UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
x |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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For the quarterly period ended June 30, 2007 |
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OR |
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o |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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For the transition period from to |
Commission File number 1-3834
CONTINENTAL MATERIALS CORPORATION
(Exact name of registrant as specified in its charter)
Delaware |
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36-2274391 |
(State or other jurisdiction of incorporation or organization) |
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(I.R.S. Employer Identification No.) |
200 South Wacker Drive, Suite 4000, Chicago, Illinois 60606
(Address of principal executive offices) (Zip Code)
(312) 541-7200
(Registrants telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of accelerated filer and large accelerated filer in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer o |
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Accelerated Filer o |
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Non-Accelerated Filer x |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 or the Exchange Act).
Yes o No x
Indicate the number of shares outstanding of each lf the issuers classes of common stock, as of the latest practicable date: |
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Common Stock, $0.25 par value, shares outstanding at August 10, 2007 |
1,602,706 |
PART I FINANCIAL INFORMATION
CONTINENTAL MATERIALS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
JUNE 30, 2007 and DECEMBER 30, 2006
(Unaudited)
(000s omitted except share data)
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JUNE 30, |
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DECEMBER 30, |
|
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ASSETS |
|
|
|
|
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Current assets: |
|
|
|
|
|
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Cash and cash equivalents |
|
$ |
2,839 |
|
$ |
2,770 |
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Receivables, net |
|
29,596 |
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24,120 |
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||
Receivable for insured losses |
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1,595 |
|
1,584 |
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||
Inventories: |
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|
|
|
|
||
Finished goods |
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8,544 |
|
7,104 |
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||
Work in process |
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1,441 |
|
1,502 |
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||
Raw materials and supplies |
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9,718 |
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8,229 |
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||
Prepaid expenses |
|
4,245 |
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4,291 |
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||
Total current assets |
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57,978 |
|
49,600 |
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||
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|
|
|
|
|
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Property, plant and equipment, net |
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34,575 |
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32,365 |
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||
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|
|
|
|
||
Goodwill |
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7,829 |
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7,829 |
|
||
Amortizable intangible assets, net |
|
1,352 |
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1,517 |
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Other assets |
|
2,420 |
|
2,394 |
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||
|
|
|
|
|
|
||
|
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$ |
104,154 |
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$ |
93,705 |
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LIABILITIES |
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Current liabilities: |
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Bank loan payable |
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$ |
6,800 |
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$ |
|
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Current portion of long-term debt |
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2,733 |
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2,866 |
|
||
Accounts payable and accrued expenses |
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20,996 |
|
17,060 |
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||
Liability for unpaid claims covered by insurance |
|
1,595 |
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1,584 |
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||
Income taxes |
|
384 |
|
579 |
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Total current liabilities |
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32,508 |
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22,089 |
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||
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Long-term debt |
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11,600 |
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12,800 |
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Deferred income taxes |
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3,883 |
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3,883 |
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Other long-term liabilities |
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2,032 |
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1,590 |
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SHAREHOLDERS EQUITY |
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Common shares, $0.25 par value; authorized 3,000,000 shares; issued 2,574,264 shares |
|
643 |
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643 |
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Capital in excess of par value |
|
1,830 |
|
1,830 |
|
||
Retained earnings |
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68,231 |
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67,373 |
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||
Treasury shares, 971,558 and 968,803, at cost |
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(16,573 |
) |
(16,503 |
) |
||
|
|
54,131 |
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53,343 |
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||
|
|
|
|
|
|
||
|
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$ |
104,154 |
|
$ |
93,705 |
|
See accompanying notes
2
CONTINENTAL MATERIALS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS, RETAINED EARNINGS
AND COMPREHENSIVE INCOME (LOSS)
FOR THE THREE MONTHS ENDED JUNE 30, 2007 AND JULY 1, 2006
(Unaudited)
(000s omitted except per-share amounts)
|
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JUNE 30, |
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JULY 1, |
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||
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|
|
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Sales |
|
$ |
45,651 |
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$ |
43,704 |
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|
|
|
|
|
|
||
Costs and expenses: |
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|
|
|
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||
Cost of sales (exclusive of depreciation, depletion and amortization) |
|
37,253 |
|
34,957 |
|
||
Depreciation, depletion and amortization |
|
1,322 |
|
1,249 |
|
||
Selling and administrative |
|
5,276 |
|
5,194 |
|
||
|
|
|
|
|
|
||
Gain on disposition of property and equipment |
|
2 |
|
72 |
|
||
|
|
43,849 |
|
41,328 |
|
||
|
|
|
|
|
|
||
Operating income |
|
1,802 |
|
2,376 |
|
||
|
|
|
|
|
|
||
Interest expense |
|
(368 |
) |
(202 |
) |
||
Other (expense) income, net |
|
263 |
|
(9 |
) |
||
|
|
|
|
|
|
||
Income before income taxes |
|
1,697 |
|
2,165 |
|
||
|
|
|
|
|
|
||
Provision for income taxes |
|
511 |
|
735 |
|
||
|
|
|
|
|
|
||
Net income |
|
1,186 |
|
1,430 |
|
||
|
|
|
|
|
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||
Retained earnings, beginning of period |
|
67,045 |
|
65,030 |
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||
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|
|
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|
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Retained earnings, end of period |
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$ |
68,231 |
|
$ |
66,460 |
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|
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|
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Basic and diluted earnings per share |
|
$ |
.74 |
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$ |
.89 |
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Average shares outstanding |
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1,603 |
|
1,605 |
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||
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|
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Comprehensive income: |
|
|
|
|
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Net income |
|
$ |
1,186 |
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$ |
1,430 |
|
Comprehensive loss from interest rate swap, net of tax of $0 for the three months ended July 1, 2006 |
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|
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(1 |
) |
||
|
|
$ |
1,186 |
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$ |
1,429 |
|
See accompanying notes
3
CONTINENTAL MATERIALS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
FOR THE SIX MONTHS ENDED JUNE 30, 2007 AND JULY 1, 2006
(Unaudited)
(000s omitted except per-share amounts)
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JUNE 30, |
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JULY 1, |
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||
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Sales |
|
$ |
85,730 |
|
$ |
77,388 |
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|
|
|
|
|
|
||
Costs and expenses: |
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|
|
|
|
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Cost of sales (exclusive of depreciation, depletion and amortization) |
|
71,047 |
|
62,938 |
|
||
Depreciation, depletion and amortization |
|
2,637 |
|
2,439 |
|
||
Selling and administrative |
|
10,569 |
|
10,201 |
|
||
|
|
|
|
|
|
||
Gain on disposition of property and equipment |
|
33 |
|
146 |
|
||
|
|
84,220 |
|
75,432 |
|
||
|
|
|
|
|
|
||
Operating income |
|
1,510 |
|
1,956 |
|
||
|
|
|
|
|
|
||
Interest expense |
|
(581 |
) |
(298 |
) |
||
Other income, net |
|
279 |
|
52 |
|
||
|
|
|
|
|
|
||
Income before income taxes |
|
1,208 |
|
1,710 |
|
||
|
|
|
|
|
|
||
Provision for income taxes |
|
350 |
|
581 |
|
||
|
|
|
|
|
|
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Net income |
|
858 |
|
1,129 |
|
||
|
|
|
|
|
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Retained earnings, beginning of period |
|
67,373 |
|
65,331 |
|
||
|
|
|
|
|
|
||
Retained earnings, end of period |
|
$ |
68,231 |
|
$ |
66,460 |
|
|
|
|
|
|
|
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Basic and diluted earnings per share |
|
$ |
.53 |
|
$ |
.70 |
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|
|
|
|
|
|
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Average shares outstanding |
|
1,603 |
|
1,605 |
|
||
|
|
|
|
|
|
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Comprehensive income: |
|
|
|
|
|
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Net income |
|
$ |
858 |
|
$ |
1,129 |
|
Comprehensive income from interest rate swap, net of tax of $1 for the six months ended July 1, 2006 |
|
|
|
2 |
|
||
|
|
$ |
858 |
|
$ |
1,131 |
|
See accompanying notes
4
CONTINENTAL MATERIALS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2007 AND JULY 1, 2006
(Unaudited)
(000s omitted)
|
|
JUNE 30, |
|
JULY 1, |
|
||
|
|
|
|
|
|
||
Net cash used in operating activities |
|
$ |
(1,105 |
) |
$ |
(2,183 |
) |
|
|
|
|
|
|
||
Investing activities: |
|
|
|
|
|
||
Cash paid for acquisitions of assets of certain businesses |
|
|
|
(2,452 |
) |
||
Capital expenditures |
|
(4,631 |
) |
(3,609 |
) |
||
Proceeds from sale of assets |
|
317 |
|
166 |
|
||
Net cash used in investing activities |
|
(4,314 |
) |
(5,895 |
) |
||
|
|
|
|
|
|
||
Financing activities: |
|
|
|
|
|
||
Borrowings under revolving credit facility |
|
6,800 |
|
1,000 |
|
||
Long-term borrowings |
|
|
|
5,000 |
|
||
Repayment of long-term debt |
|
(1,333 |
) |
(500 |
) |
||
Insurance proceeds for property and equipment damaged by flood |
|
91 |
|
|
|
||
Payment to acquire treasury stock |
|
(70 |
) |
|
|
||
Net cash provided by financing activities |
|
5,488 |
|
5,500 |
|
||
|
|
|
|
|
|
||
Net increase (decrease) in cash and cash equivalents |
|
69 |
|
(2,578 |
) |
||
Cash and cash equivalents: |
|
|
|
|
|
||
Beginning of period |
|
2,770 |
|
6,829 |
|
||
|
|
|
|
|
|
||
End of period |
|
$ |
2,839 |
|
$ |
4,251 |
|
|
|
|
|
|
|
||
Supplemental disclosures of cash flow items: |
|
|
|
|
|
||
Cash paid during the six months for: |
|
|
|
|
|
||
Interest |
|
$ |
675 |
|
$ |
237 |
|
Income taxes |
|
545 |
|
215 |
|
||
Supplemental disclosures of noncash investing and financing activities |
|
|
|
|
|
||
Note issued as partial consideration for asset purchase |
|
$ |
|
|
$ |
1,000 |
|
Capital expenditures purchased on account |
|
105 |
|
|
|
See accompanying notes
5
CONTINENTAL MATERIALS CORPORATION
SECURITIES AND EXCHANGE COMMISSION FORM 10-Q
NOTES TO THE QUARTERLY CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
QUARTER ENDED JUNE 30, 2007
(Unaudited)
1. The unaudited interim condensed consolidated financial statements included herein are prepared pursuant to the Securities and Exchange Commission rules and regulations for reporting on Form 10-Q. Accordingly, certain information and footnote disclosures normally accompanying the annual consolidated financial statements have been omitted. The interim condensed consolidated financial statements and notes should be read in conjunction with the consolidated financial statements and notes thereto included in the Companys latest annual report on Form 10-K. As a result of certain organizational changes implemented at the beginning of the 2007 fiscal year, we reevaluated our reporting segments during the first quarter in accordance with Financial Accounting Standards Board (FASB) Statement No. 131, Disclosures about Segments of an Enterprise and Related Information. Although our four reporting segments, see Note 5, have remained the same, the Door Division of Transit Mix Concrete Co., previously reported within the Concrete, Aggregates and Construction Supplies segment is now reported within the Door segment. 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.
2. Our effective income tax rate is based on expected income, statutory tax rates and tax positions taken in the various jurisdictions in which we operate. For interim financial reporting, we estimate the annual income tax rate based on projected taxable income for the full year and record a quarterly income tax provision in accordance with the anticipated annual rate. As the year progresses, we refine the estimates of the years taxable income as new information becomes available, including year-to-date financial results. This continual estimation process often results in a change to our expected effective income tax rate for the year. When this occurs, we adjust the income tax provision during the quarter in which the change in estimate occurs so that the year-to-date provision reflects the expected annual income tax rate. Significant judgment is required in determining our effective income tax rate and in evaluating our tax positions. The effective income tax rate for the quarter ended June 30, 2007 of 30% was down 4% from the 34% rate for the three months ended July 1, 2006. The decrease is primarily the result of an anticipated increase in the percentage depletion deduction, the scheduled increase in the deduction for certain domestic production activities arising under the American Jobs Creation Act of 2004 and the release of tax contingencies that were resolved in favor of the Company.
On December 31, 2006, the first day of fiscal 2007, we adopted the provisions of Financial Accounting Standards Board Interpretation No. 48, Accounting for Uncertainty in Income Taxes, an Interpretation of FASB Statement No. 109 (FIN 48). FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprises financial statements in accordance with FASB Statement No. 109, Accounting for Income Taxes, by prescribing a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. Under FIN 48, the financial statement effects of a tax position should initially be recognized when it is more likely than not, based on the technical merits, that the position will be sustained upon examination. A tax position that meets the more-likely-than-not recognition threshold should initially and subsequently be measured as the largest amount of tax benefit that has a greater than 50% likelihood of being realized upon effective settlement with a taxing authority.
There was no cumulative adjustment to retained earnings required as a result of the implementation of FIN 48. The gross amount of unrecognized tax benefits at December 31, 2006 was $290,000 of which $79,000 would affect the effective tax rate. The gross amount of unrecognized tax benefits at June 30, 2007 was $287,000 of which $86,000 would affect the effective tax rate.
We classify interest and penalties recognized on the liability for unrecognized tax benefits as income tax expense. Accrued interest and penalties included in our total liability for unrecognized tax benefits were $56,000 as of June 30, 2007 and $85,000 as of December 31, 2006.
The U.S. Federal statute of limitations expires during the third quarter of 2007 for our 2003 tax year. Included in the balance at June 30, 2007 is approximately $21,000 related to tax positions expected to be resolved within 12 months of this reporting date.
We file income tax returns in the United States federal and various state jurisdictions. Generally, we are not subject to changes in income taxes by any taxing jurisdiction for the years prior to 2002.
3. Operating results for the first six months of 2007 are not necessarily indicative of performance for the entire year. Historically, sales of the Evaporative Cooling segment are higher in the first and second quarters, sales of the Concrete, Aggregates and Construction Supplies segment are higher in the second and third quarters and sales of the Heating and Cooling segment are higher in the third and fourth quarters. Sales of the Door segment have not shown strong seasonal fluctuations in recent years.
6
4. There is no difference in the calculation of basic and diluted earnings per share (EPS) for the six months ended June 30, 2007 and July 1, 2006.
5. The Company operates primarily in four reportable segments within its two principal industry groups; the Heating and Cooling segment and the Evaporative Cooling segment in the Heating, Ventilation and Air Conditioning (HVAC) industry group and the Concrete, Aggregates and Construction Supplies segment and the Door segment in the Construction Products industry group. The Heating and Cooling segment produces and sells gas-fired wall furnaces, console heaters and fan coils from the Companys wholly-owned subsidiary, Williams Furnace Co. of Colton, California. The Evaporative Cooling segment produces and sells evaporative coolers from the Companys wholly-owned subsidiary, Phoenix Manufacturing, Inc. of Phoenix, Arizona. Sales of these two segments are nationwide, but are concentrated in the southwestern United States. Concrete, Aggregates and Construction Supplies are offered from numerous locations along the Front Range of Colorado operated by the Companys wholly-owned subsidiaries Castle Concrete Company and Transit Mix Concrete Co. (TMC), of Colorado Springs, Transit Mix of Pueblo, Inc. of Pueblo and Rocky Mountain Ready Mix Concrete, Inc. of Denver. Doors are fabricated and sold along with the related hardware from the Companys wholly-owned subsidiary, McKinney Door and Hardware, Inc. (MDHI) of Pueblo, Colorado. Sales of these two segments are highly concentrated in the Front Range area in Colorado although door sales are also made throughout the United States. Prior to the 2007 fiscal year, the Company reported the Door Division of TMC as part of the Concrete, Aggregates and Construction Materials segment. On December 31, 2006, the first day of fiscal 2007, the Door Division was transferred to MDHI and is now reported as part of the Door segment. As required by FASB Statement No. 131, we have restated the 2006 financial information presented in the table below to conform to the current composition of our reportable segments.
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/expense or income taxes.
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 and an Other classification is used to report a real estate operation. Expenses related to the corporate information technology group are allocated to all locations, including the corporate office.
The following table presents information about reported segments for the six month and three month periods ended June 30, 2007 and July 1, 2006 along with the items necessary to reconcile the segment information to the totals reported in the financial statements (amounts in thousands):
7
|
|
Construction Products |
|
HVAC Products |
|
|
|
|
|
|
|
|||||||||||||||||
|
|
Concrete, |
|
|
|
Combined |
|
Heating |
|
Evaporative |
|
Combined |
|
Unallocated |
|
Other |
|
Total |
|
|||||||||
2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Six Months ended |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Revenues from external customers |
|
$ |
45,525 |
|
$ |
9,449 |
|
$ |
54,974 |
|
$ |
16,176 |
|
$ |
14,399 |
|
$ |
30,575 |
|
$ |
9 |
|
$ |
172 |
|
$ |
85,730 |
|
Depreciation, depletion and amortization |
|
2,029 |
|
61 |
|
2,090 |
|
211 |
|
300 |
|
511 |
|
36 |
|
|
|
2,637 |
|
|||||||||
Operating income (loss) |
|
2,318 |
|
1,167 |
|
3,485 |
|
(679 |
) |
127 |
|
(552 |
) |
(1,477 |
) |
54 |
|
1,510 |
|
|||||||||
Segment assets |
|
61,545 |
|
5,804 |
|
67,349 |
|
19,886 |
|
14,426 |
|
34,312 |
|
2,489 |
|
4 |
|
104,154 |
|
|||||||||
Capital expenditures (a) |
|
3,806 |
|
209 |
|
4,015 |
|
232 |
|
478 |
|
710 |
|
31 |
|
|
|
4,756 |
|
|||||||||
Quarter ended |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Revenues from external customers |
|
$ |
25,718 |
|
$ |
4,531 |
|
$ |
30,249 |
|
$ |
6,794 |
|
$ |
8,518 |
|
$ |
15,312 |
|
$ |
4 |
|
$ |
86 |
|
$ |
45,651 |
|
Depreciation, depletion and amortization |
|
1,021 |
|
26 |
|
1,047 |
|
106 |
|
150 |
|
256 |
|
19 |
|
|
|
1,322 |
|
|||||||||
Operating income (loss) |
|
2,845 |
|
571 |
|
3,416 |
|
(1,050 |
) |
76 |
|
(974 |
) |
(667 |
) |
27 |
|
1,802 |
|
|||||||||
Segment assets |
|
61,545 |
|
5,804 |
|
67,349 |
|
19,886 |
|
14,426 |
|
34,312 |
|
2,489 |
|
4 |
|
104,154 |
|
|||||||||
Capital expenditures (a) |
|
715 |
|
65 |
|
780 |
|
89 |
|
149 |
|
238 |
|
9 |
|
|
|
1,027 |
|
(a) Capital expenditures for the Concrete, Aggregates and Construction Supplies segment include $46,000 of additions purchased on account and capital expenditures for the Evaporative Cooling segment include $59,000 of additions purchased on account.
|
|
Construction Products |
|
HVAC Products |
|
|
|
|
|
|
|
|||||||||||||||||
|
|
Concrete, |
|
Doors |
|
Combined |
|
Heating |
|
Evaporative |
|
Combined |
|
Unallocated |
|
Other |
|
|
|
|||||||||
2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Six Months ended |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Revenues from external customers |
|
$ |
45,071 |
|
$ |
6,552 |
|
$ |
51,623 |
|
$ |
11,631 |
|
$ |
13,959 |
|
$ |
25,590 |
|
$ |
3 |
|
$ |
172 |
|
$ |
77,388 |
|
Depreciation, depletion and amortization |
|
1,829 |
|
74 |
|
1,903 |
|
198 |
|
300 |
|
498 |
|
38 |
|
|
|
2,439 |
|
|||||||||
Operating income (loss) |
|
2,746 |
|
659 |
|
3,405 |
|
(149 |
) |
331 |
|
182 |
|
(1,685 |
) |
54 |
|
1,956 |
|
|||||||||
Segment assets (a) |
|
54,470 |
|
4,750 |
|
59,220 |
|
18,303 |
|
12,651 |
|
30,954 |
|
3,468 |
|
63 |
|
93,705 |
|
|||||||||
Capital expenditures (b) |
|
5,067 |
|
65 |
|
5,132 |
|
102 |
|
162 |
|
264 |
|
2 |
|
|
|
5,398 |
|
|||||||||
Quarter ended |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Revenues from external customers |
|
$ |
26,112 |
|
$ |
3,287 |
|
$ |
29,399 |
|
$ |
5,045 |
|
$ |
9,171 |
|
$ |
14,216 |
|
$ |
3 |
|
$ |
86 |
|
$ |
43,704 |
|
Depreciation, depletion and amortization |
|
942 |
|
37 |
|
979 |
|
100 |
|
150 |
|
250 |
|
20 |
|
|
|
1,249 |
|
|||||||||
Operating income (loss) |
|
2,867 |
|
325 |
|
3,192 |
|
(354 |
) |
358 |
|
4 |
|
(847 |
) |
27 |
|
2,376 |
|
|||||||||
Segment assets (a) |
|
54,470 |
|
4,750 |
|
59,220 |
|
18,303 |
|
12,651 |
|
30,954 |
|
3,468 |
|
63 |
|
93,705 |
|
|||||||||
Capital expenditures (b) |
|
3,799 |
|
|
|
3,799 |
|
97 |
|
37 |
|
134 |
|
|
|
|
|
3,933 |
|
(a) Segment assets are as of December 30, 2006.
(b) Capital expenditures for the Concrete, Aggregates and Construction Supplies segment include $1,735,000 million purchased on June 30, 2006 as part of the purchase of certain assets of a concrete producer in Colorado Springs. Capital expenditures for the Door segment include $54,000 purchased on January 1, 2006 as part of the purchase of the assets of CSSL. Also see Note 6.
There are no differences in the basis of segmentation or in the basis of measurement of segment profit or loss from the last annual report except as discussed above.
6. On June 30, 2006 the Company purchased certain assets of ASCI, a concrete producer in Colorado Springs, Colorado for $2,100,000 of cash and a $1,000,000 Note. The assets were acquired by TMC in the Concrete, Aggregates and Construction Supplies segment. The final purchase price allocation included $1,735,000 of plant and equipment, $290,000 for a non-compete agreement, $350,000 for a restriction of use covenant, $370,000 for existing customer relations and $355,000 of goodwill, all of which is amortizable over 15 years for tax purposes. For book purposes, the non-compete is being amortized over its five-year term, the restriction of land use covenant is being amortized over its ten-year term and the customer relations intangible is being amortized over its estimated useful life of ten years. The purchase was accounted for as an acquisition of a business under SFAS No. 141, Standards of Accounting for Business Combinations.
8
The following unaudited pro forma summary financial information summarizes the estimated combined results of operations of the Company and ASCI assuming that the acquisition of ASCI had taken place on January 1, 2006. The unaudited pro forma combined results of operations were prepared on the basis of information provided to the Company by the former management of ASCI and no representation is made by the Company with respect to the accuracy of such information. The pro forma financial information for the six months ended July 1, 2006 includes the results of ASCI from January 1, 2006 through April 30, 2006, and have been adjusted for interest expense, additional depreciation based on the fair market value of plant and equipment, amortization of identifiable intangibles and income tax expense. Interim financial information for the six month periods ended July 1, 2006 was not made available to the Company. Amounts are in thousands except per share amounts.
|
|
Six Months Ended |
|
|
Net sales |
|
$ |
79,684 |
|
Net loss |
|
1,156 |
|
|
Basic and diluted loss per share |
|
.72 |
|
|
The unaudited pro forma combined results of operations are not necessarily indicative of, and do not purport to represent, what the Companys results of operations or financial condition actually would have been had the acquisitions been made as of January 1, 2006. Due to competitive conditions, the Company did not expect to, and has not, retained all of the concrete volume or market share previously attained by ASCI.
7. Identifiable intangible assets as of June 30, 2007 include five amortizable non-compete agreements, including the non-compete agreement related to ASCI acquired during the second quarter of 2006 (see Note 6). Identifiable intangible assets also include a restrictive land covenant and customer relations value, both related to the ASCI acquisition. Collectively, these assets were carried at $1,352,000, net of $1,258,000 accumulated amortization. The pre-tax amortization expense for intangible assets during the quarter ended June 30, 2007 was $77,000. Based upon the intangible assets recorded on the balance sheet at June 30, 2007, amortization expense for the next five years is estimated to be as follows: 2007 $320,000, 2008 $300,000, 2009 $293,000, 2010 $262,000 and 2011 $101,000.
8. At June 30, 2007, the Company was not in compliance with the Cash Flow Ratio as defined in the Companys loan agreement dated September 5, 2003 with LaSalle Bank National Association and Fifth Third Bank. The Company has obtained waivers of the requirement for the quarter and is in discussions with the banks to establish revised requirements such that the Company would expect to be in compliance with the covenant in future quarters. A principal reason for not meeting the required ratio was the high level of capital expenditures during the past twelve months.
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
The following Managements Discussion and Analysis gives effect to the restatement discussed in Note 5.
Company Overview
The Company operates in four reportable segments within its two principal industry groups; the Heating and Cooling segment and the Evaporative Cooling segment in the HVAC industry group and the Concrete, Aggregates and Construction Supplies segment and the Door segment in the Construction Products industry group.
The Heating and Cooling segment produces and sells gas-fired wall furnaces, console heaters and fan coils from the Companys wholly-owned subsidiary, Williams Furnace Co. of Colton, California. The Evaporative Cooling segment produces and sells evaporative coolers from the Companys wholly-owned subsidiary, Phoenix Manufacturing, Inc. of Phoenix, Arizona. Concrete, Aggregates and Construction Supplies are offered from numerous locations along the Front Range of Colorado operated by the Companys wholly-owned subsidiaries Castle Concrete Company and Transit Mix Concrete Co., of Colorado Springs, Transit Mix of Pueblo, Inc. of Pueblo and Rocky Mountain Ready Mix Concrete, Inc. of Denver. Doors are fabricated and sold along with the related hardware from the Companys wholly-owned subsidiary, McKinney Door and Hardware, 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 and tax services as well as strategic business planning and general management services and an Other classification is used to report a real estate operation. Expenses related to the corporate information technology group are allocated to all locations, including the corporate office.
9
Financial Condition
Sales of the Companys HVAC products are seasonal and weather sensitive except for fan coils. Revenues in the Companys Concrete, Aggregates and Construction Supplies segment are influenced by the level of construction activity and weather conditions along the Front Range of Colorado. Sales for the Door segment are not as strongly seasonal nor are they much affected by weather conditions. Historically, the Company has experienced operating losses during the first quarter except when the weather is mild along the Front Range. Operating results typically improve in the second and third quarters reflecting more favorable weather conditions in Colorado and the seasonal sales of Evaporative Cooling segment. Fourth quarter results can vary based on weather conditions in Colorado as well as in the principal markets for the Companys heating equipment. The Company typically experiences operating cash flow deficits during the first half of the year reflecting operating results, the use of sales dating programs (extended payment terms) related to the Evaporative Cooling segment and payments of the prior years accrued incentive bonuses and Company profit-sharing contributions. As a result, the Companys borrowings against its revolving credit facility tend to peak during the second quarter and then decline over the remainder of the year. This trend has continued thus far in 2007.
As expected, the Companys cash flow during the first six months of 2007 was negative due to the seasonality of sales, production schedules and the sales dating programs related to the evaporative cooler product line. Operations used $1,105,000 of cash compared to the $2,183,000 of cash used during the first six months of 2006. The improved cash flow was due to changes in working capital accounts primarily a larger increase in accounts payable and accrued expenses during the first six months of 2007 as compared to the 2006 period.
During the six months ended June 30, 2007, investing activities used $4,314,000 of cash compared to $5,895,000 in the prior years period. Capital expenditures of $4,631,000 during the first six months of 2007, primarily for the Concrete, Aggregates and Construction Supplies segment, were significantly higher than the expenditures during the comparable 2006 period. The replacement of two loaders and a scraper for the quarry operations and the construction and installation of an industrial sand plant all occurred during the first six months of 2007. The proceeds from the sale of assets for 2007 include $230,000 received from the June sale of stock received from the demutualization of a mutual insurance company. Investing activities during the first half of 2006 included $2,452,000 for the acquisition of certain assets of two companies.
Financing activities provided $5,488,000 during the first six months of 2007 compared to $5,500,000 provided during the first six months of 2006. All scheduled debt repayments were made during the first six months of both 2007 and 2006. As expected, the Company borrowed against its revolving credit facility during the second quarter of 2007. During the first six months of 2007, the highest amount of Company borrowings outstanding under the revolving credit agreement was $8,600,000 and the average amount outstanding was $3,687,000. At June 30, 2007, the Company was not in compliance with the Cash Flow Ratio as defined in the loan agreement. The Company has obtained waivers of the requirement for the quarter and is in discussions with the banks to establish revised requirements such that the Company would expect to be in compliance with the covenant in future quarters. A principal reason for not meeting the required ratio was the high level of capital expenditures during the past twelve months.
The Company believes that anticipated cash flow from operations, supplemented by seasonal borrowings against the revolving line of credit, (of which $6,800,000 was outstanding at June 30, 2007) will be sufficient to cover expected cash needs, including servicing debt and planned capital expenditures for at least the next twelve months.
Operations Comparison of Quarter Ended June 30, 2007 to Quarter Ended July 1, 2006
Historically, the Company has experienced improved operating results during the second quarter as sales in the Concrete, Aggregates and Construction Supplies segment increase due to weather more conducive to construction activity. The 2007 operating results were consistent with this trend. Consolidated sales during the second quarter of 2007 were $45,651,000 compared to $43,704,000 in the second quarter of 2006.
The Heating and Cooling segment and the Door segment both reported increased sales for the quarter while the Concrete, Aggregates and Construction Supplies segment and the Evaporative Cooling segment reported declines. Cost of sales as a percentage of sales increased slightly from 80.0% to 81.6% primarily due to narrower margins in the Heating and Cooling segment. Selling and administrative costs increased 1.6% but decreased as a percentage of sales. An increase in selling and administrative costs at the subsidiary level was partially offset by a reduction at the Corporate office resulting from adjustments to accrued incentive based compensation. Depreciation, depletion and amortization for the 2007 quarter increased $73,000 over the prior years quarter due to increased capital expenditures during 2006 and 2007 and amortization of intangible assets associated with the ASCI acquisition. The resulting operating income of $1,802,000 lagged behind the $2,376,000 reported for the second quarter of 2006.
10
Interest expense increased from $202,000 for the second quarter of 2006 to $368,000 in the 2007 quarter due to increased average debt and higher interest rates.
Other income for the 2007 quarter includes a $230,000 gain on the sale of stock received from the demutualization of a mutual insurance company.
A discussion of operations by segment follows.
Construction Products
The table below presents a summary of operating information for the two reportable segments within the Construction Products group for the quarters ended June 30, 2007 and July 1, 2006 (amounts in thousands):
|
|
Concrete, |
|
Doors |
|
||
Quarter ended June 30, 2007 |
|
|
|
|
|
||
Revenues from external customers |
|
$ |
25,718 |
|
$ |
4,531 |
|
Segment operating income |
|
2,845 |
|
571 |
|
||
Operating income as a percent of sales |
|
11.1 |
% |
12.6 |
% |
||
Segment assets as of June 30, 2007 |
|
$ |
61,545 |
|
$ |
5,804 |
|
Return on assets |
|
4.6 |
% |
9.8 |
% |
||
|
|
|
|
|
|
||
Quarter ended July 1, 2006 |
|
|
|
|
|
||
Revenues from external customers |
|
$ |
26,112 |
|
$ |
3,287 |
|
Segment operating income |
|
2,867 |
|
325 |
|
||
Operating income as a percent of sales |
|
11.0 |
% |
9.9 |
% |
||
Segment assets as of July 1, 2006 |
|
$ |
55,777 |
|
$ |
4,587 |
|
Return on assets |
|
5.2 |
% |
7.1 |
% |
Concrete, Aggregates and Construction Supplies Segment
Sales in the Concrete, Aggregates and Construction Supplies segment for the second quarter of 2007 declined 1.5% from the prior years comparable quarter. Concrete volume improved; however margins deteriorated as pricing decisions made in order to protect our market share were insufficient to fully recover higher material and delivery costs, including fuel. Aggregate volumes declined 3% as construction activity along the Front Range of Colorado, especially housing construction, declined. Margins, however, improved as production efficiency improved. In addition, the recovery of $725,000 from our insurance carrier as settlement of flood claims at our two Arkansas River operations during the third quarter of 2006, further enhanced aggregates margins. All expenses incurred to repair the damage and resume production had been recognized in cost of sales as incurred. Both quarries were back in operation by the end of 2006 although some measures to mitigate future vulnerability were performed in 2007. No recovery had been recorded prior to the settlement during the second quarter of 2007.
Operating income remained relatively constant for the 2007 quarter compared to the 2006 quarter. The improved aggregates operations including the insurance recovery largely offset the deterioration of the concrete margins. Depreciation, depletion and amortization increased because of the higher capital spending during 2006 and 2007 to date, including the addition of $1,010,000 of amortizable intangibles. Selling and administrative costs rose moderately during the second quarter of 2007 compared to the 2006 quarter. As a result, operating income as a percent of sales improved modestly while the return on assets declined in the 2007 quarter from the prior years quarter largely due to an increase in segment assets. The increase in segment assets is attributable to the higher level of capital spending and receivables.
Door Segment
Door segment sales rose $1,244,000, or 38%, during the second quarter of 2007 over the comparable 2006 quarter. Sales during a specific quarter can be heavily influenced by customer requests to either accelerate or delay shipments of jobs to better coincide with their own construction schedules. The backlog which had grown during the latter part of 2006 has declined during the 2007 quarter as a number of jobs were shipped. The June 2007 backlog is at approximately the same level as it was at the end of June 2006. Sales prices increased in response to increased costs. Margin improved principally due to the higher volume.
Operating income improved from $325,000 during the second quarter of 2006 to $571,000 for the 2007 quarter as a result of the higher sales volume, increased prices and an improvement in the electronics business (acquired at the beginning of 2006). Selling and administrative costs increased during the 2007 quarter primarily due to
11
the increased sales. As a result, both operating income as a percent of sales and return on assets improved in the 2007 quarter from the prior years quarter.
HVAC Products
The table below presents a summary of operating information for the two reportable segments within the HVAC products group for the quarters ended June 30, 2007 and July 1, 2006 (amounts in thousands):
|
|
Heating and |
|
Evaporative |
|
||
Quarter ended June 30, 2007 |
|
|
|
|
|
||
Revenues from external customers |
|
$ |
6,794 |
|
$ |
8,518 |
|
Segment operating (loss) income |
|
(1,050 |
) |
76 |
|
||
Operating (loss) income as a percent of sales |
|
(15.5 |
)% |
.9 |
% |
||
Segment assets as of June 30, 2007 |
|
$ |
19,886 |
|
$ |
14,426 |
|
Return on assets |
|
(5.3 |
)% |
.5 |
% |
||
|
|
|
|
|
|
||
Quarter ended July 1, 2006 |
|
|
|
|
|
||
Revenues from external customers |
|
$ |
5,045 |
|
$ |
9,171 |
|
Segment operating (loss) income |
|
(354 |
) |
358 |
|
||
Operating (loss) income as a percent of sales |
|
(7.0 |
)% |
3.9 |
% |
||
Segment assets as of July 1, 2006 |
|
$ |
17,418 |
|
$ |
14,563 |
|
Return on assets |
|
(2.0 |
)% |
2.5 |
% |
Heating and Cooling Segment
Sales in the Heating and Cooling segment were $6,794,000 for the second quarter of 2007, an increase of $1,749,000, or 34.7%, from the comparable 2006 quarter. Fan coil volume accounted for the increase with sales surging nearly 87% from the prior years quarter. This increase was the result of favorable market conditions and the restructured sales representative network which was completed in late 2005. Pricing remained relatively flat. Partially offsetting this increase was an 11% decline in furnace volume after a particularly strong first quarter. Cost of sales as a percentage of sales increased during the second quarter of 2007 to 90.6% from 75.0% for the comparable quarter of 2006. Higher material and manufacturing costs contributed to this increase.
The operating loss for the 2007 quarter was $1,050,000 compared to the loss of $354,000 incurred during the second quarter of 2006. Selling and administrative expenses were higher primarily due to the addition of personnel in the sales and engineering departments. Also contributing to the increase in selling costs were higher sales incentives and other related expenses incurred on sales to a national home center. A larger share of wall furnace sales during the second quarter of 2007 as compared to 2006, were made to this national home center account. As a result, both operating loss as a percent of sales and return on assets declined in the 2007 quarter from the prior years quarter.
Evaporative Cooling Segment
Sales in the Evaporative Cooling segment declined $653,000, or 7.7%, during the second quarter of 2007 from the comparable 2006 quarter. Cool weather in the markets served, especially during May, caused the decline.
Operating income also declined $282,000, or 79% from the same quarter in 2006. The decline resulted from of an increase in cost of sales as a percentage of sales which was due to the reduced sales volume, competitive pressures that restricted price increases in response to cost increases and an additional accrual for workers compensation claims. Depreciation and amortization remained constant between the periods. The reduction of selling and administrative expenses was related to the decline in sales as these expenses as a percentage of sales stayed relatively constant compared to the second quarter of 2006. As a result, both operating income as a percent of sales and return on assets declined in the 2007 quarter from the prior years quarter.
12
Operations - Comparison of Six Months Ended June 30, 2007 to Six Months Ended July 1, 2006
Consolidated sales during the first half of 2007 were $85,730,000 compared to $77,388,000 during the first half of 2006. The improvement was led by the Heating and Cooling segment, although all segments reported increased sales for the six months ended June 30, 2007 compared to the six months ended July 1, 2006 except for the Concrete, Aggregates and Construction Supplies segment. Cost of sales as a percentage of sales increased from 81.3% for the 2006 period to 82.9% during the 2007 period. Depreciation, depletion and amortization increased $198,000 over the prior years period due to increased capital expenditures during 2006 and 2007 and amortization of intangible assets associated with the ASCI acquisition. Selling and administrative costs declined as a percentage of sales. The resulting operating income of $1,510,000 was less than the $1,956,000 reported for the first six months of 2006. As noted above, other income for the first half of 2007 includes a $230,000 gain on the sale of stock received from the demutualization of a mutual insurance company.
A discussion of operations by segment follows.
Construction Products
The table below presents a summary of operating information for the two reportable segments within the Construction Products group for the six months ended June 30, 2007 and July 1, 2006 (amounts in thousands):
|
|
Concrete, |
|
|
|
||
Six Months ended June 30, 2007 |
|
|
|
|
|
||
Revenues from external customers |
|
$ |
45,525 |
|
$ |
9,449 |
|
Segment operating income |
|
2,318 |
|
1,167 |
|
||
Operating (loss) income as a percent of sales |
|
5.1 |
% |
12.4 |
% |
||
Segment assets as of June 30, 2007 |
|
$ |
61,545 |
|
$ |
5,804 |
|
Return on assets |
|
3.8 |
% |
20.1 |
% |
||
|
|
|
|
|
|
||
Six Months ended July 1, 2006 |
|
|
|
|
|
||
Revenues from external customers |
|
$ |
45,071 |
|
$ |
6,552 |
|
Segment operating (loss) income |
|
2,746 |
|
659 |
|
||
Operating (loss) income as a percent of sales |
|
6.1 |
% |
10.0 |
% |
||
Segment assets as of July 1, 2006 |
|
$ |
55,777 |
|
$ |
4,587 |
|
Return on assets |
|
4.9 |
% |
14.3 |
% |
Concrete, Aggregates and Construction Supplies Segment
Sales in the Concrete, Aggregates and Construction Supplies segment for the first six months of 2007 increased slightly over the prior years comparable period. Concrete volume declined but sales dollars increased due to increased prices in response to higher material and delivery costs, including fuel. Margins, however, deteriorated as pricing increases did not keep pace with higher cement, fuel and other costs. Aggregate volumes increased primarily due to the sale of some bulk product, including fill sand, during the first quarter of 2007. Aggregate margins improved as a result of the production efficiencies and insurance settlement as described above for the current quarter. Construction supplies sales declined during the first six months of 2007 as compared to the 2006 period due to the slow-down in construction.
Operating income declined to $2,318,000 during the 2007 period from $2,746,000 for the 2006 period. The decline was due to the reduced concrete volume and margins. Partially offsetting this decline was the improved aggregate margins for the reasons noted above. Depreciation, depletion and amortization increased during the 2007 period for the reasons noted for the quarter. For the 2007 six month period, the lower selling and administrative expenses were attributable to the consolidation of administrative functions into the Colorado Springs office. As a result, both operating income as a percent of sales and return on assets declined for the six months ended June 30, 2007 compared to the six months ended July 1, 2006.
Door Segment
Sales in the Door segment for the first six months of 2007 increased $2,897,000 over the comparable 2006 period due to the timing of shipments as described in the discussion for the current quarter.
Operating income improved from $659,000 during the first half of 2006 to $1,167,000 for the 2007 period due to higher sales volume, increased prices and an improvement in the electronics business. The backlog was also reduced during the first quarter of 2007. As a result, both operating income as a percent of sales and the return on assets improved in the six months ended June 30, 2007 compared to the six months ended July 1, 2006.
13
HVAC Products
The table below presents a summary of operating information for the two reportable segments within the HVAC products group for the six months ended June 30, 2007 and July 1, 2006 (amounts in thousands):
|
|
Heating and |
|
Evaporative |
|
||
Six Months ended June 30, 2007 |
|
|
|
|
|
||
Revenues from external customers |
|
$ |
16,176 |
|
$ |
14,399 |
|
Segment operating (loss) income |
|
(679 |
) |
127 |
|
||
Operating (loss) income as a percent of sales |
|
(4.2 |
)% |
.9 |
% |
||
Segment assets as of June 30, 2007 |
|
$ |
19,886 |
|
$ |
14,426 |
|
Return on assets |
|
(3.4 |
)% |
.9 |
% |
||
|
|
|
|
|
|
||
Six Months ended July 1, 2006 |
|
|
|
|
|
||
Revenues from external customers |
|
$ |
11,631 |
|
$ |
13,959 |
|
Segment operating (loss) income |
|
(149 |
) |
331 |
|
||
Operating (loss) income as a percent of sales |
|
(1.3 |
)% |
2.4 |
% |
||
Segment assets as of July 1, 2006 |
|
$ |
17,418 |
|
$ |
14,563 |
|
Return on assets |
|
(.9 |
)% |
2.3 |
% |
Heating and Cooling Segment
Sales in the Heating and Cooling segment increased $4,545,000, or 39%, during the first six months of 2007 over the comparable 2006 period. Fan coil volume was responsible for the majority of the increase although furnace volume was higher on the strength of sales during the first quarter, largely in January. For the first six months of 2007, fan coil sales increased 87% due to the reasons cited for the quarter above.
The operating loss increased from $149,000 during the first six months of 2006 to a loss of $679,000 for the 2007 period despite the increase in sales. Cost of sales as a percent of sales increased from 73.4% to 83% due to the reasons noted above. In addition, pricing decisions made to retain a national home center account during the second quarter of 2006 also decreased margins. Selling and administrative costs were higher due to reasons noted above. As a result, both operating income as a percent of sales and the return on assets declined for the first six months of 2007 from the prior years period.
Evaporative Cooling Segment
Sales in the Evaporative Cooling segment increased $440,000, or 3.2%, during the first six months of 2007 over the comparable 2006 period. Early shipments to a national home center account as a result of a warm March and two new customers increased sales during the first quarter of 2007. The increased first quarter sales turned out largely to be a timing difference between quarters as a milder April and May, noted above, caused the sales for the second quarter to lag behind the prior year.
The operating profit declined from $331,000 during the first six months of 2006 to $127,000 for the first six months of 2007. Cost of sales as a percentage of sales increased to 85.5% in 2007 from 83.7% for the comparable 2006 period due to the reasons cited above. Depreciation and amortization remained constant between the periods while selling and administrative expenses, although modestly higher during the first six months of 2007 compared to the 2006 period, declined as a percentage of sales. As a result, operating income as a percent of sales and the return on assets decreased during the first six months of 2007from the prior years period.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States which require the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of June 30, 2007 and December 30, 2006 and affect the reported amounts of revenues and expenses for the periods reported. Actual results could differ from those estimates.
Information with respect to the Companys critical accounting policies which the Company believes could have the most significant effect on the Companys reported results and require subjective or complex judgments by management is contained in Item 7, Managements Discussion and Analysis of Financial Condition and Results of Operations, of the Companys Annual Report on Form 10-K for the fiscal year ended December 30, 2006.
OUTLOOK
Concrete prices throughout our Colorado markets have improved compared to 2006, however not enough to recover the higher prices paid for cement and increased delivery costs. The pressure on pricing has come from aggressive competition, especially from a small new concrete producer in Colorado Springs, in response to a softening in construction activity along the Front Range of Colorado. The sales volume and backlog for the Door segment remain strong.
Sales of the Evaporative Cooling segment are not expected to grow significantly and will remain weather sensitive. However, sales of fan coil products in the heating and cooling segment are expected to grow as a result of favorable market conditions and the restructured sales representative network and marketing efforts.
14
RECENTLY ISSUED ACCOUNTING STANDARDS
See Note 2 for discussion of the accounting standards adopted in 2007.
The Company discusses recently issued accounting standards and tax law changes in the Critical Accounting Policies section under Item 7 and in Note 1 to Consolidated Financial Statements in Item 8 of the Companys Annual Report on Form 10-K for the fiscal year 2006. Other than as discussed in those sections, the Company does not currently have any transactions or circumstances that have been addressed by recently issued accounting pronouncements. Therefore, adoption of any of these statements or pronouncements would not have a material impact on the Companys results of operations, financial position or liquidity.
FORWARD-LOOKING STATEMENTS
The foregoing discussion contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended. Such forward-looking statements are based on the beliefs of the Companys management as well as on assumptions made by and information available to the Company at the time such statements were made. When used in this Report, words such as anticipates, believes, contemplates, estimates, expects, plans, projects, and similar expressions are intended to identify forward-looking statements. Actual results could differ materially from those projected in the forward-looking statements as a result of factors including but not limited to: weather, interest rates, availability of raw materials and their related costs, national and local economic conditions and competitive forces. Some of these factors are discussed in more detail in the Companys 2006 Annual Report on Form 10-K. Changes in accounting rules and pronouncements could also alter projected results. Forward-looking statements speak only as of the date they were made, and the Company undertakes no obligation to publicly update them, except as required by law.
Item 3. Quantitative And Qualitative Disclosures About Market Risk
There have been no material changes in the market risks that the Company is exposed to since those discussed in the Companys 2006 Annual Report on Form 10-K.
Item 4. Controls and Procedures
(a) Disclosure Controls and Procedures.
The Companys Chief Executive Officer and Chief Financial Officer, with the participation of management, have evaluated the effectiveness of the Companys disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) as of June 30, 2007. Based on that evaluation, they have concluded that the Companys disclosure controls and procedures as of such date are effective and are reasonably designed to ensure that all material information relating to the Company (including its subsidiaries) is accumulated and communicated to management to allow timely decisions regarding required disclosure and to ensure that all material information required to be disclosed in this quarterly report is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission.
(b) Changes in Internal Control Over Financial Reporting.
There have been no significant changes in the Companys internal control over financial reporting identified in connection with the evaluation of such internal control that occurred during the last fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Companys internal control over financial reporting.
PART II - OTHER INFORMATION
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
The following table presents information with respect to purchases made by the Company of its common stock to become treasury stock for the period April 1, 2007 through June 30, 2007. The shares were purchased from the Continental Materials Corporation Employees Profit Sharing Retirement Plan. The shares became available
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due to changes in participants accounts. The Company purchased the shares rather than having the Plan Administrator sell the shares on the open market.
Issuer Purchases of Equity Securities
Period |
|
(a) Total |
|
(b) Average |
|
(c) Total Number of |
|
(d) Maximum Dollar |
|
||
April 1 - April 28,2007 |
|
857 |
|
$ |
28.61 |
|
857 |
|
$ |
1,349,255 |
|
April 29 - May 26, 2007 |
|
|
|
|
|
|
|
1,349,255 |
|
||
May 27 - June 30, 2007 |
|
|
|
|
|
|
|
1,349,255 |
|
||
Total |
|
857 |
|
$ |
28.61 |
|
857 |
|
$ |
1,349,255 |
|
On January 19, 1999, the Company initiated purchases under the current open-ended program to repurchase its common stock. Purchases are made on the open market or in block trades at the discretion of management. The dollar amount authorized for the program has been periodically increased by the Board of Directors and approved by the Companys two banks as required by the Companys Revolving Credit and Term Loan Agreement. The June 28, 2005 amendment to the Loan Agreement provides that the Company may make purchases of its own stock in an amount not to exceed $1,438,000, separate from purchases made in connection with the 2005 tender offer and the exercise of cashless stock options. Since the 2005 tender offer, management has not actively sought to repurchase shares.
Item 4. Submission of Matters to a Vote of Security Holders
(a) |
|
The 2007 Annual Meeting of the Stockholders of the Company was held on May 23, 2007. |
||
|
|
|
|
|
|
(b) |
|
At that meeting, three individuals, all of whom are current directors, were elected to serve until the 2010 Annual Meeting by the following votes: |
Director |
|
Shares For |
|
Shares Against |
|
Shares Withheld |
William D. Andrews |
|
1,440,151 |
|
|
|
2,140 |
Betsy R. Gidwitz |
|
1,429,811 |
|
|
|
12,480 |
James G. Gidwitz |
|
1,429,931 |
|
|
|
12,360 |
There were no broker non-votes.
The following directors terms of office continued after the 2007 Meeting until the Annual Meetings of the respective years as set forth opposite their names below:
Directors |
|
Expiration of Term |
|
|
|
Ralph W. Gidwitz |
|
2008 |
|
|
Peter E. Thieriot |
|
2008 |
|
|
Theodore R. Tetzlaff |
|
2008 |
|
|
Thomas H. Carmody |
|
2009 |
|
|
Ronald J. Gidwitz |
|
2009 |
|
|
Darrell M. Trent |
|
2009 |
|
(c) |
|
In addition to the above election, the appointment of the independent registered public accounting firm of Deloitte & Touche LLP was ratified by the following vote: |
For |
|
Against |
|
Abstain |
|
|
|
1,441,091 |
|
800 |
|
400 |
|
There were no broker non-votes.
(d) |
|
Not applicable. |
16
Exhibit No. |
|
Description |
|
|
|
31.1 |
|
Certification of Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a) and Rule 13a-14(d)/15d-14(d) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes Oxley Act of 2002 |
|
|
|
31.2 |
|
Certification of Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a) and Rule 13a-14(d)/15d-14(d) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes Oxley Act of 2002 |
|
|
|
32 |
|
Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes Oxley Act of 2002 |
17
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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CONTINENTAL MATERIALS CORPORATION |
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Date: August 13, 2007 |
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By: |
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/S/ Joseph J. Sum |
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|
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Joseph J. Sum, Vice President |
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|
|
|
and Chief Financial Officer |
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