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EX-31.1 - EX-31.1 - CONTINENTAL MATERIALS CORPa11-25852_1ex31d1.htm
EX-31.2 - EX-31.2 - CONTINENTAL MATERIALS CORPa11-25852_1ex31d2.htm

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

 

FORM 10-Q

 

x      QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended October 1, 2011

 

OR

 

o         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 incorporation or organization)

 

(I.R.S. Employer Identification No.)

 

200 South Wacker Drive, Suite 4000, Chicago, Illinois

 

60606

(Address of principal executive offices)

 

(Zip Code)

 

(312) 541-7200

(Registrant’s telephone number, including area code)

 

 

(Former name, former address and former fiscal year, if changed since last report)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes x  No o

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes x  No o

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large Accelerated Filer o

 

Accelerated Filer o

 

 

 

Non-Accelerated Filer o

 

Smaller reporting company x

(Do not check if a smaller reporting company)

 

 

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 or the Exchange Act).  Yes o  No x

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: Common Stock, $0.25 par value, shares outstanding at November 15, 2011: 1,622,624.

 

 

 



 

PART I — FINANCIAL INFORMATION

 

Item 1.   Financial Statements

 

CONTINENTAL MATERIALS CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

OCTOBER 1, 2011 and JANUARY 1, 2011

(000’s omitted except share data)

 

 

 

OCTOBER 1,

 

 

 

 

 

2011

 

JANUARY 1,

 

 

 

(Unaudited)

 

2011

 

ASSETS

 

 

 

 

 

Current assets:

 

 

 

 

 

Cash and cash equivalents

 

$

1,179

 

$

1,032

 

Receivables, net

 

15,548

 

19,868

 

Receivable for insured losses

 

449

 

807

 

Inventories:

 

 

 

 

 

Finished goods

 

8,708

 

7,232

 

Work in process

 

904

 

748

 

Raw materials and supplies

 

9,389

 

8,643

 

Prepaid expenses

 

1,426

 

1,374

 

Deferred income taxes

 

1,584

 

1,584

 

Real Estate held for resale

 

723

 

 

Total current assets

 

39,910

 

41,288

 

 

 

 

 

 

 

Property, plant and equipment, net

 

21,842

 

23,693

 

 

 

 

 

 

 

Goodwill

 

7,229

 

7,229

 

Amortizable intangible assets, net

 

260

 

343

 

Prepaid royalties

 

1,573

 

1,415

 

Cash deposits for self-insured claims

 

4,340

 

4,840

 

Other assets

 

1,121

 

753

 

 

 

 

 

 

 

 

 

$

76,275

 

$

79,561

 

 

 

 

 

 

 

LIABILITIES

 

 

 

 

 

Current liabilities:

 

 

 

 

 

Current portion of long-term debt

 

$

500

 

$

1,125

 

Accounts payable and accrued expenses

 

11,998

 

13,392

 

Liability for unpaid claims covered by insurance

 

449

 

807

 

Total current liabilities

 

12,947

 

15,324

 

 

 

 

 

 

 

Revolving bank loan payable

 

7,150

 

5,750

 

Long-term debt

 

4,160

 

4,410

 

Deferred income taxes

 

379

 

1,324

 

Other long-term liabilities

 

1,983

 

1,948

 

 

 

 

 

 

 

SHAREHOLDERS’ EQUITY

 

 

 

 

 

Common shares, $0.25 par value; authorized 3,000,000 shares; issued 2,574,264 shares

 

643

 

643

 

Capital in excess of par value

 

1,869

 

1,830

 

Retained earnings

 

63,350

 

64,947

 

Treasury shares, 951,590 and 975,590, at cost

 

(16,206

)

(16,615

)

 

 

49,656

 

50,805

 

 

 

 

 

 

 

 

 

$

76,275

 

$

79,561

 

 

See notes to condensed consolidated financial statements.

 

2



 

CONTINENTAL MATERIALS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS

FOR THE THREE MONTHS ENDED OCTOBER 1, 2011 AND OCTOBER 2, 2010

(Unaudited)

(000’s omitted except per-share amounts)

 

 

 

OCTOBER 1,

 

OCTOBER 2,

 

 

 

2011

 

2010

 

 

 

 

 

 

 

Net sales

 

$

25,501

 

$

29,142

 

 

 

 

 

 

 

Costs and expenses:

 

 

 

 

 

Cost of sales (exclusive of depreciation, depletion and amortization)

 

19,944

 

22,477

 

Depreciation, depletion and amortization

 

1,012

 

1,102

 

Selling and administrative

 

4,937

 

4,526

 

 

 

 

 

 

 

Gain on disposition of property and equipment

 

29

 

 

 

 

25,864

 

28,105

 

 

 

 

 

 

 

Operating (loss) income

 

(363

)

1,037

 

 

 

 

 

 

 

Interest expense, net

 

(141

)

(197

)

Amortization of deferred financing fees

 

(51

)

(51

)

Other income (loss), net

 

 

(1

)

 

 

 

 

 

 

(Loss) income from continuing operations before income taxes

 

(555

)

788

 

 

 

 

 

 

 

(Benefit) provision for income taxes

 

(239

)

70

 

 

 

 

 

 

 

Net (loss) income from continuing operations

 

(316

)

718

 

 

 

 

 

 

 

(Loss) income from discontinued operation net of income tax benefit of $5 and $24

 

(6

)

22

 

 

 

 

 

 

 

Net (loss) income

 

(322

)

740

 

 

 

 

 

 

 

Retained earnings, beginning of period

 

63,672

 

63,363

 

 

 

 

 

 

 

Retained earnings, end of period

 

$

63,350

 

$

65,103

 

 

 

 

 

 

 

Net income per basic and diluted share:

 

 

 

 

 

Continuing operations

 

$

(.20

)

$

.45

 

Discontinued operation

 

(.00

)

.01

 

Net income per basic and diluted share

 

$

(.20

)

$

.46

 

 

 

 

 

 

 

Average shares outstanding

 

1,623

 

1,599

 

 

See notes to condensed consolidated financial statements

 

3



 

CONTINENTAL MATERIALS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS

FOR THE NINE MONTHS ENDED OCTOBER 1, 2011 AND OCTOBER 2, 2010

(Unaudited)

(000’s omitted except per-share amounts)

 

 

 

OCTOBER 1,

 

OCTOBER 2,

 

 

 

2011

 

2010

 

 

 

 

 

 

 

Net sales

 

$

78,244

 

$

84,533

 

 

 

 

 

 

 

Costs and expenses:

 

 

 

 

 

Cost of sales (exclusive of depreciation, depletion and amortization)

 

62,304

 

66,340

 

Depreciation, depletion and amortization

 

3,193

 

3,367

 

Selling and administrative

 

14,817

 

14,352

 

 

 

 

 

 

 

Gain on disposition of property and equipment

 

169

 

70

 

 

 

80,145

 

83,989

 

 

 

 

 

 

 

Operating (loss) income

 

(1,901

)

544

 

 

 

 

 

 

 

Interest expense, net

 

(443

)

(673

)

Amortization of deferred financing fees

 

(154

)

(154

)

Other income, net

 

25

 

27

 

 

 

 

 

 

 

Loss from continuing operations before income taxes

 

(2,473

)

(256

)

 

 

 

 

 

 

Benefit for income taxes

 

(920

)

(97

)

 

 

 

 

 

 

Net loss from continuing operations

 

(1,553

)

(159

)

 

 

 

 

 

 

Loss from discontinued operation net of income tax benefit of $26 and $41

 

(44

)

(66

)

 

 

 

 

 

 

Net loss

 

(1,597

)

(225

)

 

 

 

 

 

 

Retained earnings, beginning of period

 

64,947

 

65,328

 

 

 

 

 

 

 

Retained earnings, end of period

 

$

63,350

 

$

65,103

 

 

 

 

 

 

 

Net loss per basic and diluted share:

 

 

 

 

 

Continuing operations

 

$

(.96

)

$

(.10

)

Discontinued operation

 

(.03

)

(.04

)

Net loss per basic and diluted share

 

$

(.99

)

$

(.14

)

 

 

 

 

 

 

Average shares outstanding

 

1,615

 

1,599

 

 

See notes to condensed consolidated financial statements

 

4



 

CONTINENTAL MATERIALS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE NINE MONTHS ENDED OCTOBER 1, 2011 AND OCTOBER 2, 2010

(Unaudited)

(000’s omitted)

 

 

 

OCTOBER 1,
2011

 

OCTOBER 2,
2010

 

 

 

 

 

 

 

Net cash provided by operating activities

 

$

547

 

$

2,099

 

 

 

 

 

 

 

Investing activities:

 

 

 

 

 

Capital expenditures

 

(1,258

)

(687

)

Proceeds from sale of property and equipment

 

169

 

93

 

Loan to subsidiary executive

 

(336

)

 

Net cash used in investing activities

 

(1,425

)

(594

)

 

 

 

 

 

 

Financing activities:

 

 

 

 

 

Borrowings (repayments) under revolving credit facility

 

1,400

 

(200

)

Repayment of long-term debt

 

(875

)

(1,000

)

Reduction of cash deposit for self-insured claims

 

500

 

 

Net cash provided by (used in) financing activities

 

1,025

 

(1,200

)

 

 

 

 

 

 

Net increase in cash and cash equivalents

 

147

 

305

 

Cash and cash equivalents:

 

 

 

 

 

Beginning of period

 

1,032

 

681

 

 

 

 

 

 

 

End of period

 

$

1,179

 

$

986

 

 

 

 

 

 

 

Supplemental disclosures of cash flow items:

 

 

 

 

 

Cash paid during the nine months for:

 

 

 

 

 

Interest, net

 

$

492

 

$

664

 

Income taxes paid

 

363

 

2

 

 

See notes to condensed consolidated financial statements

 

5



 

CONTINENTAL MATERIALS CORPORATION

SECURITIES AND EXCHANGE COMMISSION FORM 10-Q

NOTES TO THE QUARTERLY CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

QUARTER ENDED OCTOBER 1, 2011

(Unaudited)

 

1.               The unaudited interim condensed consolidated financial statements included herein are prepared pursuant to the Securities and Exchange Commission rules and regulations for reporting on Form 10-Q. Accordingly, certain information and footnote disclosures normally accompanying the annual consolidated financial statements have been omitted. The condensed consolidated balance sheet of the Company as of January 1, 2011 has been derived from the audited consolidated balance sheet of the Company as of that date. The interim condensed consolidated financial statements and notes should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s latest annual report on Form 10-K. In the opinion of management, the condensed consolidated financial statements include all adjustments (none of which were other than normal recurring adjustments) necessary for a fair statement of the results for the interim periods. Discontinued operation refers to the residual activity related to Rocky Mountain Ready Mix (RMRM), a Colorado corporation sold by the Company on July 17, 2009.

 

2.               Income taxes are accounted for under the asset and liability method that requires deferred income taxes to reflect the future tax consequences attributable to differences between the tax and financial reporting bases of assets and liabilities. Deferred tax assets and liabilities recognized are based on the tax rates in effect in the year in which differences are expected to reverse. Deferred tax assets are reduced by a valuation allowance when, based on available positive and negative evidence, it is “more likely than not” (greater than a 50% likelihood) that some or all of the net deferred tax assets will not be realized.

 

The Company has established a valuation reserve related to the carry-forward of all charitable contributions deductions arising from prior years and the portion of contributions in 2011 that the Company believes it will be unable to utilize prior to the expiration of their carry-forward periods. At January 1, 2011, the Company also established a valuation reserve of $1,474,000 against the carry-forward of the long-term capital loss related to the sale of the stock of RMRM due to the uncertainty that the Company will be able to generate offsetable long-term capital gains prior to the expiration of the carry-forward period. For Federal purposes, net operating losses can be carried forward for a period of 20 years while alternative minimum tax credits can be carried forward indefinitely. For state purposes, net operating losses can be carried forward for periods ranging from 5 to 20 years for the states that the Company is required to file in. California Enterprise Zone credits can be carried forward indefinitely while Colorado credits can be carried forward for 7 years.

 

The Company’s income tax returns are subject to audit by the Internal Revenue Service (IRS) and state tax authorities. The amounts recorded for income taxes reflect the Company’s tax positions based on research and interpretations of complex laws and regulations. The Company accrues liabilities related to uncertain tax positions taken or expected to be taken in its tax returns. The IRS has completed examinations for periods through 2007. Various state income tax returns also remain subject to examination.

 

3.               Fair value of the Company’s debt is estimated based on the borrowing rates currently available to the Company for bank loans with similar terms, maturities and credit risks. The carrying amount of long-term debt represents a reasonable estimate of the corresponding fair value as the Company’s debt is held at variable interest rates.

 

4.               During September 2011, the FASB issued Accounting Standards Update (ASU) 2011-08 which is effective for fiscal years beginning after December 15, 2011 although early adoption is allowed. The ASU allows an entity the option to make a qualitative evaluation about the likelihood of goodwill impairment to determine whether it should calculate the fair value of a reporting unit. The ASU expands upon the examples of events and circumstances that an entity should consider between annual impairment tests in determining whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. The Company has not completed its evaluation of the impact, if any, of the adoption of ASU 2011-08.

 

Other than as noted above, there are currently no other significant prospective accounting pronouncements that are expected to have a material effect on the Company’s consolidated financial statements.

 

6



 

5.               Operating results for the first nine months of 2011 are not necessarily indicative of performance for the entire year due to the seasonality of most of our products. Historically, sales of the Evaporative Cooling segment are higher in the first and second quarters, sales of the Concrete, Aggregates and Construction Supplies (CACS) segment are higher in the second and third quarters and sales of the Heating and Cooling segment are higher in the third and fourth quarters. The sales of the Door segment are more evenly spread throughout the year. The economic recession and financial market turmoil that began in the latter part of 2008 has had a significant detrimental effect on the construction industry in general and on our construction related businesses in particular since that time and is expected to continue to do so for the foreseeable future.

 

6.               There is no difference in the calculation of basic and diluted earnings per share (EPS) for the three-month or nine-month periods ended October 1, 2011 and October 2, 2010 as the Company does not have any dilutive instruments.

 

7.               The Company operates primarily in two industry groups, Heating, Ventilation and Air Conditioning (HVAC) and Construction Products. Within each of these two industry groups, the Company has identified two reportable segments: the Heating and Cooling segment and the Evaporative Cooling segment in the HVAC industry group and the CACS segment and the Door segment in the Construction Products industry group.

 

The Heating and Cooling segment produces and sells gas-fired wall furnaces, console heaters and fan coils from the Company’s wholly-owned subsidiary, Williams Furnace Co. of Colton, California (WFC). The Evaporative Cooling segment produces and sells evaporative coolers from the Company’s wholly-owned subsidiary, Phoenix Manufacturing, Inc. of Phoenix, Arizona (PMI). Sales of these two segments are nationwide but are concentrated in the southwestern United States. Concrete, Aggregates and Construction Supplies are offered from numerous locations along the Southern Front Range of Colorado operated by the Company’s wholly-owned subsidiaries collectively referred to as Transit Mix Concrete Co. (TMC). Doors are fabricated and sold along with the related hardware from Colorado Springs and Pueblo, Colorado through the Company’s wholly-owned subsidiary, McKinney Door and Hardware, Inc. of Pueblo (MDHI). Sales of these two segments are highly concentrated in the Southern Front Range area in Colorado although door sales are also made throughout the United States.

 

In addition to the above reporting segments, an “Unallocated Corporate” classification is used to report the unallocated expenses of the corporate office which provides treasury, insurance and tax services as well as strategic business planning and general management services. Expenses related to the corporate information technology group are allocated to all locations, including the corporate office. An “Other” classification is used to report a real estate operation and the activity of the new business venture discussed in Note 9. The Company purchased the residence of and made a loan to an executive of one of the Company’s subsidiaries in connection with his relocation.  The residence is classified as an asset held for resale.  The residence and the loan receivable are included in the assets of the “Other” classification.  The loan is secured by marketable securities and bears interest at 5%.

 

The Company evaluates the performance of its segments and allocates resources to them based on a number of criteria including operating income, return on investment and other strategic objectives. 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, other income or loss or income taxes.

 

The following table presents information about reported segments for the nine-month and three-month periods ended October 1, 2011 and October 2, 2010 along with the items necessary to reconcile the segment information to the totals reported in the financial statements (amounts in thousands):

 

 

 

Construction Products

 

HVAC Products

 

 

 

 

 

 

 

 

 

Concrete,
Aggregates &
Construction
Supplies

 

Doors

 

Combined
Construction
Products

 

Heating
and
Cooling

 

Evaporative
Cooling

 

Combined
HVAC
Products

 

Unallocated
Corporate

 

Other

 

Total

 

2011

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months ended October 1, 2011

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net sales to external customers

 

$

24,719

 

$

9,164

 

$

33,883

 

$

22,920

 

$

21,173

 

$

44,093

 

$

10

 

$

258

 

$

78,244

 

Depreciation, depletion and amortization

 

2,452

 

103

 

2,555

 

314

 

273

 

587

 

51

 

 

3,193

 

Operating (loss) income

 

(3,500

)

556

 

(2,944

)

750

 

2,290

 

3,040

 

(1,837

)

(160

)

(1,901

)

Segment assets

 

33,568

 

6,224

 

39,792

 

19,411

 

10,094

 

29,505

 

5,838

 

1,140

 

76,275

 

Capital expenditures (b)

 

932

 

60

 

992

 

99

 

150

 

249

 

17

 

 

1,258

 

Quarter ended October 1, 2011

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net sales to external customers

 

$

8,266

 

$

3,161

 

$

11,427

 

$

8,414

 

$

5,570

 

$

13,984

 

$

4

 

$

86

 

$

25,501

 

Depreciation, depletion and amortization

 

806

 

36

 

842

 

105

 

48

 

153

 

17

 

 

1,012

 

Operating income (loss)

 

(780

)

72

 

(708

)

586

 

373

 

959

 

(541

)

(73

)

(363

)

Segment assets

 

33,568

 

6,224

 

39,792

 

19,411

 

10,094

 

29,505

 

5,838

 

1,140

 

76,275

 

Capital expenditures (b)

 

452

 

4

 

456

 

29

 

12

 

41

 

3

 

 

500

 

 

7



 

 

 

Construction Products

 

HVAC Products

 

 

 

 

 

 

 

 

 

Concrete,
Aggregates &
Construction
Supplies

 

Doors

 

Combined
Construction
Products

 

Heating
and
Cooling

 

Evaporative
Cooling

 

Combined
HVAC
Products

 

Unallocated
Corporate

 

Other

 

Total

 

2010

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months ended October 2, 2010

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net sales to external customers

 

$

29,008

 

$

9,765

 

$

38,773

 

$

25,647

 

$

19,846

 

$

45,493

 

$

9

 

$

258

 

$

84,533

 

Depreciation, depletion and amortization

 

2,571

 

108

 

2,679

 

294

 

345

 

639

 

49

 

 

3,367

 

Operating (loss) income

 

(514

)

594

 

80

 

310

 

2,069

 

2,379

 

(1,996

)

81

 

544

 

Segment assets (a)

 

36,761

 

5,528

 

42,289

 

18,976

 

11,876

 

30,852

 

6,357

 

63

 

79,561

 

Capital expenditures (b)

 

425

 

14

 

439

 

181

 

64

 

245

 

3

 

 

687

 

Quarter ended October 2, 2010

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net sales to external customers

 

$

10,491

 

$

3,025

 

$

13,516

 

$

9,746

 

$

5,792

 

$

15,538

 

$

2

 

$

86

 

$

29,142

 

Depreciation, depletion and amortization

 

836

 

36

 

872

 

98

 

115

 

213

 

17

 

 

1,102

 

Operating income (loss)

 

471

 

66

 

537

 

651

 

469

 

1,120

 

(647

)

27

 

1,037

 

Segment assets (a)

 

36,761

 

5,528

 

42,289

 

18,976

 

11,876

 

30,852

 

6,357

 

63

 

79,561

 

Capital expenditures (b)

 

46

 

5

 

51

 

90

 

39

 

129

 

3

 

 

183

 

 


(a)              Segment assets are as of January 1, 2011.

(b)             Capital expenditures are presented on the accrual basis of accounting.

 

There are no differences in the basis of segmentation or in the basis of measurement of segment profit or loss from the last Annual Report on Form 10-K.

 

8.               Identifiable amortizable intangible assets as of October 1, 2011 include a non-compete agreement, a restrictive land covenant and customer relationships. Collectively, these assets were carried at $260,000, net of $750,000 accumulated amortization. The pre-tax amortization expense for intangible assets during the quarter ended October 1, 2011 was $18,000 compared to $34,000 for the quarter ended October 2, 2010 and was $83,000 for the nine months ended October 1, 2011 as compared to $102,000 for the nine months ended October 2, 2010.

 

Based upon the intangible assets recorded on the balance sheet at October 1, 2011, amortization expense for the next five years is estimated to be as follows: 2011 — $102,000; 2012 — $65,000; 2013 — $58,000; 2014 — $52,000 and 2015 — $45,000.

 

9.               The Company entered into a Amended and Restated Credit Agreement (the Restated Agreement) effective November 18, 2011 in order to obtain a waiver of the covenant requiring a Fixed Charge Coverage Ratio of 1.15 to 1.00 as of October 1, 2011, to extend the maturity date of the Credit Agreement, to increase the maximum amount available under the revolving credit facility to $20,000,000 and to modify certain other amounts, terms and conditions. The Restated Agreement provides for the following:

 

·                  The Fixed Charge Coverage Ratio requirement of 1.15 to 1.00 is waived for the twelve month period ended October 1, 2011. The Minimum Fixed Charge Coverage Ratio of 1.15 to 1.00 will commence with the Computation Period ending March 31, 2013.

·                  The Company must maintain a Minimum Tangible Net Worth as of the last day of any Computation Period of $32,000,000 plus 50% of the Consolidated Net Income for the immediately preceding Fiscal Year..

·                  Annual capital expenditures may not exceed $3,500,000 excluding those of Williams EcoLogix, Inc.

·                  Not permit the Balance Sheet Leverage Ratio as of the last day of any Computation Period to exceed 1.00 to 1.00.

·                  The maximum revolving credit facility line is increased to $20,000,000.

·                  The maturity date of the credit facility is extended to May 1, 2015.

·                  Interest rate pricing for the revolving credit facility is Libor plus 3.25% or Prime plus 1%. The interest on the term loan is Libor plus 3.75% or Prime plus 1.5%.

·                  The term loan principal repayment schedule has been revised and reduced. The table below reflects the new maturities under the Restated Agreement.

·                  As previously reported, WFC has entered into an agreement to distribute a product currently being developed by a third party. Should the product be successfully developed such that it results in a commercially salable product, WFC (through a newly formed subsidiary, Williams EcoLogix, Inc.) is likely to incur start-up costs and other expenses prior to the realization of revenues by this new business venture. The permitted maximum cumulative cash expenditures for this venture are $2,500,000 commencing on March 24, 2011.

·                  The interest rate swap transaction remains in effect.

 

8



 

Definitions under the Credit Agreement as amended are as follows:

 

·                  Tangible Net Worth is defined as net worth plus subordinated debt, minus intangible assets (goodwill, intellectual property, prepaid expenses, deposits and deferred charges), minus all obligations owed to the Company or any of its subsidiaries by any affiliate or any or its subsidiaries and minus all loans owed by its officers, stockholders, subsidiaries or employees. There are no loans owed by any of the referenced parties at October 1, 2011 or as of the date of this filing except for a loan of $352,000 to an officer of one of the Company’s subsidiaries made during the first quarter of fiscal 2011in conjunction with his relocation as discussed in Note 7.

·                  Adjusted EBITDA is defined as net income, excluding the operating results of discontinued operations,  plus interest, income taxes, depreciation, depletion and amortization plus other non-cash charges approved by the lender.

·                  Fixed Charge Coverage Ratio is defined as, for any computation period, the ratio of (a) the sum for such period of Adjusted EBITDA minus the sum of income taxes paid in cash and (b) all unfinanced capital expenditures to the sum for such period of interest expense plus the required payments of principal of the term debt.

·                  Balance Sheet Leverage Ratio is defined as the ratio of Total Debt to Tangible Net Worth.

 

The term loan payments under the Restated Agreement and the amortization of deferred financing fees are scheduled as follows (amounts in thousands):

 

 

 

 

 

Amortization

 

 

 

Term Loan

 

of Deferred

 

 

 

Payments

 

Financing Fees

 

2011

 

$

1,012

 

$

205

 

2012

 

500

 

60

 

2013

 

500

 

 

2014

 

500

 

 

2015

 

3,023

 

 

 

 

$

5,535

 

$

265

 

 

10.         The Company is involved in litigation matters related to its business, principally product liability matters related to the gas-fired heating products and fan coil products in the Heating and Cooling segment. In the Company’s opinion, none of these proceedings, when concluded, will have a material adverse effect on the Company’s consolidated results of operations, cash flows or financial condition as the Company has established adequate accruals for matters that are probable and estimable. The Company does not accrue estimated amounts for future legal costs related to the defense of these matters but rather expenses them as incurred.

 

In November 2010, the Company filed a lawsuit against an insurance company with regard to a business interruption claim and property damages resulting from an incident that lead to the cessation of operations at the Pikeview Quarry in December of 2008. The litigation is currently in the discovery process. No recovery has been recorded in the Company’s financial statements and all related costs have been expensed to date. The Company expects that the ongoing cost of the litigation will be significant.

 

The Company is also involved in a lawsuit to recover a receivable partially collateralized by land. The party has declared bankruptcy and the trustee is challenging the right of the Company to the collateral. The effect of the outcome of this matter is not determinable at this time but could be material.

 

Item 2.        Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

Company Overview

 

See Note 7 for an overview of the Company.

 

Liquidity and Capital Resources

 

As noted above, various factors affect the sales of the Company’s products. Historically, the Company has experienced operating losses during the first quarter except when construction activity is strong along the Southern Front Range of Colorado and the weather is mild. Operating results typically improve in the second and third quarters, reflecting more favorable weather conditions in Colorado and the seasonal sales of the Evaporative Cooling segment; however, the Company expects construction activity along the Southern Front Range will remain depressed into the 2012 fiscal year.

 

9



 

Fourth quarter results can vary based on weather conditions in Colorado as well as in the principal markets for the Company’s heating equipment. The Company typically experiences operating cash flow deficits during the first half of the year reflecting operating results, the use of sales dating programs (extended payment terms) related to the Evaporative Cooling segment and payments of the prior year’s accrued incentive bonuses and Company profit-sharing contributions, if any. As a result, the Company’s borrowings against its revolving credit facility tend to peak during the second quarter and then decline over the remainder of the year. This trend has continued in 2011. Although the actual outstanding balance at the end of the third quarter of 2011 was slightly higher than the balance at the end of the second quarter or 2011, the average outstanding balance during the third quarter was approximately $5,533,000 compared to the average outstanding balance during the second quarter of approximately $7,174,000.

 

Cash provided by operations was $547,000 during the first nine months of 2011 compared to the $2,099,000 of cash provided during the first nine months of 2010. The Company’s operating cash flow during the first nine months of 2011 was positive despite the increased operating loss primarily due to a larger net reduction in working capital during the first nine months of 2011 compared to the first nine months of 2010, in part reflecting the reduced sales volume.

 

During the nine months ended October 1, 2011, investing activities used $1,425,000 of cash compared to the $594,000 of cash used in the prior year’s period. The Company continued to closely monitor capital expenditures during the first nine months of 2011 as sales volume remains depressed. Capital purchases during the 2011 period were primarily related to the aggregates operations as well as the buyout of three leased mixer trucks. As discussed in Notes 7 and 9, the Company also made a loan of $352,000 to an officer of one of the Company’s subsidiaries in conjunction with his relocation.

 

Financing activities during the first nine months of 2011 provided $1,025,000 through borrowings of $1,400,000 against the revolving credit facility as well as the receipt of $500,000 resulting from the reduction of the amount deposited with our insurance carrier to secure the Company’s self-insured claims under its casualty insurance program. Financing activities used $1,200,000 during the first nine months of 2010 as the Company repaid $200,000 of borrowings under the revolving credit facility. All scheduled term debt payments were made during both the 2011 and 2010 periods. During the first nine months of 2011, the highest amount of Company borrowings outstanding under the revolving credit agreement was $9,000,000 and the average amount outstanding was $5,923,000.

 

The Company has prepared a projection of cash sources and uses for the next 12 months. Under this projection, the Company believes that its existing cash balance, anticipated cash flow from operations and borrowings available under the Credit Agreement will be sufficient to cover expected cash needs, including servicing debt and planned capital expenditures for the next 12 months. The Company also expects to be in compliance with all debt covenants, as amended, during this period.

 

Results of Operations - Comparison of Quarter Ended October 1, 2011 to Quarter Ended October 2, 2010

 

In the ensuing discussions of the results of operations the term gross profit means the amount determined by deducting cost of sales (exclusive of depreciation, depletion and amortization) from sales. The gross profit ratio is gross profit divided by sales.

 

Consolidated sales in the third quarter of 2011 were $25,501,000 or $3,641,000 (12.5%) less than in the third quarter of 2010.The decline in sales is the result of the same market and economic factors that have prevailed throughout the year. A depressed construction market in the Colorado Springs and Pueblo, Colorado area resulted in a $2,225,000 (21.2%) decline in sales for the Concrete, Aggregates and Construction Supplies (“CACS”) segment. The same weak construction market conditions throughout most of the nation also lead to a drop in fan coil sales in the Heating and Cooling segment. Sales in the third quarter for that segment were down $1,332,000 (13.7%). Third quarter sales in 2011 for the Door and Evaporative Cooling segments were little changed compared to the same quarter in the prior year. The consolidated gross profit ratio declined from 22.9% in the third quarter of 2010 to 21.8% in the current year quarter. This deterioration in the gross profit rate is due principally to the lower sales volume, fixed costs and higher fuel costs experienced by the CACS segment. The gross profit rate for the Heating and Cooling segment improved compared to the prior year. The gross profit rate for the Door and Evaporative Cooling segments were slightly lower. Consolidated selling and administrative expenses were $411,000 higher in the 2011 third quarter compared to the comparable quarter in the prior year. Litigation expenses associated with the Pikeview Quarry insurance claim and expenses related to Williams EcoLogix, Inc. resulted in the increased expense level. Consolidated selling and administrative expenses as a percentage of consolidated sales increased to 19.4% from 15.5%.  The Company incurred an operating loss of $363,000 in the third quarter of 2011 compared to a $1,037,000 operating profit in the third quarter of 2010.

 

10



 

Interest expense in the third quarter of 2011 was approximately $56,000 lower compared to the prior year quarter. The reduced interest expense was the result of both lower interest rates and reduced borrowings. The average interest rate in the third quarter of 2011 was approximately 5.7% compared to approximately 6.8% in the third quarter of 2010. Average total outstanding indebtedness for the third quarter of 2011 was approximately $11,048,000 compared to approximately $12,619,000 in the third quarter of 2010. The reduction in outstanding indebtedness primarily reflects lower outstanding term debt resulting from scheduled principal payments.

 

A discussion of operations by segment follows.

 

Construction Products

 

The table below presents a summary of operating information for the two reportable segments within the Construction Products group for the quarters ended October 1, 2011 and October 2, 2010 (amounts in thousands):

 

 

 

Concrete,
Aggregates and
Construction
Supplies

 

Doors

 

Quarter ended October 1, 2011

 

 

 

 

 

Revenues from external customers

 

$

8,266

 

$

3,161

 

Gross profit

 

1,311

 

599

 

Gross profit as a percent of sales

 

15.9

%

18.9

%

Segment operating income

 

(780

)

72

 

Operating income as a percent of sales

 

(9.4

)%

2.3

%

Segment assets as of October 1, 2011

 

$

33,568

 

$

6,224

 

Return on assets

 

(2.3

)%

1.2

%

 

 

 

 

 

 

Quarter ended October 2, 2010

 

 

 

 

 

Net sales to external customers

 

$

10,491

 

$

3,025

 

Gross profit

 

2,312

 

582

 

Gross profit as a percent of sales

 

22.0

%

19.2

%

Segment operating income

 

471

 

66

 

Operating income as a percent of sales

 

4.5

%

2.2

%

Segment assets as of October 2, 2010

 

$

37,351

 

$

6,207

 

Return on assets

 

1.3

%

1.1

%

 

Concrete, Aggregates and Construction Supplies Segment

 

Construction activity in the Company’s principal markets of Colorado Springs and Pueblo, Colorado remains weak and was so in both periods. Spending on both residential and commercial construction is at depressed levels. Concrete yardage and tons of aggregate sold or consumed internally were down 21.1% and 23.1%, respectively, compared to the third quarter of 2010. Selling prices for concrete declined compared to the prior year although most of the drop in selling price was offset by lower cement prices. The gross profit rate for the CACS segment as a whole was 15.9% in the third quarter of 2011 compared to 22.0% in the prior year third quarter. Lower sales volume, a very competitive pricing environment and higher prices for diesel fuel all lead to the lower gross profit rate. Selling and administrative expenses for this segment increased by approximately $296,000 principally due to the litigation expenses related to the Pikeview Quarry insurance claim.

 

Door Segment

 

Sales during the third quarter of 2011 in the Door segment were $136,000 (4.5%) higher than in the third quarter of 2010. The gross profit percentage in 2011 was slightly lower due to more competitive pricing in the slow construction market.

 

11



 

HVAC Products

 

The table below presents a summary of operating information for the two reportable segments within the HVAC products group for the quarters ended October 1, 2011 and October 2, 2010 (amounts in thousands):

 

 

 

Heating and
Cooling

 

Evaporative
Cooling

 

Quarter ended October 1, 2011

 

 

 

 

 

Net sales to external customers

 

$

8,414

 

$

5,570

 

Gross profit

 

2,449

 

1,166

 

Gross profit as a percent of sales

 

29.1

%

20.9

%

Segment operating income

 

586

 

373

 

Operating income as a percent of sales

 

7.0

%

6.7

%

Segment assets as of October 1, 2011

 

$

19,411

 

$

10,094

 

Return on assets

 

3.0

%

3.7

%

 

 

 

 

 

 

Quarter ended October 2, 2010

 

 

 

 

 

Net sales to external customers

 

$

9,746

 

$

5,792

 

Gross profit

 

2,493

 

1,249

 

Gross profit as a percent of sales

 

25.6

%

21.6

%

Segment operating income

 

651

 

469

 

Operating income as a percent of sales

 

6.7

%

8.1

%

Segment assets as of October 2, 2010

 

$

19,009

 

$

10,409

 

Return on assets

 

3.4

%

4.5

%

 

Heating and Cooling Segment

 

Sales in the Heating and Cooling segment decreased $1,332,000 (13.7%) in the third quarter of 2011 from the comparable 2010 quarter. Sales of furnaces were modestly higher in 2011 but a continuing weak commercial construction market resulted in lower fan coil sales. The gross profit ratio for this segment improved from 25.6% to 29.1% due to better purchasing methods which resulted in reductions in some material costs, improved factory productivity and product sales mix. Selling and administrative expenses were substantially unchanged.

 

Evaporative Cooling Segment

 

Sales in the Evaporative Cooling segment were just $222,000 (3.8%) lower in the third quarter of 2011 compared to the prior year quarter. The gross profit ratio dropped from 21.6% to 20.9% due to increases in prices for certain raw materials, particularly steel.

 

Operations - Comparison of Nine Months Ended October 1, 2011 to Nine Months Ended October 2, 2010

 

In the ensuing discussions of the results of operations the term gross profit means the amount determined by deducting cost of sales (exclusive of depreciation, depletion and amortization) from sales. The gross profit ratio is gross profit divided by sales.

 

Consolidated sales in the first nine months of 2011 were $6,289,000 (7.4%) less than in the first nine months of 2010. Sales results at three of the four Company’s business segments were lower in 2011. Only the Evaporative Cooling segment realized increased revenues. The same market and economic conditions mentioned in the discussion of the third quarter results contributed to the lower sales in the other three segments for the first nine months of 2011. The consolidated gross profit ratio was 20.4% in the first nine months of 2011 compared to 21.5% for the same period in 2010. The CACS segment experienced a substantial drop in its gross profit rate while the gross profit rate for the other three segments either improved or held steady. Consolidated selling and administrative expenses were $465,000 higher in the first nine months of 2011 compared to the comparable period in the prior year. As explained in the remarks on the third quarter results, the higher level of expense is due to the Pikevew litigation and Williams EcoLogix, Inc. Selling and administrative expenses as a percentage of net sales increased to 18.9% from 17.0%.

 

The operating loss for the first nine months of 2011 was $1,901,000 compared to a $544,000 operating profit in the comparable period in 2010. The operating loss for the first nine months of 2011 includes $169,000 in gains from the sale of equipment compared to gains of $70,000 in the prior year period.

 

12



 

Interest expense in the first nine months of 2011 was approximately $230,000 lower compared to the same period of 2010. The reduction in interest expense was due to a combination of lower interest rates and reduced borrowings. The average interest rate in the first nine months of 2011 was approximately 5.9 % compared to approximately 7.10% in 2010. Average total outstanding indebtedness was approximately $11,488,000 in the first nine months of 2011 compared to approximately $13,313,000 in the first nine months of 2010. The reduction in outstanding indebtedness was due principally to the scheduled term debt repayments.

 

A discussion of operations by segment follows.

 

Construction Products

 

The table below presents a summary of operating information for the two reportable segments within the Construction Products group for the nine months ended October 1, 2011 and October 2, 2010 (amounts in thousands):

 

 

 

Concrete,
Aggregates and
Construction
Supplies

 

Doors

 

Nine Months ended October 1, 2011

 

 

 

 

 

Net sales to external customers

 

$

24,719

 

$

9,164

 

Gross profit

 

2,386

 

2,206

 

Gross profit as a percent of sales

 

9.7

%

24.1

%

Segment operating (loss) income

 

(3,500

)

556

 

Operating (loss) income as a percent of sales

 

(14.2

)%

6.1

%

Segment assets as of October 1, 2011

 

$

33,568

 

$

6,224

 

Return on assets

 

(10.4

)%

8.9

%

 

 

 

 

 

 

Nine Months ended October 2, 2010

 

 

 

 

 

Net sales to external customers

 

$

29,008

 

$

9,765

 

Gross profit

 

5,053

 

2,245

 

Gross profit as a percent of sales

 

17.4

%

23.0

%

Segment operating (loss) income

 

(514

)

594

 

Operating (loss) income as a percent of sales

 

(1.2

)%

6.1

%

Segment assets as of October 2, 2010

 

$

37,351

 

$

6,207

 

Return on assets

 

(1.4

)%

9.6

%

 

Concrete, Aggregates and Construction Supplies Segment

 

Sales in the CACS segment decreased by $4,289,000 (14.8%) in the first nine months of 2011 compared to the first nine months of 2010. The same market and demand factors mentioned in the discussion of the first quarter results were also relevant to the nine-month period. Concrete yardage decreased by 18.4% compared to the first nine months of 2010. The average price of ready-mixed concrete declined by approximately2.6% as a result of a more intense level of competition, lower cement costs and a change in product mix. Not all of the lower ready-mix concrete prices were offset by lower cement costs in the nine month period. Sales of aggregates (sand, crushed limestone and gravel) including those used internally were approximately 12.8%  lower in the first nine months of 2011 compared to the same period in 2010. The overall gross profit rate for the CACS segment decreased from 17.4% for the first nine months of 2010 to 9.7% in the comparable period of the current year. Lower prices for ready-mix concrete, diminished volume, higher diesel fuel prices and the fixed costs of this segment all contributed to the decline in the gross profit rate. Selling and administrative expenses were higher in 2011 as a result of the Pikeview insurance claim litigation.

 

Door Segment

 

Sales during the first nine months of 2011 in the Door segment decreased $601,000 or 6.2% from the comparable 2010 period as a result of the slow construction markets. The sales decline in the Door segment is not as significant as that experienced in the CACS segment because the Door business provided doors and related hardware for some new healthcare and educational facilities. The gross profit ratio in 2011 improved by 1.1 points due to product mix factors.

 

13



 

HVAC Products

 

The table below presents a summary of operating information for the two reportable segments within the HVAC products group for the nine months ended October 1, 2011 and October 2, 2010 (amounts in thousands):

 

 

 

Heating and
Cooling

 

Evaporative
Cooling

 

Nine Months ended October 1, 2011

 

 

 

 

 

Net sales to external customers

 

$

 22,920

 

$

 21,173

 

Gross profit

 

6,290

 

4,965

 

Gross profit as a percent of sales

 

27.4

%

23.4

%

Segment operating income

 

750

 

2,290

 

Operating income as a percent of sales

 

3.3

%

10.8

%

Segment assets as of October 1, 2011

 

$

 19,411

 

$

 10,094

 

Return on assets

 

3.9

%

22.7

%

 

 

 

 

 

 

Nine Months ended October 2, 2010

 

 

 

 

 

Net sales to external customers

 

$

 25,647

 

$

 19,846

 

Gross profit

 

6,070

 

4,628

 

Gross profit as a percent of sales

 

23.7

%

23.3

%

Segment operating income

 

310

 

2,069

 

Operating income as a percent of sales

 

1.2

%

10.4

%

Segment assets as of October 2, 2010

 

$

 19,009

 

$

 10,409

 

Return on assets

 

1.6

%

19.9

%

 

Heating and Cooling Segment

 

Sales in the Heating and Cooling segment decreased $2,727,000 (10.6%) in the first nine month of 2011 from the comparable period in 2010.  Fan coil sales were down 42% reflecting a continued depressed level of commercial construction particularly with regard to new hotels, a principal application for fan coils. Sales of furnaces and heaters increased by 7% compared to the first nine months of 2010. The higher level of sales for these products was due in part to some rehabilitation projects at multifamily dwellings and improved product availability. The gross profit ratio for this segment increased by 3.7 points for the reasons mentioned in the discussion of the third quarter results. Selling and administrative expenses were lower in the first nine months of 2011 as a result of a lower level of legal expenses associated with product liability claims and more stringent spending controls.

 

Evaporative Cooling Segment

 

Sales in the Evaporative Cooling segment increased $1,327,000 or 6.7% in the first nine months of 2011 compared to the same period in 2010. Sales in 2010 were held down by a carryover of inventory at some customers from the 2009 season. The gross profit ratio was virtually unchanged. The effect of the improved volume and a beneficial change in product sales mix was offset by some increased material costs, particularly steel. Selling and administrative expenses were higher in the 2011 period due to the higher level of sales, additional sales staff and higher incentive compensation provisions. As a percentage of net sales these expenses were 11.3% in the first nine months of 2011 compared to 11.2% for the same period in 2010.

 

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

 

The condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States which require the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of October 1, 2011 and January 1, 2011 and affect the reported amounts of revenues and expenses for the periods reported. Actual results could differ from those estimates.

 

Information with respect to the Company’s critical accounting policies which the Company believes could have the most significant effect on the Company’s reported results and require subjective or complex judgments by management is contained in Notes 2 - 4 in this report on Form 10-Q and in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, of the Company’s Annual Report on Form 10-K for the fiscal year ended January 1, 2011.

 

14



 

OUTLOOK

 

The level of construction activity in southern Colorado continues at a slow pace. Housing starts in Colorado Springs have increased modestly compared to the last two years but remain at relatively low levels. Housing construction in Pueblo is very depressed. Business conditions are not expected to substantially improve within the next 12 months. Under the current conditions, pricing in the CACS segment is expected to remain sharply competitive. It is difficult to predict the timing and magnitude of any general recovery of construction in the markets served.

 

The Door segment’s sales are also, to a significant degree, reliant on new construction. The sales backlog of the Door segment at the end of September 2011 is modestly lower than at the end of September 2010. Pricing remains highly competitive.

 

July typically marks the end of the selling season for evaporative coolers. Sales during the third quarter of 2011 declined approximately 3.8% primarily due to less favorable weather conditions throughout the third quarter of 2011 when compared to the third quarter of 2010. Sales during the fourth quarter are preseason orders and are highly dependent upon the timing these orders are placed by our customers.

 

The sales backlog for fan coil products in the Heating and Cooling segment has shown some increase recently as some construction projects which were previously deferred are now moving forward. However, the overall commercial construction market is expected to remain slow. Furnace sales for the remainder of the year will be largely weather dependent.

 

RECENTLY ISSUED ACCOUNTING STANDARDS

 

See Note 4 for a discussion of recently issued accounting standards.

 

MATERIAL CHANGES TO CONTRACTUAL OBLIGATIONS

 

As discussed in Note 9, the Company entered into an amendment of its Credit Agreement with its bank lender. Other than discussed in the preceding sentence, there were no material changes to contractual obligations that occurred during the quarter ended October 1, 2011.

 

FORWARD-LOOKING STATEMENTS

 

The foregoing discussion 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,” “believes,” “contemplates,” “estimates,” “expects,” “plans,” “projects,” 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, national and local economic conditions, competitive forces and changes in governmental regulations and policies. Some of these factors are discussed in more detail in the Company’s 2010 Annual Report on Form 10-K. Changes in accounting pronouncements could also alter projected results. Forward-looking statements speak only as of the date they were made, and the Company undertakes no obligation to publicly update them.

 

Item 3.    Quantitative and Qualitative Disclosures About Market Risk

 

There were no material changes in the market risks nor legal proceedings that the Company is exposed to since those discussed in the Company’s 2010 Annual Report on Form 10-K.

 

Item 4T.     Controls and Procedures

 

(a)                      Evaluation of Disclosure Controls and Procedures.

 

The Company’s Chief Executive Officer and Chief Financial Officer, with the participation of management, have evaluated the effectiveness of the Company’s disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (Exchange Act) as of October 1, 2011. The Chief Executive Officer and Chief Financial Officer, based on that valuation, concluded that our disclosure controls and procedures were effective and were reasonably designed to ensure that all material information relating to the Company (including its subsidiaries) required to be disclosed in this quarterly report is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission.

 

15



 

(b)                     Changes in Internal Control Over Financial Reporting.

 

The Company continually reassesses its internal control over financial reporting and makes changes as deemed prudent. During the quarter ended October 1, 2011, there were no material weaknesses identified in our review of internal control over financial reporting and no significant changes in the Company’s internal control over financial reporting occurred during the quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

PART II - OTHER INFORMATION

 

Item 2.        Unregistered Sales of Equity Securities and Use of Proceeds

 

The Company has not purchased any of its common stock to become treasury stock during the period April 3, 2011 through July 2, 2011.  However, the Company reserved 150,000 treasury shares representing the maximum number allowed to be granted under the 2010 Non-Employee Directors Stock Plan (“Plan”) to non-employee directors in lieu of the base director retainer fee. The Company issued a total of 12,000 shares to eight eligible board members effective January 1, 2011 as payment for the retainer fee for 2010 that remained unpaid when the Plan was adopted. The Company also issued a total of 12,000 shares to same eight eligible board members effective July 15, 2011 as full payment for the 2011 retainer fee.

 

On January 19, 1999, the Company initiated purchases under the current open-ended program to repurchase its common stock. Purchases are made on the open market or in block trades at the discretion of management. The dollar amount authorized for the program has been periodically increased by the Board of Directors and approved by the Company’s lender under the Company’s prior credit facility. As of October 1, 2011, $1,307,404 of the authorized amount remains available for stock purchases. The Credit Agreement contains certain restrictions on the Company’s ability to repurchase its stock. Amendments to the Credit Agreement have retained these restrictions. See further discussion in Note 9 and the “Liquidity and Capital Resources” section of Item 2 above.

 

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Item 6.    Exhibits

 

Exhibit No.

 

Description

 

 

 

3

 

Registrant’s Restated Certificate of Incorporation dated May 28, 1975, as amended on May 24, 1978, May 27, 1987 and June 3, 1999 filed as Exhibit 3 to Form 10-K for the year ended January 1, 2005, incorporated by reference.

 

 

 

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.

 

 

 

10

 

Credit Agreement dated April 16, 2009 among Continental Materials Corporation, as the Company, The Various Financial Institutions Party Hereto, as Lenders, and The Private Bank and Trust Company, as Administrative Agent and Arranger, filed as Exhibit 10f to Form 10-K for the year ended January 3, 2009, incorporated herein by reference; First Amendment thereto dated as of November 18, 2009, filed as Exhibit 10.1 to Form 10-K for the year ended January 2, 2010; Second Amendment thereto dated April 15, 2010, filed as Exhibit 10.2 to Form 10-K for the year ended January 2, 2010; Third Amendment thereto dated November 12, 2010 filed as Exhibit 10.1 to Form 10-Q for the quarter ended October 2, 2010; Fourth Amendment thereto dated December 31, 2010; Fifth Amendment thereto dated April 14, 2011 filed as Exhibits 10.1 and 10.2, respectively, to Form 10-K for the year ended January 1, 2011; and the Amended and Restated Credit Agreement thereto dated November 18, 2011 filed as Exhibit 10 to this Form 10-Q for the quarter ended October 1, 2011.

 

 

 

31.1

 

Certification of Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a) and Rule 13a-14(d)/15d-14(d) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes - Oxley Act of 2002.

 

 

 

31.2

 

Certification of Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a) and Rule 13a-14(d)/15d-14(d) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes - Oxley Act of 2002.

 

 

 

32

 

Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes - Oxley Act of 2002.

 

 

 

101

 

The following financial information from Continental Materials Corporation’s Quarterly Report on Form 10-Q for the period ended October 1, 2011 filed with the SEC on November 21, 2011, formatted in Extensible Business Reporting Language (XBRL): (i) the Condensed Consolidated Statements of Operations and Retained Earnings for the three and nine-month periods ended October 1, 2011 and October 2, 2010, (ii) the Condensed Consolidated Balance Sheets at October 1, 2011 and January 1, 2011, (iii) the Condensed Consolidated Statements of Cash Flows for the nine-month periods ended October 1, 2011 and October 2, 2010, and (iv) Notes to the Quarterly Condensed Consolidated Financial Statements.*

 


*                 Pursuant to Rule 406T of Regulation S-T, the XBRL related information in Exhibit 101 to this Quarterly Report on Form 10-Q shall not be deemed to be “filed” for purposes of Section 18 of the Exchange Act, or otherwise subject to the liability of that section, and shall not be deemed part of a registration statement, prospectus or other document filed under the Securities Act or the Exchange Act, except as shall be expressly set forth by specific reference in such filings.

 

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SIGNATURE

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

 

 

 

 

CONTINENTAL MATERIALS CORPORATION

 

 

 

 

 

 

 

 

Date:

November 21, 2011

 

By:

/s/ Joseph J. Sum

 

 

 

 

Joseph J. Sum, Vice President

 

 

 

 

and Chief Financial Officer

 

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