to $5,419,000
due to the high level of capital expenditures during 1999.
Selling and administrative expenses decreased $988,000. As a percentage of
sales, selling and administrative expenses remained relatively constant at just
over 13%
The decline in operating income primarily reflects the decreased sales, the
heightened competition in Pueblo, Colorado and the increased costs at the two
construction aggregate operations. The increased depreciation also had a
dampening effect on operating income.
9.
The increase in interest expense of $102,000 is the result of the higher term
loan balance and higher interest rates.
The increase in other income is primarily the result of a $383,000 gain on the
sale of a depleted gravel property in Colorado Springs.
The Company's 2000 effective income tax rate on income (35.8%) reflects federal
and state statutory rates adjusted for non-deductible and other tax items. See
Note 10.
OPERATIONS 1999 vs. 1998
Consolidated sales increased $10,676,000, or 9%, to $123,886,000. The sales of
the construction materials segment rose $6,152,000 (10%) while the sales of the
heating and air conditioning segment rose $4,517,000 (9%) compared to the
previous year. The construction materials segment continued to report gains due
to a very strong construction market along the Front Range in southern Colorado.
The improvement in the heating and air conditioning segment was due to the
combined improvements in the fan coil and furnace lines offset by the decline in
evaporative cooler sales. The decline in the evaporative cooler line was the
result of an unseasonably cool 1999 spring and summer which also affected the
fourth quarter's pre-season sales.
The Company experienced a high level of price competition in all of its product
lines. During 1999, inflation was not a significant factor at any of the
operations.
Cost of sales (exclusive of depreciation, depletion and amortization), as a
percent of sales, improved from 72% to just under 70%. The improvement reflects
the increased volume in the fan coil and furnace lines as well as the
construction materials segment. Cost of sales in the heating and air
conditioning segment were reduced by approximately $361,000 during 1998 due to
liquidation of LIFO inventory layers carried at costs that were lower than the
costs of current purchases.
Depreciation, depletion and amortization increased from $3,992,000 to $4,998,000
due to the increased capital expenditure level the past two years.
Selling and administrative expenses increased $1,090,000. As a percentage of
sales, selling and administrative expenses remained relatively constant at just
over 13%
The increased operating income is principally attributed to the improved sales
volume.
The decline in interest expense of $116,000 is the result of the lower term loan
balance and the strong cash position at the beginning of the year which delayed
the use of the line of credit.
The Company wrote off the remaining $100,000 investment in Oracle Ridge Mining
Partners (ORMP) during 1999 and recorded a loss of $56,000 related to on going
carrying costs of the property. Carrying costs at this level are expected to be
on going.
The Company's 1999 effective income tax rate on income (35.7%) reflects federal
and state statutory rates adjusted for non-deductible and other tax items. See
Note 10.
10.
FORWARD-LOOKING STATEMENTS
This Annual Report contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended. Such forward-looking
statements are based on the beliefs of the Company's management as well as on
assumptions made by, and information available to, the Company at the time such
statements were made. When used in this Report, words such as "anticipates,"
"contemplates," "expects" and similar expressions, are intended to identify
forward-looking statements. Actual results could differ materially from those
projected in the forward-looking statements as a result of factors including,
but not limited to: weather, interest rates, availability of raw materials and
their related costs and competitive forces.
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The Company is exposed to market risks related to interest rates and commodity
prices. To manage these risks, the Company has, from time to time, entered into
various interest rate swaps to create synthetic-debt instruments as authorized
by the Company's policies and procedures. The Company does not use swaps or
hedging instruments for trading purposes, and is not a party to any transaction
involving leveraged derivatives. The Company is not currently involved in any
swaps or hedging contracts.
Interest Rates
The Company utilizes revolving credit and term-loan facilities that bear
interest at either prime or an adjusted LIBOR rate. The amount outstanding under
these facilities aggregated $7 million at December 30, 2000. In addition, the
Company has entered into a capital lease with fixed interest rates and original
maturity dates (based upon the date of the draw) of 42 months. As the draws
occurred during 1998 and 1999 and the total remaining due is $305,000, its book
and fair value was considered to be approximately the same. See Note 4.
Commodities
The Company purchases commodities, such as steel, copper, cement and cardboard
for packaging, at market prices and does not currently use financial instruments
to hedge commodity prices.
The statements and other information in this section constitute forward-looking
statements.
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
2000, 1999 and 1998 13
Consolidated statements of cash flows
for fiscal years ended 2000, 1999 and 1998 14
Consolidated balance sheets at December 30, 2000
and January 1, 2000 15
Notes to consolidated financial statements 16-24
Report of Independent Accountants 25
12.
CONTINENTAL MATERIALS CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS AND
RETAINED EARNINGS FOR FISCAL YEARS 2000, 1999 AND 1998
(Amounts in thousands, except per share data)
- ---------------------------------------------------------------------------
2000 1999 1998
---- ---- ----
Sales $ 116,002 $ 123,886 $ 113,210
Freight costs 5,714 5,266 4,466
---------- ----------- -----------
Net sales 110,288 118,620 108,744
Costs and expenses
Cost of sales (exclusive of
depreciation, depletion and
amortization) 81,521 86,181 81,881
Depreciation, depletion and
amortization 5,419 4,998 3,992
Selling and administrative 15,158 16,146 15,056
---------- ----------- -----------
Operating income 8,190 11,295 7,815
Interest expense (571) (469) (585)
Other income (expense), net 691 (84) (237)
---------- ----------- -----------
Income before income taxes 8,310 10,742 6,993
Income tax provision 2,975 3,840 2,375
---------- ----------- -----------
Net income 5,335 6,902 4,618
Retained earnings, beginning of year 42,803 35,901 31,283
---------- ----------- -----------
Retained earnings, end of year $ 48,138 $ 42,803 $ 35,901
========== ========= ==========
Basic earnings per share $ 2.86 $ 3.39 $ 2.15
Weighted average shares outstanding 1,869 2,035 2,147
Diluted earnings per share $ 2.81 $ 3.32 $ 2.10
Weighted average shares outstanding 1,901 2,082 2,196
The accompanying notes are an integral part of the financial statements.
13.
CONTINENTAL MATERIALS CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR FISCAL YEARS 2000, 1999, AND 1998
(Amounts in thousands)
-----------------------------------------------------------------------
2000 1999 1998
---- ---- ----
OPERATING ACTIVITIES
Operating activities
Net income $ 5,335 $ 6,902 $ 4,618
Adjustments to reconcile net income
to net cash provided by operating
activities Depreciation, depletion
and amortization 5,419 4,998 3,992
Deferred income tax provision
(benefit) 532 109 (708)
Provision for doubtful accounts (110) 486 304
Tax benefit from exercise of stock
options 174 100 --
(Gain) loss on disposition of
property and equipment (402) 57 (42)
Equity loss from mining partnership 87 56 52
Write-down of investment in
mining partnership -- 100 500
Changes in operating assets and
liabilities
Receivables 3,548 (3,926) (3,243)
Inventories (48) (3,916) 2,243
Prepaid expenses (142) (450) 524
Income taxes (615) (344) 1,050
Accounts payable and accrued expenses (3,139) 1,778 5,367
Prepaid royalties (414) (11) (218)
Other (117) 389 (216)
-------- -------- --------
Net cash provided by operating activities 10,108 6,328 14,223
-------- -------- --------
Investing activities
Capital expenditures (3,306) (9,024) (6,464)
Investment in new product line -- -- (470)
Investment in mining partnership (87) (56) (52)
Proceeds from sale of property and
equipment 644 42 87
-------- -------- --------
Net cash used in investing activities (2,749) (9,038) (6,899)
-------- -------- --------
Financing activities
(Repayment) borrowings of revolving
credit facility (1,600) 1,600 --
Long-term borrowings 4,000 203 440
Repayment of long-term debt (1,152) (2,556) (1,930)
Payment to purchase and cancel stock -- (708) --
Proceeds from exercise of stock options 32 144 --
Payments to acquire treasury stock (2,770) (2,746) (238)
-------- -------- --------
Net cash used in financing activities (1,490) (4,063) (1,728)
-------- -------- --------
Net increase (decrease) in cash and
cash equivalents 5,869 (6,773) 5,596
Cash and cash equivalents
Beginning of year 347 7,120 1,524
-------- -------- --------
End of year $ 6,216 $ 347 $ 7,120
======== ======== ========
Supplemental disclosures of cash flow items
Cash paid during the year
Interest $ 731 $ 644 $ 471
Income taxes 2,897 4,062 2,038
The accompanying notes are an integral part of the financial statements.
14.
CONTINENTAL MATERIALS CORPORATION
CONSOLIDATED BALANCE SHEETS DECEMBER 30, 2000 AND JANUARY 1, 2000
(Amounts in thousands except share data)
- -----------------------------------------------------------------
December 30, 2000 January 1, 2000
ASSETS
Current assets
Cash and cash equivalents $ 6,216 $ 347
Receivables less allowance of
$475 and $800 16,723 20,161
Inventories 16,014 15,966
Prepaid expenses 2,572 2,592
-------- --------
Total current assets 41,525 39,066
-------- --------
Property, plant and equipment:
Land and improvements 2,723 3,970
Buildings and improvements 11,885 11,837
Machinery and equipment 59,310 57,792
Mining properties 4,009 2,170
Less accumulated depreciation
and depletion (53,200) (48,878)
-------- --------
24,727 26,891
-------- --------
Other assets:
Prepaid royalties 641 228
Other 1,357 1,566
-------- --------
$ 68,250 $ 67,751
======== ========
LIABILITIES
Current liabilities
Bank loan payable $ -- $ 1,600
Current portion of long-term debt 2,158 2,582
Accounts payable 4,437 7,263
Income taxes 312 927
Accrued expenses
Compensation 2,767 3,214
Reserve for self-insured
losses 2,415 2,579
Profit sharing 2,440 2,515
Other 2,751 2,377
-------- --------
Total current liabilities 17,280 23,057
-------- --------
Long-term debt 5,147 1,875
Deferred income taxes 1,598 1,227
Accrued reclamation 1,004 1,311
Other long-term liabilities 1,408 1,238
Commitments and contingencies
(Notes 5 and 8)
SHAREHOLDERS' EQUITY
Common shares, $.25 par value; authorized
3,000,000 shares; issued 2,574,264 shares 643 643
Capital in excess of par value 1,985 1,983
Retained earnings 48,138 42,803
Treasury shares, at cost (8,953) (6,386)
-------- --------
41,813 39,043
-------- --------
$ 68,250 $ 67,751
======== ========
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).
In accordance with the Emerging Issues Task Force Issue 00-10, "Sales" are
reported prior to deduction of freight costs, traditionally netted by the
Company against sales in arriving at "Net sales." In addition, certain prior
years' amounts have been reclassified to conform to 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, 2000 and January 1, 2000
and the reported amounts of revenues and expenses during each of the three
years in the period ended December 30, 2000. Actual results could differ from
those estimates.
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.
INVENTORIES
Inventories are valued at the lower of cost or market. Cost is determined using
the last-in, first-out (LIFO) method for approximately 86% of total inventories
at December 30, 2000 (85% at January 1, 2000). 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 and amortization of deferred development
costs are computed by the units-of-production method based upon estimated
recoverable quantities of rock and sand.
The cost of property sold or retired and the related accumulated depreciation,
depletion and amortization 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.
OTHER ASSETS
Amortization of certain other assets is computed on a straight-line basis
over periods of 5 and 10 years.
16.
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.
RECLAMATION
In connection with permits to mine properties in Colorado, the Company is
obligated to reclaim the mined areas. Reclamation costs are calculated using a
rate based on the total estimated reclamation costs, units of production and
estimates of recoverable reserves. Reclamation costs are charged to operations
as the properties are mined.
REVENUE RECOGNITION
The Company's practice is to recognize revenues from product sales when title
transfers.
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 government securities. 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.
IMPAIRMENT OF LONG-LIVED ASSETS
In the event that facts and circumstances indicate that the cost of any
long-lived assets may be impaired, an evaluation of recoverability would be
performed. If an evaluation were required, the estimated future undiscounted
cash flows associated with the asset would be compared to the asset's carrying
amount to determine if a write-down to market value or discounted cash flow
value is required.
FISCAL YEAR END
The Company's fiscal year end is the Saturday nearest December 31. Fiscal 2000,
1999 and 1998 each consist of 52 weeks.
17.
2. INVENTORIES
Inventories consisted of the following (amounts in thousands):
December 30, 2000 January 1, 2000
Finished goods $ 6,595 $ 7,557
Work in process 1,720 1,642
Raw materials and
supplies 7,699 6,767
----- -----
$ 16,014 $ 15,966
======== ========
If inventories valued on the LIFO basis were valued at current costs,
inventories would be higher as follows: 2000 -- $1,942,000, 1999 -- $1,713,000,
1998 -- $1,610,000.
Reduction in inventory quantities during 1998 at one of the locations, resulted
in liquidation of LIFO inventory layers carried at costs that were lower than
the costs of current purchases. The effect, recorded in the fourth quarter, was
to decrease cost of goods sold by approximately $361,000 and to increase net
earnings by $224,000 or $.10 per diluted share.
3. INVESTMENT IN MINING PARTNERSHIP
The Company has a 30% ownership interest in ORMP, a general partnership, which
operated 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. Although the Partners are
attempting to sell the mine, continued low prices of copper makes it unlikely
that the property will be sold. In accordance with SFAS No. 121, the remaining
investment in the mining partnership was written off as of January 1, 2000. The
related impairment loss of $100,000 is included in the $156,000 loss recorded
for 1999. During 1998, the Company recorded an equity loss of $552,000 including
an impairment loss of $500,000. The equity losses are included in "Other
(expense) income, net" in the Consolidated Statements of Operations. Future cash
contributions to ORMP for carrying costs will be expensed when made.
4. LONG-TERM DEBT
Long-term debt consisted of the following (amounts in thousands):
December 30, 2000 January 1, 2000
Unsecured term loan $ 7,000 $ 4,000
Capital lease 305 457
-------- --------
7,305 4,457
Less current portion 2,158 2,582
-------- --------
Long-term amount $ 5,147 $ 1,875
======== ========
The unsecured term loan is payable to two banks in semi-annual installments with
final principal payment due June 15, 2001. The loan, at the Company's option,
bears interest at either prime or an adjusted LIBOR rate.
The Company is required 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 cash flow (as defined). 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.
18.
The capital lease is payable in monthly installments through December 2002, with
interest at various rates based upon prevailing interest rates on the due dates
of the draws.
Aggregate long-term debt matures as follows (amounts in thousands):
2001 $ 2,158
2002 2,147
2003 2,000
2004 1,000
---------
$ 7,305
=========
During 2000 and 1999, the Company had an unsecured revolving line of credit of
$10,000,000 and $11,500,000, respectively. The line is with two banks and is
used for short-term cash needs and standby letters of credit. Interest was
charged at prime or adjusted LIBOR rates on cash borrowings during both years.
The weighted average interest rate was 7.8% for fiscal 2000 and 7.4% for fiscal
1999. There was no balance outstanding against the line as of December 30, 2000
while $1,600,000 was outstanding as of January 1, 2000.
At December 30, 2000, the Company had letters of credit outstanding totaling
approximately $3,144,000 that collateralize the self-insured losses.
Effective January 3, 2001, the Company amended the revolving credit and term
loan agreement with its two banks to increase the unsecured term loan portion to
$19,000,000. The additional funds were used to purchase the capital stock of
Rocky Mountain Ready Mix Concrete, Inc., see Note 13. The amended agreement
provides for semi-annual principal repayments of $1,500,000 beginning June 15,
2001 with final payment of $2,500,000 due on December 15, 2006. Terms and
conditions of the amended agreement remain similar to those of the previous
agreement.
5. COMMITMENTS AND CONTINGENCIES
The Company is involved in litigation matters related to its continuing
business, principally product liability matters related to the gas-fired heating
products. 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.
6. SHAREHOLDERS' EQUITY
The shareholders approved an amendment to the Restated Certificate of
Incorporation at the May 26,1999 annual meeting effecting a reverse 1-for-50
stock split followed immediately by a forward 100-for-1 stock split of the
Company's Common Stock. As permitted by Delaware law, registered stockholders
whose shares of stock were converted into less than one share in the reverse
1-for-50 split received the right to receive cash equal to the fair value of
those fractional interests. Registered stockholders whose shares of Common
Stock, $.50 par value, converted into more than one share in the reverse split
received, in the forward 100-for-1 split, a number of shares of Common Stock,
$.25 par value, equal to 100 times the number of shares and fractional shares
held after the reverse split. In other words, all registered stockholders
originally holding 50 or more shares of Common Stock, $.50 par value,
immediately prior to the effective date of the transaction hold twice the number
of shares of Common Stock, $.25 par value, immediately subsequent to the
transaction. The reverse and forward stock splits, together with the related
cash payments to stockholders with small holdings, is referred to below as the
"stock split." The effective date of the stock split was June 7, 1999.
Under the Company's Stock Option Plan (the Plan), officers and key employees may
be granted options to purchase the Company's common stock at option prices
established by the
19.
Compensation Committee of the Board of Directors provided the option price is no
less than the fair market value at the date of the grant. The Company has
reserved 360,000 shares for distribution under the Plan. On September 26, 1995,
a total of 156,000 options were granted to five individuals at an exercise price
of $6.5625. These shares became exercisable during 1996.
During 1999, options for 22,000 shares were exercised. Per the agreement, 400
reload options were automatically granted during 1999 when one of the
individuals paid a portion of the option price by delivery of shares of the
Company's common stock. The exercise price of these reload options is $23.125,
the market price of the stock on the date the reload option was granted. The
reload options are vested and retain all terms of the original options,
including the expiration date. During 2000, options for 31,000 shares were
exercised. At December 30, 2000, there remain 79,400 options which will expire
on September 25, 2005.
The Company applies Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees," and related interpretations in accounting for its
Plan. Accordingly, no compensation expense was recognized for its stock-based
compensation Plan. Had compensation cost for the reload options been determined
based on the fair value at the grant date consistent with the methodology
proscribed under SFAS No. 123, "Accounting for Stock-Based Compensation," the
effect on the Company's net income and earnings per share would not have been
significant.
The following is the common shares and capital in excess of par value activity
during 1999 and 2000. There was no activity in either of these accounts during
1998.
Common Capital in
Common shares excess of
shares amount par value
Balance at January 2, 1999 1,326,588 $ 663 $ 3,484
Effect of reverse split (39,456) (20) (1,575)
Effect of forward split 1,287,132 - -
Common shares issued under the
Stock Option Plan (from
treasury) - - (26)
Tax benefit from exercise of
options - - 100
--------- ------- --------
Balance at January 1, 2000 2,574,264 643 1,983
Common shares issued under the
Stock Option Plan (from
treasury) - - (172)
Tax benefit from exercise of
options 174
--------- ------- --------
Balance at December 30, 2000 2,574,264 $ 643 $ 1,985
========= ======= ========
The Board of Directors of the Company has, from time to time, authorized various
amounts to be utilized in acquiring treasury shares. Treasury share activity
during 1998, 1999 and 2000 was as follows (dollars in thousands and shares
restated for the stock split):
20.
Number
of shares Cost
Balance at January 3, 1998 492,374 $3,572
Purchase of treasury shares 16,060 238
-------- ------
Balance at January 2, 1999 508,434 3,810
Purchase of treasury shares 139,574 2,746
Issuance of treasury shares
related to the Stock Option Plan (22,000) (170)
-------- ------
Balance at January 1, 2000 626,008 6,386
Purchase of treasury shares 146,032 2,770
Issuance of treasury shares
related to the Stock Option Plan (31,000) (203)
-------- ------
Balance at December 30, 2000 741,040 $8,953
======= ======
Four hundred thousand shares of preferred stock ($.50 par value) are authorized
and unissued.
7. EARNINGS PER SHARE
The Company computes earnings per share (EPS) in accordance with SFAS No. 128,
"Earnings Per Share." The following is a reconciliation of the calculation of
basic and diluted EPS for the years-ended 2000, 1999 and 1998 (dollars in
thousands and shares restated for the stock split).
Weighted
Net average Per-share
Income shares earnings
2000
Basic EPS $5,335 1,869 $2.86
Effect of dilutive
options - 32
------ ----- -----
Diluted EPS $5,335 1,901 $2.81
====== ===== =====
1999
Basic EPS $6,902 2,035 $3.39
Effect of dilutive
options - 47
------ ----- ------
Diluted EPS $6,902 2,082 $3.32
====== ===== =====
1998
Basic EPS $4,618 2,147 $2.15
Effect of dilutive
options - 49
------ ----- ------
Diluted EPS $4,618 2,196 $2.10
====== ===== =====
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
$2,727,000, $2,460,000 and $2,435,000 for 2000, 1999 and 1998, respectively.
Future minimum rental commitments under non-cancelable operating leases for 2000
and thereafter are as follows: 2001 -- $2,008,000; 2002 -- $1,974,000; 2003 --
$1,450,000; 2004 -- $1,094,000; 2005 -- $835,000 and thereafter -- $21,307,000.
Included in these amounts is $370,000 per year and approximately $18,582,000 in
the "thereafter" amount related to an aggregates lease in conjunction with the
Pueblo, Colorado operation.
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.
21.
9. RETIREMENT PLANS
As discussed in Note 1, the Company maintains retirement benefit plans for
eligible employees. Total plan expenses charged to operations were $2,375,000,
$2,783,000 and $2,025,000 in 2000, 1999 and 1998, respectively.
10. INCOME TAXES
The provision (benefit) for income taxes is summarized as follows (amounts in
thousands):
2000 1999 1998
---- ---- ----
Federal: Current $ 2,156 $ 3,221 $ 2,742
Deferred 477 98 (634)
State: Current 287 510 341
Deferred 55 11 (74)
------- ------- -------
$ 2,975 $ 3,840 $ 2,375
======= ======= =======
The difference between the tax rate on income for financial statement purposes
and the federal statutory tax rate was as follows:
2000 1999 1998
---- ---- ----
Statutory tax rate 34.0% 34.0% 34.0%
Percentage depletion (1.4) (1.8) (3.2)
State income taxes, net of
federal benefit 3.0 3.0 2.3
Non-deductible expenses .2 .1 .3
Other - .4 .6
----- ----- -----
35.8% 35.7% 34.0%
===== ===== =====
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):
2000 1999
Reserves for self-insured losses $ 1,012 $ 1,087
Deferred compensation 469 498
Asset valuation reserves 1,041 1,154
Other 35 44
-------- --------
Total deferred tax assets 2,557 2,783
Depreciation 1,953 1,939
Investment in mining partnership 14 14
Other 694 402
-------- --------
Total deferred tax liabilities 2,661 2,355
-------- --------
Net deferred tax (liability) asset $ (104) $ 428
======== ========
The net current deferred tax assets are $1,494 and $1,654 at year-end 2000 and
1999, respectively, and are included with "Prepaid expenses" on the Consolidated
Balance Sheets.
22.
11. UNAUDITED QUARTERLY FINANCIAL DATA
The following table provides summarized unaudited fiscal quarterly financial
data for 2000 and 1999 (amounts in thousands, except per share amounts; per
share data restated for the stock split):
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
2000
Sales $25,350 $30,232 $29,186 $31,234
Gross profit 4,715 6,057 5,955 7,331
Depreciation,
depletion and
amortization 1,352 1,371 1,605 1,091
Net income 383 1,040 939 2,973
Basic income per share .20 .56 .50 1.61
Diluted income per
share .20 .55 .49 1.59
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
1999
Sales $25,499 $32,493 $34,831 $31,063
Gross profit 4,950 7,655 6,768 8,624
Depreciation,
depletion and
amortization 1,087 1,243 1,377 1,291
Net income 734 2,039 1,598 2,531
Basic income per share .34 .99 .80 1.29
Diluted income per share .33 .97 .78 1.26
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. The fourth quarter results for 2000, as compared to
1999, were positively affected by adjustments to maintenance costs in the
construction materials segment.
12. INDUSTRY SEGMENT INFORMATION
The Company reports its segments in accordance with SFAS No. 131, "Disclosures
about Segments of an Enterprise and Related Information." The Company is
organized along its two principal product lines. Wall furnaces, console heaters,
evaporative coolers and fan coils have been aggregated into the heating and air
conditioning segment. Ready mix concrete, construction aggregates, building
supplies and doors are combined to form the construction materials segment. The
heating and air conditioning segment produces heating and cooling equipment for
residential applications which is sold primarily to wholesale distributors and
retail home centers. Fan coils are also sold to HVAC installing contractors and
equipment manufacturers for commercial applications. A significant portion of
fan coil revenues is dependent upon new hotel construction. 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 sales of construction
aggregates. Sales of this segment are confined to the Front Range area in
Colorado.
The Company evaluates the performance of its segments and allocates resources to
them based on operating income and return on investment. Other factors are also
considered. 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
23.
corporate expenses, interest, income or loss from unconsolidated investees,
other income or loss or income taxes.
The following table presents information about reported segments for the fiscal
years 2000, 1999 and 1998 along with the items necessary to reconcile the
segment information to the totals reported in the financial statements (amounts
in thousands).
Heating and Construction All Unallocated
air conditioning materials other (a) corporate (b) Total
---------------- --------- ----------------------- -----
2000
Revenues from external
customers $ 49,083 $ 66,771 $ 145 $ 3 $ 116,002
Depreciation, depletion
and amortization 1,220 4,117 22 60 5,419
Segment operating income 5,002 6,144 45 (3,001) 8,190
Segment assets 28,868 31,536 36 7,810 68,250
Expenditures for segment
assets 651 2,586 - 69 3,306
1999
Revenues from external
customers $ 56,768 $ 66,966 $ 145 $ 7 $ 123,886
Depreciation, depletion
and amortization 1,181 3,758 22 37 4,998
Segment operating income 7,793 7,001 43 (3,542) 11,295
Segment assets 31,568 34,157 65 1,961 67,751
Expenditures for segment
assets 2,640 6,262 - 122 9,024
1998
Revenues from external
customers $ 52,251 $ 60,814 $ 145 $ - $ 113,210
Depreciation, depletion
and amortization 1,091 2,862 22 17 3,992
Segment operating income 4,183 6,414 41 (2,823) 7,815
Segment assets 25,628 29,888 183 7,918 63,617
Expenditures for segment
assets 1,352 4,994 - 118 6,464
(a) All other represents segments below the quantitative thresholds.
The segments include a small real estate operation and the holding
costs for certain mining interests that remain from the period the
Company maintained significant interests in mining operations.
(b) Corporate assets consist primarily of cash and cash equivalents.
All long-lived assets are in the United States and no customer accounts for 10%
or more of consolidated revenue.
13. SUBSEQUENT EVENT
On December 31, 2000, the Company acquired all of the stock of Rocky Mountain
Ready Mix Concrete, Inc., a ready-mix concrete producer in the metropolitan
Denver, Colorado area for approximately $12,450,000. The new company operates
three ready-mix batch plants in the Denver area and will continue to do business
under its current name.
24.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of Continental Materials
Corporation
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations and retained earnings and cash flows
present fairly, in all material respects, the financial position of Continental
Materials Corporation and its subsidiaries at December 30, 2000 and January 1,
2000, and the results of their operations and their cash flows for each of the
three years in the period ended December 30, 2000, in conformity with accounting
principles generally accepted in the United States of America. 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 of these financial statements in accordance
with auditing standards generally accepted in the United States of America,
which 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, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
PricewaterhouseCoopers LLP
Chicago, Illinois
March 7, 2001
25.
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 (Items 10, 11, 12,and 13) 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, 2000, its definitive 2001 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 Accountants
Schedule II Valuation and Qualifying Accounts & Reserves
For the Fiscal Years 2000, 1999 and 1998
All other schedules are omitted because they are not applicable or the
information is shown in the financial statements or notes thereto.
26.
(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 3d Registrant's Certificate of Amendment of Restated Certificate of
Incorporation dated June 4, 1999 filed as Exhibit 1 to Form 8-K for
the month of June 1999, 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 October 21, 1996 filed as Exhibit 2D to
Form 8-K for the month of October 1996 and the Amendment thereto
filed as Exhibit 2B to Form 8-K for the month of December 2000,
incorporated herein by reference.
Exhibit 10b Acquisition Agreement Between Valco Properties, Ltd. And
Continental Materials Corporation filed as Exhibit 2A to Form 8-K
for the month October 1996, incorporated herein by reference.
Exhibit 10c Non-Competition and Non-Disclosure Agreement by Valco, Inc. And
Thomas E. Brubaker in favor of Continental Materials Corporation
filed as Exhibit 2B to Form 8-K for the month of October 1996,
incorporated herein by reference.
Exhibit 10d Fee Sand and Gravel Lease Between Valco, Inc. And Continental
Materials Corporation filed as Exhibit 2C to Form 8-K for the month
of October 1996, incorporated herein by reference.
Exhibit 10e 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 10f Stock Purchase Agreement By and Among Continental Materials
Corporation, Rocky Mountain Ready Mix Concrete, Inc. and The
Shareholders of Rocky Mountain Ready Mix Concrete, Inc. Filed as
Exhibit 2A to Form 8-K for the month of December 2000, incorporated
herein by reference.
Exhibit 21 Subsidiaries of Registrant (filed herewith).
Exhibit 23 Consent of Independent Accountants (filed herewith).
Exhibit 99a Continental Materials Corporation Employee Profit Sharing
Retirement Plan Amended and Restated Generally Effective October 1,
1997 filed as Exhibit 99a to Form 10-K for the year ended
January 1, 2000, incorporated herein by reference.*
Exhibit 99b Continental Materials Corporation Employees Profit Sharing
Retirement Plan on Form 11-K for the year ended December 30, 2000
(to be filed by amendment).
* - Compensatory plan or arrangement
27.
(b) Reports on Form 8-K:
No reports on Form 8-K were filed during the quarter ended December
30, 2000.
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, 2001
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, 2001
/s/ Joseph J. Sum
- -------------------------
Joseph J. Sum Vice President
And a Director March 27, 2001
/s/ Mark S. Nichter
- -------------------------
Mark S. Nichter Secretary and Controller March 27, 2001
/s/ Thomas H. Carmody
- -------------------------
Thomas H. Carmody Director March 27, 2001
/s/ Betsy R. Gidwitz
- -------------------------
Betsy R. Gidwitz Director March 27, 2001
/s/ Ralph W. Gidwitz
- -------------------------
Ralph W. Gidwitz Director March 27, 2001
/s/ Ronald J. Gidwitz
- -------------------------
Ronald J. Gidwitz Director March 27, 2001
/s/ William G. Shoemaker
- -------------------------
William G. Shoemaker Director March 27, 2001
/s/ Theodore R. Tetzlaff
- -------------------------
Theodore R. Tetzlaff Director March 27, 2001
/s/ Darrell M. Trent
- -------------------------
Darrell M. Trent Director March 27, 2001
28.
REPORT OF INDEPENDENT ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULE
To the Board of Directors and Shareholders
of Continental Materials Corporation
Our audits of the consolidated financial statements referred to in our report
dated March 7, 2001 appearing in the 2000 Annual Report to Shareholders of
Continental Materials Corporation also included an audit of the financial
statement schedule listed in Item 14(a)(2) of this Form 10-K. In our opinion,
this financial statement schedule presents fairly, in all material respects, the
information set forth therein when read in conjunction with the related
consolidated financial statements.
PricewaterhouseCoopers LLP
Chicago, Illinois
March 7, 2001
29.
CONTINENTAL MATERIALS CORPORATION
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES (c) (d)
for the fiscal years 2000, 1999 and 1998
COLUMN A COLUMN B COLUMN C(1) COLUMN D COLUMN E
Additions
Balance at Charged to
Beginning of Costs and Deductions - Balance at
Description Period Expenses Describe End of Period
---------------------------- -------------- --------------- --------------- --------------
YEAR 2000
Allowance for doubtful
accounts $800,000 $(110,000) $215,000 (a) $475,000
============== =============== =============== ==============
Inventory valuation reserve $568,000 $ 14,000 $139,000 (b) $443,000
============== =============== =============== ==============
YEAR 1999
Allowance for doubtful
accounts $775,000 $486,000 $461,000 (a) $800,000
============== =============== =============== ==============
Inventory valuation reserve $504,000 $127,000 $ 63,000 (b) $568,000
============== =============== =============== ==============
YEAR 1998
Allowance for doubtful
accounts $ 580,000 $304,000 $109,000 (a) $775,000
============== =============== =============== ==============
Inventory valuation reserve $ 233,000 $667,000 $396,000 (b) $504,000
============== =============== =============== ==============
Notes:
(a) Accounts written off, (c) Reserve deducted
net of recoveries. in the balance sheet from the
asset to which it applies.
(b) Amounts written off (d) Column C(2) has
upon disposal of assets. been omitted as the answer
would be "none".
30