----

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**SECURITIES AND EXCHANGE COMMISSIONWashington, D.C.  20549**

**FORM 10-Q**

 

**(MarkOne)**

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

 

**For thequarterly period ending June 30, 2001**

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

**Forthe transition period from_____to____**

**CommissionFile number 1-3834**

| **CONTINENTAL  MATERIALS CORPORATION**                  |
|---------------------------------------------------------|
|                                                         |
| (Exact name of registrant as specified in its  charter) |

 
| **Delaware**                     |   | **36-2274391**                        |
|----------------------------------|--------|---------------------------------------|
| ****                             |   | ****                                  |
| (State or other  jurisdiction of |   | (I.R.S. Employer  Identification No.) |
| incorporation or  organization)  |   |                                  |

 

| **225 West Wacker Drive, Suite 1800,  Chicago, Illinois  60606** |
|-----------------------------------------------------------------------|
|                                                                       |
| (Address of principal executive office)                               |
| (Zip Code)                                                            |
|                                                                  |
| **(312) 541-7200**                                                    |
|                                                                       |
| (Registrant's telephone number, including area code)                  |

(Former name, formeraddress and formeryear, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reportsrequired to be filed by Section 13 or 15(d) of the Securities Exchange Act of1934 during the preceding 12 months (or for such shorter period that theRegistrant was required to file such reports), and (2) has been subject to suchfiling requirements for the past 90 days.

Yes  ý    Noo
|                                                   |      |   |
|--------------------------------------------------------|-----------|--------|
| Number of common shares outstanding at August 2,  2001 | 1,808,195 |   |

 

----

----

 

 

PART I – FINANCIALINFORMATION

**Item1.   Financial Statements**

CONTINENTAL MATERIALSCORPORATIONCONDENSED CONSOLIDATED BALANCE SHEETSJUNE 30, 2001 and DECEMBER 30, 2000(Unaudited)(000’s omitted except share data)

 

|                                                                    | **JUNE 30, 2001**                |       | **DECEMBER 30, 2000** |       |
|-------------------------------------------------------------------------|---------------------------------------|------------|----------------------------|------------|
|                                                                    | ****                                  |       | ****                       |       |
| ***ASSETS***                                                            |                                  |       |                       |       |
| ****                                                                    |                                  |       |                       |       |
| Current assets:                                                         |                                  |       |                       |       |
|                                                                    | Cash and cash equivalents             | $          | 1,450                      |       | $ | 6,216 |   |
|                                                                    | Receivables, net                      | 20,321     |                       | 16,723     |   |
|                                                                    | Inventories:                          |       |                       |       |   |
|                                                                    | Finished goods                        | 6,557      |                       | 6,595      |   |
|                                                                    | Work in process                       | 1,703      |                       | 1,720      |   |
|                                                                    | Raw materials and supplies            | 8,251      |                       | 7,699      |   |
|                                                                    | Prepaid expenses                      | 2,953      |                       | 2,572      |   |
|                                                                    |                                       |       |                            |       |
|                                                                    | Total current assets                  | 41,235     |                       | 41,525     |   |
|                                                                    |                                  |            |                       |            |   |
|                                                                    |                                  |       |                       |       |
| Property, plant and equipment, net                                      | 31,251                                |       | 24,727                     |       |
|                                                                    |                                       |       |                            |       |
|                                                                    |                                  |       |                       |       |
| Goodwill                                                                | 6,172                                 |       | —                     |       |
| Other assets                                                            | 3,018                                 |       | 1,998                      |       |
|                                                                    |                                       |       |                            |       |
|                                                                    |                                  | ** ** |                       | ** ** |
|                                                                    | **$**                                 | **81,676** |                       | **$**      | **68,250** |   |
|                                                                    | ****                                  |       | ****                       |       |
|                                                                    |                                  |       |                       |       |
| ***LIABILITIES***                                                       |                                  |       |                       |       |
| ****                                                                    |                                  |       |                       |       |
| Current liabilities:                                                    |                                  |       |                       |       |
|                                                                    | Current portion of long-term debt     | $          | 3,573                      |       | $ | 2,158 |   |
|                                                                    | Accounts payable and accrued expenses | 15,408     |                       | 14,810     |   |
|                                                                    | Income taxes                          | 611        |                       | 312        |   |
|                                                                    |                                       |       |                            |       |
|                                                                    | Total current liabilities             | 19,592     |                       | 17,280     |   |
|                                                                    |                                  |            |                       |            |   |
|                                                                    |                                  |       |                       |       |
| Long-term debt                                                          | 15,332                                |       | 5,147                      |       |
| Deferred income taxes                                                   | 2,074                                 |       | 1,598                      |       |
| Other long-term liabilities                                             | 2,201                                 |       | 2,412                      |       |
|                                                                    |                                  |       |                       |       |
| ***SHAREHOLDERS’ EQUITY***                                         |                                  |       |                       |       |
| ******                                                                  |                                  |       |                       |       |
| Common shares, $0.25 par value; authorized  3,000,000; issued 2,574,264 | 643                                   |       | 643                        |       |
| Capital in excess of par value                                          | 1,985                                 |       | 1,985                      |       |
| Retained earnings                                                       | 49,224                                |       | 48,138                     |       |
| Treasury shares, 765,885 and 703,972, at cost                           | (9,375                                | )          | (8,953                     | )          |
|                                                                    |                                       |       |                            |       |
|                                                                    | 42,477                                |       | 41,813                     |       |
|                                                                    |                                       |       |                            |       |
|                                                                    |                                  |       |                       |       |
|                                                                    |                                  | **$**      | **81,676**                 |       | **$** | **68,250** |   |
|                                                                    |                                  |            |                       |            |   |
|                                                                         |                                       |            |                            |            |  |  |  |  |  |  |

See accompanyingnotes

 

 

CONTINENTALMATERIALS CORPORATIONCONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGSFOR THE THREE MONTHS ENDED JUNE 30, 2001 AND JULY 1, 2000(Unaudited)(000’s omitted except per share amounts)

 

|                                   |                                                                   |       |               |       |
|----------------------------------------|------------------------------------------------------------------------|------------|--------------------|------------|
|                                   | **JUNE 30,   2001**                                                    |       | **JULY 1,   2000** | ** ** |
|                                   | ****                                                                   |       | ****               |       |
|                                   |                                                                   |       |               |       |
| Sales                                  | $                                                                      | 36,487     |               | $          | 30,232 |   |
| Freight costs                          | 1,553                                                                  |       | 1,472              |       |
|                                   |                                                                        |       |                    |       |
| Net sales                              | 34,934                                                                 |       | 28,760             |       |
|                                   |                                                                        |       |                    |       |
|                                   |                                                                   |       |               |       |
| Costs and expenses:                    |                                                                   |       |               |       |
|                                   | Cost of sales (exclusive of depreciation, depletion  and amortization) | 26,792     |               | 21,516     |   |
|                                   | Depreciation, depletion and amortization                               | 1,631      |               | 1,371      |   |
|                                   | Selling and administrative                                             | 4,438      |               | 4,218      |   |
|                                   |                                                                        |       |                    |       |
|                                   | 32,861                                                                 |       | 27,105             |       |
|                                   |                                                                        |       |                    |       |
|                                   |                                                                   |       |               |       |
| Operating income                       | 2,073                                                                  |       | 1,655              |       |
|                                   |                                                                   |       |               |       |
| Interest                               | (291                                                                   | )          | (199               | )          |
| Other income, net                      | 41                                                                     |       | 195                |       |
|                                   |                                                                        |       |                    |       |
| Income before income taxes             | 1,823                                                                  |       | 1,651              |       |
|                                   |                                                                   |       |               |       |
| Provision for income taxes             | 656                                                                    |       | 611                |       |
|                                   |                                                                        |       |                    |       |
|                                   | Net income                                                             | 1,167      |               | 1,040      |   |
|                                   |                                                                   |       |               |       |
| Retained earnings, beginning of period | 48,057                                                                 |       | 43,186             |       |
|                                   |                                                                        |       |                    |       |
|                                   |                                                                   |       |               |       |
| Retained earnings, end of period       | **$**                                                                  | **49,224** | ** **         | **$**      | **44,226** | ** ** |
|                                   |                                                                        |       |                    |       |
| Basic earnings per share               | **$**                                                                  | **.64**    | ** **         | **$**      | **.56** | ** ** |
|                                   |                                                                        |       |                    |       |
|                                   | Average shares outstanding                                             | **1,810**  | ** **         | **1,871**  | ** ** |
|                                   |                                                                        |       |                    |       |
| Diluted earnings per share             | **$**                                                                  | **.63**    | ** **         | **$**      | **.55** | ** ** |
|                                   |                                                                        |       |                    |       |
|                                   | Average shares outstanding                                             | **1,844**  | ** **         | **1,904**  | ** ** |
|                                   |                                                                        |       |                    |       |

See accompanyingnotes

 

 

CONTINENTALMATERIALS CORPORATIONCONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGSFOR THE SIX MONTHS ENDED JUNE 30, 2001 AND JULY 1, 2000(Unaudited)(000’s omitted except per share amounts)

 

|                                   | **JUNE 30,**                                                           |       | **JULY 1,** |      |
|----------------------------------------|------------------------------------------------------------------------|------------|-------------|-----------|
|                                   | **2001**                                                               |       | **2000**    |      |
|                                   |                                                                        |       |             |      |
| Sales                                  | $                                                                      | 64,846     |        | $         | 55,582 |   |
| Freight costs                          | 2,810                                                                  |       | 2,447       |      |
|                                   |                                                                        |       |             |      |
| Net sales                              | 62,036                                                                 |       | 53,135      |      |
|                                   |                                                                        |       |             |      |
| Costs and expenses:                    |                                                                   |       |        |      |
|                                   | Cost of sales (exclusive of depreciation, depletion  and amortization) | 47,923     |        | 40,011    |   |
|                                   | Depreciation, depletion and amortization                               | 3,282      |        | 2,723     |   |
|                                   | Selling and administrative                                             | 8,761      |        | 8,196     |   |
|                                   |                                                                        |       |             |      |
|                                   | 59,966                                                                 |       | 50,930      |      |
|                                   |                                                                        |       |             |      |
|                                   |                                                                   |       |        |      |
| Operating income                       | 2,070                                                                  |       | 2,205       |      |
|                                   |                                                                   |       |        |      |
| Interest                               | (575                                                                   | )          | (338        | )         |
| Other income, net                      | 202                                                                    |       | 392         |      |
|                                   |                                                                        |       |             |      |
|                                   |                                                                   |       |        |      |
| Income before income taxes             | 1,697                                                                  |       | 2,259       |      |
|                                   |                                                                   |       |        |      |
| Provision for income taxes             | 611                                                                    |       | 836         |      |
|                                   |                                                                        |       |             |      |
|                                   |                                                                   |       |        |      |
| Net income                             | 1,086                                                                  |       | 1,423       |      |
|                                   |                                                                   |       |        |      |
| Retained earnings, beginning of period | 48,138                                                                 |       | 42,803      |      |
|                                   |                                                                        |       |             |      |
|                                   |                                                                   |       |        |      |
| Retained earnings, end of period       | **$**                                                                  | **49,224** | ** **  | **$**     | **44,226** | ** ** |
|                                   |                                                                        |       |             |      |
| Basic earnings per share               | **$**                                                                  | **.60**    | ** **  | **$**     | **.76** | ** ** |
|                                   |                                                                        |       |             |      |
|                                   | Average shares outstanding                                             | **1,817**  | ** **  | **1,881** | ** ** |
|                                   |                                                                        |       |             |      |
| Diluted earnings per share             | **$**                                                                  | **.59**    | ** **  | **$**     | **.74** | ** ** |
|                                   |                                                                        |       |             |      |
|                                   | Average shares outstanding                                             | **1,849**  | ** **  | **1,916** | ** ** |
|                                   | ****                                                                   |       | ****        |      |

See accompanyingnotes

 

CONSOLIDATEDMATERIALS CORPORATIONCONSOLIDATED STATEMENTS OF CASH FLOWSFOR THE SIX MONTHS ENDED JUNE 30, 2001 AND JULY 1, 2000(Unaudited)(000’s omitted)

 

|                                                | **JUNE 30,   2001**                                                       |    | **JULY 1,   2000** |       |
|-----------------------------------------------------|---------------------------------------------------------------------------|---------|--------------------|------------|
|                                                |                                                                           |    |                    |       |
|                                                |                                                                      |    |               |       |
| Net cash provided by (used in) operating activities | $                                                                         | 1,621   |               | $          | (949 | ) |
|                                                |                                                                      |    |               |       |
| Investing activities:                               |                                                                      |    |               |       |
|                                                | Purchase of Rocky Mountain Ready Mix Concrete, Inc.  net of cash received | (11,262 | )                  | —     |   |
|                                                | Capital expenditures                                                      | (4,990  | )                  | (1,724     | ) |
|                                                | Proceeds from sale of property and equipment                              | 47      |               | 76         |   |
|                                                |                                                                      |         |               |            |   |
| Net cash used in investing activities               | (16,205                                                                   | )       | (1,648             | )          |
|                                                |                                                                           |    |                    |       |
|                                                |                                                                      |    |               |       |
| Financing activities:                               |                                                                      |    |               |       |
|                                                | Borrowings under revolving credit facility                                | —  |               | 700        |   |
|                                                | Long-term borrowings                                                      | 12,000  |               | 4,000      |   |
|                                                | Repayment of long term debt                                               | (1,760  | )                  | (81        | ) |
|                                                | Proceeds from exercise of stock options                                   | —  |               | 164        |   |
|                                                | Payment to acquire treasury stock                                         | (422    | )                  | (2,533     | ) |
|                                                |                                                                      |         |               |            |   |
| Net cash provided by financing activities           | 9,818                                                                     |    | 2,250              |       |
|                                                |                                                                           |    |                    |       |
|                                                |                                                                      |    |               |       |
| Net decrease in cash and cash equivalents           | (4,766                                                                    | )       | (347               | )          |
| Cash and cash equivalents:                          |                                                                      |    |               |       |
|                                                | Beginning of period                                                       | 6,216   |               | 347        |   |
|                                                |                                                                           |    |                    |       |
|                                                | End of period                                                             | **$**   | **1,450**          | ** ** | **$** | **** | ** ** |
|                                                |                                                                           |    |                    |       |
|                                                |                                                                      |    |               |       |
|                                                |                                                                      |    |               |       |
| Supplemental disclosures of cash flow items:        |                                                                      |    |               |       |
| Cash paid during the six months for:                |                                                                      |    |               |       |
|                                                | Interest                                                                  | $       | 508                |       | $ | 358 |   |
|                                                | Income taxes                                                              | 788     |               | 952        |   |

See accompanyingnotes

 

CONTINENTALMATERIALS CORPORATIONSECURITIES AND EXCHANGE COMMISSION FORM 10-QNOTES TO THE QUARTERLY CONSOLIDATED FINANCIAL STATEMENTSQUARTER ENDED JUNE 30, 2001(Unaudited)

 

| 1.     | The unaudited interim  consolidated financial statements included herein are prepared pursuant to  the rules and regulations for reporting on Form 10-Q.  Accordingly, certain information and  footnote disclosures normally accompanying the annual financial statements  have been omitted.  The interim  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 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.     | The provision for  income taxes is based upon the estimated effective tax rate for the year.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 3.     | Operating results for  the first six months of 2001 are not necessarily indicative of performance  for the entire year.  Historically,  sales of construction materials are higher in the second and third quarters.  Overall, sales of heating and air  conditioning products have not shown strong seasonal fluctuations in recent  years although product mix has historically yielded higher gross profit  margins in the fourth quarter.  (See  Note 11 of Notes to Consolidated Financial Statements in the Company’s 2000  Annual Report.)                                                                                                                                                                                         |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 4.     | The following is a  reconciliation of the calculation of basic and diluted earnings per share  (EPS) for the three and six months ended June 30, 2001 and July 1, 2000.  Amounts in thousands except per share  data.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |

 

|                       | Three months  ended |   | Six months ended |   |
|----------------------------|---------------------|--------|------------------|--------|
|                       |                     |   |                  |   |
|                       | Income              |   | Shares           |   | Per-  share   earnings |   | Income |   | Shares |   | Per-  share   earnings |   |
|                       |                     |   |                  |   |  |   |  |   |  |   |  |   |
| June 30, 2001              |                |   |             |   |   |   |   |   |   |   |   |   |
| Basic EPS                  | $                   | 1,167  |             | 1,810  |   | $ | .64 |   | $ | 1,086 |   | 1,817 |   | $ | .60 |   |
|                       |                |   |             |   |  |   |   |   |   |   |  |   |
| Effect of dilutive options | —              |   | 34               |   |   |   | — |   | 32 |   |   |   |
|                       |                     |   |                  |   |   |   |  |   |  |   |   |   |
| Diluted EPS                | $                   | 1,167  |             | 1,844  |   | $ | .63 |   | $ | 1,086 |   | 1,849 |   | $ | .59 |   |
|                       |                     |   |                  |   |  |   |  |   |  |   |  |   |
|                       |                |   |             |   |   |   |   |   |   |   |   |   |
| July 1, 2000               |                |   |             |   |   |   |   |   |   |   |   |   |
| Basic EPS                  | $                   | 1,040  |             | 1,871  |   | $ | .56 |   | $ | 1,423 |   | 1,881 |   | $ | .76 |   |
|                       |                |   |             |   |  |   |   |   |   |   |  |   |
| Effect of dilutive options | —              |   | 33               |   |   |   | — |   | 35 |   |   |   |
|                       |                     |   |                  |   |   |   |  |   |  |   |   |   |
| Diluted EPS                | $                   | 1,040  |             | 1,904  |   | $ | .55 |   | $ | 1,423 |   | 1,916 |   | $ | .74 |   |
|                       |                     |   |                  |   |  |   |  |   |  |   |  |   |

 

 

| 5. | The following table  presents information about reported segments for the six month and three  month periods ended June 30, 2001 and July 1, 2000 along with the items  necessary to reconcile the segment information to the totals reported in the  financial statements (amounts in thousands). |
|----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

|                             | Heating and Air |   | Construction |   |      |   | Unallocated |   |   |   |
|----------------------------------|-----------------|--------|--------------|--------|-----------|--------|-------------|--------|--------|--------|
|                             | Conditioning    |   | Materials    |   | All Other |   | Corporate   |   | Total  |   |
|                             |                 |   |              |   |           |   |             |   |        |   |
| 2001                             |            |   |         |   |      |   |        |   |   |   |
| Six Months                       |            |   |         |   |      |   |        |   |   |   |
| Revenues from external customers | $               | 27,128 |         | $      | 37,645    |   | $           | 72     |   | $      | 1 |   | $ | 64,846 |   |
| Operating income                 | 956             |   | 2,731        |   | (10       | )      | (1,607      | )      | 2,070  |   |
| Assets                           | 29,195          |   | 49,136       |   | 53        |   | 3,292       |   | 81,676 |   |
| Three Months                     |            |   |         |   |      |   |        |   |   |   |
| Revenues from external customers | 14,908          |   | 21,543       |   | 36        |   | 0           |   | 36,487 |   |
| Operating income                 | 98              |   | 2,801        |   | (4        | )      | (822        | )      | 2,073  |   |
|                             |            |   |         |   |      |   |        |   |   |   |
| 2000                             |            |   |         |   |      |   |        |   |   |   |
| Six Months                       |            |   |         |   |      |   |        |   |   |   |
| Revenues from external customers | $               | 22,221 |         | $      | 33,284    |   | $           | 72     |   | $      | 5 |   | $ | 55,582 |   |
| Operating income                 | 555             |   | 3,268        |   | (25       | )      | (1,593      | )      | 2,205  |   |
| Assets                           | 31,662          |   | 34,618       |   | 30        |   | 2,011       |   | 68,321 |   |
| Three Months                     |            |   |         |   |      |   |        |   |   |   |
| Revenues from external customers | 12,655          |   | 17,536       |   | 36        |   | 5           |   | 30,232 |   |
| Operating income                 | 370             |   | 2,093        |   | (12       | )      | (796        | )      | 1,655  |   |

There are no differences in the basis of segmentation or in the basisof measurement of segment profit or loss from the last annual report.

| 6.     | On December 31, 2000,  the Company acquired all of the stock of Rocky Mountain Ready Mix Concrete,  Inc. (“RMRM”), a ready-mix concrete producer in the metropolitan Denver,  Colorado area for a cash purchase price of $11,262,000 net of $1,320,000 of cash  received and $2,541,000 of liabilities and debt.  The acquisition has been accounted for under the purchase  method and, accordingly, the operating results of RMRM have been included in  the consolidated results since the date of acquisition. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|   | The funds used to  acquire RMRM were provided by a renegotiated unsecured term loan with the  Company’s two existing banks.   Goodwill of $6,245,000 and the cost of a non-competition agreement of  $1,250,000 (included in other assets) related to the acquisition are being  amortized over 40 and 10 years, respectively                                                                                                                                                                                           |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|   | The purchased company  is involved in the production of ready-mix concrete from three locations in  the metropolitan Denver, Colorado area.   Sales are made primarily within a 60 mile radius of Denver, Colorado.                                                                                                                                                                                                                                                                                                          |

 

 

 

The table belowsummarizes the unaudited pro-forma results of operation for the year endedDecember 30, 2000 assuming the acquisition described had been consummated as ofJanuary 1, 2000, with adjustments primarily attributed to interest expenserelating to the renegotiated debt, depreciation expense relating to thewrite-up to fair value of the assets acquired and amortization of the relatedgoodwill and non-competition agreement.

|                       | 2000  Unaudited |    |   |
|----------------------------|-----------------|---------|--------|
|                       |                 |    |   |
| Sales                      | $               | 129,963 |   |
| Net income                 | 5,536           |    |   |
| Diluted earnings per share | 2.91            |    |   |
|                            |                 |         |        |  |  |  |

These pro-forma resultshave been prepared for comparative purposes only and do not purport to beindicative of what would have occurred had the acquisition been made at thebeginning of the period presented, or the results which may occur in thefuture.

**Item 2. Management’s Discussion and Analysis ofFinancial Condition and Results of Operation**

             FinancialCondition (See pages 2, 4 and 5)

Operations provided$1,621,000 in cash flow in the first six months of 2001 compared to a use ofcash of $949,000 in the first half of 2000. Overall, working capital requirements in the first half of 2001 weresubstantially less than the previous year. The diminished working capital more than offset the lower level of netearnings in the first half of 2001.

Capital expenditures inthe first six months of 2001 were $4,990,000 compared to $1,724,000 in thefirst half of 2000.  Most of theincreased capital spending was in the construction materials segment andincluded new batch plants, aggregate processing facilities, mixer trucks andaggregate properties.

The Company estimatesthat its short-term line of credit (of which none was outstanding at June 30,2001), combined with internally generated cash flow, will be adequate to meetits cash requirements for the remainder of the year.

Operations – Comparisonof Quarter Ended June 30, 2001 to Quarter Ended July 1, 2000 (See page 3)

Consolidated net salesincreased $6,174,000 (21%).  Salesincreased $4,031,000 (25%) in the construction materials segment as the resultof the acquisition of Rocky Mountain Ready Mix Concrete, Inc. at the beginningof 2001.  Sales in the heating and airconditioning segment increased $2,148,000 (17%) as overall conditions in theevaporative cooler market improved compared to the depressed conditionsencountered in the second quarter 2000. Fan coil sales declined due to some slow down in commercial constructionas well as the deferral of shipments in 2001 on a few large jobs.

Consolidated cost ofsales (exclusive of depreciation and depletion) as a percentage of salesincreased from 74.8% to 76.7%.  The costof sales percentage in the construction materials segment was nearlyunchanged.  The cost percentage in theheating and air conditioning segment increased as the result of a largerproportion of evaporative coolersales, which typically carry a lower profitmargin and a decline in wall furnace margins due to lower production volume.

 

Depreciation and sellingand administrative expenses were higher in the 2001 period principally due tothe aforementioned acquisition.

Net interest expense washigher as a result of the bank debt incurred to fund the acquisition.  The interest on the additional borrowingswas offset to some extent by lower interest rates and earnings on cashinvestments.

Historically the firstquarter is the Company’s weakest quarter as weather generally hindersproduction in the Company’s Colorado construction materials operations and theselling season for heating equipment ends. Operating results typically improve in the second and third quarteralong with weather conditions in Colorado. Fourth quarter results can vary based on weather conditions in Coloradoas well as in the principal markets for the Company’s heating equipment.  Sales of fan coils are generally not subjectto seasonal variation.

Operations - Comparisonof Six Months Ended June 30, 2001 to Quarter Ended July 1, 2000 (See page 4)

Consolidated net salesincreased $8,901,000 (17%).  Sales inthe construction materials segment increased $4,130,000 (13%) as the result ofthe acquisition discussed above.  Thesales growth resulting from the acquisition was partially offset due toinclement weather in the first quarter along Colorado’s Front Range.

Sales in the heating andair conditioning segment increased $4,775,000 (22%).  Evaporative cooler sales increased for the same reasons notedabove.  Sales of wall furnaces werehigher due to cold weather in the first quarter in the key market areas.  Fan coil sales declined as the result of aslow down in commercial construction.

Cost of sales (exclusiveof depreciation and depletion) as a percentage of net sales increased from75.30% to 77.25%.  The cost percentageincreased in both segments.  The constructionmaterials segment experienced higher costs as the overall gross margins ofRocky Mountain Ready Mix Concrete are moderately lower than at the Company’sother construction materials operations. In addition, in the first half of 2001 sales volume was generally lowerthan the previous year due to the weather in the first quarter.

Cost of sales in theheating and air conditioning segment increased as the result of a higher labor,employee benefit, and energy costs, as well as a change in product mix.

Other costs and expenses,including interest, increased for reasons noted above.

NEW ACCOUNTING STANDARDS

The Emerging Issues TaskForce (“EITF”) issued EITF No. 00-14, “Accounting for Certain Sales Incentives”which addresses the recognition, measurement and statement of earningsclassification for certain sales incentives and will be effective in the firstquarter of 2002.  As a result, certainitems previously included in cost of sales and in selling and administrativecosts on the consolidated statement of operations will be recorded as areduction of sales.  The Company iscurrently in the process of determining the impact of adoption of EITF No.00-14.  Upon adoption, prior periodamounts will be reclassified to conform to the new requirements.  In April 2001, the EITF reached a consensuson Issue No. 00-25, “Vendor Income Statement Characterization of Considerationto a Purchaser of the Vendor’s Products or Services”.  EITF Issue No. 00-25 requires that certain expenses included incost of sales and in selling and administrative costs be recorded as areduction of sales and will be effective in the first quarter of 2002.  The Company is currently in the process ofdetermining the impact of EITF Issue No. 00-25.

 

In July 2001, theFinancial Accounting Standards Board issued Statements of Financial AccountingStandards No. 141, “Business Combinations” and No. 142, “Goodwill and OtherIntangible Assets”.  Effective January1, 2002, the Company will no longer be required to amortize goodwill andcertain intangible assets as a charge to earnings.  In addition, the Company will be required to review goodwill andother intangible assets for potential impairment.  The Company is currently in the process of quantifying the impactof the new standard.  However, theCompany currently anticipates that substantially all amortization of goodwillwill be eliminated.

FORWARD-LOOKINGSTATEMENTS

The foregoing discussioncontains forward-looking statements within the meaning of Section 27A of theSecurities Act of 1933, as amended. Such forward-looking statements are based on the beliefs of theCompany’s management as well as on assumptions made by and informationavailable to the Company at the time such statements were made.  When used in this Report, words such as“estimates,” “anticipates,” “contemplates,” “expects” and similar expressionsare intended to identify forward-looking statements. Actual results coulddiffer materially from those projected in the forward-looking statements as aresult of factors including but not limited to: weather, interest rates, availabilityof raw materials and their related costs and competitive forces.

| PART II – Other  Information |                                                 |
|-----------------------------------|------------------------------------------------------|
|                              |                                                 |
| Item 4.                           | Submission of  Matters to a Vote of Security Holders |   |
|                              |                                                 |   |
|                              | (a)                                                  | The annual  meeting of the stockholders of the Company was held on May 23, 2001. |
|                              |                                                 |   |
|                              | (b)                                                  | At that meeting,  three individuals, all of whom are current directors, were nominated and  elected to serve until the 2004 Annual Meeting by the following votes: |
|                                   |                                                      |  |  |  |  |

 

| Director         |   | Shares For |   | Shares Against |   | Shares Withheld |
|------------------|--------|------------|--------|----------------|--------|-----------------|
|                  |   |            |   |                |   |                 |
| James G. Gidwitz |   | 1,484,004  |   | --             |   | 97,280          |
| Betsy R. Gidwitz |   | 1,445,004  |   | --             |   | 136,280         |
| Joseph J. Sum    |   | 1,484,044  |   | --             |   | 97,240          |

 

|   |   | There were no  broker non-votes.                                                                                        |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------|
|   |   | The following  directors' terms of office continued after the meeting until the Annual  Meetings of the years as noted: |

 

| Directors            |   | Expiration of Term |
|----------------------|--------|--------------------|
|                      |   |                    |
| Ralph W. Gidwitz     |   | 2002               |
| Theodore R. Tetzlaff |   | 2002               |
| Thomas H. Carmody    |   | 2003               |
| Ronald J. Gidwitz    |   | 2003               |
| Darrell M. Trent     |   | 2003               |

 

 

|   | (c) | In addition to  the above election, the appointment of the independent auditing firm of  PricewaterhouseCoopers LLP was ratified by the following vote: |
|--------|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------|

 

| For       |   | Against |   | Abstain |
|-----------|--------|---------|--------|---------|
|           |   |         |   |         |
| 1,573,684 |   | 1,200   |   | 6,400   |

 

|   |   | There were no  broker non-votes.           |
|--------|--------|--------------------------------------------|
|   |   |                                       |
|   | (d)    | No other matters  were submitted for vote. |

 

| Item 5. | Other Information                                                                                                                                                                                                                          |
|---------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|    |                                                                                                                                                                                                                                       |
|    | During the quarter  ended June 30, 2001, Mr. William G. Shoemaker retired from the Board of  Directors creating a vacancy on the Board.   A search, under the direction of the Chairman, is currently underway  to fill this vacancy. |

 

| Item 6. | Exhibits and Reports on  Form 8-K                                                                                                         |
|---------|-------------------------------------------------------------------------------------------------------------------------------------------|
|    |                                                                                                                                      |
|    | (b)  A Form 8-K dated December 31, 2000 was  filed related to the Company’s purchase of the stock of RMRM discussed in  Note 6. |

 

SIGNATURE

 

Pursuant to the requirement of the Securities Exchange Act of 1934, theregistrant has duly caused this report to be signed on its behalf by theundersigned thereunto duly authorized.

 

             CONTINENTAL MATERIALSCORPORATION

 

| Date:  | August 8, 2001 | By:  /S/ Joseph J. Sum                                     |
|--------|----------------|-----------------------------------------------------------------|
|   |           | Joseph J. Sum, Vice  President and Chief Financial Officer |
|   |           |