Company Quick10K Filing
Continental Materials
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$0.00 2 $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 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 Enter Agreement, M&A, Exhibits
8-K 2019-02-01 M&A
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 2019-09-28
Part I — Financial Information
Item 1.Financial Statements
Item 2.Management’S Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II - Other Information
Item 4. Mine Safety Disclosure
Item 6.Exhibits
EX-31.1 cuo-20190928ex3115bf707.htm
EX-31.2 cuo-20190928ex312d650e4.htm
EX-32 cuo-20190928xex32.htm
EX-95 cuo-20190928xex95.htm

Continental Materials Earnings 2019-09-28

CUO 10Q Quarterly 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 3,917 2,269 1,214 1,370 310 44 249 4,779 23% 19.2 2%
CBPX 889 660 324 518 136 67 137 1,046 26% 7.6 10%
USCR 799 1,450 1,105 1,475 144 17 170 1,491 10% 8.8 1%
CSTE 456 617 150 0 0 0 0 362 0%
FRTA 277 1,878 1,779 1,476 264 -34 73 1,515 18% 20.8 -2%
CUO 28 86 28 132 19 0 3 23 14% 8.1 0%
CPSH 15 4 24 3 -2 -1 15 15% -11.5 187,960,700%
CCCL 0 0 0 0 -9 -0%
CX 552,628 333,095 0 0 0 0 -5,071 0%

10-Q 1 cuo-20190928x10q.htm 10-Q cuo_Current folio_10Q

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

 

FORM 10-Q

 

 

 

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

 

For the quarterly period ended September 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 of incorporation or organization)

 

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

 

 

 

440 South LaSalle Street, Suite 3100, Chicago, Illinois

 

60605

(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)

 

Securities registered pursuant to Section 12(b) of the Act:

 

 

 

 

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock

CUO

NYSE American

 

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 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 such files).  Yes ☒  No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth 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 or the Exchange Act).  Yes ☐  No ☒

 

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 5,  2019: 1,710,698.

 

 

 

 

PART I — FINANCIAL INFORMATION

 

Item 1.Financial Statements

 

CONTINENTAL MATERIALS CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

SEPTEMBER 28, 2019 AND DECEMBER 29, 2018

(000’s omitted except share data)

 

 

 

 

 

 

 

 

 

 

SEPTEMBER 28, 2019

 

DECEMBER 29,

 

 

 

(Unaudited)

 

2018

 

ASSETS

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

4,297

 

$

594

 

Receivables, net

 

 

20,754

 

 

15,321

 

Receivable for insured losses

 

 

840

 

 

874

 

Inventories

 

 

 

 

 

 

 

 Finished goods

 

 

4,193

 

 

5,448

 

 Work in process

 

 

1,564

 

 

1,365

 

 Raw materials and supplies

 

 

7,191

 

 

7,993

 

Prepaid expenses

 

 

2,227

 

 

1,785

 

Refundable income taxes

 

 

2,400

 

 

494

 

Other current assets

 

 

4,552

 

 

2,500

 

Other current assets held for sale

 

 

 —

 

 

10,968

 

Total current assets

 

 

48,018

 

 

47,342

 

 

 

 

 

 

 

 

 

Property, plant and equipment

 

 

11,729

 

 

10,431

 

Right-of use assets

 

 

5,258

 

 

 —

 

Goodwill

 

 

6,011

 

 

1,000

 

Intangible assets

 

 

12,991

 

 

 —

 

Deferred income taxes

 

 

7,823

 

 

3,414

 

Other long-term assets

 

 

666

 

 

448

 

Other long-term assets held for sale

 

 

 —

 

 

13,068

 

 

 

$

92,496

 

$

75,703

 

 

 

 

 

 

 

 

 

LIABILITIES

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

Revolving bank loan payable

 

$

 —

 

$

2,200

 

Accounts payable and accrued expenses

 

 

20,341

 

 

12,299

 

Short-term asset retirement obligation

 

 

4,946

 

 

1,017

 

Short-term lease liabilities

 

 

1,129

 

 

 —

 

Liability for unpaid claims covered by insurance

 

 

840

 

 

874

 

Other current liabilities held for sale

 

 

 —

 

 

3,800

 

Total current liabilities

 

 

27,256

 

 

20,190

 

 

 

 

 

 

 

 

 

Long-term lease liabilities

 

 

4,168

 

 

 —

 

Long-term compensation liability

 

 

456

 

 

 —

 

Asset retirement obligation

 

 

21,018

 

 

5,252

 

Other long-term liabilities

 

 

2,303

 

 

1,193

 

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

 

 

2,013

 

 

1,930

 

Retained earnings

 

 

49,333

 

 

61,131

 

Treasury shares, 862,201 and 876,409 at cost

 

 

(14,694)

 

 

(14,928)

 

 

 

 

37,295

 

 

48,776

 

 

 

$

92,496

 

$

75,703

 

See notes to condensed consolidated financial statements.

 

2

 

CONTINENTAL MATERIALS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS

FOR THE THREE MONTHS ENDED SEPTEMBER 28, 2019 AND SEPTEMBER 29, 2018

(Unaudited)

(000’s omitted except per-share amounts)

 

 

 

 

 

 

 

 

 

 

    

SEPTEMBER 28,

    

SEPTEMBER 29,

 

 

 

2019

 

2018

 

 

 

 

 

 

 

 

 

Net sales

 

$

31,987

 

$

23,965

 

 

 

 

 

 

 

 

 

Costs and expenses:

 

 

 

 

 

 

 

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

 

 

24,452

 

 

18,740

 

Depreciation, depletion and amortization

 

 

597

 

 

393

 

Selling and administrative

 

 

8,102

 

 

6,100

 

Impairment related to cessation of mining an aggregate deposit

 

 

20,217

 

 

 —

 

Loss on legal settlement (Note 20)

 

 

6,400

 

 

 —

 

Loss on disposition of property and equipment

 

 

125

 

 

 —

 

 

 

 

59,893

 

 

25,233

 

 

 

 

 

 

 

 

 

Operating loss

 

 

(27,906)

 

 

(1,268)

 

 

 

 

 

 

 

 

 

Interest income

 

 

39

 

 

14

 

Interest expense

 

 

(100)

 

 

(140)

 

Other loss net

 

 

(16)

 

 

(70)

 

Loss from continuing operations before income taxes

 

 

(27,983)

 

 

(1,464)

 

Benefit for income taxes

 

 

(7,699)

 

 

(366)

 

Loss from continuing operations

 

 

(20,284)

 

 

(1,098)

 

Loss from discontinued operations net of income tax benefit of $0 and $46

 

 

 —

 

 

(138)

 

 

 

 

 

 

 

 

 

Net loss

 

 

(20,284)

 

 

(1,236)

 

 

 

 

 

 

 

 

 

Retained earnings, beginning of period

 

 

69,617

 

 

62,907

 

 

 

 

 

 

 

 

 

Retained earnings, end of period

 

$

49,333

 

$

61,671

 

 

 

 

 

 

 

 

 

Basic and diluted loss per share:

 

 

 

 

 

 

 

  Loss from continuing operations

 

 

(11.85)

 

 

(0.65)

 

  Loss from discontinued operations

 

 

 -

 

 

(0.08)

 

  Basic and diluted loss per share

 

$

(11.85)

 

$

(0.73)

 

Average shares outstanding

 

 

1,712

 

 

1,698

 

 

See notes to condensed consolidated financial statements

3

 

CONTINENTAL MATERIALS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS

FOR THE NINE MONTHS ENDED SEPTEMBER 28, 2019 AND SEPTEMBER 29, 2018

(Unaudited)

(000’s omitted except per-share amounts)

 

 

 

 

 

 

 

 

 

 

 

SEPTEMBER 28,

 

SEPTEMBER 29,

 

 

    

2019

    

2018

 

 

 

 

 

 

 

 

 

Net sales

 

$

79,773

 

$

72,932

 

 

 

 

 

 

 

 

 

Costs and expenses:

 

 

 

 

 

 

 

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

 

 

63,834

 

 

56,728

 

Depreciation, depletion and amortization

 

 

1,369

 

 

1,203

 

Selling and administrative

 

 

23,991

 

 

15,938

 

Charges related to write off of deferred development

 

 

 —

 

 

6,840

 

Loss on legal settlement (Note 20)

 

 

6,400

 

 

 —

 

Gain on legal settlement (Note 14)

 

 

(14,781)

 

 

 —

 

Impairment related to cessation of mining an aggregate deposit

 

 

20,217

 

 

 —

 

Gain on disposition of property and equipment

 

 

(308)

 

 

 —

 

 

 

 

100,722

 

 

80,709

 

 

 

 

 

 

 

 

 

Operating loss

 

 

(20,949)

 

 

(7,777)

 

 

 

 

 

 

 

 

 

Interest income

 

 

349

 

 

59

 

Interest expense

 

 

(274)

 

 

(415)

 

Other income (loss), net

 

 

42

 

 

(29)

 

 

 

 

 

 

 

 

 

Loss from continuing operations before income taxes

 

 

(20,832)

 

 

(8,162)

 

 

 

 

 

 

 

 

 

Benefit for income taxes

 

 

(5,730)

 

 

(2,040)

 

 

 

 

 

 

 

 

 

Net loss from continuing operations

 

 

(15,102)

 

 

(6,122)

 

Income from discontinued operations net of income tax provision of $1,255 and $268

 

 

3,304

 

 

806

 

Net loss

 

 

(11,798)

 

 

(5,316)

 

 

 

 

 

 

 

 

 

Retained earnings, beginning of period

 

 

61,131

 

 

66,987

 

 

 

 

 

 

 

 

 

Retained earnings, end of period

 

$

49,333

 

$

61,671

 

 

 

 

 

 

 

 

 

Basic and diluted income (loss) per share:

 

 

 

 

 

 

 

  Loss from continuing operations

 

$

(8.82)

 

$

(3.61)

 

  Income from discontinued operations

 

 

1.93

 

 

0.47

 

  Basic and diluted loss per share

 

$

(6.89)

 

$

(3.13)

 

 

 

 

 

 

 

 

 

Average shares outstanding

 

 

1,712

 

 

1,697

 

 

See notes to condensed consolidated financial statements

4

 

CONTINENTAL MATERIALS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE NINE MONTHS ENDED SEPTEMBER  28, 2019 AND SEPTEMBER 29, 2018

(Unaudited)

(000’s omitted)

 

 

 

 

 

 

 

 

 

 

 

SEPTEMBER 28,

 

SEPTEMBER 29,

 

 

 

2019

 

2018

 

Net cash provided (used) by continuing operations

    

$

5,492

    

$

(1,459)

 

Net cash provided (used) by discontinued operations

 

 

294

 

 

(797)

 

Net cash provided (used) by operating activities

 

 

5,786

 

 

(2,256)

 

 

 

 

 

 

 

 

 

Investing activities:

 

 

 

 

 

 

 

Capital expenditures by continuing operations

 

 

(973)

 

 

(963)

 

Capital expenditures by discontinued operations

 

 

(172)

 

 

(1,439)

 

Payments for acquisitions

 

 

(23,213)

 

 

 —

 

Cash proceeds from sale of discontinued operations

 

 

23,679

 

 

 —

 

Cash proceeds from sale of continuing operations property and equipment

 

 

956

 

 

 —

 

Cash proceeds from sale of discontinued operations property and equipment

 

 

 —

 

 

1,403

 

Net cash provided (used) in investing activities

 

 

277

 

 

(999)

 

 

 

 

 

 

 

 

 

Financing activities:

 

 

 

 

 

 

 

Borrowings on the revolving bank loan

 

 

12,550

 

 

27,600

 

Repayments on the revolving bank loan

 

 

(14,750)

 

 

(24,400)

 

Repayments of finance lease obligations

 

 

(36)

 

 

 —

 

Payments to acquire treasury stock

 

 

(124)

 

 

 —

 

Net cash (used) provided by financing activities

 

 

(2,360)

 

 

3,200

 

 

 

 

 

 

 

 

 

Net increase (decrease) in cash and cash equivalents

 

 

3,703

 

 

(55)

 

Cash and cash equivalents:

 

 

 

 

 

 

 

Beginning of period

 

 

594

 

 

507

 

 

 

 

 

 

 

 

 

End of period

 

$

4,297

 

$

452

 

 

 

 

 

 

 

 

 

Supplemental disclosures of cash flow items:

 

 

 

 

 

 

 

Cash paid during the year for:

 

 

 

 

 

 

 

Interest, net

 

$

284

 

$

404

 

Contingent consideration from acquisitions

 

 

1,540

 

 

 —

 

Income taxes, net

 

 

1,840

 

 

50

 

 

See notes to condensed consolidated financial statements

5

 

CONTINENTAL MATERIALS CORPORATION

CONDENSED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY

(Unaudited)

(000’s omitted, except per share data)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months ended September 28, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common

 

Capital

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common

 

shares

 

in excess

 

Retained

 

Treasury

 

Treasury

 

 

 

 

 

 

shares

 

amount

 

of par

 

earnings

 

shares

 

shares cost

 

Total

 

Balance at December 29, 2018

   

2,574,264

   

$

643

   

$

1,930

   

$

61,131

   

876,409

   

$

(14,928)

   

$

48,776

 

Net income

 

 

 

 —

 

 

 —

 

 

13,322

 

 

 

 —

 

 

13,322

 

Compensation of Board of Directors by issuance  of treasury shares

 

 

 

 —

 

 

83

 

 

 —

 

(21,000)

 

 

358

 

 

441

 

Purchase of treasury shares

 

 

 

 —

 

 

 —

 

 

 —

 

3,368

 

 

(69)

 

 

(69)

 

Balance at March 30, 2019

 

2,574,264

 

$

643

 

$

2,013

 

$

74,453

 

858,777

 

$

(14,639)

 

$

62,470

 

Net loss

 

 

 

 —

 

 

 —

 

 

(4,836)

 

 

 

 —

 

 

(4,836)

 

Purchase of treasury shares

 

 

 

 —

 

 

 —

 

 

 —

 

1,752

 

 

(29)

 

 

(29)

 

Balance at June 29, 2019

 

2,574,264

 

$

643

 

$

2,013

 

$

69,617

 

860,529

 

$

(14,668)

 

$

57,605

 

Net loss

 

 

 

 —

 

 

 —

 

 

(20,284)

 

 

 

 —

 

 

(20,284)

 

Purchase of treasury shares

 

 

 

 —

 

 

 —

 

 

 —

 

1,672

 

 

(26)

 

 

(26)

 

Balance at September 28, 2019

 

2,574,264

 

$

643

 

$

2,013

 

$

49,333

 

862,201

 

$

(14,694)

 

$

37,295

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months ended September 29, 2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common

 

Capital

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common

 

shares

 

in excess

 

Retained

 

Treasury

 

Treasury

 

 

 

 

 

 

shares

 

amount

 

of par

 

earnings

 

shares

 

shares cost

 

Total

 

Balance at December 30, 2017

   

2,574,264

   

$

643

   

$

1,887

   

$

66,987

   

892,097

   

$

(15,195)

   

$

54,322

 

Net loss

 

 

 

 —

 

 

 —

 

 

(6,193)

 

 

 

 

 —

 

 

(6,193)

 

Compensation of Board of Directors by issuance of treasury shares

 

 

 

 —

 

 

43

 

 

 —

 

(16,000)

 

 

271

 

 

314

 

Purchase of treasury shares

 

 

 

 —

 

 

 —

 

 

 —

 

112

 

 

 —

 

 

 —

 

Balance at March 31, 2018

 

2,574,264

 

$

643

 

$

1,930

 

$

60,794

 

876,209

 

$

(14,924)

 

$

48,443

 

Net income

 

 

 

 —

 

 

 —

 

 

2,113

 

 

 

 

 —

 

 

2,113

 

Purchase of treasury shares

 

 

 

 —

 

 

 —

 

 

 —

 

 —

 

 

 —

 

 

 —

 

Balance at June 30, 2018

 

2,574,264

 

$

643

 

$

1,930

 

$

62,907

 

876,209

 

$

(14,924)

 

$

50,556

 

Net income

 

 

 

 —

 

 

 —

 

 

(1,236)

 

 

 

 

 —

 

 

(1,236)

 

Purchase of treasury shares

 

 

 

 —

 

 

 —

 

 

 —

 

200

 

 

(4)

 

 

(4)

 

Balance at September 29, 2018

 

2,574,264

 

$

643

 

$

1,930

 

$

61,671

 

876,409

 

$

(14,928)

 

$

49,316

 

 

See notes to condensed consolidated financial statements

 

6

 

CONTINENTAL MATERIALS CORPORATION

SECURITIES AND EXCHANGE COMMISSION FORM 10-Q

NOTES TO THE QUARTERLY CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

QUARTER ENDED SEPTEMBER 28, 2019

(Unaudited)

 

1.    Basis of Presentation:

 

Basis of Presentation:

The unaudited interim condensed consolidated financial statements included herein are prepared pursuant to the Securities and Exchange Commission (the “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 Continental Materials Corporation (the “Company”) as of December 29, 2018 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 and to ensure the financial statements are not misleading. Certain reclassifications have been made to the 2018 consolidated financial statements to conform to the 2019 presentation. The reclassifications had no effect on the consolidated results of operations, the net change in cash or the total assets, liabilities or shareholders’ equity of the Company. During the quarter ended March 30, 2019 the Company sold substantially all of the assets of Transit Mix Concrete Company’s ready-mix business and Daniels sand operation. The assets and liabilities related to these operations are presented as held for sale in accordance with generally accepted accounting principles. See Note 15. Accordingly, the operations of these businesses are presented as discontinued operations for all periods presented.

 

Revenue Recognition:

Effective December 31, 2017, the Company adopted Accounting Standards Update (ASU) 2014-09, Revenue from Contracts with Customers (Topic 606) and related amendments, which creates a single source of revenue guidance for all companies in all industries and is more principles-based than previous revenue guidance. The Company adopted the standard using the modified retrospective approach. The adoption of this standard did not result in significant changes to the Company’s accounting policies, business processes, systems or controls, or have a material impact on its financial position, consolidated results of operations or consolidated cash flows. As such, prior period financial statements were not recast and there was no cumulative effect adjustment upon adoption.

 

Sales are recognized when control of the promised goods or services transfers to the Company’s customers in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services. The Company’s payment terms generally range between 30 to 90 days after invoice is billed to the customer. Sales are reported net of sales tax. Shipping and other transportation costs paid by the Company and rebilled to the buyer are recorded gross (as both sales and cost of sales). The Company generally recognizes revenue from the sale of products at the time the products are shipped.

 

While the return of products is generally not allowed, some large customers have been granted the right to return a certain amount at the end of the normal selling season for seasonal products. Sales returns and allowances are estimated based on current program terms and historical experience. Provisions for estimated returns, discounts, volume rebates and other price adjustments are provided for in the same period the related revenues are recognized and are netted against revenues.

 

The Company is responsible for warranties related to the manufacture of its HVAC products and estimates the future warranty claims based upon historical experience and management estimates. The Company reviews warranty and related claims activities and records provisions as necessary.

 

7

 

The Company performs installation services for certain projects within its Door segment. Management determined there are two performance obligations related to most of these contracts, the equipment and the installation services. The transaction price for these contracts is allocated to each performance obligation based on its stated stand-alone selling price. Revenue is recognized at a point in time as each performance obligation is completed. No maintenance or service contracts are offered by the Company.

 

Certain reclassifications have been made to prior period financial information in order to conform to the current period’s presentation, including a change to the Company’s reporting segments. See Note 7 for further information and for disaggregation of revenue by segment.

 

Leases 

Effective December 30, 2018 (the beginning of fiscal 2019) the Company adopted ASU No. 2016-02, Leases (Topic 842), which superseded Topic 840, “Leases”. As allowed under the new accounting standard, the Company elected to apply practical expedients to carry forward the original lease determinations, lease classifications and accounting of initial direct costs for all asset classes at the time of adoption. The Company also elected not to separate lease components from non-lease components for asset categories, except office space, and to exclude short-term leases from its Consolidated Balance Sheet. For the office space lease category the election was made to report lease and non-lease components separately as the non-lease components are billed and paid separately and are not a fixed amount over the lease term. The implicit discount rate of leases is used to calculate present values when available. When an implicit discount rate is not readily available an incremental borrowing rate is used to calculate present values.

 

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 Tax Cuts and Jobs Act, enacted December 22, 2017, eliminated the corporate Alternative Minimum Tax (AMT) and allows for all existing credit carryforwards to be used to offset regular tax liability for tax years beginning after December 31, 2017. Additionally, for tax years 2018, 2019 and 2020, to the extent that the AMT credit carryover exceeds the regular tax liability, 50% of the excess AMT credit is refundable. Any remaining credits will be fully refundable in 2021. For state tax purposes, net operating losses can be carried forward for various periods for the states that the Company is required to file in. California Enterprise Zone credits can be used through 2023 while Colorado credits can be carried forward for 7 years. The Company has established a valuation reserve related to a portion of the California Enterprise Zone credit not expected to be utilized prior to expiration.

 

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 Company did not identify any such uncertain tax positions as of September  28, 2019 or December 29, 2018.

 

3.    Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value measurements must maximize the use of observable inputs and minimize the use of unobservable inputs. There is a hierarchy of three levels of inputs that may be used to measure fair value:

 

 

 

Level 1

Quoted prices in active markets for identical assets or liabilities.

 

 

Level 2

Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

 

 

8

 

Level 3

Unobservable inputs supported by little or no market activity that are significant to the fair value of the assets or liabilities. Unobservable inputs reflect the assumptions that market participants would use when pricing the asset or liability including assumptions about risk.

 

The following methods were used to estimate the fair value of all other financial instruments recognized in the accompanying balance sheet:

 

Cash and Cash Equivalents: The carrying amount approximates fair value and was valued as Level 1.

 

Revolving Bank Loan Payable: Fair value is estimated based on the borrowing rates currently available to the Company for bank loans with similar terms and maturities and determined through the use of a discounted cash flow model. The carrying amount of the Revolving Bank Loan Payable represents a reasonable estimate of the corresponding fair value as the Company’s debt is held at variable interest rates and was valued as Level 2.

 

Phantom equity and phantom equity appreciation liability awards: Fair value is estimated based on the use of a Black-Scholes option pricing model based on publically available inputs. The carrying amount of the liability represents a reasonable estimate of the vested portion of the corresponding fair value of the awards granted and was valued as Level 2.

 

Contingent consideration: Fair value is estimated based on the use of a Monte Carlo Simulation model based on significant inputs that are not observable in the market, which are considered Level 3 inputs in accordance with ASC Topic 820.

 

ARO for asset impairment: Fair value is estimated using an expected present value technique using estimated cash flows over a period of time and then discounting the expected cash flows using a credit-adjusted risk-free interest rate using significant inputs that are not observable in the market, which are considered Level 3 inputs in accordance with ASC Topic 820.

 

There were no transfers between fair value measurement levels of any financial instruments in the current quarter.

 

4.    In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606). This new revenue standard created a single source of revenue guidance for all companies in all industries and is more principles-based than prior revenue guidance. Subsequently, the FASB issued various ASUs to provide further clarification around certain aspects of ASC 606. This standard was adopted by the Company in the first quarter of fiscal 2018. See Note 1 for further discussion of the Company’s revenue recognition policies and practices.

 

In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230), requiring that the statement of cash flows explain the change in total cash, cash equivalents and amounts generally described as restricted cash or restricted cash equivalents. This standard was adopted by the Company in the first quarter of fiscal 2018 and did not have a material impact to the consolidated statement of cash flows.

 

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), which superseded Leases (Topic 840). The new accounting standard was effective for the Company beginning on December 30, 2018 (the beginning of fiscal 2019) and required the recognition on the balance sheet of right-of-use assets (ROU) and lease liabilities for all long-term leases, including operating leases. The Company elected the optional transition method and adopted the new guidance on December 30, 2018 on a modified retrospective basis with no restatement of prior period amounts. As allowed under the new accounting standard, the Company elected to apply practical expedients to carry forward the original lease determinations, lease classifications and accounting of initial direct costs for all asset classes at the time of adoption. The Company also elected not to separate lease components from non-lease components for most asset categories and to exclude short-term leases from its Consolidated Balance Sheet. The Company’s adoption of the new standard resulted in the recognition of ROUs of $5,353,000 and liabilities of $5,427,000 related to operating leases, with no material cumulative effect adjustment to equity as of the date of adoption. In connection with the adoption of this guidance, as required, the Company reclassified deferred rent

9

 

liabilities as reductions to lease assets. Adoption of the new standard did not have a material impact on the Company’s Consolidated Statements of Income or Cash Flows. See Note 13.

 

There are no other significant prospective accounting pronouncements that are expected to have a material effect on the Company’s consolidated financial statements.

 

5.    Historically, operating results of the Company for the first half of the year were not necessarily indicative of performance for the entire year due to the seasonality of most of the Company’s products. Management believes the recent disposal and acquisition activity should help smooth the seasonality of the Company’s portfolio and make operating results more consistent.

 

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 September 28, 2019 and September 29, 2018 as the Company does not have any dilutive instruments.

 

7.    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 15. During the second quarter of 2019, the Company acquired the assets of four operating businesses through three separate transactions. See Note 16 for additional discussion of the 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 allocates resources to the operating businesses after the sale of the concrete and aggregates assets of the Company’s wholly-owned subsidiaries (collectively referred to as TMC) and the acquisitions discussed below. Segment information for prior periods has been reclassified to conform to current segment reporting structure.

 

The Company operates primarily in the Building Products industry group. Within this industry group the Company has identified three reportable segments: the HVAC segment, the Door segment and the Construction Materials segment.

 

The HVAC segment produces and sells a variety of products including wall furnaces, fan coils, evaporative coolers, boiler room equipment and 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 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), 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 (the three companies collectively are referred to as the Castle Companies). During the quarter ended September 28, 2019 the Company determined to cease mining at its Pikeview aggregates quarry as continuing mining operations was no longer in the best interest of the consolidated portfolio. Accordingly, the Company recognized a $20,217,000 charge to record the reclamation liability associated with the property. The Company expects most of the reclamation to be completed by an outside party over approximately the next five years. See Note 19 for additional discussion.

 

In addition to the above reporting segments, an “Unallocated Corporate and Other” 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 classification also includes expenses related to a property held by the Company which are not material to the consolidated Company.

10

 

 

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 September 28, 2019 and September 29, 2018 along with the items necessary to reconcile the segment information to the totals reported in the financial statements (amounts in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

 

    

 

    

 

    

 

 

    

 

    

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Construction

 

Unallocated

 

Held for

 

 

 

 

 

HVAC

 

Doors

 

Materials

 

Corporate

 

Sale

 

Total

 

Nine Months ended September 28, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenues from external customers

 

$

57,712

 

$

17,483

 

$

4,579

 

$

 0

 

$

 —

 

$

79,773

 

Depreciation, depletion and amortization

 

 

842

 

 

199

 

 

276

 

 

54

 

 

 —

 

 

1,369

 

Operating income (loss)

 

 

(837)

 

 

1,288

 

 

(15,105)

 

 

(6,295)

 

 

 —

 

 

(20,949)

 

Segment assets

 

 

53,540

 

 

13,607

 

 

9,799

 

 

15,550

 

 

 —

 

 

92,496

 

Capital expenditures

 

 

479

 

 

72

 

 

407

 

 

15

 

 

 —

 

 

973

 

Three Months ended September 28, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenues from external customers

 

$

23,702

 

$

6,787

 

$

1,515

 

$

(16)

 

$

 —

 

$

31,987

 

Depreciation, depletion and amortization

 

 

320

 

 

111

 

 

142

 

 

26

 

 

 —

 

 

597

 

Operating income (loss)

 

 

1,499

 

 

295

 

 

(28,288)

 

 

(1,412)

 

 

 —

 

 

(27,906)

 

Segment assets

 

 

53,540

 

 

13,607

 

 

9,799

 

 

15,550

 

 

 —

 

 

92,496

 

Capital expenditures  (b)

 

 

286

 

 

(36)

 

 

275

 

 

 —

 

 

 —

 

 

525

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Construction

 

Unallocated