**UNITED STATES****SECURITIES AND EXCHANGECOMMISSION**

**Washington, D.C.  20549**

 

**FORM 10-Q**

 
|   | **(Mark One)**                                                                                                                                                                                                                                                                                                                                        |       |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|
|   |                                                                                                                                                                                                                                                                                                                                                  |       |   |   |
|   |                                                                                                                                                                                                                                                                                                                                                  | **ý** | **QUARTERLY REPORT PURSUANT TO  SECTION 13 OR  15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |   |
|   |                                                                                                                                                                                                                                                                                                                                                  |       |   |   |
|   | **For the quarterly period ended  April 3, 2004**                                                                                                                                                                                                                                                                                                     |       |
|   |                                                                                                                                                                                                                                                                                                                                                  |       |   |   |
| **OR** |
|   |                                                                                                                                                                                                                                                                                                                                                  |       |   |   |
|   |                                                                                                                                                                                                                                                                                                                                                  | **o**      | **TRANSITION REPORT PURSUANT TO  SECTION 13 OR  15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |   |
|   |                                                                                                                                                                                                                                                                                                                                                  |       |   |   |
|   | **For the transition period from                             to                          ** |       |

 

**Commission File number1-3834**

 

**CONTINENTAL MATERIALS CORPORATION**

(Exact name of registrant as specified inits charter)

 
| **Delaware**                                                                 |   | **36-2274391**                       |
|------------------------------------------------------------------------------|--------|--------------------------------------|
| (State or other jurisdiction of  incorporation or organization)              |   | (I.R.S. Employer Identification No.) |
|                                                                         |
| **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, former address and former  year, if changed since last report) |

 

Indicate by check mark whether the registrant (1)has filed all reports required to be filed by Section 13 or 15(d) of theSecurities Exchange Act of 1934 during the preceding 12 months (or for suchshorter period that the registrant was required to file such reports), and (2)has been subject to such filing requirements for the past 90 days.

 

Yes  ý   No  o

 

Indicate by check mark whether the registrant is anaccelerated filer (as defined in Rule 12b-2 of the Exchange Act).

 

Yes o       No ý

 
| Number of common shares outstanding at May 5,  2004 |   | 1,701,777 |
|-----------------------------------------------------|--------|-----------|

 

 

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PART I - FINANCIAL INFORMATION

 

## **Item 1.   Financial Statements**

 

CONTINENTAL MATERIALS CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

APRIL 3, 2004 AND JANUARY 3, 2004

 (000’s omitted except share data)

 
|                                                                                                 |   | **APRIL 3,  2004** |       | **JANUARY 3,  2004** |   |
|------------------------------------------------------------------------------------------------------|--------|--------------------|------------|----------------------|--------|
|                                                                                                 |   | **(Unaudited)**    |       |                 |   |
| ***ASSETS***                                                                                         |   |               |       |                 |   |
| Current assets:                                                                                      |   |               |       |                 |   |
| Cash and cash equivalents                                                                            |   | $                  | —     |                 | $      | 4,609 |   |
| Receivables, net                                                                                     |   | 18,653             |       | 17,054               |   |
| Inventories:                                                                                         |   |               |       |                 |   |
| Finished goods                                                                                       |   | 7,169              |       | 7,163                |   |
| Work in process                                                                                      |   | 1,508              |       | 1,486                |   |
| Raw materials and supplies                                                                           |   | 9,028              |       | 7,532                |   |
| Prepaid expenses                                                                                     |   | 2,885              |       | 3,064                |   |
| Total current assets                                                                                 |   | 39,243             |       | 40,908               |   |
|                                                                                                 |   |               |       |                 |   |
| Property, plant and equipment, net                                                                   |   | 30,585             |       | 30,873               |   |
|                                                                                                 |   |               |       |                 |   |
| Goodwill                                                                                             |   | 7,374              |       | 7,374                |   |
| Non-compete agreements                                                                               |   | 1,122              |       | 1,178                |   |
| Other assets                                                                                         |   | 1,536              |       | 1,493                |   |
|                                                                                                 |   |               |       |                 |   |
|                                                                                                 |   | **$**              | **79,860** |                 | **$**  | **81,826** | ** ** |
|                                                                                                 |   |               |       |                 |   |
| ***LIABILITIES***                                                                                    |   |               |       |                 |   |
| Current liabilities:                                                                                 |   |               |       |                 |   |
| Bank loan payable                                                                                    |   | $                  | 1,900      |                 | $      | — |   |
| Current portion of long-term debt                                                                    |   | 1,921              |       | 1,970                |   |
| Accounts payable and accrued expenses                                                                |   | 11,734             |       | 13,504               |   |
| Income taxes                                                                                         |   | —             |       | 700                  |   |
| Total current liabilities                                                                            |   | 15,555             |       | 16,174               |   |
|                                                                                                 |   |               |       |                 |   |
| Long-term debt                                                                                       |   | 8,500              |       | 9,000                |   |
| Deferred income taxes                                                                                |   | 3,219              |       | 3,219                |   |
| Other long-term liabilities                                                                          |   | 2,555              |       | 2,576                |   |
|                                                                                                 |   |               |       |                 |   |
| ***SHAREHOLDERS’ EQUITY***                                                                      |   |               |       |                 |   |
| Common shares, $0.25 par value; authorized 3,000,000 shares; issued  2,574,264 shares                |   | 643                |       | 643                  |   |
| Capital in excess of par value                                                                       |   | 1,982              |       | 1,982                |   |
| Retained earnings                                                                                    |   | 59,837             |       | 60,200               |   |
| Accumulated other comprehensive losses net of tax of $139 and $124  (interest rate swap adjustments) |   | (248               | )          | (265                 | )      |
| Treasury shares, 870,937 and 853,901, at cost                                                        |   | (12,183            | )          | (11,703              | )      |
|                                                                                                 |   | 50,031             |       | 50,857               |   |
|                                                                                                 |   |               |       |                 |   |
|                                                                                                 |   | **$**              | **79,860** |                 | **$**  | **81,826** | ** ** |

 

See accompanying notes

 

2

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CONTINENTAL MATERIALS CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS ANDRETAINED EARNINGS

FOR THE THREE MONTHS ENDED APRIL 3, 2004 ANDMARCH 29, 2003

(Unaudited)

(000’s omitted except per-share amounts)

 
|                                                                      |   | **APRIL 3,  2004** |       | **MARCH 29,  2003** |       |
|---------------------------------------------------------------------------|--------|--------------------|------------|---------------------|------------|
|                                                                      |   |               |       |                |       |
| Sales                                                                     |   | $                  | 27,247     |                | $          | 23,681 |   |
|                                                                      |   |               |       |                |       |
| Costs and expenses:                                                       |   |               |       |                |       |
| Cost of sales (exclusive of depreciation, depletion and amortization)     |   | 22,171             |       | 20,407              |       |
| Depreciation, depletion and amortization                                  |   | 1,368              |       | 1,532               |       |
| Selling and administrative                                                |   | 4,124              |       | 3,878               |       |
|                                                                      |   | 27,663             |       | 25,817              |       |
|                                                                      |   |               |       |                |       |
|                                                                      |   |               |       |                |       |
| Operating loss                                                            |   | (416               | )          | (2,136              | )          |
|                                                                      |   |               |       |                |       |
| Interest                                                                  |   | (156               | )          | (161                | )          |
| Other income, net                                                         |   | 5                  |       | 46                  |       |
|                                                                      |   |               |       |                |       |
| Loss before income taxes                                                  |   | (567               | )          | (2,251              | )          |
|                                                                      |   |               |       |                |       |
| Benefit from income taxes                                                 |   | (204               | )          | (855                | )          |
|                                                                      |   |               |       |                |       |
| Net loss                                                                  |   | (363               | )          | (1,396              | )          |
|                                                                      |   |               |       |                |       |
| Retained earnings, beginning of period                                    |   | 60,200             |       | 57,851              |       |
|                                                                      |   |               |       |                |       |
| Retained earnings, end of period                                          |   | **$**              | **59,837** | ** **          | **$**      | **56,455** | ** ** |
|                                                                      |   |               | ** ** |                | ** ** |
| Basic loss per share                                                      |   | **$**              | **(.21**   | **)**               | **$**      | **(.78** | **)** |
|                                                                      |   |               | ** ** |                | ** ** |
| Average shares outstanding                                                |   | **1,714**          | ** ** | **1,781**           | ** ** |
|                                                                      |   |               | ** ** |                | ** ** |
| Diluted loss per share                                                    |   | **$**              | **(.21**   | **)**               | **$**      | **(.78** | **)** |
|                                                                      |   |               | ** ** |                | ** ** |
| Average shares outstanding                                                |   | **1,714**          | ** ** | **1,781**           | ** ** |
|                                                                      |   |               |       |                |       |
|                                                                      |   |               |       |                |       |
| Comprehensive income:                                                     |   |               |       |                |       |
| Net loss                                                                  |   | $                  | (363       | )                   | $          | (1,396 | ) |
| Comprehensive income from interest rate swap, net of tax of $(15) and  $8 |   | 17                 |       | 12                  |       |
|                                                                      |   | $                  | (346       | )                   | $          | (1,384 | ) |

 

See accompanying notes

 

3

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CONSOLIDATED MATERIALS CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE THREE MONTHS ENDED APRIL 3, 2004 ANDMARCH 29, 2003

(Unaudited)

(000’s omitted)

 
|                                              |   | **THREE  MONTHS ENDED** |       |
|---------------------------------------------------|--------|-------------------------|------------|
|                                              |   | **APRIL 3,  2004**      |       | **MARCH 29,  2003** |   |
|                                              |   |                    |       |   |   |
| Net cash used in operating activities             |   | $                       | (4,470     | ) | $ | (3,106 | ) |
|                                              |   |                    |       |   |   |
| Investing activities:                             |   |                    |       |   |   |
| Capital expenditures                              |   | (1,011                  | )          | (1,027 | ) |
| Proceeds from sale of property and equipment      |   | 1                       |       | 16 |   |
| Net cash used in investing activities             |   | (1,010                  | )          | (1,011 | ) |
|                                              |   |                    |       |   |   |
| Financing activities:                             |   |                    |       |   |   |
| Borrowings under revolving credit facility        |   | 1,900                   |       | 1,000 |   |
| Repayment of long term debt                       |   | (549                    | )          | (89 | ) |
| Payment to acquire treasury stock                 |   | (480                    | )          | (319 | ) |
| Net cash provided by financing activities         |   | 871                     |       | 592 |   |
|                                              |   |                    |       |   |   |
| Net decrease in cash and cash equivalents         |   | (4,609                  | )          | (3,525 | ) |
| Cash and cash equivalents:                        |   |                    |       |   |   |
| Beginning of period                               |   | 4,609                   |       | 3,536 |   |
|                                              |   |                    |       |   |   |
| End of period                                     |   | **$**                   | **—** | ** ** | **$** | **11** | ** ** |
|                                              |   |                    |       |   |   |
|                                              |   |                    |       |   |   |
|                                              |   |                    |       |   |   |
| Supplemental disclosures of cash flow items:      |   |                    |       |   |   |
| Cash paid (received) during the three months for: |   |                    |       |   |   |
| Interest                                          |   | $                       | 166        |   | $ | 227 |   |
| Income taxes                                      |   | 501                     |       | (164 | ) |

 

See accompanying notes

 

4

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CONTINENTAL MATERIALS CORPORATION

SECURITIES AND EXCHANGE COMMISSION FORM 10-Q

NOTES TO THE QUARTERLY CONSOLIDATEDFINANCIAL STATEMENTS

QUARTER ENDED APRIL 3, 2004

(Unaudited)

 

1.               The unauditedinterim consolidated financial statements included herein are prepared pursuantto the rules and regulations for reporting on Form 10-Q.  Accordingly, certain information andfootnote disclosures normally accompanying the annual financial statements havebeen omitted.  The interim financialstatements and notes should be read in conjunction with the consolidatedfinancial statements and notes thereto included in the Company’s latest annualreport on Form 10-K including any amendments thereto.  In the opinion of management, the consolidated financial statementsinclude all adjustments (none of which were other than normal recurringadjustments) necessary for a fair statement of the results for the interimperiods.

 

2.               The provision forincome taxes is based upon the estimated effective of tax rate of 36% for theyear.

 

3.               Operating resultsfor the first three months of 2004 are not necessarily indicative ofperformance for the entire year. Historically, sales of construction materials are higher in the secondand third quarters.  Overall, sales ofheating and air conditioning products have not shown strong seasonalfluctuations in recent years although product mix has historically yieldedhigher gross profit margins in the fourth quarter.  (See Note 10 of Notes to Consolidated Financial Statements in theCompany’s 2003 Annual Report on Form 10-K.)

 

4.               The following is areconciliation of the calculation of basic and diluted earnings per share (EPS)for the three months ended April 3, 2004 and March 29, 2003 (amounts inthousands, except per-share amounts):

 

|                       |   | **Income  (Loss)** |   | **Shares** |   | **Per-share  (loss) earnings** |   |
|----------------------------|--------|--------------------|--------|------------|--------|--------------------------------|--------|
| April 3, 2004              |   |               |   |       |   |                           |   |
| Basic EPS                  |   | $                  | (363   | )          | 1,714  |                           | $      | (.21 | ) |
| Effect of dilutive options |   | —             |   | —     |   |                           |   |
| Diluted EPS                |   | $                  | (363   | )          | 1,714  |                           | $      | (.21 | ) |
|                       |   |               |   |       |   |                           |   |
| March 29, 2003             |   |               |   |       |   |                           |   |
| Basic EPS                  |   | $                  | (1,396 | )          | 1,781  |                           | $      | (.78 | ) |
| Effect of dilutive options |   | —             |   | —     |   |                           |   |
| Diluted EPS                |   | $                  | (1,396 | )          | 1,781  |                           | $      | (.78 | ) |

 

5.               The followingtable presents information about reported segments for the three months endedApril 3, 2004 and March 29, 2003 along with the items necessary to reconcilethe segment information to the totals reported in the financial statements(amounts in thousands):

 

5

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|                             |   | **Heating  and Air  Conditioning** |   | **Construction  Materials** |   | **All Other** |   | **Unallocated  Corporate** |   | **Total** |   |
|----------------------------------|--------|------------------------------------|--------|-----------------------------|--------|---------------|--------|----------------------------|--------|-----------|--------|
| 2004                             |   |                               |   |                        |   |          |   |                       |   |      |   |
| Revenues from external customers |   | $                                  | 11,669 |                        | $      | 15,490        |   | $                          | 86     |      | $      | 2 |   | $ | 27,247 |   |
| Segment operating (loss) income  |   | 1,108                              |   | (664                        | )      | 12            |   | (872                       | )      | (416      | )      |
| Segment assets                   |   | 30,240                             |   | 47,759                      |   | 260           |   | 1,601                      |   | 79,860    |   |
|                             |   |                               |   |                        |   |          |   |                       |   |      |   |
| 2003                             |   |                               |   |                        |   |          |   |                       |   |      |   |
| Revenues from external customers |   | $                                  | 10,260 |                        | $      | 13,350        |   | $                          | 70     |      | $      | 1 |   | $ | 23,681 |   |
| Segment operating (loss) income  |   | 813                                |   | (2,175                      | )      | (13           | )      | (761                       | )      | (2,136    | )      |
| Segment assets                   |   | 29,354                             |   | 47,332                      |   | 102           |   | 2,742                      |   | 79,530    |   |

 

There are no differences in the basis ofsegmentation or in the basis of measurement of segment profit or loss from thelast annual report.

 

6.               Identifiableintangible assets as of April 3, 2004 consist of three amortizable non-competeagreements that were carried at $1,122,000 net of $878,000 accumulatedamortization.  The pre-tax amortizationexpense for intangible assets during the quarter ended April 3, 2004 was$57,000.  Based upon the intangibleassets recorded on the balance sheet at April 3, 2004, amortization expense forthe next five years is estimated to be as follows: 2004 - $225,000, 2005 -$225,000, 2006 - $216,000, 2007 - $138,000, and 2008 - $125,000.

 

7.               The interest rateswap agreement is reported consistent with SFAS No. 133, “Accounting forDerivative Instruments and Hedging Activities,” and its related amendment, SFASNo. 138, “Accounting for Certain Derivative Instruments and Certain HedgingActivities” which require recognition of derivatives as either assets orliabilities and measurement at fair value. During the three months ended April 3, 2004, a gain of $17,000 (net of atax benefit of $15,000) is reported under comprehensive income as a result ofthe cash flow hedge.  The tax benefit isprimarily due to the use of an estimated tax rate of 36% during 2004 comparedto the 31.9% actual rate used for 2003). The change in accumulated other comprehensive losses is as follows(amounts in thousands):

 
| Balance at January 3, 2004                                                                                          |   | $  | (265   | ) |
|---------------------------------------------------------------------------------------------------------------------|--------|----|--------|---|
| Comprehensive income from interest rate  swap, net of tax effect of $(15), for the three months ended April 3, 2004 |   | 17 |   |
| Comprehensive net loss                                                                                              |   | $  | (248   | ) |

 

**Item 2.    Management’s Discussion and Analysis of Financial Condition andResults of Operations**

 

Company Overview

 

The Company operates primarily in two industrysegments, the heating and air conditioning segment and the constructionmaterials segment.  The primary productsmanufactured by the heating and air conditioning segment are gas-fired wallfurnaces, console heaters, evaporative coolers and fan coils.  Gas-fired wall furnaces, console heaters andfan coil products are manufactured at Williams Furnace Co., headquartered

 

6

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in Colton, California.  Evaporative coolers are manufactured at Phoenix Manufacturing,Inc., headquartered in Phoenix, Arizona. The primary products of the construction materials segment are ready mixconcrete, construction aggregates, building supplies and doors, which areoffered by Transit Mix Concrete Co. and Castle Concrete Company in ColoradoSprings, Colorado and Transit Mix of Pueblo, Inc. and McKinney Door andHardware, Inc. in Pueblo, Colorado. Currently, Rocky Mountain Ready Mix Concrete, Inc. of Denver, Colorado,only offers ready mix concrete.

 

Financial Condition 

 

A significant portion of the Company’s businesstends to seasonally fluctuate. Historically, the Company has experienced operating losses during thefirst quarter except when the weather is mild along the Front Range inColorado.  Operating results typicallyimprove in the second and third quarters reflecting more favorable weatherconditions in Colorado and the seasonal sales of evaporative coolers.  Fourth quarter results can vary based onweather conditions in Colorado as well as in the principal markets for theCompany’s heating equipment.  Sales offan coils are generally not subject to seasonal variation.  Reflecting the Company’s operating resultsand the use of sales dating programs related to the evaporative cooler productline, the cash balance is normally depleted during the first or second quarterof the year.  As a result, the Company’sborrowings against its revolving credit facility tend to peak during the secondquarter and then decline over the remainder of the year. This trend hascontinued thus far in 2004.

 

As expected, the Company’s cash balance during thefirst quarter decreased due to the seasonality of sales, the correspondingproduction schedules and the sales dating programs related to the evaporativecooler product line.  Operations for thefirst three months of 2004 used $4,470,000 of cash compared to $3,106,000 in2003.  Despite the reduced loss,operations used more cash during the first quarter of 2004 primarily due to anincrease in receivables as compared to the decrease in receivables during thefirst quarter of 2003.  The increasedreceivable balance is due to the improved sales volume.

 

The construction materials segment typicallyrequires large capital investments, particularly when sales volume and demandare strong.  Reflecting the more modestdemand in the construction materials segment during the past two years, capitalspending was much lower during the first quarter of both 2004 and 2003 ascompared to expenditures from the mid-1990’s through 2001.  Current expenditures were primarily in theconstruction materials segment and included the completion of the newmaintenance facility in Pueblo.

 

Scheduled debt repayments were made during thefirst quarter of both 2004 and 2003. The increase in the 2004 payments reflects the quarterly paybackschedule under the Company’s new Revolving Credit and Term Loan Agreementsigned during September 2003 as opposed to the semi-annual payment scheduleunder the previous agreement..

 

The Company believes that anticipated cash flowfrom operations, supplemented by seasonal borrowings against the revolving lineof credit, (of which $1,900,000 was outstanding at April 3, 2004) will besufficient to cover expected cash needs, including servicing debt and plannedcapital expenditures for at least the next twelve months.

 

Operations - Comparison of Quarter EndedApril 3, 2004 to Quarter Ended March 29, 2003

 

Consolidated sales during the first quarter of 2004improved $3,566,000 to $27,247,000 when compared to the first quarter of2003.  Sales in the constructionmaterials segment

 

7

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increased $2,140,000, or 16%.  Milder weather in Colorado during March 2004compared to 2003 was the primary reason for the improved sales volume.  Offsetting this favorable factor was thepersistent reduction in construction activity along the Front Range inColorado.  The ensuing lower demand forconcrete continues to sustain the increased price competition resulting inlower ready mix concrete prices especially in the Denver metropolitan area.  The heating and air conditioning segmentreported a $1,319,000 increase in sales, or 12.9%.  Evaporative cooler sales increased reflecting hot weather in themarkets served, notably in March, and the addition of some new wholesaleaccounts.  Furnace sales volume alsoimproved, aided by wet cool weather in Southern California during January andFebruary.  Fan coil sales improvedalthough the sales level continues to reflect the nationwide slump in hotelconstruction.

 

Consolidated cost of sales (exclusive ofdepreciation and depletion) as a percentage of sales declined from 86.2% forthe first quarter of 2003 to 81.4% for the same period of 2004.  The decrease was experienced by bothsegments, although the construction materials segment reported a more significantimprovement.  The reduced cost ratio inthe construction materials segment was the result of the increased salesvolume, lower operating costs, particularly maintenance, and increased laborefficiency.  The improvement in theheating and air conditioning segment was primarily due to the increase infurnace sales volume.

 

Selling and administrative expenses during thefirst quarter of 2004 increased $246,000 over the same period in 2003; however,as a percentage of sales, selling and administrative expenses declined from16.4% to 15.1% for the current quarter. The decrease as a percentage of sales was due to the increase in salesand the fixed nature of some of the expenses.

 

The reduction in depreciation, depletion andamortization expense from $1,532,000 to $1,368,000 is the direct result of thedecreased capital spending levels since 2002.

 

Net interest expense remained relativelyconstant.  The effect of decreasedlevels of debt on interest expense in 2004 was largely offset by interestreceived on a state tax refund during the first quarter of 2003.

 

Historically, the Company has experienced operatinglosses during the first quarter except when the construction activity is strongand the weather is mild along the Front Range in Colorado.

 

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

 

The condensed and consolidated financial statementshave been prepared in accordance with accounting principles generally acceptedin the United States which require the Company to make estimates andassumptions that affect the reported amounts of assets and liabilities anddisclosure of contingent assets and liabilities as of April 3, 2004 and January3, 2004 and affect the reported amounts of revenues and expenses for theperiods reported. Actual results could differ from those estimates.  Information with respect to the Company’scritical accounting policies which the Company believes could have the mostsignificant effect on the Company’s reported results and require subjective orcomplex judgments by management is contained on pages 13 and 14 in Item 7, Management’sDiscussion and Analysis of Financial Condition and Results of Operations, ofthe Company’s Annual Report on Form 10-K for the fiscal year ended January 3,2004.

 

8

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OUTLOOK

 

The depressed commercial construction marketnationwide, notably hotel construction, is expected to continue for at leastthe near future.  The constructionmarket in Colorado is showing some signs of stabilizing but still remainsconsiderably weaker than the conditions that prevailed three to five years ago.

 

RECENTLY ISSUED ACCOUNTING STANDARDS

 

The Company does not currently have anytransactions or circumstances that have been addressed by recently issuedaccounting pronouncements.  Therefore,adoption of any of these statements or pronouncements would not have a materialimpact on the Company’s results of operations, financial position or liquidity.

 

FORWARD-LOOKING STATEMENTS

 

The foregoing discussion contains forward-lookingstatements within the meaning of Section 27A of the Securities Act of 1933, asamended.  Such forward-lookingstatements are based on the beliefs of the Company’s management as well as onassumptions made by and information available to the Company at the time suchstatements were made.  When used in thisReport, words such as “anticipates,” “believes,” “contemplates,” “estimates,”“expects,” “plans,” “projects,” and similar expressions are intended toidentify forward-looking statements. Actual results could differ materially from those projected in the forward-lookingstatements as a result of factors including but not limited to: weather,interest rates, availability of raw materials and their related costs, economicconditions and competitive forces. Changes in accounting pronouncements could also alter projectedresults.  Forward-looking statementsspeak only as of the date they were made, and the Company undertakes noobligation to publicly update them.

 

**Item 3.    Quantitative And Qualitative Disclosures About Market Risk**

 

There have been no changes in the market risks thatthe Company is exposed to since those discussed in the Company’s 2003 AnnualReport on Form 10-K.  At April 3, 2004,the amount subject to the interest rate swap agreement was $9,000,000.  Also see Note 7 to the quarterly financial statementsabove.

 

**Item 4.    Disclosure Controls and Procedures**

 

(a)            Evaluation ofdisclosure controls and procedures.

 

The Company’s chief executive officer and chieffinancial officer, with the participation of management, have evaluated theeffectiveness of our “disclosure controls and procedures” (as defined in Rules13a-15(e) under the Securities Exchange Act of 1934). Based on theirevaluation, they have concluded that the Company’s disclosure controls andprocedures are effective in timely alerting them to material informationrelating to the Company (including its subsidiaries) required to be disclosedin this quarterly report and no changes are required at this time.

 

(b)           Changes ininternal controls.

 

There were no significant changes in the Company’sinternal control over financial reporting identified in connection with theevaluation of such internal control that occurred during the last fiscalquarter that have materially affected, or are reasonably likely to materiallyaffect, the Company’s internal control over financial reporting.

 

9

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PART II - Other Information

 

Item 6.    Exhibitsand Reports on Form 8-K

 

(a) Exhibits

 
| **Exhibit No.** |   | **Description**                                                                                                                  |
|-----------------|--------|----------------------------------------------------------------------------------------------------------------------------------|
|            |   |                                                                                                                             |
| 31.1            |   | Certification  of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act  of 2002                             |
|            |   |                                                                                                                             |
| 31.2            |   | Certification  of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act  of 2002                             |
|            |   |                                                                                                                             |
| 32              |   | Certification  of Chief Executive Officer and Chief Financial Officer pursuant to Section  906 of the Sarbanes-Oxley Act of 2002 |

 

(b) The Company filed one report on Form 8-K duringthe quarter ended April 3, 2004.  Thereport, dated March 17, 2004, related to the press release disclosing theresults of the Company’s operations for the 2003 fourth quarter and full yearissued March 15, 2004.

 

 

SIGNATURE

 

Pursuant to the requirements of the SecuritiesExchange Act of 1934, the registrant has duly caused this report to be signedon its behalf by the undersigned thereunto duly authorized.

 

 
|   | CONTINENTAL MATERIALS CORPORATION |
|--------|-----------------------------------|
|   |                              |
|   |                              |
| Date:  | May 12, 2004                      |   | By: | /S/ Joseph J. Sum |   |
|   |                              | Joseph J. Sum, Vice President  and Chief Financial Officer |
|        |                                   |  |  |  |  |

 

10

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