Document and Entity Information
Document and Entity Information - shares | 9 Months Ended | |
Sep. 30, 2017 | Nov. 10, 2017 | |
Document and Entity Information | ||
Entity Registrant Name | CONTINENTAL MATERIALS CORP | |
Entity Central Index Key | 24,104 | |
Document Type | 10-Q | |
Document Period End Date | Sep. 30, 2017 | |
Amendment Flag | false | |
Current Fiscal Year End Date | --12-30 | |
Entity Current Reporting Status | Yes | |
Entity Filer Category | Smaller Reporting Company | |
Entity Common Stock, Shares Outstanding | 1,682,167 | |
Document Fiscal Year Focus | 2,017 | |
Document Fiscal Period Focus | Q3 |
CONDENSED CONSOLIDATED BALANCE
CONDENSED CONSOLIDATED BALANCE SHEETS - USD ($) $ in Thousands | Sep. 30, 2017 | Dec. 31, 2016 |
Current assets: | ||
Cash and cash equivalents | $ 235 | $ 301 |
Receivables, net | 24,635 | 22,359 |
Receivable for insured losses | 32 | |
Inventories | ||
Finished goods | 9,808 | 8,077 |
Work in process | 1,426 | 1,433 |
Raw materials and supplies | 11,657 | 11,135 |
Prepaid expenses | 2,188 | 1,807 |
Refundable income taxes | 248 | 739 |
Total current assets | 50,197 | 45,883 |
Property, plant and equipment | 22,049 | 19,606 |
Other assets | ||
Goodwill | 7,229 | 7,229 |
Deferred income taxes | 1,616 | 1,616 |
Other assets | 4,104 | 3,674 |
Total assets | 85,195 | 78,008 |
Current liabilities: | ||
Revolving bank loan payable | 7,600 | 2,000 |
Accounts payable and accrued expenses | 17,454 | 17,719 |
Liability for unpaid claims covered by insurance | 32 | |
Total current liabilities | 25,054 | 19,751 |
Other long-term liabilities | 6,196 | 6,053 |
SHAREHOLDERS' EQUITY | ||
Common shares, $.25 par value; authorized 3,000,000 shares; issued 2,574,264 shares | 643 | 643 |
Capital in excess of par value | 1,887 | 1,765 |
Retained earnings | 66,610 | 65,169 |
Treasury shares, 892,097 and 903,097, at cost | (15,195) | (15,373) |
Total shareholders' equity | 53,945 | 52,204 |
Total liabilities and shareholders' equity | $ 85,195 | $ 78,008 |
CONDENSED CONSOLIDATED BALANCE3
CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) - $ / shares | Sep. 30, 2017 | Dec. 31, 2016 |
CONDENSED CONSOLIDATED BALANCE SHEETS | ||
Common shares, par value (in dollars per share) | $ 0.25 | $ 0.25 |
Common shares, authorized shares | 3,000,000 | 3,000,000 |
Common shares, issued shares | 2,574,264 | 2,574,264 |
Treasury, shares | 892,097 | 903,097 |
CONDENSED CONSOLIDATED STATEMEN
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS - USD ($) shares in Thousands, $ in Thousands | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2017 | Oct. 01, 2016 | Sep. 30, 2017 | Oct. 01, 2016 | |
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS | ||||
Net sales | $ 38,627 | $ 37,647 | $ 112,617 | $ 114,596 |
Costs and expenses: | ||||
Cost of sales (exclusive of depreciation, depletion and amortization) | 31,426 | 29,609 | 91,232 | 89,899 |
Depreciation, depletion and amortization | 617 | 607 | 1,932 | 1,897 |
Selling and administrative | 5,361 | 5,527 | 17,210 | 17,406 |
Charges related to cessation of mining an aggregates deposit | 632 | 632 | ||
Gain on disposition of property and equipment | (95) | (89) | (119) | (281) |
Total costs and expenses | 37,309 | 36,286 | 110,255 | 109,553 |
Operating income | 1,318 | 1,361 | 2,362 | 5,043 |
Interest income | 18 | 285 | 50 | 293 |
Interest expense | (98) | (83) | (272) | (299) |
Other income, net | 28 | 16 | 44 | 41 |
Income before income taxes | 1,266 | 1,579 | 2,184 | 5,078 |
Provision for income taxes | 431 | 537 | 743 | 1,727 |
Net income | 835 | 1,042 | 1,441 | 3,351 |
Retained earnings, beginning of period | 65,775 | 63,792 | 65,169 | 61,483 |
Retained earnings, end of period | $ 66,610 | $ 64,834 | $ 66,610 | $ 64,834 |
Basic and diluted income per share | $ 0.50 | $ 0.62 | $ 0.86 | $ 2.01 |
Average shares outstanding (in shares) | 1,682 | 1,672 | 1,679 | 1,669 |
CONDENSED CONSOLIDATED STATEME5
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($) $ in Thousands | 9 Months Ended | |
Sep. 30, 2017 | Oct. 01, 2016 | |
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS | ||
Net cash (used) provided by operating activities | $ (1,410) | $ 8,205 |
Investing activities: | ||
Capital expenditures | (4,378) | (3,617) |
Cash proceeds from sale of property and equipment | 122 | 305 |
Net cash used in investing activities | (4,256) | (3,312) |
Financing activities: | ||
Borrowings on the revolving bank loan | 25,050 | 23,450 |
Repayments on the revolving bank loan | (19,450) | (28,650) |
Net cash provided by (used in) financing activities | 5,600 | (5,200) |
Net decrease in cash and cash equivalents | (66) | (307) |
Cash and cash equivalents: | ||
Beginning of period | 301 | 547 |
End of period | 235 | 240 |
Cash paid during the year for: | ||
Interest, net | 339 | 320 |
Income taxes, net | $ 252 | $ 1,003 |
BASIS OF PRESENTATION
BASIS OF PRESENTATION | 9 Months Ended |
Sep. 30, 2017 | |
BASIS OF PRESENTATION | |
BASIS OF PRESENTATION | 1. 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 31, 2016 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 2016 consolidated financial statements to conform to the 2017 presentation. The reclassifications had no effect on the consolidated results of operations, the net decrease in cash or the total assets, liabilities or shareholders’ equity of the Company. |
INCOME TAXES
INCOME TAXES | 9 Months Ended |
Sep. 30, 2017 | |
INCOME TAXES | |
INCOME TAXES | 2. Income taxes are accounted for under the asset and liability method that requires deferred income taxes to reflect the future tax consequences attributable to differences between the tax and financial reporting bases of assets and liabilities. Deferred tax assets and liabilities recognized are based on the tax rates in effect in the year in which differences are expected to reverse. Deferred tax assets are reduced by a valuation allowance when, based on available positive and negative evidence, it is “more likely than not” (greater than a 50% likelihood) that some or all of the net deferred tax assets will not be realized. The Company has established a valuation reserve related to the carry-forward of all charitable contributions deductions arising from prior years as well as for a portion of the California Enterprise Zone credit not expected to be utilized prior to expiration. For Federal tax purposes, net operating losses can be carried forward for a period of 20 years while alternative minimum tax credits can be carried forward indefinitely. For state tax purposes, net operating losses can be carried forward for periods ranging from 5 to 20 years for the states that the Company is required to file in. California Enterprise Zone credits can be used through 2023 while Colorado credits can be carried forward for 7 years. The Company’s income tax returns are subject to audit by the Internal Revenue Service (the “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. |
FAIR VALUE MEASUREMENTS
FAIR VALUE MEASUREMENTS | 9 Months Ended |
Sep. 30, 2017 | |
FAIR VALUE MEASUREMENTS | |
FAIR VALUE MEASUREMENTS | 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. 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. There were no transfers between fair value measurement levels of any financial instruments in the current quarter. |
RECENTLY ISSUED ACCOUNTING PRON
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS | 9 Months Ended |
Sep. 30, 2017 | |
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS | |
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS | 4. In January 2017, the FASB issued ASU 2017-04, Intangibles – Goodwill and Other (Topic 350), which removes the requirement to compare the implied fair value of goodwill with its carrying amount as part of step 2 of the goodwill impairment test. As a result, under the ASU, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount and should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the impairment loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. This guidance will be adopted in the fourth quarter of fiscal 2017 in connection with our annual impairment testing, though no impairment charges are expected to result from our impairment testing. In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606). This new revenue standard creates a single source of revenue guidance for all companies in all industries and is more principles-based than current revenue guidance. Subsequently, the FASB has issued various ASUs to provide further clarification around certain aspects of ASC 606. This standard will be effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period, and the Company will adopt the standard in the first quarter of fiscal 2018. The Company has prepared an analysis, by product line, comparing its historical accounting policies and practices regarding revenue recognition to the new standards. The Company believes that adoption of the new standard will not have a material effect on the timing or amount of revenue recognized in a given period. To assure compliance, the Company is developing and implementing internal controls to ensure that the requirements of the new standard are satisfied before revenue is recognized. While the Company believes adoption of ASC 606 will not have a material impact on its financial results, it does acknowledge that the nature and extent of revenue related disclosures will significantly change. 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 guidance is effective for fiscal years, and interim reporting periods therein, beginning after December 15, 2017 with early adoption permitted. The provisions of this guidance are to be applied using a retrospective approach, which requires application of the guidance for all periods presented. The Company is currently evaluating the impact of this guidance on its consolidated financial statements as well as determining the Company’s planned adoption date. In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). This new standard supersedes existing lease guidance to require lessees to recognize assets and liabilities on the balance sheet for the rights and obligations created by long-term leases and to disclose additional quantitative and qualitative information about leasing arrangements. The standard will be effective for the Company in the first quarter of fiscal 2019 and will be adopted using a modified retrospective approach. The Company has begun the task of accumulating information on all of its existing leases. Numerous aspects of ASU 2016-2 are still being discussed such that all guidance has not yet been finalized. The Company anticipates that adoption of ASU 2016-02 will have a significant impact on its consolidated balance sheets and disclosures, however; such impact has not been quantified at this time. There are no other significant prospective accounting pronouncements that are expected to have a material effect on the Company’s consolidated financial statements. |
SEASONALITY AND CURRENT ECONOMI
SEASONALITY AND CURRENT ECONOMIC CONDITIONS | 9 Months Ended |
Sep. 30, 2017 | |
SEASONALITY AND CURRENT ECONOMIC CONDITIONS | |
SEASONALITY AND CURRENT ECONOMIC CONDITIONS | 5. Operating results for the first nine months of 2017 are not necessarily indicative of performance for the entire year due to the seasonality of most of the Company’s products. Historically, sales of the Evaporative Cooling segment are higher in the first and second quarters, sales of the Concrete, Aggregates and Construction Supplies (CACS) segment are higher in the second and third quarters and sales of the Heating and Cooling segment are higher in the third and fourth quarters. Sales of the Door segment are generally more evenly spread throughout the year. |
EARNINGS PER SHARE
EARNINGS PER SHARE | 9 Months Ended |
Sep. 30, 2017 | |
EARNINGS PER SHARE | |
EARNINGS PER SHARE | 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 30, 2017 and October 1, 2016 as the Company does not have any dilutive instruments. |
INDUSTRY SEGMENT INFORMATION
INDUSTRY SEGMENT INFORMATION | 9 Months Ended |
Sep. 30, 2017 | |
INDUSTRY SEGMENT INFORMATION | |
INDUSTRY SEGMENT INFORMATION | 7. The Company operates primarily in two industry groups, Heating, Ventilation and Air Conditioning (HVAC) and Construction Products. The Company has identified two reportable segments within each of the industry groups: the Heating and Cooling segment and the Evaporative Cooling segment in the HVAC industry group and the CACS segment and the Door segment in the Construction Products industry group. The Heating and Cooling segment primarily produces and sells gas-fired wall furnaces, console heaters and fan coils from the Company’s wholly-owned subsidiary, Williams Furnace Co. (WFC) of Colton, California. The Evaporative Cooling segment primarily produces and sells evaporative coolers from the Company’s wholly-owned subsidiary, Phoenix Manufacturing, Inc. (PMI) 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 Southern Front Range of Colorado operated by the Company’s wholly-owned subsidiaries Castle Concrete Company and Transit Mix Concrete Co., of Colorado Springs and Transit Mix of Pueblo, Inc. of Pueblo, Colorado (the three companies collectively are referred to as TMC). The Door segment sells hollow metal and wood doors, door frames and related hardware, lavatory fixtures and electronic access and security systems from the Company’s wholly-owned subsidiary, McKinney Door and Hardware, Inc. (MDHI), which operates out of facilities in Pueblo and Colorado Springs, Colorado. Sales of these two segments are highly concentrated in the Southern Front Range of Colorado although door sales are also made throughout the United States. In addition to the above reporting segments, an “Unallocated Corporate” classification is used to report the unallocated expenses of the corporate office which provides treasury, insurance and tax services as well as strategic business planning and general management services. Expenses related to the corporate information technology group are allocated to all locations, including the corporate office. 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 30, 2017 and October 1, 2016 along with the items necessary to reconcile the segment information to the totals reported in the financial statements (amounts in thousands): Construction Products Industry HVAC Industry Concrete, Aggregates & Combined Heating Combined Construction Construction and Evaporative HVAC Unallocated Supplies Doors Products Cooling Cooling Products Corporate Total Nine Months ended September 30, 2017 Revenues from external customers $ 49,650 $ 13,565 $ 63,215 $ 27,358 $ 22,031 $ 49,389 $ 13 $ 112,617 Depreciation, depletion and amortization 1,026 111 1,137 449 322 771 24 1,932 Operating income (loss) 2,484 1,544 4,028 219 579 798 (2,464) 2,362 Segment assets 40,013 7,617 47,630 24,764 10,461 35,225 2,340 85,195 Capital expenditures (b) 3,367 131 3,498 650 216 866 14 4,378 Three Months ended September 30, 2017 Revenues from external customers $ 18,054 $ 4,936 $ 22,990 $ 10,144 $ 5,489 $ 15,633 $ 4 $ 38,627 Depreciation, depletion and amortization 316 39 355 147 107 254 8 617 Operating income (loss) 1,602 600 2,202 151 (270) (119) (765) 1,318 Segment assets 40,013 7,617 47,630 24,764 10,461 35,225 2,340 85,195 Capital expenditures 1,148 12 1,160 285 151 436 (21) 1,575 Construction Products Industry HVAC Industry Concrete, Aggregates & Combined Heating Combined Construction Construction and Evaporative HVAC Unallocated Supplies Doors Products Cooling Cooling Products Corporate Total Nine Months ended October 1, 2016 Revenues from external customers $ 51,267 $ 13,212 $ 64,479 $ 27,390 $ 22,715 $ 50,105 $ 12 $ 114,596 Depreciation, depletion and amortization 1,020 95 1,115 415 356 771 11 1,897 Operating income (loss) 2,881 1,390 4,271 1,205 2,077 3,282 (2,510) 5,043 Segment assets (a) 33,518 6,173 39,691 22,381 12,283 34,664 3,653 78,008 Capital expenditures (b) 2,798 106 2,904 584 129 713 — 3,617 Three Months ended October 1, 2016 Revenues from external customers $ 18,156 $ 4,467 $ 22,623 $ 9,605 $ 5,416 $ 15,021 $ 3 $ 37,647 Depreciation, depletion and amortization 316 32 348 138 118 256 3 607 Operating income (loss) 1,010 543 1,553 408 259 667 (859) 1,361 Segment assets (a) 33,518 6,173 39,691 22,381 12,283 34,664 3,653 78,008 Capital expenditures (b) 565 54 619 208 14 222 — 841 (a) Segment assets are as of December 31, 2016. (b) Capital expenditures are presented on the accrual basis of accounting. There are no differences in the basis of segmentation or in the basis of measurement of segment profit or loss from the last annual report. |
DISCONTINUED OPERATIONS
DISCONTINUED OPERATIONS | 9 Months Ended |
Sep. 30, 2017 | |
DISCONTINUED OPERATIONS | |
DISCONTINUED OPERATIONS | 8. On September 15, 2016 a Partial Summary Judgment Order was issued regarding the Company’s previously disclosed litigation, Continental Materials Corporation v. Valco, Inc., Civil Action No. 2014-cv-2510, filed in the United States District Court for the District of Colorado. The suit regards a sand and gravel lease between the Company and Valco, Inc. (“Valco”) that calls for the payment of royalties over the life of the lease on an agreed 50,000,000 tons of sand and gravel reserves. In the suit the Company sought, among other things, to reform the sand and gravel lease in regard to the agreed amount of sand and gravel reserves and to recover approximately $1,282,000 of royalty overpayments included in other long-term assets. Valco asserted counterclaims against the Company alleging breach of contract and declaratory judgment regarding the Company’s refusal to make further royalty payments under the Lease. In the ordinary course of business and absent any breach by Valco, the Company is required to make quarterly royalty payments amounting to not less than $300,000 in a calendar year. In response to Valco’s breaches of contract, the Company stopped making royalty payments at the start of the 2015 calendar year. The Company has asserted partial failure of consideration as an affirmative defense to Valco’s counterclaims to offset the alleged back-due quarterly royalty payments and the amount due on quarterly royalty payments in the future. The Partial Summary Judgment Order resolved many of the Company’s claims in Valco’s favor, but the Company’s claim for the return of royalty overpayments made during the statutorily allowed period is still pending. The Partial Summary Judgment Order did not resolve Valco’s counterclaims or the Company’s affirmative defense. During the third quarter of 2016, the Company recorded a $632,000 write-down representing the portion of the royalty overpayment paid prior to the statutorily allowed period because of litigation risk attendant to recovering that amount. The Company sought certification of the Partial Summary Judgment Order because it and its legal counsel believe the court improperly resolved factual issues in its Partial Summary Judgment Order that should have been decided by a jury. The Company and its legal counsel believe there is a likelihood that some, or all, of the issues resolved by the Partial Summary Judgment Order may be reversed on appeal and remanded for trial by jury although there can be no assurance that an appeal will result in reversal. The Company paid royalties on approximately 17,700,000 tons, including the overpayments, of the 50,000,000 tons of sand and gravel reserves through the end of the third quarter of 2014. The impact of these proceedings could have a material financial effect on the Company; however, the Company does not believe that there is a reasonable basis for estimating the financial impact, if any, of the final outcome of these proceedings and accordingly no accrual or reserve has been recorded in compliance with accounting principles generally accepted in the United States of America. On February 23, 2017, the Partial Summary Judgment Order was certified for immediate appeal, and all other claims, counterclaims and affirmative defenses were stayed pending the resolution of that appeal. The Company filed a notice of appeal on March 24, 2017. The appeal is currently pending. |
NON-EMPLOYEE DIRECTORS SHARE-BA
NON-EMPLOYEE DIRECTORS SHARE-BASED COMPENSATION | 9 Months Ended |
Sep. 30, 2017 | |
NON-EMPLOYEE DIRECTORS SHARE-BASED COMPENSATION | |
NON-EMPLOYEE DIRECTORS SHARE-BASED COMPENSATION | 9. The Company issued a total of 12,000 shares to the eight eligible board members effective March 8, 2017 as full payment for their 2017 retainer fee. The Company issued at total of 12,000 shares to the eight eligible board members effective April 6, 2016 as full payment for their 2016 retainer fee. All shares were issued under the 2010 Non-Employee Directors Stock Plan. |
REVOLVING BANK LOAN AND LONG-TE
REVOLVING BANK LOAN AND LONG-TERM DEBT | 9 Months Ended |
Sep. 30, 2017 | |
REVOLVING BANK LOAN AND LONG-TERM DEBT | |
REVOLVING BANK LOAN AND LONG-TERM DEBT | 10. The Company entered into an Amended and Restated Credit Agreement (the “Credit Agreement”) effective November 18, 2011. The Company entered into the Eighth Amendment to Credit Agreement effective May 26, 2017. The Company had previously entered into seven separate amendments to the Credit Agreement. Cumulatively, the amendments were entered into by the Company to, among other things, (i) modify certain of the financial covenants, (ii) adjust the amount of the Revolving Commitment, (iii) terminate the Term Loan Commitment upon the repayment in full of the outstanding principal balance (and accrued interest thereon) of the Term Loan, (iv) modify the Borrowing Base calculation to provide for borrowing availability in respect of new Capital Expenditures, (v) decrease the interest rates on the Revolving Loans, (vi) extend the maturity date and (vii) decrease the Letter of Credit fee rate. Borrowings under the Credit Agreement are secured by the Company’s accounts receivable, inventories, machinery, equipment, vehicles, certain real estate and the common stock of all of the Company’s subsidiaries. Borrowings under the Credit Agreement bear interest based on a London Interbank Offered Rate (LIBOR) or prime rate based option. The Credit Agreement either limits or requires prior approval by the lender of additional borrowings, acquisition of stock of other companies, purchase of treasury shares and payment of cash dividends. Payment of accrued interest is due monthly or at the end of the applicable LIBOR period. The Credit Agreement as amended provides for the following: · The Revolving Commitment is $20,000,000. · Borrowings under the Revolving Commitment are limited to (a) 80% of eligible accounts receivable, (b) the lesser of 50% of eligible inventories and $8,500,000 plus (c) 80% of new Capital Expenditures not to exceed $5,500,000 with respect to each of Fiscal Years 2016 and 2017. · The Minimum Fixed Charge Coverage Ratio is not permitted to be below 1.15 to 1.0 for each trailing twelve month period ending September 30, 2017 and each Fiscal Quarter end thereafter. · The Company must not permit Tangible Net Worth as of the last day of any Computation Period to be less than $31,000,000 (provided that the required amount of Tangible Net Worth shall increase (but not decrease) by an amount equal to 50% of the Consolidated Net Income for the immediately preceding Fiscal Year). Therefore, the required Tangible Net Worth as of September 30, 2017 is $32,843,000. · The Balance Sheet Leverage Ratio as of the last day of any Computation Period may not exceed 1.00 to 1.00. · The maturity date of the credit facility is May 1, 2020. · Interest rate pricing for the revolving credit facility is currently LIBOR plus 2.25% or the prime rate. Definitions under the Credit Agreement as amended are as follows: · Tangible Net Worth is defined as net worth plus subordinated debt, minus intangible assets (goodwill, intellectual property, prepaid expenses, deposits and deferred charges), minus all obligations owed to the Company or any of its subsidiaries by any affiliate or any of its subsidiaries and minus all loans owed by its officers, stockholders, subsidiaries or employees. · Fixed Charge Coverage Ratio is defined as, for any computation period, the ratio of (a) the sum for such period of (i) EBITDA, as defined, minus (ii) the sum of income taxes paid in cash and all unfinanced capital expenditures to (b) the sum for such period of interest expense. · Balance Sheet Leverage Ratio is defined as the ratio of Total Debt to Tangible Net Worth. · EBITDA means for any Computation Period (or another time period to the extent expressly provided for in the Credit Agreement) the sum of the following with respect to the Company and its Subsidiaries each as determined in accordance with GAAP: (a) Consolidated Net Income, plus (b) federal, state and other income taxes deducted in the determination of Consolidated Net Income, plus (c) Interest Expense deducted in the determination of Consolidated Net Income, plus (d) depreciation, depletion and amortization expense deducted in the determination of Consolidated Net Income, plus (e) for 2014, charges directly related to the closing and reclamation of the Pueblo aggregates mining site, plus (f) any other non-cash charges and any extraordinary charges deducted in the determination of Consolidated Net Income, including any asset impairment charges (including write downs of goodwill), minus (g) any gains from Asset Dispositions, any extraordinary gains and any gains from discontinued operations included in the determination of Consolidated Net Income. Outstanding funded revolving debt was $7,600,000 as of September 30, 2017 compared to $2,000,000 as of December 31, 2016. The highest balance outstanding during the first nine months of 2017 and 2016 was $10,000,000 and $7,500,000, respectively. Average outstanding funded debt was $5,834,000 and $4,546,000 for the first nine months of 2017 and 2016, respectively. At September 30, 2017, the Company had outstanding letters of credit totaling $4,955,000. At all times since the inception of the Credit Agreement, the Company has had sufficient qualifying and eligible assets such that the available borrowing capacity exceeded the cash needs of the Company and this situation is expected to continue for the foreseeable future. The Company believes that its existing cash balance, anticipated cash flow from operations and borrowings available under the Credit Agreement will be sufficient to cover expected cash needs, including planned capital expenditures, for the next twelve months except for the expenditures related to the acquisition of the necessary equipment needed to begin mining an aggregates property near Colorado Springs should TMC succeed in obtaining the required mining permits from the State of Colorado and El Paso County. As of September 30, 2017 the Company has invested and capitalized $4,352,000 of deferred development expenditures related to this aggregates property. The Company expects to arrange for term or mortgage financing to fund the acquisition of the necessary equipment needed to begin mining the property should the permits be granted. The Company expects to be in compliance with all debt covenants, as amended, throughout the facility’s remaining term. |
LEGAL PROCEEDINGS
LEGAL PROCEEDINGS | 9 Months Ended |
Sep. 30, 2017 | |
LEGAL PROCEEDINGS | |
LEGAL PROCEEDINGS | 11. The Company is involved in litigation matters related to its business, principally product liability matters related to the gas-fired heating products and fan coil products in the Heating and Cooling segment. In the Company’s opinion, none of these proceedings, when concluded, will have a material adverse effect on the Company’s consolidated results of operations or financial condition as the Company has established adequate accruals for matters that are probable and estimable. The Company does not accrue estimated future legal costs related to the defense of these matters but rather expenses legal costs as incurred. Additionally, see Note 8 for discussion of litigation regarding the Pueblo sand and gravel lease. |
INDUSTRY SEGMENT INFORMATION (T
INDUSTRY SEGMENT INFORMATION (Tables) | 9 Months Ended |
Sep. 30, 2017 | |
INDUSTRY SEGMENT INFORMATION | |
Schedule of information about reported segments along with the items necessary to reconcile the segment information to totals reported in financial statements | The following table presents information about reported segments for the nine-month and three-month periods ended September 30, 2017 and October 1, 2016 along with the items necessary to reconcile the segment information to the totals reported in the financial statements (amounts in thousands): Construction Products Industry HVAC Industry Concrete, Aggregates & Combined Heating Combined Construction Construction and Evaporative HVAC Unallocated Supplies Doors Products Cooling Cooling Products Corporate Total Nine Months ended September 30, 2017 Revenues from external customers $ 49,650 $ 13,565 $ 63,215 $ 27,358 $ 22,031 $ 49,389 $ 13 $ 112,617 Depreciation, depletion and amortization 1,026 111 1,137 449 322 771 24 1,932 Operating income (loss) 2,484 1,544 4,028 219 579 798 (2,464) 2,362 Segment assets 40,013 7,617 47,630 24,764 10,461 35,225 2,340 85,195 Capital expenditures (b) 3,367 131 3,498 650 216 866 14 4,378 Three Months ended September 30, 2017 Revenues from external customers $ 18,054 $ 4,936 $ 22,990 $ 10,144 $ 5,489 $ 15,633 $ 4 $ 38,627 Depreciation, depletion and amortization 316 39 355 147 107 254 8 617 Operating income (loss) 1,602 600 2,202 151 (270) (119) (765) 1,318 Segment assets 40,013 7,617 47,630 24,764 10,461 35,225 2,340 85,195 Capital expenditures 1,148 12 1,160 285 151 436 (21) 1,575 Construction Products Industry HVAC Industry Concrete, Aggregates & Combined Heating Combined Construction Construction and Evaporative HVAC Unallocated Supplies Doors Products Cooling Cooling Products Corporate Total Nine Months ended October 1, 2016 Revenues from external customers $ 51,267 $ 13,212 $ 64,479 $ 27,390 $ 22,715 $ 50,105 $ 12 $ 114,596 Depreciation, depletion and amortization 1,020 95 1,115 415 356 771 11 1,897 Operating income (loss) 2,881 1,390 4,271 1,205 2,077 3,282 (2,510) 5,043 Segment assets (a) 33,518 6,173 39,691 22,381 12,283 34,664 3,653 78,008 Capital expenditures (b) 2,798 106 2,904 584 129 713 — 3,617 Three Months ended October 1, 2016 Revenues from external customers $ 18,156 $ 4,467 $ 22,623 $ 9,605 $ 5,416 $ 15,021 $ 3 $ 37,647 Depreciation, depletion and amortization 316 32 348 138 118 256 3 607 Operating income (loss) 1,010 543 1,553 408 259 667 (859) 1,361 Segment assets (a) 33,518 6,173 39,691 22,381 12,283 34,664 3,653 78,008 Capital expenditures (b) 565 54 619 208 14 222 — 841 (a) Segment assets are as of December 31, 2016. (b) Capital expenditures are presented on the accrual basis of accounting. |
INCOME TAXES (Details)
INCOME TAXES (Details) | 9 Months Ended |
Sep. 30, 2017 | |
Internal Revenue Service (IRS) | |
Net operating losses | |
Net operating losses carryforward period | 20 years |
State and Local Jurisdiction | Minimum | |
Net operating losses | |
Net operating losses carryforward period | 5 years |
State and Local Jurisdiction | Maximum | |
Net operating losses | |
Net operating losses carryforward period | 20 years |
INCOME TAXES - Other (Details)
INCOME TAXES - Other (Details) | 9 Months Ended |
Sep. 30, 2017 | |
State and Local Jurisdiction | COLORADO | |
Tax credits | |
Tax credits carry-forward period | 7 years |
FAIR VALUE MEASUREMENTS (Detail
FAIR VALUE MEASUREMENTS (Details) $ in Thousands | Sep. 30, 2017USD ($) |
Fair Value Measurements | |
Fair value, financial instruments transferred between levels | $ 0 |
EARNINGS PER SHARE (Details)
EARNINGS PER SHARE (Details) - $ / shares | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2017 | Oct. 01, 2016 | Sep. 30, 2017 | Oct. 01, 2016 | |
EARNINGS PER SHARE | ||||
Difference between the calculation of basic and diluted EPS (in dollars per share) | $ 0 | $ 0 | $ 0 | $ 0 |
INDUSTRY SEGMENT INFORMATION (D
INDUSTRY SEGMENT INFORMATION (Details) $ in Thousands | 3 Months Ended | 9 Months Ended | |||
Sep. 30, 2017USD ($) | Oct. 01, 2016USD ($) | Sep. 30, 2017USD ($)companyitem | Oct. 01, 2016USD ($) | Dec. 31, 2016USD ($) | |
INDUSTRY SEGMENT INFORMATION | |||||
Number of industry groups in which the entity operates | item | 2 | ||||
Number of reportable segments | item | 2 | ||||
Number of companies that comprise TMC | company | 3 | ||||
Revenues from external customers | $ 38,627 | $ 37,647 | $ 112,617 | $ 114,596 | |
Depreciation, depletion and amortization | 617 | 607 | 1,932 | 1,897 | |
Operating income (loss) | 1,318 | 1,361 | 2,362 | 5,043 | |
Segment assets (a) | 85,195 | 78,008 | 85,195 | 78,008 | $ 78,008 |
Capital expenditures (b) | 1,575 | 841 | 4,378 | 3,617 | |
Unallocated Corporate | |||||
INDUSTRY SEGMENT INFORMATION | |||||
Revenues from external customers | 4 | 3 | 13 | 12 | |
Depreciation, depletion and amortization | 8 | 3 | 24 | 11 | |
Operating income (loss) | (765) | (859) | (2,464) | (2,510) | |
Segment assets (a) | 2,340 | 3,653 | 2,340 | 3,653 | |
Capital expenditures (b) | (21) | 14 | |||
Concrete Aggregates and Construction Supplies | |||||
INDUSTRY SEGMENT INFORMATION | |||||
Revenues from external customers | 18,054 | 18,156 | 49,650 | 51,267 | |
Depreciation, depletion and amortization | 316 | 316 | 1,026 | 1,020 | |
Operating income (loss) | 1,602 | 1,010 | 2,484 | 2,881 | |
Segment assets (a) | 40,013 | 33,518 | 40,013 | 33,518 | |
Capital expenditures (b) | 1,148 | 565 | 3,367 | 2,798 | |
Doors | |||||
INDUSTRY SEGMENT INFORMATION | |||||
Revenues from external customers | 4,936 | 4,467 | 13,565 | 13,212 | |
Depreciation, depletion and amortization | 39 | 32 | 111 | 95 | |
Operating income (loss) | 600 | 543 | 1,544 | 1,390 | |
Segment assets (a) | 7,617 | 6,173 | 7,617 | 6,173 | |
Capital expenditures (b) | 12 | 54 | 131 | 106 | |
Heating and Cooling | |||||
INDUSTRY SEGMENT INFORMATION | |||||
Revenues from external customers | 10,144 | 9,605 | 27,358 | 27,390 | |
Depreciation, depletion and amortization | 147 | 138 | 449 | 415 | |
Operating income (loss) | 151 | 408 | 219 | 1,205 | |
Segment assets (a) | 24,764 | 22,381 | 24,764 | 22,381 | |
Capital expenditures (b) | 285 | 208 | 650 | 584 | |
Evaporative Cooling | |||||
INDUSTRY SEGMENT INFORMATION | |||||
Revenues from external customers | 5,489 | 5,416 | 22,031 | 22,715 | |
Depreciation, depletion and amortization | 107 | 118 | 322 | 356 | |
Operating income (loss) | (270) | 259 | 579 | 2,077 | |
Segment assets (a) | 10,461 | 12,283 | 10,461 | 12,283 | |
Capital expenditures (b) | 151 | 14 | 216 | 129 | |
Combined Construction Products | |||||
INDUSTRY SEGMENT INFORMATION | |||||
Revenues from external customers | 22,990 | 22,623 | 63,215 | 64,479 | |
Depreciation, depletion and amortization | 355 | 348 | 1,137 | 1,115 | |
Operating income (loss) | 2,202 | 1,553 | 4,028 | 4,271 | |
Segment assets (a) | 47,630 | 39,691 | 47,630 | 39,691 | |
Capital expenditures (b) | 1,160 | 619 | 3,498 | 2,904 | |
Combined HVAC Products | |||||
INDUSTRY SEGMENT INFORMATION | |||||
Revenues from external customers | 15,633 | 15,021 | 49,389 | 50,105 | |
Depreciation, depletion and amortization | 254 | 256 | 771 | 771 | |
Operating income (loss) | (119) | 667 | 798 | 3,282 | |
Segment assets (a) | 35,225 | 34,664 | 35,225 | 34,664 | |
Capital expenditures (b) | $ 436 | $ 222 | $ 866 | $ 713 |
DISCONTINUED OPERATIONS (Detail
DISCONTINUED OPERATIONS (Details) - Pueblo Colorado gravel operations | Sep. 15, 2016USD ($)T | Oct. 01, 2016USD ($) | Sep. 27, 2014T |
Income Statement, Balance Sheet and Additional Disclosures by Disposal Groups, Including Discontinued Operations [Line Items] | |||
Sand and gravel reserves (in tons) | T | 50,000,000 | ||
Royalty overpayments | $ 1,282,000 | ||
Write off of prepaid royalties | $ 632,000 | ||
Sand and gravel tons paid for | T | 17,700,000 | ||
Minimum | |||
Income Statement, Balance Sheet and Additional Disclosures by Disposal Groups, Including Discontinued Operations [Line Items] | |||
Quarterly royalty payment | $ 300,000 |
NON-EMPLOYEE DIRECTORS SHARE-24
NON-EMPLOYEE DIRECTORS SHARE-BASED COMPENSATION (Details) - Director | Mar. 08, 2017directorshares | Apr. 06, 2016directorshares |
SHAREHOLDERS' EQUITY | ||
Number of shares issued to eligible board members | shares | 12,000 | 12,000 |
Number of eligible board members | director | 8 | 8 |
REVOLVING BANK LOAN AND LONG-25
REVOLVING BANK LOAN AND LONG-TERM DEBT (Details) | 9 Months Ended | ||
Sep. 30, 2017USD ($)agreement | Oct. 01, 2016USD ($) | Dec. 31, 2016USD ($) | |
Debt Instrument [Line Items] | |||
Number of separate amendments to the Credit agreement | agreement | 7 | ||
Maximum revolving credit facility line | $ 20,000,000 | ||
Minimum tangible net worth threshold, percentage of the consolidated net income | 50.00% | ||
Tangible net worth | $ 32,843,000 | ||
Maximum balance sheet leverage ratio | 1 | ||
Period over which existing cash balance, anticipated cash flow from operations and borrowings available under the credit agreement will be sufficient to cover expected cash needs | 12 months | ||
Invested and capitalized | $ 4,352,000 | ||
Period Ending July 01, 2017 | |||
Debt Instrument [Line Items] | |||
Minimum tangible net worth threshold, base amount | $ 31,000,000 | ||
Minimum | Period Ending July 1, 2017 | |||
Debt Instrument [Line Items] | |||
Fixed charge coverage ratio | 1.15 | ||
Revolving Credit Facility | |||
Debt Instrument [Line Items] | |||
Borrowings as a percentage of capital expenditures | 80.00% | ||
Annual capital expenditures for fiscal year 2016, maximum | $ 5,500,000 | ||
Annual capital expenditures for fiscal year 2017, maximum | 5,500,000 | ||
Outstanding amount | 7,600,000 | $ 2,000,000 | |
Highest balance outstanding during the period | 10,000,000 | $ 7,500,000 | |
Average outstanding | 5,834,000 | $ 4,546,000 | |
Outstanding amount of letters of credit total | $ 4,955,000 | ||
Revolving Credit Facility | Minimum | |||
Debt Instrument [Line Items] | |||
Borrowings as a percentage of eligible accounts receivable | 80.00% | ||
Borrowings as a percentage of eligible inventories | 50.00% | ||
Maximum inventory borrowings | $ 8,500,000 | ||
Revolving Credit Facility | LIBOR | |||
Debt Instrument [Line Items] | |||
Variable interest rate base | LIBOR | ||
Percentage points added to the reference rate | 2.25% | ||
Revolving Credit Facility | Prime Rate | |||
Debt Instrument [Line Items] | |||
Variable interest rate base | prime rate |
LEGAL PROCEEDINGS (Details)
LEGAL PROCEEDINGS (Details) | 9 Months Ended |
Sep. 30, 2017item | |
LEGAL PROCEEDINGS | |
Number of proceedings having material adverse effect on the consolidated results of operations, cash flows or financial condition | 0 |