Company Quick10K Filing
Continental Materials
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$0.00 2 $28
10-K 2020-03-23 Annual: 2019-12-28
10-Q 2019-11-12 Quarter: 2019-09-28
10-Q 2019-08-13 Quarter: 2019-06-29
10-Q 2019-05-14 Quarter: 2019-03-30
10-K 2019-03-28 Annual: 2018-12-29
10-Q 2018-11-13 Quarter: 2018-09-29
10-Q 2018-08-14 Quarter: 2018-06-30
10-Q 2018-05-15 Quarter: 2018-03-31
10-K 2018-03-29 Annual: 2017-12-30
10-Q 2017-11-14 Quarter: 2017-09-30
10-Q 2017-08-15 Quarter: 2017-07-01
10-Q 2017-05-16 Quarter: 2017-04-01
10-K 2017-03-31 Annual: 2016-12-31
10-Q 2016-11-15 Quarter: 2016-10-01
10-Q 2016-08-16 Quarter: 2016-07-02
10-Q 2016-05-17 Quarter: 2016-04-02
10-K 2016-04-01 Annual: 2016-01-02
10-Q 2015-11-16 Quarter: 2015-10-03
10-Q 2015-08-14 Quarter: 2015-07-04
10-Q 2015-05-19 Quarter: 2015-04-04
10-K 2015-04-03 Annual: 2015-01-03
10-Q 2014-11-17 Quarter: 2014-09-27
10-Q 2014-08-12 Quarter: 2014-06-28
10-Q 2014-05-13 Quarter: 2014-03-29
10-K 2014-03-28 Annual: 2013-12-28
10-Q 2013-11-12 Quarter: 2013-09-28
10-Q 2013-08-13 Quarter: 2013-06-29
10-Q 2013-05-14 Quarter: 2013-03-30
10-K 2013-03-29 Annual: 2012-12-29
10-Q 2012-11-13 Quarter: 2012-09-29
10-Q 2012-08-14 Quarter: 2012-06-30
10-Q 2012-05-15 Quarter: 2012-03-31
10-K 2012-03-30 Annual: 2011-12-31
10-Q 2011-11-21 Quarter: 2011-10-01
10-Q 2011-08-16 Quarter: 2011-07-02
10-Q 2011-05-17 Quarter: 2011-04-02
10-K 2011-04-15 Annual: 2011-01-01
10-Q 2010-11-15 Quarter: 2010-10-02
10-Q 2010-07-30 Quarter: 2010-07-03
10-Q 2010-05-18 Quarter: 2010-04-03
10-K 2010-04-19 Annual: 2010-01-02
8-K 2020-03-23 Earnings, Exhibits
8-K 2020-02-18 Other Events, Exhibits
8-K 2020-02-18 Regulation FD
8-K 2019-11-19 Officers
8-K 2019-11-12 Earnings, Exhibits
8-K 2019-10-15
8-K 2019-09-25 Exit Costs
8-K 2019-08-13 Earnings, Exhibits
8-K 2019-06-17 Enter Agreement, M&A, Exhibits
8-K 2019-06-03 M&A, Exhibits
8-K 2019-05-31 Officers, Exhibits
8-K 2019-05-22 Shareholder Vote
8-K 2019-05-20 M&A, Exhibits
8-K 2019-05-14 Earnings, Exhibits
8-K 2019-03-28 Earnings, Exhibits
8-K 2019-03-06 Other Events
8-K 2019-02-01 M&A
8-K 2019-02-01 Enter Agreement, M&A, Exhibits
8-K 2019-01-15 Other Events
8-K 2018-12-11 Officers, Exhibits
8-K 2018-11-13 Earnings, Exhibits
8-K 2018-10-15 Officers
8-K 2018-10-01 Officers
8-K 2018-09-06 Officers
8-K 2018-08-23 Officers
8-K 2018-08-14 Earnings, Exhibits
8-K 2018-08-03 Officers
8-K 2018-06-04 Officers
8-K 2018-05-23 Shareholder Vote
8-K 2018-05-15 Earnings, Exhibits
8-K 2018-03-29 Earnings, Exhibits
CUO 2019-12-28
Part I
Item 1. Business
Item 1A. Risk Factors
Item 1B. Unresolved Staff Comments
Item 2. Properties
Item 3. Legal Proceedings
Item 4. Mine Safety Disclosures
Part II
Item 5. Market for Registrant’S Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Item 6. Selected Financial Data
Item 7. Management’S Discussion and Analysis of Financial Condition and Results of Operations
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Item 8. Financial Statements and Supplementary Data
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9A. Controls and Procedures
Item 9B. Other Information
Part III
Part IV
Item 16. Form 10-K Summary
EX-4.1 cuo-20191228ex412effebf.htm
EX-10 cuo-20191228xex10.htm
EX-21 cuo-20191228ex21139629e.htm
EX-23 cuo-20191228xex23.htm
EX-31.1 cuo-20191228ex311ddb317.htm
EX-31.2 cuo-20191228ex312a35bae.htm
EX-32 cuo-20191228xex32.htm
EX-95 cuo-20191228xex95.htm

Continental Materials Earnings 2019-12-28

CUO 10K Annual Report

Balance SheetIncome StatementCash Flow

Comparables ($MM TTM)
Ticker M Cap Assets Liab Rev G Profit Net Inc EBITDA EV G Margin EV/EBITDA ROA
CPAC 4,145 2,863 1,412 0 0 0 0 4,145 0%
EXP 3,814 2,326 1,315 1,403 317 43 251 4,732 23% 18.8 2%
CBPX 959 677 327 514 127 62 124 1,099 25% 8.9 9%
USCR 887 1,456 1,093 1,480 65 15 129 1,565 4% 12.1 1%
CSTE 456 617 150 0 0 0 0 362 0%
FRTA 476 1,866 1,742 1,506 289 -17 65 1,601 19% 24.6 -1%
CUO 28 92 55 123 13 0 -5 24 10% -4.4 0%
CPSH 14 3 16 2 0 1 13 10% 15.1 -49,884,200%
CX 552,628 333,095 0 0 0 0 -5,071 0%
CCCL 0 0 0 0 -9 -0%

10-K 1 cuo-20191228x10k.htm 10-K cuo_Current_Folio_10K

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-K

 

(Mark One)

 

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

 

For the fiscal year ended December 28, 2019

 

OR

 

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

 

For the transition period from             to             

 

Commission file number 1-3834

 

Continental Materials Corporation

(Exact name of registrant as specified in its charter)

 

Delaware

 

36-2274391

(State or other jurisdiction

 

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

of incorporation or organization)

 

 

 

 

440 South La Salle Street, Suite 3100, Chicago, Illinois

 

60605

(Address of principal executive offices)

 

(Zip Code)

 

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 - $0.25 par value

 

NYSE American

 

Securities registered pursuant to Section 12(g) of the Act: NONE

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined by Rule 405 of the Securities Act.  Yes ☐    No ☒

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.  Yes ☐    No ☒

 

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 ☒  No ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 and 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 such files).  Yes ☒  No ☐

 

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 the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer ☐

 

Accelerated filer ☐

 

 

 

Non-accelerated filer ☐

 

Smaller reporting company ☒

 

 

 

 

 

Emerging growth company ☐

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

 

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

 

The aggregate market value (based on the June 28, 2019 closing price) of voting stock held by non-affiliates of registrant was approximately $8,816,000. As of March 13, 2020, there were 1,675,484 shares of the registrant’s common stock outstanding.

 

Incorporation by reference: The information contained in Part III hereof is hereby incorporated by reference from the earlier filed of: (i) an amendment to this Annual Report on Form 10 K or (ii) a definitive proxy statement filed pursuant to Regulation 14A, within 120 days of December 28, 2019. 

 

 

 

 

 

TABLE OF CONTENTS

 

 

    

Page

 

 

 

Special Note Regarding Forward Looking Statements 

 

3

 

 

 

PART I. 

 

3

 

 

 

Item 1. Business 

 

3

Item 1A. Risk Factors 

 

6

Item 1B. Unresolved Staff Comments 

 

7

Item 2. Properties 

 

7

Item 3. Legal Proceedings 

 

8

Item 4. Mine Safety Disclosure 

 

8

 

 

 

PART II. 

 

9

 

 

 

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 

 

9

Item 6. Selected Financial Data 

 

9

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 

 

10

Item 7A. Quantitative and Qualitative Disclosures about Market Risk 

 

20

Item 8. Financial Statements and Supplementary Data 

 

21

Item 9. Changes In and Disagreements With Accountants on Accounting and Financial Disclosures 

 

49

Item 9A. Controls and Procedures 

 

49

Item 9B Other Information 

 

50

 

 

 

Part III. 

 

50

 

 

 

Part IV. 

 

50

 

 

 

Item 15. Exhibits, Financial Statement Schedules 

 

50

Item 16. Form 10-K Summary 

 

51

 

 

 

2

FORWARD-LOOKING STATEMENTS

 

This Annual Report on Form 10-K 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 Continental Materials Corporation’s (Company) 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 Annual 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 various factors including but not limited to: the impact of the novel coronavirus on the workforce, the Company’s supply chain and customer demand, the amount of new construction, weather, interest rates, availability of raw materials and their related costs, economic conditions and competitive forces in the regions where the Company does business, changes in governmental regulations and policies and the ability of the Company to obtain credit on commercially reasonable terms. Changes in the income tax code, income tax rates as well as accounting pronouncements could also alter projected results. Other factors not currently anticipated may also materially and adversely affect the Company’s results of operations, cash flows and financial position. Forward-looking statements speak only as of the date they were made and we undertake no obligation to publicly update them.

 

PART I

 

Item 1.        BUSINESS

 

(References to a “Note” are to the Notes to Consolidated Financial Statements contained elsewhere in this report.)

 

The Company is a Delaware corporation, incorporated in 1954. The Company is a holding company with operations in the Building Products industry group, although it may look to expand outside of that market. Within this industry group the Company has identified three reportable segments: the HVAC segment, the Door segment and the Construction Materials segment.

 

HVAC Segment

The HVAC segment is comprised of four operating companies and sells a variety of products including residential and commercial wall furnaces, fan coils, evaporative coolers, boiler room equipment, dryer boxes and related accessories from the Company’s wholly-owned subsidiaries, Williams Furnace Co. (WFC), Phoenix Manufacturing, Inc. (PMI) Global Flow Products (GFP) and InOvate Dryer Technologies (InOvate).

 

WFC manufactures residential gas furnaces and commercial fan coil systems. Activities covering the full cycle of product manufacturing, from design to production, are all performed in-house at its Colton, California location. WFC is one of three domestic companies producing wall furnaces (excluding units sold to the recreational vehicle industry) and gas-fired console heaters, which comprise only a small component of the heating industry, and is one of nine domestic companies producing fan coils.

 

PMI manufactures residential and commercial evaporative coolers. Activities covering the full cycle of product manufacturing, from design to production, are all performed in-house at its Phoenix, Arizona location. PMI is one of two primary domestic manufacturers of evaporative coolers, although there are other small domestic competitors as well as a number of foreign producers that also distribute evaporative cooling products in the U.S.

 

GFP manufactures American Society of Mechanical Engineers (ASME) certified tanks, pressure vessels, valves and other accessories typically found in commercial hydronic systems at its Broken Arrow, Oklahoma locations. GFP is one of many companies manufacturing and distributing valves, accessories and ASME certified tanks to the hydronics market.

 

InOvate designs and manufactures a range of air venting and handling products focused on dryer exhaust safety and efficiency. InOvate partners with its supply chain to leverage manufacturing excellence from its location in Jupiter, Florida. InOvate is, we believe, the market leader in manufacturing metal air handling products for the dryer venting marketplace, as the limited competition generally manufactures lower quality products made out of plastic materials, albeit at a lower price point. 

3

 

The HVAC segment group markets its products throughout North America through plumbing, heating and air conditioning wholesale distributors as well as directly to major retail home-centers and other retail outlets. Some of the products are also sold to contractors that install HVAC components and equipment manufacturers for commercial applications. The Company contracts with independent manufacturers’ representatives for all of its products while also employing a staff of sales and sales support personnel.

 

The HVAC segment group maintains several parts departments and help lines to assist its customers in servicing the products. The Company does not currently perform installation services, nor are maintenance or service contracts offered. The HVAC segment group does not derive any revenue from after-sales service and support other than from parts sales. Training and product information sessions for the furnace, fan coil and evaporative cooler product lines are offered at our plants and other sites for distributors, contractors, engineers, utility company employees and other customers.

 

The heating and cooling industry is dominated by a few manufacturers which are substantially larger than the Company. These manufacturers sell diversified lines of heating and air conditioning units directed primarily toward central heating and cooling systems. Competition in this industry is primarily on a basis of price, product features and performance, service and timeliness of delivery.

 

The HVAC segment has few direct competitors but there are multiple competitors for each product line.

 

Door Segment

 

The Door segment is comprised of three operating companies and sells and installs hollow metal and wood doors, door frames and related hardware, sliding door systems and electronic access and security systems from the Company’s wholly-owned subsidiaries, McKinney Door and Hardware, Inc. (MDHI), Fastrac Building Supply (Fastrac) and Serenity Sliding Door Systems (Serenity).

 

·

MDHI is an authorized distributor of a major manufacturer of hollow metal doors and hardware operating from locations in Colorado Springs, Colorado and Pueblo, Colorado. MDHI has a leading position in the manufacturing of door components, including internal framing components (stile and rails), glass inserts, door core, interior door facings (molded and veneer) and exterior door facings. MDHI is one of many competitors in a fragmented, primarily regional market.

 

·

Fastrac is the architect, builder, facility owner, and wholesale distributor's nationwide source for commercial doors, frames, hardware, and millwork, in particular for healthcare, hospitality, and commercial office interior construction and design projects. Fastrac supplies and installs products from its Colorado Springs, Colorado location, and is one of many competitors in a fragmented market.

 

·

Serenity manufactures sliding barn door systems and sliding door systems for healthcare, hospitality, and commercial office interior building and design projects.  Serenity provides a turn-key sliding barn door design that allows for additional floor space and versatility with a system that is ADA compliant, fully sealed for sight and sound, and is capable of reducing noise by up to 35 decibels. It operates from its location in Colorado Springs, Colorado and is one of only three competitors that have certified sound attenuating products, although it is one of many sliding door system manufacturers.

 

The Door segment’s sales are primarily for commercial and institutional buildings such as schools, healthcare facilities and hospitality buildings.  Sales are made to independent installers, general contractors or building owners. Sales include metal and wood doors, door frames and related hardware, sliding door systems and electronic access and security systems. Certain projects include on site installation services. The Door Segment markets throughout North America primarily through its own staff of industry professionals who specialize in medical, healthcare, hospitality, assisted living and commercial office interior building products.

 

The acquisition of Fastrac and Serenity in 2019 has increased the range of products and services and expanded its customer base. See Note 18.

 

4

The Door segment sells hollow metal and wood doors, door frames and related hardware, lavatory fixtures and electronic access and security systems throughout the United States. The door industry is highly fragmented and competitive, and includes a number of regional and international competitors. Competition is largely based on the functional and aesthetic quality of products, service quality, distribution capability and price.

 

Construction Materials Segment

The Construction Materials segment offers a variety of construction related products including limestone, gravel, sand, steel rebar and consumable construction products from facilities in Pueblo and Colorado Springs, Colorado operated by the Company’s wholly-owned subsidiaries, Castle Concrete Company (Aggregates) and Castle Rebar & Supply (Rebar) and TMOP Legacy Company (formerly Transit Mix of Pueblo, Inc.).

 

·

Aggregates has ceased mining operations at all of its properties. It previously operated limestone, gravel and sand operations at multiple locations in or near Colorado Springs and Pueblo, Colorado. Aggregates expects to conduct property reclamation over the next few years, sell off its remaining assets and exit the market.

·

Rebar provides custom steel rebar shaping operations and sells consumable construction supplies to construction trade professionals from its locations in Colorado Springs, Colorado and Pueblo, Colorado.   The Company’s sales of rebar and other construction supplies are subject to intense competition from three larger companies in Denver and one company in Colorado Springs as well as a number of small local competitors.

 

The Construction Materials segment group markets its products primarily through its own direct sales personnel and confines its sales largely in southern Colorado. The Company competes on price, product availability and customer service.

 

During 2019, no customer accounted for 10% or more of the total sales of the Company.

 

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.

 

The Company sold substantially all of the assets of its ready mix concrete and Daniels Sand operations in the first quarter of 2019. See Note 19. During the second quarter of 2019, the Company acquired the assets of four operating businesses through three separate transactions. See Note 18 for additional discussion of these acquisitions. In conjunction with these transactions, management reviewed its segment reporting structure and determined it was no longer appropriate for the consolidated business going forward. The segment reporting was revised to align with the way the Company’s decision makers evaluate, manage and allocate resources to the operating businesses after the sale of the concrete and sand operation assets and the acquisitions discussed in Note 18. Segment information for prior periods has been reclassified to conform to current segment reporting structure.

 

EMPLOYEES

 

The Company employed 460 people as of December 28, 2019. Employment varies throughout the year due to the seasonal nature of its businesses. The number of employees was significantly reduced due to the sale of substantially all of the assets of its ready mix concrete and Daniels Sand operations in the first quarter of 2019.  This transaction also caused the Company to re-align its segment reporting to align with the way management will measure and evaluate operations going forward. A breakdown of the current and prior year’s employment at year-end by segment was:

 

 

 

 

 

 

 

 

    

2019

    

2018

 

HVAC Segment

 

350

 

337

 

Door Segment

 

73

 

43

 

Construction Materials Segment

 

25

 

221

 

Corporate Office and Other

 

12

 

11

 

Total

 

460

 

612

 

 

5

The factory employees at the WFC plant are represented by the Carpenters Local 721 Union under a contract that expires December 31, 2022. The Company considers relations with its employees and with their union to be good. There are no unions at any of the Company’s other operations.

 

ENVIRONMENTAL MATTERS

 

Our operations involve the use, release, discharge, disposal and clean-up of substances regulated under federal, state and/or local environmental protection laws and regulations, including those related to reclamation of mined areas. Some laws impose obligations on us with respect to the management of waste products. We strive not only to maintain compliance with all applicable environmental laws and regulations, but to exceed the minimum requirements of those laws and regulations where practicable. However, there can be no assurance that the Company will be in compliance with all applicable environmental laws and regulations in the future.

 

In 2019, our capital expenditures and remediation expenses for environmental matters, except those expenses related to our mining reclamation efforts, were not material to our financial condition. Because of the complexity and ever-changing nature of environmental laws and regulations, it is difficult to predict total reclamation costs. 

 

TENDER OFFER

 

On February 18, 2020 Bee Street Holdings LLC, an entity controlled by James G. Gidwitz, the Chairman of our board of directors and our Chief Executive Officer, ("Bee Street"), commenced an unsolicited tender offer to acquire all of the outstanding shares of common stock for $9.50 per share in cash.

 

On March 3, 2020 the Company filed Schedule 14D-9 stating that the Board of Directors had unanimously decided to express no opinion and remain neutral with respect to the offer.

 

On March 17, 2020, the Bee Street tender offer expired. On March 18, 2020 Bee Street extended the tender offer until April 3, 2020 to allow additional time for stockholders to consider the offer in the light of recent market activity and the developing economic situation stemming from the COVID-19 coronavirus pandemic.

 

AVAILABLE INFORMATION

 

The Company electronically files various reports and other information with the Securities and Exchange Commission (SEC) including this annual report on Form 10-K, our quarterly reports on Form 10-Q and our current reports on Form 8-K. The SEC maintains an internet site that contains reports, proxy and information statements and other information regarding the Company. Access to this information is available free of charge at the SEC’s website at http://www.sec.gov. In addition to the SEC site, the Company maintains an internet site which contains SEC filings, SEC filings in XBRL format, Governance documents and Annual Reports. Access to this site and the information therein is available free of charge at www.continental-materials.com.  The information on our website is not incorporated by reference into this Annual Report on Form 10-K.

 

Item 1A.    RISK FACTORS

The Company is a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and as such, is not required to provide information in response to this item. However, in light of recent events, stockholders should be aware of the following risks associated with an investment in the Company:

If Bee Street fails to complete its tender offer for our common stock, our stock price, business, results of operations and financial condition could be adversely affected.

 

We cannot assure that Bee Street will complete its tender offer for our common stock. If the tender offer is not completed, we will be subject to several risks. Because the current trading price of our common stock may reflect a market assumption that the tender offer will be completed, failure to complete the tender offer could adversely affect the price of our common stock. Also, we have incurred significant, and may incur additional, costs in connection with the tender offer, including the diversion of management resources, for which we will have received little or no benefit if the 

6

tender offer is not completed. A failed transaction may also result in a negative impression of the Company in the investment community.

 

The tender offer by Bee Street may increase the volatility of the price of our common stock, which may could result in substantial losses by investors.

 

The tender offer by Bee Street could affect the trading price of our common stock and increase its volatility, as well as reduce the market liquidity for our common stock. Securities class action litigation is commonly instituted against companies following periods of volatility in the market price of their securities. The commencement of this type of litigation against us in the future could result in substantial costs and a diversion of management’s attention and resources.

 

The spread of a new strain of coronavirus (also known as COVID-19) may adversely affect our business operations.

 

In December 2019, a new strain of coronavirus (also known as, and hereinafter referred to as “COVID-19”) originated in Wuhan, China, and quickly spread to infect many people in the city and surrounding area.  In some cases, COVID-19 causes severe illness and even death.  Since its discovery, COVID-19 has spread throughout China and to several other countries, significantly impacting their economies.  Various measures may be taken by countries, including the United States, both on a macro country-wide level and a local level, to combat the virus and its spread.  These may include quarantines or bans on public events.

 

The continued spread of COVID-19 may adversely affect our supply chain, results of operations and business generally, depending on the extent of its spread of the virus, the rate of infection, the severity of illness and the probability of lethality, the relative effect on various portions of the population (such as the aged), the measures taken to combat the virus and their effectiveness, the effect on international trade of any measures taken to combat the virus, any action taken (such as the lowering of interest rates) by government entities to combat the negative macroeconomic effects of these measures, the timing and availability of any vaccine for the virus, and other factors.

 

The Centers for Disease Control and Prevention has stated a risk exists of a pandemic in the United States, which would mean that the current methods in place to control of the spread of the virus have been ineffective. In such a situation, the effect on the economy and on the public may be severe.  There are no comparable recent events which may provide guidance as to the effect of the spread of COVID-19 and a potential pandemic, and, as a result, there is considerable uncertainty of its potential effect on our business and results of operations.

 

Item 1B.     UNRESOLVED STAFF COMMENTS

 

None.

 

Item 2.     PROPERTIES

 

The HVAC segment operates out of owned facilities in Colton, California and Broken Arrow, Oklahoma. These facilities are, in the opinion of management, in good condition and sufficient for the Company’s current needs. Production capacity exists at the Colton plant such that the Company could exceed the highest volumes achieved in prior years or expected in the foreseeable future and maintain timely delivery.  There is sufficient capacity in Broken Arrow, Oklahoma for the current level of business, however, expansion may be required to support increased business activity levels in future years. Additional facilities include leased facilities in Phoenix, Arizona, Jupiter, Florida and Broken Arrow, Oklahoma. Production capacity exists at the Phoenix facilities such that the Company could exceed the highest volumes achieved in prior years or expected in the foreseeable future and maintain timely delivery. These facilities are, in the opinion of management, in good condition and sufficient for the Company’s current needs.

 

The Door segment operates out of an owned facility in Colorado Springs and leased facilities in Colorado Springs, Colorado and Pueblo, Colorado. Product volumes at all of the facilities of the Company are subject to market fluctuations, but in the opinion of management, the facilities are generally well utilized. The facilities are, in the opinion of management, in good condition and sufficient for the Company’s current needs.

 

7

The Construction Materials segment comprises six aggregates locations including Grisenti Farms, Pikeview, Black Canyon (Synder), Pueblo East, Pueblo West, and Barnhart Pit, which are all located in southern Colorado. The previously leased properties of Pueblo East, Pueblo West and Barnhart Pit were part of the legal dispute with Valco, Inc. that was settled in October 2019 (see Note 2) and are now owned by the Company. Following the decision in 2019 to cease mining operations at Pikeview, none of the remaining properties are active in the production of aggregates and are in various states of reclamation under their respective mining permits.

 

The corporate office operates out of leased office space in Chicago, Illinois.

 

Item 3.        LEGAL PROCEEDINGS

 

As previously disclosed, on January 15, 2019, the Company reached an amicable resolution to a business dispute by way of a settlement agreement. Pursuant to the settlement agreement, the Company received $15,000,000. The other party and the Company further agreed to set up a joint escrow account to support certain conditions in the agreement. The Company’s contribution to the escrow account was approximately $218,000. The Settlement Agreement does not contain any admission of liability, wrongdoing, or responsibility by any of the parties.

 

On October 9, 2019, the Company and Valco filed a Joint Notice of Settlement, regarding the Company’s previously disclosed litigation, stating that the parties had reached a settlement agreement resolving all claims. As part of the $9,000,000 settlement, paid by the Company, we agreed to purchase the previously leased property from Valco. On October 16, 2019, the Company and Valco filed a Stipulated Motion for Dismissal with Prejudice which stated: the parties “agree that this matter, including all claims and counterclaims, dismissed with prejudice and without costs, each party to bear its own attorneys’ fees.” The Court entered the Order of Dismissal with Prejudice on October 16, 2019.

 

See Management’s Discussion and Analysis of Financial Condition and Results of Operations and Note 6.

 

Item 4.        MINE SAFETY DISCLOSURES

 

The Company’s aggregates mining operations, all of which are surface mines, are subject to regulation by the Federal Mine Safety and Health Administration (MSHA) under the Federal Mine Safety and Health Act of 1977 (as amended, the “Mine Act”). MSHA inspects these operations on a regular basis and issues various citations and orders when it believes a violation of the Mine Act has occurred. Information concerning mine safety violations and other regulatory matters required to be disclosed by Section 1503(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act and Item 104 of SEC Regulation S-K is included in Exhibit 95 to this Annual Report.

8

PART II

 

Item 5.       MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

 

Common stock of Continental Materials Corporation is traded on the NYSE American stock exchange under the symbol CUO.

 

The Company currently has fewer than 300 shareholders.

 

The Company has never paid, nor does it currently intend to declare, any dividends. The Company’s policy of reinvesting earnings from operations is reviewed periodically by the Board of Directors of the Company (the “Board”).

 

The following sets forth information regarding the Company’s equity plans as of December 28, 2019:

 

 

 

 

 

 

 

Plan Category

Number of securities to be issued upon exercise of outstanding options, warrants and rights (a)

 

Weighted-average exercise price of outstanding options, warrants and rights

 

Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))

 

 

 

 

 

 

Equity compensation plans approved by security holders

-

 

-

 

2

 

Equity compensation plans not approved by security holders

-

 

-

 

-

 

Total

-

 

-

 

2

 

The Company has an open-ended program to repurchase its common stock under which the Board authorized purchases up to a maximum amount of $1,000,000. Repurchases may be made on the open market or in block trades at the discretion of management. During the 2019 fiscal year, 22,499 shares were repurchased and as of December 28, 2019, $743,467 of the authorized amount remained available for stock repurchases.

 

On March 16, 2020, the Company entered into a credit agreement with a bank which contains certain restrictions on the Company’s ability to repurchase its stock. See further discussion in the “Financial Condition, Liquidity and Capital Resources” section of Item 7 below.

 

Item 6.       SELECTED FINANCIAL DATA

 

The Company is a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and, as such, is not required to provide information in response to this item.

9

Item 7.        MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

COMPANY OVERVIEW

 

The Company experienced various changes in 2019 including the sale of substantially all the assets of its ready-mix concrete and Daniels Sand operations in the first quarter, the acquisition of four new operating businesses in the second quarter,  the cessation of mining at Pikeview quarry in the third quarter and the settlement of the Valco litigation in the fourth quarter. In conjunction with this activity, management reviewed its operating and reporting structure and made adjustments to align the structure with how operations will be measured and evaluated going forward, including revisions to the Company’s reporting segments. Segment information for prior periods has been reclassified to conform to current segment reporting structure.

 

The HVAC segment produces and sells a variety of products including wall furnaces, fan coils, evaporative coolers, boiler room equipment, dryer boxes, and related accessories from the Company’s wholly-owned subsidiaries, Williams Furnace Co. (WFC) of Colton, California, Phoenix Manufacturing, Inc. (PMI) of Phoenix, Arizona, Global Flow Products /American HVAC (GFP) of Broken Arrow, Oklahoma, and InOvate Dryer Technologies (InOvate) of Jupiter, Florida. Sales of this segment are nationwide although WFC and PMI sales are more concentrated in the southwestern United States. The Door segment sells hollow metal and wood doors, door frames and related hardware, sliding door systems, and electronic access/security systems from the Company’s wholly-owned subsidiaries, McKinney Door and Hardware, Inc. (MDHI), Fastrac Building Supply (Fastrac) and Serenity Sliding Door Systems (Serenity), which operate out of facilities in Pueblo and Colorado Springs, Colorado. Sales of this segment are concentrated in Colorado, California and the Northwestern United States although door sales are also made throughout the United States. The Construction Materials segment offers aggregates and construction supplies from locations along the Southern Front Range of Colorado operated by the Company’s wholly-owned subsidiaries, Castle Aggregates and Castle Rebar & Supply of Colorado Springs, and TMOP Legacy Company (formerly Transit Mix of Pueblo, Inc.) of Pueblo, Colorado.

 

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, property 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. This classification also holds one property owned by the Company.

 

FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES

 

Cash provided by continuing operations during 2019 was $2,573,000. The increased cash flow compared to 2018 was primarily due to receipt of $14,782,000 from a legal settlement in the first quarter of 2019 offset by a decrease in operating results. See Note 17 for further discussion. Cash used by discontinued operations in 2019 was $2,138,000. The increased use of cash compared to the prior year was mainly due to reduced operating results.

 

Cash provided by continuing operations in 2018 was $2,061,000. The decline from prior year cash flow was attributable mainly to less favorable operating results partially offset by changes in working capital items, including receivables and inventory. Cash provided by discontinued operations was $631,000 in 2018.

 

Investing activities provided $886,000 during 2019 compared to $1,270,000 used during 2018.  In 2019, the Company received $23,679,000 from the sale of its discontinued operations and used $22,521,000 to acquire assets of four operating businesses. See Note 19 for discussion of the sales of assets and Note 18 for discussion of acquisitions. In 2019, capital expenditures by continuing operations of $2,693,000, primarily in the Construction Materials segment, were offset by $2,593,000 received from the sale of property and equipment, mainly in the Construction Materials segment. Capital expenditures by discontinued operations were  $172,000 in 2019. In 2018, capital expenditures by continuing operations were $1,409,000, primarily in the HVAC segment. Capital expenditures by discontinued operations of $1,291,000 were offset by $1,430,000 received for the sale of property and equipment.

 

10

During 2019, the Company repaid $1,400,000 on its revolving credit line while $257,000 was used to repurchase stock of the Company. During 2018, the Company repaid $1,300,000 on its revolving credit line while $5,000 was used to repurchase stock of the Company.

 

Certain products within the Company’s portfolio are seasonal, primarily furnaces and evaporative coolers in the HVAC segment which are sensitive to weather conditions particularly during their respective peak selling seasons. Other products within the HVAC segment, specifically fan-coils and dryer boxes, and Door segment sales are, to a significant extent, dependent on construction activity. Historically, the Company has experienced operating losses during the first quarter and typically improved in the second and third quarters reflecting more favorable weather conditions for legacy products. Fourth quarter results have typically varied based on weather conditions affecting the Company’s discontinued operations as well as in the principal markets for the Company’s heating equipment. The sale of the Company’s ready-mix and Daniels Sand operations along with the acquisitions completed in the current year are expected to reduce the seasonality of the Company’s operations.

 

Historically, the Company would typically experience 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 HVAC segment and payment 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 tended to peak during the second quarter and then decline over the remainder of the year. In the current year, a legal settlement and the sale of TMC assets in the first quarter provided sufficient cash reserves such that borrowings against the revolving credit facility were significantly less than historical experience. The cash reserves allowed the Company to complete the acquisitions of four operating businesses without taking on additional debt. The divestiture and acquisition activity is expected to smooth cash flow over the course of the fiscal year and result in more consistent levels of borrowings throughout future years.

 

Revolving Credit and Term Loan Agreement

 

The Company entered into a Second Amended and Restated Credit Agreement (the “Credit Agreement”) effective March 16, 2020. Borrowings under the Credit Agreement are secured by the Company’s accounts receivable, inventories, machinery, equipment, vehicles, certain real estate and the common stock of all of the Company’s subsidiaries. Borrowings under the Credit Agreement bear interest based on a London Interbank Offered Rate (LIBOR) or prime rate based option.

 

The Credit Agreement either limits or requires prior approval by the lender of additional borrowings, acquisition of stock of other companies, purchase of treasury shares and payment of cash dividends. Payment of accrued interest is due monthly or at the end of the applicable LIBOR period.

 

The Credit Agreement as amended provides for the following:

 

·

The Revolving Commitment is $20,000,000.

·

Borrowings under the Revolving Commitment are limited to (a) 85% of eligible accounts receivable, (b) the lesser of 60% of eligible inventories and $8,500,000.

·

Financial Covenants include:

o

Minimum EBITDA for the three months ending March 31, 2020 must exceed $(525,000)

o

Minimum EBITDA for the three months ending June 30, 2020 must exceed $265,000

o

The Minimum Fixed Charge Coverage Ratio is not permitted to be below 1.06 to 1.0 for each computation period measured at the end of each fiscal quarter, provided that the Fixed Charge Coverage Ratio shall not be tested if the average daily Excess Availability during the Fiscal Quarter exceeds $5,000,000. A computation period is the nine months ending September 30, 2020 or twelve months for all subsequent fiscal quarters.

·

The maturity date of the credit facility is May 1, 2023.

·

Interest rate pricing for the revolving credit facility is currently LIBOR plus 2.0% or the prime rate.

 

11

Definitions under the Credit Agreement as amended are as follows:

 

·

Fixed Charge Coverage Ratio means, for any Computation Period, the ratio of (a) the sum (without duplication) for such period of (i) EBITDA, minus (ii) income taxes paid in cash by the Loan Parties, minus (iii) all unfinanced Capital Expenditures, minus (iv) all amounts paid in cash in respect of any Permitted Capital Securities Repurchase, to (b) the sum for such period of (i) cash Interest Expense, plus (ii) scheduled payments of principal of Funded Debt (excluding the Revolving Loans), plus (iii) cash payments made in respect of Capital Leases, plus (iv) the amount by which reclamation or similar costs paid in such period exceed the cash proceeds received from the sale of quarry assets and cash refunds of escrow balances; provided, however that for purposes hereof, to the extent during any period there are excess cash proceeds from the sale of quarry assets after netting such proceeds against the reclamation or similar costs in such period, such excess cash proceeds may be carried forward and netted against the reclamation or similar costs in a later period, plus (v) all amounts paid in respect of any earnout or other deferred payment in connection with any Permitted Acquisition.

·

EBITDA means, for any Computation Period (or another time period to the extent expressly provided herein), the sum of the following with respect to the Company and its Subsidiaries each as determined in accordance with GAAP:

·

Consolidated Net Income, plus (without duplication) each of the following items to the extent deducted in determining such Consolidated Net Income:

i.

federal, state and other income taxes deducted in the determination of Consolidated Net Income;

ii.

Interest Expense deducted in the determination of Consolidated Net Income;

iii.

depreciation, depletion and amortization expense deducted in the determination of Consolidated Net Income;

iv.

non-recurring fees and costs paid by the Company and its Subsidiaries in respect of the following: (i) fees, expenses (including legal fees and expenses) and due diligence costs associated with Permitted Acquisitions, whether or not consummated; (ii) legal fees and costs associated with the Valco trial preparation; (iii) fees, costs and expenses (including legal fees and expenses) in connection with the amendment and restatement of this agreement and all matters reasonably related thereto; (iv) fees, costs and expenses (including legal fees and expenses) in connection with the purchase of Capital Securities of the Company by Bee Street Holdings LLC or a Subsidiary thereof and transactions and other matters reasonably related thereto; (v) additional fees and costs associated with the exploration of the Hitch Rack Ranch facility in Colorado Springs, Colorado to determine the sustainability for mining and the pursuit of mining permits; and (vi) fees, costs and expenses in connection with reclamation or similar transactions related to the sale of quarry assets;

v.

any other non-cash charges and any extraordinary charges deducted in the determination of Consolidated Net Income, including any asset impairment charges (including write downs of goodwill); and

vi.

the amount of any earnout or other deferred payment paid in connection with any Permitted Acquisition; minus

·

any gains from Asset Dispositions, any extraordinary gains and any gains from discontinued operations included in the determination of Consolidated Net Income

 

Outstanding funded revolving debt was $800,000 as of December 28, 2019 compared to $2,200,000 as of December 29, 2018. The highest balance outstanding during 2019 and 2018 was $3,700,000 and $9,800,000, respectively. Average outstanding funded debt was $313,000 and $6,058,000 for 2019 and 2018, respectively. At December 28, 2019, the Company had outstanding letters of credit (LOC) totaling $5,620,000. At all times since the inception of the Credit Agreement, the Company has had sufficient qualifying and eligible assets such that the available borrowing capacity exceeded the cash needs of the Company and this situation is expected to continue for the foreseeable future. The Company was not in compliance with the Fixed Coverage Charge Ratio as of December 28, 2019. The lender provided a waiver of the covenant violation for the period ended December 28, 2019.

 

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 planned capital expenditures, for

12

the next twelve months. The Company expects to be in compliance with all debt covenants, as amended, throughout the facility’s remaining term.

 

Insurance Policies

 

The Company maintains insurance policies with the following per incident deductibles and policy limits:

 

 

 

 

 

 

 

 

 

 

 

 

 

    

    

 

    

Per Occurrence

    

Policy Aggregate

 

 

 

Deductible

 

Limits

 

Limits

 

Product liability

 

$

250,000

 

$

1,000,000

 

$

2,000,000

 

General liability

 

 

250,000

 

 

1,000,000

 

 

5,000,000

 

Workers’ compensation

 

 

350,000

 

 

350,000

 

 

Statutory

 

Auto and truck liability

 

 

100,000

 

 

2,000,000

 

 

No limit

 

 

Should any or all policy limits be exceeded, the Company maintains umbrella policies which cover the next $25,000,000 of claims.

 

Off-Balance Sheet Arrangements

 

The Company has not entered into any off-balance sheet arrangements that are likely to have a material current or future effect on our financial condition, revenues, expenses, results of operations, liquidity, capital expenditures or capital resources other than the effect, during the first quarter of 2019, from the implementation of ASU No. 2016-02, Leases (Topic 842). The implementation of the ASU resulted in the recognition of operating right-of-use assets of $5,353,000 and operating lease liabilities of $5,427,000 as of the adoption date. See Note 9.

 

Cybersecurity Risks and Incidents

 

The Company is dependent upon the capacity, reliability and security of our information technology (IT) systems for our manufacturing, sales, financial and administrative functions. We also face the challenge of supporting our IT systems and implementing upgrades when necessary, including the prompt detection and remediation of any cybersecurity breaches.

 

Our IT systems’ security measures are focused on the prevention, detection and remediation of damage from computer viruses, natural disaster, unauthorized access, cyber-attack and other similar disruptions. However, our IT systems remain vulnerable to intrusion and damage despite our implementation of security measures that we feel protect our IT systems. To date, we are not aware of any cybersecurity breaches that have negatively impacted our manufacturing operations, sales or financial and administrative functions or that resulted in the compromise of personal information of our employees, customers or suppliers. Should we learn of such a breach, the Company would promptly notify the SEC by filing a Form 8-K and notify all insiders that the purchase or sale of the Company’s stock is forbidden until such information has been given adequate time to become available to the trading public.

 

RESULTS OF OPERATIONS

 

In the ensuing discussions of the results of operations, we define the term gross profit as the amount determined by deducting cost of sales before depreciation, depletion and amortization from sales. The gross profit ratio is gross profit divided by sales.

 

DISCUSSION OF CONSOLIDATED RESULTS OF OPERATIONS

 

2019 vs. 2018

 

Consolidated sales in 2019 were $113,276,000, an increase of 12,389,000 or 12.3%, compared to 2018 after adjusting for discontinued operations. The increase was directly attributable to the higher sales in the HVAC and Doors segment reflecting the impact of acquisitions in the second quarter of 2019. The HVAC segment reported sales increases of $8,671,000 (11.8%) primarily due to the acquisitions of GFP and InOvate. The Door segment reported a sales increase of

13

$4,211,000 (20.9%) primarily due to the acquisitions of Fastrac and Serenity. The Construction Materials segment reported a small decrease in sales of $399,000 (5.6%) not including approximately $7,156,000 of 2018 former intercompany sales to the ready-mix business that was sold in the first quarter of 2019.

 

The consolidated gross profit ratio in 2019 was 21.7% compared to 22.7% for 2018. The Door Segment and HVAC segments reported increases in gross profit while the Construction Material segment reported a decrease in gross profit primarily due to the charges associated with the decision to cease mining operations at the Pikeview quarry.

 

Selling and administrative expenses were $9,483,000 higher in 2019 compared to 2018. The increases were reported primarily in the HVAC segment (up 27.6%) due to the impact of acquisitions and in the Unallocated Corporate expenses (up 33.5%) primarily due to professional services related to acquisition activity. As a  percentage of consolidated sales, selling and administrative expenses increased to 28.1% in 2019 compared to 22.5% in 2018.

 

Depreciation and amortization charges were $1,962,000 in 2019 compared to $1,472,000 in 2018. The increase between years is attributed to the acquisition of the assets of four operating business during the second quarter of 2019.

 

2019 included an aggregated charge of $22,492,000 to impair mining assets related to the final asset retirement obligations recorded in the Construction Materials segment. 2018 included charges of $6,840,000 and $627,000 to write off deferred development costs and an overpayment of prepaid royalties, also in the Construction Materials segment.

 

The Company recognized a net $14,781,000 gain from a legal settlement and a $6,800,000 loss on legal settlement for the year ended December 28, 2019. See Note 2 and Note 17 for additional discussion.  

 

2019 included $1,237,000 of gains from the sale of equipment in the Construction Materials segment discussed below. There were no gains or losses from the sale of equipment of continuing operations in 2018. There were $919,000 of gains from the sales of equipment of discontinued operations in 2018.

 

The Company reported an operating loss in 2019 of $22,845,000 compared to operating loss of $8,764,000 in 2018.  Increased selling and administrative costs and impairment costs are driving the overall decrease in operating results.

 

Interest income in 2019 was $362,000 compared to $76,000 in 2018. The increase was due to interest earned on cash reserves in the first half of 2019. Interest expense in 2019 and 2018 was $371,000 and $539,000, respectively. The decrease was due to lower average borrowings in 2019 compared to 2018. Average outstanding funded debt in 2019 was $313,000 compared to $6,058,000 in 2018.

 

The Company’s effective income tax rate reflects federal and state statutory income tax rates adjusted for non-deductible expenses, tax credits and other tax items. The effective income tax rate related to the net loss for 2019 and 2018 was a benefit of 23.7% and 27.2%, respectively.

 

The Company operates businesses within the Building Products industry group. The businesses are grouped into three reportable segments. The following addresses various aspects of operating performance focusing on the reportable segments.

 

DISCUSSION OF CONSOLIDATED RESULTS OF DISCONTINUED OPERATIONS

 

The results of discontinued operations reflect the operations of the ready-mix and Daniels Sand businesses of the Company’s former subsidiary, TMC. The Company sold the assets of these business units on February 1, 2019. The 2019 income realized from discontinued operations included a pre-tax loss from operations of $724,000 and a pre-tax gain on the sale of assets of $5,283,000. The pre-tax income from discontinued operations for the year ended December  28, 2018 was $1,161,000.

 

14

HVAC Segment Group

 

The table below presents a summary of operating information for the HVAC segment group for the fiscal years 2019 and 2018 (amounts in thousands).

 

 

 

 

 

 

 

 

 

 

 

Year Ended

 

 

 

DECEMBER 28,

    

DECEMBER 29,

 

 

 

 

2019

 

2018

Revenues from external customers

 

$

82,149

 

$

73,478

 

Segment gross profit

 

 

19,706

 

 

14,876

 

Gross profit as percent of sales

 

 

24.0

%  

 

20.2

%

Segment operating income

 

$

948

 

$

931

 

Operating income as a percent of sales

 

 

1.2

%  

 

1.3

%

Segment assets

 

$

50,822

 

$

29,003

 

Return on assets

 

 

1.9

%  

 

3.2

%

 

2019 vs. 2018

 

Sales in the HVAC segment increased  $8,671,000 (11.8%) between 2019 and 2018 reflecting the impact of the acquisitions of GFP and InOvate.  The two acquisitions, combined, contributed 14.8% of current year revenue. Sales of furnaces and fan-coils were consistent between years while sales of cooling related equipment declined in the current year from the prior year.

 

The HVAC segment’s gross profit ratio increased to 24.0% in 2019 from 20.2% in 2018. The increase was primarily due to impact of the acquisitions noted above.

 

Selling and administrative expenses in 2019 were $4,494,000 higher than the prior year. The acquisition activity noted above was the primary driver behind the increased expense between the two years. Additional investment spending on personnel and processes to stimulate future growth in previously owned lines of business also contributed to the increase between years. As a percentage of sales, such expenses were 21.3% in 2019 compared to 17.7% in 2018.  

 

Certain businesses in the HVAC group are sensitive to changes in the prices for a number of different raw materials, commodities and purchased parts. Prices of steel and copper in particular can have a significant effect on the results of operations of this group. The Company is not currently a party to any hedging arrangements with regard to steel or copper.

 

Door Segment Group

 

The table below presents a summary of operating information for the Door Segment group for the fiscal years 2019 and 2018 (amounts in thousands).

 

 

 

 

 

 

 

 

 

 

 

 

 

Year Ended

 

 

 

 

DECEMBER 28,

    

DECEMBER 29,

 

 

 

 

2019

 

2018

 

Revenues from external customers

 

 

$

24,369

 

 

20,158

 

Segment gross profit

 

 

 

7,062

 

 

5,656

 

Gross profit as percent of sales

 

 

 

29.0

%

 

28.1

%

Segment operating income

 

 

$

2,174

 

 

2,233

 

Operating income as a percent of sales

 

 

 

8.9

%

 

11.1

%

Segment assets

 

 

$

14,248

 

 

8,003

 

Return on assets

 

 

 

15.3

%

 

27.9

%

15

 

2019 vs. 2018

 

The Door segment sells hollow metal doors, door frames and related hardware, wood doors, sliding door systems, lavatory fixtures and electronic access and security systems. Nearly all of the Door segments sales are for commercial and institutional buildings such as schools, hotels, and healthcare facilities. Approximately 65% to 70% of the sales of the Door segment are related to jobs obtained through a competitive bidding process. Bid prices may be higher or lower than bid prices on similar jobs in the prior year. The Door segment does not track unit sales of the various products through its accounting or management reporting, but instead tracks gross profit by job. Management relies on the trend in sales and the gross profit rate by job and in the aggregate in managing the business.

 

Door sales in 2019 were $4,211,000, or 20.9% higher than in 2018. The increase is primarily due to the acquisition of Fastrac and Serenity in the second quarter of the current year. The gross profit ratio in 2019 was 29.0% compared to 28.1% in 2018.

 

Selling and administrative expenses increased by $1,353,000 (41.6%) in 2019 compared to 2018. The increase was primarily due to acquisition activity noted previously. As a percentage of sales, these expenses were 18.9% and 16.1% in 2019 and 2018, respectively.

 

Construction Materials Segment Group

 

The table below presents a summary of operating information for the Construction Materials segment group for the fiscal years 2019 and 2018 (amounts in thousands).

 

 

 

 

 

 

 

 

 

 

 

Year Ended

 

 

DECEMBER 28,

DECEMBER 29,

 

 

2019

 

2018

 

Revenues from external customers

 

$

6,751

 

$

7,150

 

Segment gross (loss) profit

 

 

(2,222)

 

 

2,220

 

Gross (loss) profit as percent of sales

 

 

(32.9)

%  

 

31.0

%

Segment operating loss

 

$

(18,492)

 

$

(7,878)

 

Operating loss as a percent of sales

 

 

(273.9)

%

 

(110.2)

%

Segment assets

 

$

10,463

 

$

11,315

 

Return on assets

 

 

(176.7)

%

 

(69.6)

%

 

The ready-mix concrete and Daniels Sand operational assets of TMC were sold on February 1, 2019. The operations of the ready-mix and Daniels Sand businesses were classified as discontinued operations and assets held for sale for all periods presented. The discontinued operations, together with the continuing operations formerly known as the Concrete, Aggregate and Construction Supply (CACS) segment, were reclassified to the Construction Materials segment for current reporting. The product offerings of continuing operations of the former CACS segment consisted of aggregates and construction supplies. Aggregates are produced at multiple locations in or near Colorado Springs and Pueblo, Colorado. Construction supplies encompass numerous products purchased from third party suppliers and sold to the construction trades, particularly concrete sub-contractors.

 

Management made a strategic decision to cease mining operations at the Pikeview quarry at the end of the third quarter of 2019 when it was determined that continued mining was not in the best economic interests of the consolidated portfolio. The third quarter 2019 included a $20,217,000 impairment charge related to the cessation of mining. In the fourth quarter of 2019 the Company, by way of a legal settlement, purchased land it previously leased in Pueblo, Colorado. See Note 2. The Company does not plan to resume mining of the Pueblo property and has recorded an impairment charge of $2,230,000 related to reclamation liabilities associated with the property for the fiscal year ended December 28, 2019. See Note 20. The quarries may continue to report some revenue from dumping fees or for remaining inventory sales, but otherwise will turn to full reclamation status.

 

Prior to the decision to cease mining operations, the CACS segment produced and sold sand, crushed limestone and gravel (collectively “aggregates”) from deposits in and around Colorado Springs, Colorado. Sales volume of aggregates

16

decreased in 2019 compared to 2018 primarily attributable to the Grisenti pit being fully mined and the ensuing work to complete reclamation with minimal sales. Sales at the Pikeview quarry were nominal in 2019 as the Company prioritized completing the reclamation at Grisenti. In 2018, the aggregate operations supplied the ready-mix business with $7,156,000 of product. These sales reduced with the sale of the ready-mix operations. The reduced sales volumes and additional reclamation related costs, in part, led management to its decision to cease mining operations at the remaining quarries in the current year.

 

Selling and administrative expenses were $232,000 higher in 2019 compared to 2018. The increase is primarily due to litigation related costs. Legal expenses, including those related to the Pueblo aggregate lease litigation, were $1,757,000 in 2019 compared to $1,603,000 in 2018. As a percentage of sales, selling and administrative expenses were 38.0% in 2019 compared to 32.6% in 2018.

 

The fiscal year ended December 28, 2019 included a $14,781,000 net gain on legal settlement and a $6,800,000 legal settlement expense related to previously disclosed litigation. See Note 2 and Note 17. The fiscal year ended December 29, 2018 included charges of $6,840,000 and $627,000 related to the write-off of deferred development and prepaid royalties, respectively. See Note 16.

 

Gains on disposition of assets were $1,231,000 in 2019  due to the disposition of equipment no longer considered useful upon the cessation of mining operations. There were no gains or losses on disposition of assets in 2018.

 

In connection with the movement to full reclamation status at all mining properties in 2019, management completed an assessment to determine if certain assets should be considered held for sale. Based on this assessment, $896,000 of property previously included in Machinery and equipment on the Consolidated Balance Sheet was classified as Assets held for sale as of December 28, 2019.

 

OUTLOOK

 

The Company’s HVAC segment anticipates growth in 2020 sales due to the impact of a full year of the operations acquired in 2019. Fan coil sales are expected to increase due to continued construction spending in the lodging industry and investments made in sales and marketing during 2019. Sales of furnaces, heaters and evaporative coolers are primarily for replacement purposes and therefore are not heavily reliant on new construction. Sales of these products are generally dependent on the overall strength of the economy, especially employment levels. Sales of ASME tanks, hydronics accessories and dryer related products are dependent on construction levels, which are expected to grow in 2020.

 

Sales in the Door segment are expected to increase in 2020 due to full year impact of the operations acquired in 2019. Sales are somewhat dependent on the level of commercial construction activity, which is also expected to grow in 2020.

 

Sales in the Construction Materials segment are expected to remain consistent with 2019. Sales are dependent upon the level of commercial construction activity in the Colorado Springs, Colorado area. As the Company has ceased mining operations it intends to sell off its excess assets, over a period of the next few years, as reclamation is completed. The proceeds from these sales are expected to be available to reduce borrowings by the Company.

 

CRITICAL ACCOUNTING POLICIES

 

The Securities and Exchange Commission requires all registrants, including the Company, to include a discussion of “critical” accounting policies or methods used in the preparation of financial statements. We believe the following are our critical accounting policies and methods.

 

Goodwill and Other Intangible Assets

 

The Company annually assesses goodwill for potential impairment as of the last day of its fiscal year. In addition, to the extent that events occur, either involving the relevant reporting unit or in their industries, the Company revisits its assessment of the recorded goodwill to determine if impairment has occurred and should be recognized. As of December

17

28, 2019, the Company had recorded $5,932,000 of goodwill consisting of $3,198,000 related to the Door segment and $2,734,000 related to the HVAC segment.

 

In connection with acquisition activity in 2019, the Company recorded $12,809,000 of amortizable intangible assets related to customers, trade names and intellectual property. Recorded amounts were based on valuations performed by an independent business advisory firm. These intangible assets are amortized over their estimated useful lives on a straight-line basis. See Note 4 and Note 18.

 

The Company follows ASU 2017-04, Intangibles – Goodwill and Other (Topic 350) which simplified the test for goodwill impairment by eliminating the calculation of implied goodwill fair value. Instead, companies compare the fair value of a reporting unit with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. 

 

Management prepared a discounted cash flow (DCF) valuation to estimate the fair value of each reporting unit. The DCF valuation was calculated using an appropriate discount rate. The calculated fair values were compared to the reporting unit’s carrying value including goodwill. In each case the fair value exceeded carrying costs resulting in no impairment. See additional discussion in Note 1.

 

Long-lived Assets (other than Goodwill and Intangible Assets)

 

The Company reviews long-lived assets by asset group for impairment whenever events or changes in circumstances indicate that the related carrying amounts may not be recoverable. Determining whether impairment has occurred typically requires various estimates and assumptions, including determining which cash flows are directly related to the potentially impaired asset, the amount and useful life over which cash flows will occur and the asset’s residual value, if any. In turn, measurement of an impairment loss requires a determination of fair value, which is based on the best information available given the Company’s historical experience and internal business plans. In 2019, the Company recognized $22,492,000 of impairment charges related to mining assets in the Construction Materials segment that were simultaneously recorded and impaired as the future undiscounted cash outflows were expected to exceed the current carrying value. See Note 20. In the first two quarters of 2018, the Company wrote off a net $6,840,000 of deferred development costs, previously reported in Property, plant and equipment in the Consolidated Balance Sheet, related to an aggregates property after the necessary mining permits were denied by the State of Colorado for the second time. See Note 16 for further discussion. During the fourth quarter of 2018 the Company wrote-off $627,000 of royalty overpayments related to the aggregate property in that was under litigation at the time.

 

Liabilities

 

The Company purchases insurance coverage for workers’ compensation, general product and automobile liability, retaining certain levels of risk (self-insured portion). See the above section titled “Insurance Policies” for information related to per incident deductibles and policy limits. Provision for workers’ compensation claims is estimated by management based on information provided by the independent third party administrator and periodic review of all outstanding claims. The Company’s independent claims administrator tracks all claims and assigns a liability to each individual claim based upon facts known at the time of estimation. In addition, management periodically reviews each individual claim with both the third party claims administrator and legal counsel and the third party administrator revises the estimated liability accordingly. The Company also retains an independent expert who applies actuarial methodology to the claims data provided by the Company’s independent claims administrator to estimate the ultimate aggregate settlement amount of the claims using specific loss development factors based on the Company’s prior experience. The Company then establishes its reserve for workers’ compensation claims based upon the actuarial evaluation and management’s knowledge of the outstanding claims. Management tracks changes to the incurred and paid amounts of individual workers compensation claims up to the date of final closure. In recent years, the net amounts that the claims have ultimately settled for have indicated that the reserve recorded by the Company has been sufficient.

 

With regard to product liability, provisions for both claims and un-asserted claims that would be covered under the self-insured portion of the policies are reviewed as circumstances dictate, at least annually, and are recorded in accordance

18

with accounting guidance on contingent liabilities provided in the FASB Accounting Standards Codification (Codification). Management also incorporates information from discussions with legal counsel handling the individual claims when revising its estimates. Provision for automobile claims is estimated based upon information provided by the Company’s independent claims administrator and the Company’s own experience. The number of automobile claims and the amounts involved are generally not material. Historically, there have not been many instances of significant variances between actual final settlements and our estimates regarding automobile and product liability claims.

 

The Company has recorded an estimate of liability for final reclamation of its mining properties in the Colorado Springs, Colorado area per ASC 410-20 guidance on accounting for Asset Retirement Obligations (AROs). An ARO is defined in ASC 410-20-20 as an “obligation associated with the retirement of a tangible long-lived asset”. An ARO should be measured at fair value and should be recognized at the time the obligation is incurred if a reasonable estimate of fair value can be made. ASC 410-20 also says that upon initial recognition of a liability for an asset retirement obligation, an entity shall capitalize an asset retirement cost by increasing the carrying amount of the related long-lived asset by the same amount as the liability. Prior to the third quarter of 2019, the Company had performed reclamation concurrently with mining operations and recognized the related costs in operations. The decision to cease mining operations at Pikeview in the third quarter of 2019 and the acquisition of Valco property in the fourth quarter of 2019 allowed the Company to reasonably estimate the cost of final reclamation at these mining properties. To estimate the fair value of the liabilities, the Company used an expected present value technique. The Company compared its estimates to those prepared by an independent expert to ensure the estimates were reasonable. The related ARO mining assets were considered fully impaired as expected undiscounted future cash outflows exceeded carrying value. Going forward, changes in the ARO due to passage of time will be recognized as an increase in the carrying amount of the liability and as an expense classified as accretion expense. The assessment of adequacy of the ARO is based on management’s assumptions with the assistance of the independent professional. The analysis requires the use of significant assumptions and estimates about timing, third party costs to perform work and method of reclamation to be used.

 

Management believes that the assumptions and estimates used to determine the reserve are reasonable; however, changes in the aforementioned assumptions and estimates, as well as the effects of unknown future events or circumstances, including legislative requirements, could materially affect estimated costs.

 

Sales

 

The Company recognizes revenue as performance obligations to customers are met. Sales are recorded net of estimates of applicable provisions for discounts, volume incentives, returns and allowances based upon current program terms and historical experience. At the time of revenue recognition, the Company also provides an estimate of potential bad debt and warranty expense as well as an amount anticipated to be granted to customers under cooperative advertising programs based upon current program terms and historical experience. Additionally, certain HVAC companies offer discounts for early payment of amounts due under dating and other extended payment programs. The Company records reserves for these items based upon historical experience.

 

Guidance provided by the Codification mandates that cash consideration (including sales incentives) given by a vendor to a customer is presumed to be a reduction of the selling prices of the vendor’s products or services unless both of the following conditions are met: a) the vendor receives an identifiable benefit in exchange for the consideration and b) the vendor can reasonably estimate the fair value of the benefit. Under this guidance, volume incentives and customer discounts provided to our customers are presumed to be a reduction in the selling price of our products and accordingly we record these as a reduction of gross sales. We require that our customers submit proof of both the advertisement and the cost of the advertising expenditure before we allow a deduction for cooperative advertising. Since the Company receives an identifiable and quantifiable benefit, these costs are recorded as selling and administrative expenses. These programs did not have a material effect on operations in 2019 or 2018.

 

Recently Issued Accounting Standards

 

The “Recently Issued Accounting Pronouncements” section of Note 1 discusses new accounting policies adopted by the Company since 2018 and the expected impact of accounting pronouncements recently issued but not yet required to be

19

adopted. To the extent the adoption of new accounting standards has an effect on our financial condition, results of operations or liquidity, the impacts are discussed in the applicable notes to the Consolidated Financial Statements.

 

Item 7A.     QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

The Company is a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and, as such, is not required to provide information in response to this item.

20

Item 8.       FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

 

 

 

 

 

     

PAGE

Financial Statements and Financial Statement Schedule of Continental Materials Corporation and Report of Independent Registered Public Accounting Firm thereon:

 

 

 

 

 

Consolidated Statements of Operations for fiscal years 2019 and 2018 

 

22

 

 

 

Consolidated Statements of Cash Flows for fiscal years 2019 and 2018 

 

23

 

 

 

Consolidated Balance Sheets as of December 28, 2019 and December 29, 2018 

 

24

 

 

 

Consolidated Statements of Shareholders’ Equity for fiscal years 2019 and 2018 

 

25

 

 

 

Notes to Consolidated Financial Statements 

 

26-46

 

 

 

Report of Independent Registered Public Accounting Firm 

 

48

 

21

Continental Materials Corporation

Consolidated Statements of Operations

For Fiscal Years 2019 and 2018

(Amounts in thousands, except per share data)

 

 

 

 

 

 

 

 

 

 

 

2019

    

2018

 

 

 

 

 

 

 

 

 

Net sales

 

$

113,276

 

$

100,887

 

 

 

 

 

 

 

 

 

Costs and expenses:

 

 

 

 

 

 

 

Cost of sales (exclusive of depreciation and amortization)

 

 

88,723

 

 

78,033

 

Depreciation and amortization

 

 

1,962

 

 

1,472

 

Selling and administrative

 

 

32,162

 

 

22,679

 

Charges related to write off of deferred development

 

 

 —

 

 

6,840

 

Charges related to write off of overpayment of prepaid royalties

 

 

 —

 

 

627

 

Mining asset impairment

 

 

22,492

 

 

 —

 

Gain on legal settlement

 

 

(14,781)

 

 

 —

 

Loss on legal settlement

 

 

6,800

 

 

 —

 

Gain on disposition of property and equipment

 

 

(1,237)

 

 

 —

 

Operating loss

 

 

(22,845)

 

 

(8,764)

 

 

 

 

 

 

 

 

 

Interest income

 

 

362

 

 

76

 

Interest expense

 

 

(371)

 

 

(539)

 

Other income, net

 

 

80

 

 

25

 

Loss from continuing operations before income taxes

 

 

(22,774)

 

 

(9,202)

 

Benefit for income taxes

 

 

5,396

 

 

2,500

 

Loss from continuing operations

 

 

(17,378)

 

 

(6,702)

 

Income from discontinued operations net of income tax provision of $1,080 and $315

 

 

3,479

 

 

846

 

 

 

 

 

 

 

 

 

Net loss

 

$

(13,899)

 

$

(5,856)

 

 

 

 

 

 

 

 

 

Basic and diluted loss per share:

 

 

 

 

 

 

 

  Loss from continuing operations

 

$

(10.15)

 

$

(3.95)

 

  Income from discontinued operations

 

 

2.03

 

 

0.50

 

  Basic and diluted loss per share

 

 

(8.12)

 

 

(3.45)

 

Average shares outstanding

 

 

1,711

 

 

1,697

 

 

The accompanying notes are an integral part of the consolidated financial statements.

22

Continental Materials Corporation

Consolidated Statements of Cash Flows

For Fiscal Years 2019 and 2018

(Amounts in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

2019

    

2018

 

Operating activities

 

 

 

 

 

 

 

 

Net loss

 

 

$

(13,899)

 

$

(5,856)

 

Discontinued operations, net of income tax

 

 

 

(3,479)

 

 

(846)

 

Adjustments to reconcile net loss to net cash provided by operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

 

1,962

 

 

1,472

 

Write-off of deferred development costs

 

 

 

 —

 

 

5,409

 

Impairment of mining property assets

 

 

 

22,492

 

 

 —

 

Write-off of overpayment of prepaid royalties

 

 

 

 —

 

 

627

 

Deferred income tax provision

 

 

 

(4,253)

 

 

(1,798)

 

Stock based compensation

 

 

 

204

 

 

 —

 

Compensation of Board of Directors paid by issuance of treasury shares

 

 

 

568

 

 

315

 

Provision for doubtful accounts

 

 

 

189

 

 

165

 

Gain on disposition of property and equipment

 

 

 

(1,237)

 

 

 —

 

Changes in working capital items:

 

 

 

 

 

 

 

 

Receivables

 

 

 

(3,096)

 

 

(1,091)

 

Inventories

 

 

 

2,995

 

 

3,961

 

Prepaid expenses

 

 

 

(256)

 

 

116

 

Accounts payable and accrued expenses

 

 

 

5,251

 

 

(282)

 

Income taxes payable and refundable

 

 

 

(1,903)

 

 

(436)

 

Other

 

 

 

(2,965)

 

 

305

 

Net cash provided by continuing operations

    

 

 

2,573

 

 

2,061

 

Net cash (used) provided by discontinued operations

 

 

 

(2,138)

 

 

631

 

Net cash provided by operating activities

 

 

 

435

 

 

2,692

 

 

 

 

 

 

 

 

 

 

Investing activities:

 

 

 

 

 

 

 

 

Capital expenditures by continuing operations

 

 

 

(2,693)

 

 

(1,409)

 

Capital expenditures by discontinued operations

 

 

 

(172)

 

 

(1,291)

 

Payments for acquisitions

 

 

 

(22,521)

 

 

 —

 

Cash proceeds from sale of discontinued operations

 

 

 

23,679

 

 

 —

 

Cash proceeds from sale of continuing operations property and equipment

 

 

 

2,593

 

 

 —

 

Cash proceeds from sale of discontinued operations property and equipment

 

 

 

 —

 

 

1,430

 

Net cash provided (used) by investing activities

 

 

 

886

 

 

(1,270)

 

 

 

 

 

 

 

 

 

 

Financing activities:

 

 

 

 

 

 

 

 

Borrowings on the revolving bank loan

 

 

 

21,750

 

 

33,100

 

Repayments on the revolving bank loan

 

 

 

(23,150)

 

 

(34,400)

 

Repayments of finance lease obligations

 

 

 

(80)

 

 

(30)

 

Payments to acquire treasury stock

 

 

 

(257)

 

 

(5)

 

Net cash used by financing activities

 

 

 

(1,737)

 

 

(1,335)

 

 

 

 

 

 

 

 

 

 

Net (decrease) increase in cash and cash equivalents

 

 

 

(416)

 

 

87

 

Cash and cash equivalents:

 

 

 

 

 

 

 

 

Beginning of period

 

 

 

594

 

 

507

 

End of period

 

 

$

178

 

$

594

 

 

 

 

 

 

 

 

 

 

Supplemental disclosures of cash flow items:

 

 

 

 

 

 

 

 

Cash paid during the year for:

 

 

 

 

 

 

 

 

Interest, net

 

 

$

333

 

$

468

 

Income taxes, net

 

 

 

1,840

 

 

50

 

Other Information:

 

 

 

 

 

 

 

 

Contingent consideration from acquisitions

 

 

 

1,540

 

 

 —

 

ARO liabilities and assets recognized

 

 

 

22,492

 

 

 —

 

Capital expenditures purchased through capital lease obligation

 

 

 

 —

 

 

200

 

Assets reclassified as held for sale

 

 

 

896

 

 

24,036

 

Liabilities reclassified as held for sale

 

 

 

 —

 

 

4,092

 

Right of use assets obtained in exchange for operating lease liabilities

 

 

 

587

 

 

 —

 

 

The accompanying notes are an integral part of the consolidated financial statements.

23

Continental Materials Corporation

Consolidated Balance Sheets As of December 28, 2019 and December 29, 2018

(Amounts in thousands except share data)

 

 

 

 

 

 

 

 

 

 

December 28, 2019

    

December 29, 2018

 

ASSETS

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

178

 

$

594

 

Receivables less allowance of $494 and $410 for fiscal 2019 and 2018, respectively

 

 

21,555

 

 

15,321

 

Receivable for insured losses

 

 

911

 

 

874

 

Inventories

 

 

13,953

 

 

14,806

 

Prepaid expenses

 

 

2,171

 

 

1,785

 

Refundable income taxes

 

 

2,397

 

 

494

 

Other current assets

 

 

4,229

 

 

2,500

 

Other current assets held for sale

 

 

896

 

 

10,968

 

Total current assets

 

 

46,290

 

 

47,342

 

 

 

 

 

 

 

 

 

Property, plant and equipment

 

 

 

 

 

 

 

Land and improvements

 

 

4,072

 

 

1,409

 

Buildings and improvements

 

 

14,939

 

 

13,451

 

Machinery and equipment

 

 

48,269

 

 

48,569

 

Mining properties

 

 

3,770

 

 

5,015

 

Less accumulated depreciation and depletion

 

 

(59,025)

 

 

(58,013)

 

 

 

 

12,025

 

 

10,431

 

Other assets

 

 

 

 

 

 

 

Right-of use assets

 

 

4,978

 

 

 —

 

Goodwill

 

 

5,932

 

 

1,000

 

Intangible assets

 

 

12,437

 

 

 —

 

Deferred income taxes

 

 

7,667

 

 

3,414

 

Other long-term assets

 

 

654

 

 

448

 

Other long-term assets held for sale

 

 

 —

 

 

13,068

 

 

 

$

89,983

 

$

75,703

 

LIABILITIES

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

Revolving bank loan payable

 

$

800

 

$

2,200

 

Accounts payable

 

 

8,490

 

 

3,234

 

Accrued expenses

 

 

 

 

 

 

 

    Compensation

 

 

2,181

 

 

2,638

 

    Reserve for self-insured losses

 

 

1,967

 

 

2,451

 

    Liability for unpaid claims covered by insurance

 

 

911

 

 

874

 

    Profit sharing

 

 

710

 

 

1,065

 

    Short-term asset retirement obligation

 

 

4,200

 

 

1,017

 

    Other

 

 

3,377

 

 

2,911

 

Short-term lease liabilities

 

 

1,170

 

 

 —

 

Other current liabilities held for sale

 

 

 —

 

 

3,800

 

Total current liabilities

 

 

23,806

 

 

20,190

 

 

 

 

 

 

 

 

 

Long-term lease liabilities

 

 

3,991

 

 

 —

 

Long-term compensation liabilities

 

 

1,842

 

 

959

 

Asset retirement obligation

 

 

23,713

 

 

5,252

 

Other long-term liabilities

 

 

1,442

 

 

234

 

Other long-term liabilities held for sale

 

 

 —

 

 

292

 

 

 

 

 

 

 

 

 

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

 

 

1,853

 

 

1,930

 

Retained earnings

 

 

47,232

 

 

61,131

 

Treasury shares, 860,910 and 876,409 at cost

 

 

(14,539)

 

 

(14,928)

 

 

 

 

35,189

 

 

48,776

 

 

 

$

89,983

 

$

75,703

 

 

 

The accompanying notes are an integral part of the consolidated financial statements.

24

Continental Materials Corporation

Consolidated Statements of Shareholders’ Equity

For Fiscal Years 2019 and 2018

(Amounts in thousands except share data)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

 

    

Common

    

Capital

    

 

    

 

    

 

 

 

 

Common

 

shares

 

in excess

 

Retained

 

Treasury

 

Treasury

 

 

 

shares

 

amount

 

of par

 

earnings

 

shares

 

shares cost

 

Balance at December 30, 2017

 

2,574,264

 

$

643

 

$

1,887

 

$

66,987

 

892,097

 

$

15,195

 

Net loss

 

 

 

 

 

 

 

(5,856)

 

 

 

 

Compensation of Board of Directors by issuance of treasury shares

 

 

 

 

 

43

 

 

 

(16,000)

 

 

(272)

 

Purchase of treasury shares

 

 

 

 

 

 

 

 

312

 

 

 5

 

Balance at December 29, 2018

 

2,574,264

 

 

643

 

 

1,930

 

 

61,131

 

876,409

 

 

14,928

 

Net loss

 

 

 

 

 

 

 

(13,899)

 

 

 

 

Compensation of Board of Directors by issuance of treasury shares

 

 

 

 

 

(77)

 

 

 

(37,998)

 

 

(645)

 

Purchase of treasury shares

 

 

 

 

 

 

 

 

22,499

 

 

256

 

Balance at December 28, 2019

 

2,574,264

 

$

643