**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**WASHINGTON, D.C. 20549**

 

**FORM 10-K/A**

**AMENDMENT NO. 2**

 

**(Mark One)**

 

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

 

**For the fiscal year ended December 31, 2011**

 

**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 number 1-3834**

 

**Continental Materials Corporation**

(Exact name of registrant as specified in its charter)

 

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

 

| **200 South Wacker Drive, Suite 4000,   Chicago, Illinois** | ** ** | **60606**  |
|-----------------------------------------------------------------------|------------|------------|
| (Address of principal executive offices)                              |       | (Zip Code) |

 

Registrant’s telephone number, including area code **312-541-7200**

 

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

 

| **Title of each class** | ** ** | **Name of each exchange on which registered** |
|----------------------------------------|------------|-----------------------------------------------------------------------------|
| Common Stock - $0.25 par value         |       | NYSE Amex                                                                   |

 

Securities registered pursuant to Section 12(g) of the Act: **NONE**

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined by Rule 405 of the Securities Act.  Yes o No x

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.  Yes o No x

 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes x No o

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 and Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes x No o

 

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of the Form 10-K or any amendment to this Form 10-K. x

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

| Large accelerated filer o                     |   | Accelerated filer o         |
|-----------------------------------------------|--------|-----------------------------|
|                                          |   |                        |
| Non-accelerated filer o                       |   | Smaller reporting company x |
| (Do not check if a smaller reporting company) |   |                        |

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes o No x

 

The aggregate market value (based on July 2, 2011 closing price) of voting stock held by non-affiliates of registrant: Approximately $9,631,718 Number of common shares outstanding at March 23, 2012: 1,634,674.

 

Incorporation by reference: Portions of registrant’s definitive proxy statement for the 2012 Annual Meeting of stockholders to be held May 23, 2012 into Part III of this Form 10-K. The definitive proxy statement is expected to be filed with the Securities and Exchange Commission within 120 days after the close of the fiscal year covered by this Form 10-K.

 

 

 

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EXPLANATORY NOTE:

 

This purpose of this Amendment No. 2 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2011, which was filed with the Securities and Exchange Commission (the “SEC”) on March 30, 2012 (the “Original Filing”), is solely for the purpose of filing an amended Report of Independent Registered Public Accounting Firm. This Amendment No. 2 speaks as of the filing date of the Original Report and does not reflect events that have occurred subsequent to the filing date of the Original Report. Except as described above, this Amendment No. 2 does not modify or update the disclosures set forth in the Original Filing including the financial statements and notes to financial statements set forth in the Original Report.

 

This Amendment No. 2 consists solely of the preceding cover page, this explanatory note, Part II, Item 8, Financial Statements and Supplementary Data, in its entirety, the amended Report of Independent Registered Public Accounting Firm, Part IV, Item 15, Exhibits, Financial Statement Schedules, in its entirety, the signature page, Schedule II, Consent of Independent Registered Public Accounting Firm and the amended certifications pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act.

 

1

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**Item 8.****                  ****FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA**

 
| ** **                                                                                                                                                          | **PAGE** |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------|----------|
| Financial Statements and Financial Statement   Schedule of Continental Materials Corporation and Report of Independent   Registered Public Accounting Firm thereon: |     |
|                                                                                                                                                                |     |
| Consolidated   statements of operations for fiscal years 2011 and 2010                                                                                              | 3        |
|                                                                                                                                                                |     |
| Consolidated   statements of cash flows for fiscal years 2011 and 2010                                                                                              | 4        |
|                                                                                                                                                                |     |
| Consolidated   balance sheets as of December 31, 2011 and January 1, 2011                                                                                 | 5        |
|                                                                                                                                                                |     |
| Consolidated   statements of shareholders’ equity for fiscal years 2011 and 2010                                                                               | 6        |
|                                                                                                                                                                |     |
| Notes   to consolidated financial statements                                                                                                                        | 7-18     |
|                                                                                                                                                                |     |
| Report of Independent Registered Public Accounting   Firm                                                                                                           | 19       |

 

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**Continental Materials Corporation**

**Consolidated Statements of Operations**

**For Fiscal Years 2011 and 2010**

(Amounts in thousands, except per share data)

 
| ** **                                                                  | ** ** | **2011** | ** ** | **2010** | ** ** |
|-----------------------------------------------------------------------------|------------|----------|------------|----------|------------|
|                                                                        |       |     |       |     |       |
| Sales                                                                       |       | $        | 107,206    |     | $          | 114,284 |   |
| Costs and expenses                                                          |       |     |       |     |       |
| Cost of sales (exclusive of depreciation,   depletion and amortization)     |       | 86,904   |       | 91,007   |       |
| Depreciation, depletion and amortization                                    |       | 4,193    |       | 4,381    |       |
| Selling and administrative                                                  |       | 18,597   |       | 18,524   |       |
| Gain on disposition of property and equipment                               |       | (200     | )          | (73      | )          |
| Operating income (loss)                                                     |       | (2,288   | )          | 445      |       |
| Interest expense                                                            |       | (558     | )          | (812     | )          |
| Amortization of deferred financing fees                                     |       | (205     | )          | (205     | )          |
| Other income, net                                                           |       | 19       |       | 2        |       |
| Loss from continuing operations before income   taxes                       |       | (3,032   | )          | (570     | )          |
| Benefit for income taxes                                                    |       | 1,154    |       | 286      |       |
| Net loss from continuing operations                                         |       | (1,878   | )          | (284     | )          |
| Loss from discontinued operation net of income tax   benefit of $43 and $53 |       | (70      | )          | (97      | )          |
|                                                                        |       |     |       |     |       |
| Net loss                                                                    |       | $        | (1,948     | )        | $          | (381 | ) |
|                                                                        |       |     |       |     |       |
| Net loss per basic and diluted share:                                       |       |     |       |     |       |
| Continuing operations                                                       |       | $        | (1.16      | )        | $          | (.18 | ) |
| Discontinued operation                                                      |       | (.04     | )          | (.06     | )          |
| Net loss per basic and diluted share                                        |       | $        | (1.20      | )        | $          | (.24 | ) |
|                                                                        |       |     |       |     |       |
| Average shares outstanding                                                  |       | 1,617    |       | 1,599    |       |

 

The accompanying notes are an integral part of the consolidated financial statements.

 

3

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**Continental Materials Corporation**

**Consolidated Statements of Cash Flows****For Fiscal Years 2011 and 2010**

(Amounts in thousands)

 
| ** **                                                                        | ** ** | **2011** | ** ** | **2010** | ** ** |
|-----------------------------------------------------------------------------------|------------|----------|------------|----------|------------|
| Operating activities                                                              |       |     |       |     |       |
| Net loss                                                                          |       | $        | (1,948     | )        | $          | (381 | ) |
| Adjustments to reconcile net loss to net cash   provided by operating activities: |       |     |       |     |       |
| Depreciation, depletion and amortization                                          |       | 4,398    |       | 4,586    |       |
| Deferred income tax provision                                                     |       | (1,185   | )          | (387     | )          |
| Compensation of Board of Directors by issuance of   treasury shares               |       | 448      |       | 268      |       |
| Provision for doubtful accounts                                                   |       | 10       |       | 245      |       |
| Gain on disposition of property and equipment                                     |       | (200     | )          | (73      | )          |
| Changes in working capital items:                                                 |       |     |       |     |       |
| Receivables                                                                       |       | 1,683    |       | (3,208   | )          |
| Inventories                                                                       |       | (774     | )          | (328     | )          |
| Prepaid expenses                                                                  |       | (95      | )          | 2        |       |
| Real estate held for resale                                                       |       | (723     | )          | —   |       |
| Prepaid royalties                                                                 |       | (231     | )          | (193     | )          |
| Accounts payable and accrued expenses                                             |       | (1,288   | )          | 584      |       |
| Income taxes payable and refundable                                               |       | (281     | )          | 1,422    |       |
| Other                                                                             |       | (257     | )          | 61       |       |
| Net cash (used in) provided by operating   activities                             |       | (443     | )          | 2,598    |       |
|                                                                              |       |     |       |     |       |
| Investing activities                                                              |       |     |       |     |       |
| Capital expenditures                                                              |       | (1,492   | )          | (885     | )          |
| Loan to subsidiary executive                                                      |       | (352     | )          | —   |       |
| Collection of note received from sale of RMRM                                     |       | 240      |       | 240      |       |
| Cash proceeds from sale of property and equipment                                 |       | 207      |       | 113      |       |
| Net cash used in investing activities                                             |       | (1,397   | )          | (532     | )          |
|                                                                              |       |     |       |     |       |
| Financing activities                                                              |       |     |       |     |       |
| Borrowings (repayments) on the revolving bank   loan, net                         |       | 2,400    |       | (100     | )          |
| Repayments of new long-term debt                                                  |       | (1,252   | )          | (1,615   | )          |
| Partial return of cash deposit for self-insured   claims                          |       | 500      |       | —   |       |
| Net cash (used in) provided by financing   activities                             |       | 1,648    |       | (1,715   | )          |
|                                                                              |       |     |       |     |       |
| Net (decrease) increase in cash and cash   equivalents                            |       | (192     | )          | 351      |       |
|                                                                              |       |     |       |     |       |
| Cash and cash equivalents                                                         |       |     |       |     |       |
| Beginning of year                                                                 |       | 1,032    |       | 681      |       |
| End of year                                                                       |       | $        | 840        |     | $          | 1,032 |   |
|                                                                              |       |     |       |     |       |
| Supplemental disclosures of cash flow items                                       |       |     |       |     |       |
| Cash paid (received) during the year                                              |       |     |       |     |       |
| Interest                                                                          |       | $        | 658        |     | $          | 901 |   |
| Income taxes, net                                                                 |       | (261     | )          | (1,374   | )          |

 

The accompanying notes are an integral part of the consolidated financial statements.

 

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**Continental Materials Corporation**

**Consolidated Balance Sheets As of December 31, 2011 and January 1, 2011**

(Amounts in thousands except share data)

 
| ** **                                                                            | ** ** | **December 31, 2011** | ** ** | **January 1, 2011** | ** ** |
|---------------------------------------------------------------------------------------|------------|---------------------------------|------------|-------------------------------|------------|
| ASSETS                                                                                |       |                            |       |                          |       |
| Current assets                                                                        |       |                            |       |                          |       |
| Cash and cash equivalents                                                             |       | $                               | 840        |                          | $          | 1,032 |   |
| Receivables less allowance of $500 and $580                                           |       | 18,176                          |       | 19,868                        |       |
| Current portion of long-term note receivable —   related party                   |       | 35                              |       | —                        |       |
| Receivable for insured losses                                                         |       | 439                             |       | 807                           |       |
| Inventories                                                                           |       | 17,397                          |       | 16,623                        |       |
| Prepaid expenses                                                                      |       | 1,264                           |       | 1,374                         |       |
| Cash deposit for self-insured claims                                                  |       | 4,340                           |       | —                        |       |
| Deferred income taxes                                                                 |       | 1,624                           |       | 1,584                         |       |
| Real estate held for resale — related party                                      |       | 723                             |       | —                        |       |
| Total current assets                                                                  |       | 44,838                          |       | 41,288                        |       |
|                                                                                  |       |                            |       |                          |       |
| Property, plant and equipment                                                         |       |                            |       |                          |       |
| Land and improvements                                                                 |       | 2,341                           |       | 2,011                         |       |
| Buildings and improvements                                                            |       | 20,453                          |       | 18,578                        |       |
| Machinery and equipment                                                               |       | 75,955                          |       | 78,301                        |       |
| Mining properties                                                                     |       | 6,893                           |       | 6,510                         |       |
| Less accumulated depreciation and depletion                                           |       | (84,556                         | )          | (81,707                       | )          |
|                                                                                  |       | 21,086                          |       | 23,693                        |       |
|                                                                                  |       |                            |       |                          |       |
| Other assets                                                                          |       |                            |       |                          |       |
| Goodwill                                                                              |       | 7,229                           |       | 7,229                         |       |
| Amortizable intangible assets, net                                                    |       | 242                             |       | 343                           |       |
| Prepaid royalties                                                                     |       | 1,646                           |       | 1,415                         |       |
| Cash deposit for self-insured claims                                                  |       | —                          |       | 4,840                         |       |
| Long-term note receivable — related party                                        |       | 317                             |       | 240                           |       |
| Other                                                                                 |       | 513                             |       | 513                           |       |
|                                                                                  |       | $                               | 75,871     |                          | $          | 79,561 |   |
|                                                                                  |       |                            |       |                          |       |
| LIABILITIES                                                                           |       |                            |       |                          |       |
| Current liabilities                                                                   |       |                            |       |                          |       |
| Current portion of long-term debt                                                     |       | $                               | 500        |                          | $          | 1,125 |   |
| Accounts payable                                                                      |       | 4,192                           |       | 5,428                         |       |
| Income taxes                                                                          |       | 128                             |       | 409                           |       |
| Accrued expenses                                                                      |       |                            |       |                          |       |
| Compensation                                                                          |       | 1,752                           |       | 1,620                         |       |
| Reserve for self-insured losses                                                       |       | 2,676                           |       | 2,498                         |       |
| Liability for unpaid claims covered by insurance                                      |       | 439                             |       | 807                           |       |
| Profit sharing                                                                        |       | 589                             |       | 341                           |       |
| Reclamation                                                                           |       | 195                             |       | 115                           |       |
| Other                                                                                 |       | 2,291                           |       | 2,981                         |       |
| Total current liabilities                                                             |       | 12,762                          |       | 15,324                        |       |
|                                                                                  |       |                            |       |                          |       |
| Revolving bank loan payable                                                           |       | 8,150                           |       | 5,750                         |       |
| Long-term debt                                                                        |       | 3,783                           |       | 4,410                         |       |
| Deferred income taxes                                                                 |       | 179                             |       | 1,324                         |       |
| Accrued reclamation                                                                   |       | 920                             |       | 1,090                         |       |
| Other long-term liabilities                                                           |       | 771                             |       | 858                           |       |
| Commitments and contingencies (Note 6)                                                |       |                            |       |                          |       |
|                                                                                  |       |                            |       |                          |       |
| SHAREHOLDERS’ EQUITY                                                             |       |                            |       |                          |       |
| Common shares, $.25 par value; authorized   3,000,000 shares; issued 2,574,264 shares |       | 643                             |       | 643                           |       |
| Capital in excess of par value                                                        |       | 1,870                           |       | 1,830                         |       |
| Retained earnings                                                                     |       | 62,999                          |       | 64,947                        |       |
| Treasury shares, at cost                                                              |       | (16,206                         | )          | (16,615                       | )          |
|                                                                                  |       | 49,306                          |       | 50,805                        |       |
|                                                                                  |       | $                               | 75,871     |                          | $          | 79,561 |   |

 

The accompanying notes are an integral part of the consolidated financial statements.

 

5

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**Continental Materials Corporation**

**Consolidated Statements of Shareholders’ Equity**

**For Fiscal Years 2011 and 2010**

(Amounts in thousands except share data)

 
| ** **                                                               | ** ** | **Common   shares** | ** ** | **Common   shares   amount** | ** ** | **Capital   in excess   of par** | ** ** | **Retained   earnings** | ** ** | **Treasury   shares** | ** ** | **Treasury   shares cost** | ** ** |
|--------------------------------------------------------------------------|------------|---------------------|------------|------------------------------|------------|--------------------------------------------|------------|-------------------------|------------|-----------------------|------------|---------------------------------|------------|
| Balance at January 2, 2010                                          |       | 2,574,264           |       | $                            | 643        |                                       | $          | 1,830                   |       | $                     | 65,328     |                            | 975,986    |   | $ | 16,615 |   |
| Net (loss)                                                               |       | —              |       | —                       |       | —                                     |       | (381                    | )          | —                |       | —                          |       |
| Balance at January 1, 2011                                          |       | 2,574,264           |       | 643                          |       | 1,830                                      |       | 64,947                  |       | 975,986               |       | 16,615                          |       |
| Net (loss)                                                               |       | —              |       | —                       |       | —                                     |       | (1,948                  | )          | —                |       | —                          |       |
| Compensation of Board of Directors   by issuance of treasury shares |       | —              |       | —                       |       | 40                                         |       | —                  |       | (24,000               | )          | (409                            | )          |
| Balance at December 31, 2011                                        |       | 2,574,264           |       | $                            | 643        |                                       | $          | 1,870                   |       | $                     | 62,999     |                            | 951,986    |   | $ | 16,206 |   |

 

The accompanying notes are an integral part of the consolidated financial statements.

 

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**Notes to Consolidated Financial Statements**

 

1.                                      NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

NATURE OF BUSINESS

 

Continental Materials Corporation (the Company) is a Delaware corporation, incorporated in 1954. The Company operates primarily within two industry groups, Heating, Ventilation and Air Conditioning (HVAC) and Construction Products. The Company has identified two reportable segments in each of the two industry groups: the Heating and Cooling segment and the Evaporative Cooling segment in the HVAC industry group and the Concrete, Aggregates and Construction Supplies segment and the Door segment in the Construction Products industry group.

 

The Heating and Cooling segment produces and sells gas-fired wall furnaces, console heaters and fan coils from the Company’s wholly-owned subsidiary, Williams Furnace Co. (WFC) of Colton, California. The Evaporative Cooling segment produces and sells evaporative coolers from the Company’s wholly-owned subsidiary, Phoenix Manufacturing, Inc. (PMI) of Phoenix, Arizona. Concrete, Aggregates and Construction Supplies (CACS) are offered from numerous locations along the Southern portion of the Front Range of Colorado operated by the Company’s wholly-owned subsidiaries Castle Concrete Company and Transit Mix Concrete Co., of Colorado Springs and Transit Mix of Pueblo, Inc. of Pueblo (the three companies collectively referred to as TMC). Doors are fabricated and sold along with the related hardware, including electronic access hardware, from the Company’s wholly-owned subsidiary, McKinney Door and Hardware, Inc. (MDHI), which operates out of facilities in Pueblo and Colorado Springs, Colorado.

 

In addition to the above reporting segments, an “Unallocated Corporate” classification is used to report the unallocated expenses of the corporate office which provides treasury, insurance and tax services as well as strategic business planning and general management services. Expenses of the corporate information technology group are allocated to all locations, including the corporate office. An “Other” classification is used to report a real estate operation and the activity of a new business venture, Williams EcoLogix, Inc. (WEI). This corporation, a wholly owned subsidiary of WFC, entered into an agreement to distribute a product currently being developed by a third party. Should the product be successfully developed such that it results in a commercially salable product, the Company is likely to incur start-up costs and expenses above the current amount associated with the subsidiary’s sole employee and miscellaneous related expenses.

 

PRINCIPLES OF CONSOLIDATION

 

The consolidated financial statements include Continental Materials Corporation and all of its subsidiaries (the Company). Intercompany transactions and balances have been eliminated. All subsidiaries of the Company are wholly-owned.

 

RECLASSIFICATIONS

 

Certain reclassifications have been made to the fiscal 2010 Consolidated Financial Statements to conform to the 2011 presentation. The reclassifications had no effect on the consolidated results of operations, the net increase in cash or the total assets, liabilities or shareholders’ equity of the Company.

 

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

 

During September 2011, the FASB issued Accounting Standards Update (ASU) 2011-08 which is effective for fiscal years beginning after December 15, 2011 although early adoption is allowed. The ASU allows an entity the option to make a qualitative evaluation about the likelihood of goodwill impairment to determine whether it should calculate the fair value of a reporting unit. The ASU expands upon the examples of events and circumstances that an entity should consider between annual impairment tests in determining whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. The adoption of ASU 2011-8 did not have an impact on the profit or loss of the Company during the fiscal 2011 year.

 

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

 

USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS

 

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of December 31, 2011 and January 1, 2011 and the reported amounts of revenues and expenses during both of the two years in the period ended December 31, 2011. Actual results could differ from those estimates.

 

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CASH AND CASH EQUIVALENTS

 

The Company considers all highly-liquid debt instruments purchased with a maturity of three months or less to be cash equivalents. The carrying amount of cash and cash equivalents approximates fair value.

 

FAIR VALUE OF FINANCIAL INSTRUMENTS

 

Fair value of the Company’s debt is estimated based on the borrowing rates currently available to the Company for bank loans with similar terms, maturities and credit risks. The carrying amount of long-term debt represents a reasonable estimate of the corresponding fair value as the Company’s debt is held at variable interest rates.

 

INVENTORIES

 

Inventories are valued at the lower of cost or market and are reviewed periodically for excess or obsolete stock with a provision recorded, where appropriate. Cost for inventory in the HVAC industry group is determined using the last-in, first-out (LIFO) method. These inventories represent approximately 73% at December 31, 2011 and 74% of total inventories at January 1, 2011. The cost of all other inventory is determined by the first-in, first-out (FIFO) or average cost methods. Some commodity prices such as copper, steel, cement and diesel fuel have experienced significant fluctuations in recent years, generally higher although cement prices have declined from the prices prevalent a year ago. Steel prices and copper prices are principally relevant to the inventories of our two HVAC businesses. These two businesses use the LIFO costing method for inventory valuation purposes. The general effect of using LIFO is that the higher steel and copper prices are not reflected in the inventory carrying value. Those higher current costs are principally reflected in the cost of sales. Cement and fuel are relevant to our construction materials business. These businesses use either FIFO or an average costing method for valuing inventories. These inventories turn over frequently and at any point in time the amount of cement or fuel inventory is not significant. Due to these circumstances, the commodity fluctuations have primarily affected the cost of sales with little effect on the valuation of inventory. We believe that our inventory valuation reserves are not material. Inventory reserves were less than 2% of the total FIFO inventory value. Due to the nature of our products, obsolescence is not typically a significant exposure. Our HVAC businesses will from time to time contend with some slow-moving inventories or parts that are no longer used due to engineering changes. The recorded reserves are intended for such items.

 

REAL ESTATE HELD FOR RESALE AND RELATED NOTE RECEIVABLE — RELATED PARTY

 

Related to WEI, the Company purchased the residence of and made a loan of $352,000 to an executive of one of the Company’s subsidiaries in connection with his relocation to head up WEI. The residence is classified as real estate held for resale of $723,000. The loan is secured by marketable securities and bears interest at 5%. As the note is with a related party, it is not practical to estimate its fair value.

 

PROPERTY, PLANT AND EQUIPMENT

 

Property, plant and equipment are carried at cost. Depreciation is provided over the estimated useful lives of the related assets using the straight-line method as follows:

 
| Land   improvements          |   | 5   to 31 years                                   |
|------------------------------|--------|---------------------------------------------------|
| Buildings   and improvements |   | 10   to 31 years                                  |
| Leasehold   improvements     |   | Shorter   of the term of the lease or useful life |
| Machinery   and equipment    |   | 3   to 20 years                                   |

 

Depletion of rock and sand deposits and amortization of deferred development costs are computed by the units-of-production method based upon estimated recoverable quantities of rock and sand. The estimated recoverable quantities are periodically reassessed.

 

The cost of property sold or retired and the related accumulated depreciation, depletion and amortization are removed from the accounts and the resulting gain or loss is reflected in operating income. Maintenance and repairs are charged to expense as incurred. Major renewals and betterments are capitalized and depreciated over their estimated useful lives.

 

OTHER ASSETS

 

As of December 31, 2011, the Company has recorded $7,229,000 of goodwill consisting of $6,229,000 related to the Concrete, Aggregates and Construction Supplies segment and $1,000,000 related to the Door segment. The Company annually assesses goodwill for potential impairment at the end of each year. In addition, the Company will reassess the recorded goodwill to determine if

 

8

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impairment has occurred if events arise or circumstances change in the relevant reporting segments or in their industries. No goodwill impairment was recognized for any of the periods presented.

 

Amortizable intangible assets consist of a non-compete-agreement, a restrictive land covenant and customer relationships related to certain acquisitions. The non-compete agreement and the restrictive land covenant are being amortized on a straight-line basis over their respective lives of five and ten years. The customer relationships amount is being amortized over its estimated life of ten years using the sum-of-the-years digits method.

 

The Company is party to three aggregate property leases which require royalty payments. One of the leases calls for minimum annual royalty payments. Prepaid royalties relate to payments made for aggregate materials not yet extracted.

 

RETIREMENT PLANS

 

The Company and certain subsidiaries have various contributory profit sharing retirement plans for specific employees. The plans allow qualified employees to make tax deferred contributions pursuant to Internal Revenue Code Section 401(k). Prior to March 1, 2010, the Company matched employee contributions up to 3%. Since March 1, 2010, the Company no longer matches employee contributions. However, the Company may make annual contributions, at its discretion, based primarily on profitability. In addition, any individuals whose compensation is in excess of the amount eligible for the Company matching contribution to the 401(k) plan as established by Section 401 of the Internal Revenue Code, participate in an unfunded Supplemental Profit Sharing Plan. This plan accrues an amount equal to the difference between the amount the person would have received as Company contributions to his account under the 401(k) plan had there been no limitations and the amount the person will receive under the 401(k) plan giving effect to the limitations. Costs under the plans are charged to operations as incurred. As of December 31, 2011 and January 1, 2011, the unfunded liabilities related to the Supplemental Profit Sharing Plan were $732,000 and $782 000, respectively.

 

RESERVE FOR SELF-INSURED AND INSURED LOSSES

 

The Company’s risk management program provides for certain levels of loss retention for workers’ compensation, automobile liability, healthcare plan coverage and general and product liability claims. The components of the reserve for self-insured losses have been recorded in accordance with Generally Accepted Accounting Principles (GAAP) requirements that an estimated loss from a loss contingency shall be accrued if information available prior to issuance of the financial statements indicates that it is probable that a liability has been incurred at the date of the financial statements and the amount of loss can be reasonably estimated. The recorded reserve represents management’s best estimate of the future liability related to these claims up to the associated deductible.

 

GAAP also requires an entity to accrue the gross amount of a loss even if the entity has purchased insurance to cover the loss. Therefore the Company has recorded losses for workers’ compensation, automobile liability, medical plan coverage and general and product liability claims in excess of the deductible amounts, i.e., amounts covered by insurance contracts, in “Liability for unpaid claims covered by insurance” with a corresponding “Receivable for insured losses” on the balance sheet. The components of the liability represent both unpaid settlements and management’s best estimate of the future liability related to open claims. Management has evaluated the creditworthiness of our insurance carriers and determined that recovery of the recorded losses is probable and, therefore, the receivable from insurance has been recorded for the full amount of the insured losses.

 

RECLAMATION

 

In connection with permits to mine properties in Colorado, the Company is obligated to reclaim the mined areas whether the property is owned or leased. The Company records a reserve for future reclamation work to be performed at its various aggregate operations based upon an estimate of the total expense that would be paid to a third party to reclaim the disturbed areas. Reclamation expense is determined during the interim periods using the units-of-production method. The adequacy of the recorded reserve is assessed quarterly. At each fiscal year-end, a more formal and complete analysis is performed and the expense and reserve is adjusted to reflect the estimated cost to reclaim the then disturbed and unreclaimed areas. The assessment of the reclamation liability may be done more frequently if events or circumstances arise that may indicate a change in estimated costs, recoverable material or period of mining activity. As part of the year-end analysis, the Company engages an independent specialist to assist in reevaluating the estimates of both the quantities of recoverable material and the cost of reclamation. Most of the reclamation on any mining property is generally performed soon after each section of the deposit is mined. The Company’s reserve for reclamation activities was $1,115,000 at December 31, 2011 and $1,205,000 at January 1, 2011. The Company classifies a portion of the reserve as a current liability, $195,000 at December 31, 2011 and $115,000 at January 1, 2011 based upon historical expenditures.

 

REVENUE RECOGNITION

 

The Company recognizes revenue as products are shipped to customers. Sales are recorded net of applicable provisions for discounts, volume incentives, returns and allowances. At the time of revenue recognition, the Company also provides an estimate of potential bad

 

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debt and warranty expense as well as an amount anticipated to be granted to customers under cooperative advertising programs based upon current program terms and historical experience. In addition, the revenues received for shipping and handling are included in sales while the costs associated with shipping and handling are reported as cost of sales.

 

The Company is responsible for warranty related to the manufacture of its HVAC products. The Company does not perform installation services except for installation of electronic access systems in the Door segment, nor are maintenance or service contracts offered. Changes in the aggregated product warranty liability for the fiscal years 2011 and 2010 were as follows (amounts in thousands):

 
| ** **                    | ** ** | **2011** | ** ** | **2010** | ** ** |
|-------------------------------|------------|----------|------------|----------|------------|
| Beginning balance             |       | $        | 135        |     | $          | 172 |   |
| Warranty related expenditures |       | (227     | )          | (332     | )          |
| Warranty expense accrued      |       | 226      |       | 295      |       |
| Ending balance                |       | $        | 134        |     | $          | 135 |   |

 

INCOME TAXES

 

Income taxes are accounted for under the asset and liability method that requires deferred income taxes to reflect the future tax consequences attributable to differences between the tax and financial reporting bases of assets and liabilities. Deferred tax assets and liabilities recognized are based on the tax rates in effect in the year in which differences are expected to reverse. Deferred tax assets are reduced by a valuation allowance when, based on available positive and negative evidence, it is “more likely than not” (greater than a 50% likelihood) that some or all of the net deferred tax assets will not be realized.

 

Income tax returns are subject to audit by the Internal Revenue Service (IRS) and state tax authorities. The amounts recorded for income taxes reflect our tax positions based on research and interpretations of complex laws and regulations. We accrue liabilities related to uncertain tax positions taken or expected to be taken in our tax returns.

 

CONCENTRATIONS

 

Financial instruments, which potentially subject the Company to concentrations of credit risk, consist principally of trade receivables and temporary cash investments. The Company invests its excess cash in commercial paper of companies with strong credit ratings. The Company has not experienced any losses on these investments.

 

The Company performs ongoing credit evaluations of its customers and generally does not require collateral. In many instances in the Concrete, Aggregates and Construction Supplies segment and in the Heating and Cooling segment (as it relates to the fan coil product line), the Company retains lien rights on the properties served until the receivable is collected. The Company writes off accounts when all efforts to collect the receivable have been exhausted. The Company maintains allowances for potential credit losses based upon the aging of accounts receivable and historical experience and such losses have been within management’s expectations. See Note 14 for a description of the Company’s customer base.

 

Substantially all of the Heating and Cooling Segment’s factory employees are covered by a collective bargaining agreement through the Carpenters Local 721 Union under a contract that expires on December 31, 2014.

 

IMPAIRMENT OF LONG-LIVED ASSETS

 

In the event that facts and circumstances indicate that the cost of any long-lived assets may be impaired, an evaluation of recoverability would be performed. If an evaluation were required, the estimated future undiscounted cash flows associated with the asset would be compared to the asset’s carrying amount to determine if a write-down to market value or discounted cash flow value is required. The Company has determined that there was no impairment of the long-lived assets as of December 31, 2011.

 

FISCAL YEAR END

 

The Company’s fiscal year end is the Saturday nearest December 31. Fiscal 2011 and 2010 each consisted of 52 weeks.

 

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2. BUSINESS DISPOSITIONS

 

On July 17, 2009, the Company completed the sale of all of the outstanding capital stock of RMRM, a Colorado corporation, to Campbells C-Ment Contracting, Inc., a Colorado corporation (Buyer). RMRM operated a ready mix concrete business in the Denver metropolitan area and had been included in the CACS reporting segment.

 

The Company received $1,864,000 in cash (net of cash of $41,000 that remained with RMRM) at closing and a Promissory Note of $480,000 representing the closing date net working capital of RMRM. The Promissory Note bore interest at 5% per annum. The Buyer made a principal payment of $240,000 in October 2010 and paid the remaining principal of $240,000 in December 2011.

 

The Company and its wholly-owned subsidiary TMC also entered into a Non-Competition, Non-Disclosure and Non-Solicitation Agreement with the Buyer for a period of six years. In consideration of the covenants made by the Company and TMC, beginning in 2010 the Company is to receive compensation if certain sales volume or operating profit thresholds are reached by the Buyer. At the time of the sale, there was no assurance that the future operating results of the Buyer would be such that any future consideration would be due to the Company under this Agreement; accordingly no value was recorded related to this agreement at the time of the sale. The sales volume and operating profit thresholds were not reached during either 2011 or 2010 and therefore no additional compensation was due as of December 31, 2011 or January 1, 2011.

 

The sale of RMRM resulted in a capital loss for tax purposes of approximately $6,500,000 of which approximately $2,026,000 was used to offset a 2009 capital gain on the sale of land in Colorado Springs. The remaining capital loss carry forward of approximately $4,374,000 can be utilized to offset future capital gains. However the Company has limited capital gains and the Federal carry forward period is limited to five years; thus a valuation allowance of approximately $1,660,000 was established against the deferred tax asset related to the capital loss available for carry forward.

 

The revenue and pretax loss from RMRM is reported as discontinued operation for the fiscal years ended December 31, 2011 and January 1, 2011, respectively, and is summarized as follows (amounts in thousands):

 
| ** **  | ** ** | **2011** | ** ** | **2010** | ** ** |
|-------------|------------|----------|------------|----------|------------|
| Revenue     |       | $        | —     |     | $          | — |   |
| Pretax Loss |       | (113     | )          | (150     | )          |
|             |            |          |            |          |            |  |  |

 

3. INVENTORIES

 

Inventories consisted of the following (amounts in thousands):

 
| ** **                 | ** ** | **December 31, 2011** | ** ** | **January 1, 2011** | ** ** |
|----------------------------|------------|---------------------------------|------------|-------------------------------|------------|
| Finished goods             |       | $                               | 7,477      |                          | $          | 7,232 |   |
| Work in process            |       | 950                             |       | 748                           |       |
| Raw materials and supplies |       | 8,970                           |       | 8,643                         |       |
|                       |       | $                               | 17,397     |                          | $          | 16,623 |   |

 

If inventories valued on the LIFO basis were valued at current costs, inventories would be higher by $5,783,000 and $5,244,000 at December 31, 2011 and January 1, 2011, respectively.

 

Reductions in inventory quantities during 2011 at one location resulted in the liquidation of LIFO inventory layers carried at costs higher than the costs of current purchases. The effect was to increase cost of sales by approximately $80,000 for the year. Reductions in inventory quantities during 2010 at one location resulted in the liquidation of LIFO inventory layers carried at costs higher than the costs of current purchases. The effect was to increase cost of sales by approximately $55,000 for the year.

 

4. GOODWILL AND AMORTIZABLE INTANGIBLE ASSETS

 

As of December 31, 2011 the Company has recorded $7,229,000 of goodwill consisting of $6,229,000 related to the CACS segment and $1,000,000 related to the Door segment. The Company annually assesses goodwill for potential impairment at the end of each year. For the CACS segment, the Company engages the services of an investment banking firm to assist management in determining the fair value of the reporting unit. For the Door segment, the Company prepares a discounted cash flow analysis to estimate the fair value of the reporting unit. In addition, if events occur or circumstances change in the relevant reporting segments or in their industries the Company will then reassess the recorded goodwill to determine if impairment has occurred. No goodwill impairment was recognized for any of the periods presented. The valuation of goodwill and other intangibles is considered a significant estimate.

 

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Continued or protracted economic conditions could negatively impact the value of the business which could trigger an impairment that would materially impact earnings.

 

There were no changes in recorded goodwill for either of the years ended December 31, 2011 or January 1, 2011.

 

Identifiable intangible assets consist of the following (amounts in thousands):

 
| ** **                   | ** ** | **December 31, 2011** | ** ** | **January 1, 2011** | ** ** |
|------------------------------|------------|---------------------------------|------------|-------------------------------|------------|
| ** **                   | ** ** | **Gross**                       | ** ** | ** **                    | ** ** | **Gross** | ** ** | ** ** | ** ** |
| ** **                   | ** ** | **carrying**                    | ** ** | **Accumulated**               | ** ** | **carrying** | ** ** | **Accumulated** | ** ** |
| ** **                   | ** ** | **amount**                      | ** ** | **amortization**              | ** ** | **amount** | ** ** | **amortization** | ** ** |
| Amortized intangible assets: |       |                            |       |                          |       |   |   |   |   |
| Non-compete agreements       |       | $                               | 290        |                          | $          | 290 |   | $ | 290 |   | $ | 261 |   |
| Restrictive land covenant    |       | 350                             |       | 192                           |       | 350 |   | 157 |   |
| Customer relationships       |       | 370                             |       | 286                           |       | 370 |   | 249 |   |
|                         |       | $                               | 1,010      |                          | $          | 768 |   | $ | 1,010 |   | $ | 667 |   |

 

The above intangible assets all relate to the Company’s acquisition of the assets of ASCI (June 30, 2006). Amortization of the non-compete agreement is recorded on a straight line basis over the agreement’s period of five years. Amortization of the restrictive land covenant is computed on the straight-line basis over the agreement’s period of ten years. Amortization of the customer relationships value is computed on the sum-of-the-years digits method over its estimated life of ten years. Amortization expense of intangible assets was $101,000 for 2011 and $136,000 for 2010. The estimated amortization expense for the five subsequent fiscal years is as follows: 2012 - $65,000; 2013 - $59,000; 2014 - $52,000; 2015 - $45,000; and 2016 - $21,000.

 

5. REVOLVING BANK LOAN AND LONG-TERM DEBT

 

Outstanding long-term debt consisted of the following (amounts in thousands):

 
| ** **           | ** ** | **December 31, 2011** | ** ** | **January 1, 2011** | ** ** |
|----------------------|------------|---------------------------------|------------|-------------------------------|------------|
| Secured term loan    |       | $                               | 4,283      |                          | $          | 5,535 |   |
| Less current portion |       | (500                            | )          | (1,125                        | )          |
| Total long-term debt |       | $                               | 3,783      |                          | $          | 4,410 |   |

 

On April 16, 2009, the Company entered into a secured credit agreement (Credit Agreement) under which the bank lender initially provided a total credit facility of $30,000,000, consisting of a $20,000,000 revolving credit facility (with credit availability reduced by letters of credit that may be issued by the lender on the Company’s behalf) and a $10,000,000 term loan. Borrowings under the Credit Agreement are secured by the Company’s accounts receivable, inventories, machinery, equipment, vehicles, certain real estate and the common stock of all of the Company’s subsidiaries. Borrowings under the revolving credit facility are limited to 80% of eligible accounts receivable and 50% of eligible inventories. Borrowings under the Credit Agreement bear interest based on a London Interbank Offer Rate (LIBOR) or prime rate based option. The lender required the Company to enter into an interest rate swap transaction to hedge the interest rate on $5,000,000 of term debt. On May 29, 2009 the Company entered into an interest rate swap transaction for a specified notional amount (initially $5,000,000), whereby the Company pays a fixed rate of 3.07% on the notional amount and receives a floating rate equivalent to the 30 day LIBOR rate but not less than 2.0%. Since the inception of this agreement the 30 day LIBOR rate has remained below 2.0%. Hence, the effect of the transaction has been to increase the Company’s effective interest rate on $5,000,000 of its outstanding term debt by 1.07%. The notional amount was decreased by $500,000 on September 30, 2011 and $500,000 on December 31, 2011 such that the notional amount at December 31, 2011 was $4,000,000. The notional amount is further reduced by $500,000 on March 31, 2012 and terminates on April 16, 2012. The Company did not elect hedge accounting. The Credit Agreement has been amended five times (Amendments) since its inception.

 

The Credit Agreement and its Amendments either limit or require prior approval by the lender of additional borrowings, acquisition of stock of other companies, purchase of treasury shares and payment of cash dividends. Payment of accrued interest is due monthly or at the end of the applicable LIBOR period on both the revolving credit borrowings and the term debt borrowings. Principal payments under the term loan are due quarterly with a final payment of all remaining unpaid principal at the maturity date.

 

The Company entered into an Amended and Restated Credit Agreement (the Restated Agreement) effective November 18, 2011 in order to obtain a waiver of the covenant requiring a Fixed Charge Coverage Ratio of 1.15 to 1.00 as of October 1, 2011, to extend the maturity date of the Credit Agreement, to increase the maximum amount available under the revolving credit facility and to modify certain other amounts, terms and conditions. The Restated Agreement provides for the following:

 

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·      The Fixed Charge Coverage Ratio requirement of 1.15 to 1.00 was waived for the twelve month period ended October 1, 2011. The Minimum Fixed Charge Coverage Ratio of 1.15 to 1.00 will commence with the Computation Period ending March 31, 2013.

·      The Company must maintain a Minimum Tangible Net Worth as of the last day of any Computation Period of $32,000,000 plus 50% of the Consolidated Net Income for the immediately preceding Fiscal Year.

·      Annual capital expenditures may not exceed $3,500,000 excluding those of Williams EcoLogix, Inc.

·      The Balance Sheet Leverage Ratio as of the last day of any Computation Period may not exceed 1.00 to 1.00.

·      The maximum revolving credit facility line is increased to $20,000,000.

·      Inventory borrowings are limited to a maximum of $8,500,000.

·      The maturity date of the credit facility is extended to May 1, 2015.

·      Interest rate pricing for the revolving credit facility is LIBOR plus 3.25% or the prime rate plus 1%. The interest on the term loan is LIBOR plus 3.75% or the prime rate plus 1.5%.

·      The term loan principal repayment schedule has been revised and reduced. The table below reflects the new maturities under the Restated Agreement.

·      As previously reported, WFC, through its wholly owned subsidiary WEI, has entered into an agreement to distribute a product currently being developed by a third party. Should the product be successfully developed such that it results in a commercially salable product, WEI is likely to incur start-up costs and other expenses prior to the realization of revenues by this new business venture. The permitted maximum cumulative cash expenditures for this venture are $2,500,000 commencing on March 24, 2011.

 

Definitions under the Credit Agreement as amended are as follows:

 

·      Tangible Net Worth is defined as net worth plus subordinated debt, minus intangible assets (goodwill, intellectual property, prepaid expenses, deposits and deferred charges), minus all obligations owed to the Company or any of its subsidiaries by any affiliate or any or its subsidiaries and minus all loans owed by its officers, stockholders, subsidiaries or employees.

·      Adjusted EBITDA is defined as net income, excluding the operating results of discontinued operations,  plus interest, income taxes, depreciation, depletion and amortization plus other non-cash charges approved by the lender.

·      Fixed Charge Coverage Ratio is defined as, for any computation period, the ratio of (a) the sum for such period of Adjusted EBITDA minus the sum of income taxes paid in cash and (b) all unfinanced capital expenditures to the sum for such period of interest expense plus the required payments of principal of the term debt.

·      Balance Sheet Leverage Ratio is defined as the ratio of Total Debt to Tangible Net Worth.

 

Outstanding borrowings under the revolving credit facility as of December 31, 2011 were $8,150,000. The highest balance outstanding on the revolving credit facility during 2011 was $9,000,000. Average outstanding revolving credit during the year was $6,085,000. The weighted average interest rates on the outstanding revolving credit and term debt in 2011 and 2010 were 5.2% and 7.0%, respectively, including the effect of the interest rate swap discussed above. At all times since the inception of the Credit Agreement, the Company had sufficient qualifying and eligible assets such that the available borrowing capacity exceeded the cash needs of the Company and this situation is expected to continue for the foreseeable future.

 

The Company has prepared a projection of cash sources and uses for the next 12 months. Under this projection, adjusted for the actual results of the first two months of 2012, the Company believes that its existing cash balance, anticipated cash flow from operations and borrowings available under the Credit Agreement, will be sufficient to cover expected cash needs, including servicing debt and planned capital expenditures, for the next twelve months. The Company also expects to be in compliance with all debt covenants, as amended, during this period.

 

Term loan payments under the Restated Agreement and the amortization of deferred financing fees are scheduled as follows (amounts in thousands):

 
| ** ** | ** ** | ** **         | ** ** | **Amortization**        | ** ** |
|------------|------------|--------------------|------------|-------------------------|------------|
| ** ** | ** ** | **Term Loan** | ** ** | **of Deferred**    | ** ** |
| ** ** | ** ** | **Payments**       | ** ** | **Financing Fees** | ** ** |
| 2012       |       | $                  | 500        |                    | $          | 60 |   |
| 2013       |       | 500                |       | —                  |       |
| 2014       |       | 500                |       | —                  |       |
| 2015       |       | 2,783              |       | —                  |       |
|       |       | $                  | 4,283      |                    | $          | 60 |   |

 

In April 2009 the Company deposited cash of $4,840,000 with its casualty insurance carrier to serve as collateral for the self-insured obligations under the Company’s casualty insurance program. Previously these obligations were secured by a bank letter of credit. This deposit was funded with borrowings under the revolving credit line. In April 2011, the insurance carrier reduced its collateral

 

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requirement and returned $500,000 to the Company. The remaining balance at December 31, 2011 of $4,340,000 is classified as a current asset as the Company received a full refund of the cash in March 2012 when a Letter of Credit was issued to the insurance company for the same amount.

 

6. COMMITMENTS AND CONTINGENCIES

 

The Company is involved in litigation matters related to its business, principally product liability matters related to the gas-fired heating products and fan coil products in the Heating and Cooling segment. In the Company’s opinion, none of these proceedings, when concluded, will have a material adverse effect on the Company’s consolidated results of operations, cash flows or financial condition as the Company has established adequate accruals for matters that are probable and estimable. The Company does not accrue estimated amounts for future legal costs related to the defense of these matters but rather expenses them as incurred.

 

In November 2010, the Company filed a lawsuit against an insurance company with regard to a business interruption claim and property damages resulting from an incident that lead to the cessation of operations at the Pikeview Quarry in December of 2008. The litigation is currently in the discovery process. No recovery has been recorded in the Company’s financial statements and all related costs have been expensed to date. During 2011 and 2010, the Company incurred expenses of $1,078,000 and $115,000 related to this litigation. The Company expects that the ongoing cost of the litigation will be significant.

 

The Company is also involved in a lawsuit to recover a receivable partially collateralized by land. The party has declared bankruptcy and the trustee is challenging the right of the Company to the collateral. The effect of the outcome of this matter is not determinable at this time but could be material. The total exposure to the Company as of December 31, 2011 is $1,008,000.

 

7. SHAREHOLDERS’ EQUITY

 

Four hundred thousand shares of preferred stock ($.50 par value) are authorized and unissued.

 

The Company has not purchased any of its common stock to become treasury stock during fiscal 2011. However, the Company reserved 150,000 treasury shares representing the maximum number of allowed to be granted under the 2010 Non-Employee Directors Stock Plan (the “Plan”) to non-employee directors in lieu of the base director retainer fee. The Company issued a total of 12,000 shares to eight eligible board members effective January 1, 2011 as payment for the retainer fee for 2010 that remained unpaid when the Plan was adopted. The Company also issued a total of 12,000 shares to the same eight eligible board members effective July 15, 2011 as full payment for the 2011 retainer fee.

 

8. EARNINGS PER SHARE

 

The Company does not have any common stock equivalents, warrants or other convertible securities outstanding therefore there are no differences between the calculation of basic and diluted EPS for the fiscal years 2011 or 2010.

 

9. RENTAL EXPENSE, LEASES AND COMMITMENTS

 

The Company leases certain of its facilities and equipment and is required to pay the related taxes, insurance and certain other expenses. Rental expense was $2,084,000 and $2,623,000 for 2011 and 2010, respectively.

 

Future minimum rental commitments under non-cancelable operating leases for 2012 and thereafter are as follows: 2012 — $1,573,000; 2013 — $1,369,000; 2014 — $1,016,000; 2015 — $827,000; 2016 — $730,000 and thereafter — $19,906,000. Included in these amounts is $474,000 per year and approximately $19,906,000 in the “thereafter” amount related to minimum royalty payments due on an aggregates property lease in conjunction with the Pueblo, Colorado operation. Also included in these amounts is $235,000 per year related to a ground lease upon which the Company owns a building leased to a third party for approximately $345,000 per year. The ground lease runs through October 1, 2016 and contains a renewal clause. The building lease runs through January 31, 2013.

 

10. RETIREMENT PLANS

 

As discussed in Note 1, the Company maintains defined contribution retirement benefit plans for eligible employees. Total plan expenses charged to continuing operations were $539,000 and $504,000 in 2011 and 2010, respectively.

 

11. CURRENT ECONOMIC CONDITIONS

 

The protracted decline in construction activity in Southern Colorado continues although sporadic signs of improvement suggest that

 

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the bottom may have been reached. Despite these signs, business conditions for the CACS segment are not expected to substantially improve within the next 12 months. Pricing in the CACS segment is expected remain sharply competitive. It is difficult to predict the timing and magnitude of any general recovery of construction in the markets served.

 

In addition, given these current economic conditions, the values of assets and liabilities of the CACS segment could change rapidly, resulting in material future adjustments in allowances for accounts and notes receivable, net realizable value of inventory, realization of deferred tax assets and valuation of intangibles and goodwill that could negatively impact the Company’s ability to meet debt covenants or maintain sufficient liquidity.

 

12. INCOME TAXES

 

The provision (benefit) for income taxes for continuing operations is summarized as follows (amounts in thousands):

 
|     | ** ** | **2011** | ** ** | **2010** | ** ** |
|----------|------------|----------|------------|----------|------------|
| Federal: | Current    |     | $          | 9        |       | $ | 39 |   |
|     | Deferred   |     | (1,000     | )        | (279       | ) |
| State:   | Current    |     | 11         |     | 9          |   |
|     | Deferred   |     | (174       | )        | (55        | ) |
|     |       | $        | (1,154     | )        | $          | (286 | ) |

 

Note that the percentage effect of an item on the statutory tax rate in a given year will fluctuate based upon the magnitude of the pre-tax profit or loss in that year. The difference between the tax rate for continuing operations on income or loss for financial statement purposes and the federal statutory tax rate was as follows:

 
| ** **                                 | ** ** | **2011** | ** ** | **2010** | ** ** |
|--------------------------------------------|------------|----------|------------|----------|------------|
| Statutory tax rate                         |       | (34.0    | )%         | (34.0    | )%         |
| Percentage depletion                       |       | (1.9     | )          | (16.9    | )          |
| Non-deductible expenses                    |       | 1.1      |       | 4.9      |       |
| Change in uncertain tax positions          |       | .1       |       | .5       |       |
| Valuation allowance for tax assets         |       | (.8      | )          | 7.0      |       |
| State income taxes, net of federal benefit |       | (4.2     | )          | (5.2     | )          |
| Federal benefit of AMT carry forward       |       | .9       |       | —   |       |
| Federal benefit of loss carryback          |       | —   |       | (6.3     | )          |
| Other                                      |       | .7       |       | (.2      | )          |
|                                       |       | (38.1    | )%         | (50.2    | )%         |

 

For financial statement purposes, deferred tax assets and liabilities are recorded at a blend of the current statutory federal and states’ tax rates — 37.96%. The principal temporary differences and their related deferred taxes are as follows (amounts in thousands):

 
| ** **                                            | ** ** | **2011** | ** ** | **2010** | ** ** |
|-------------------------------------------------------|------------|----------|------------|----------|------------|
| Reserves for self-insured losses                      |       | $        | 729        |     | $          | 803 |   |
| Accrued reclamation                                   |       | 437      |       | 457      |       |
| Unfunded supplemental profit sharing plan   liability |       | 279      |       | 299      |       |
| Asset valuation reserves                              |       | 400      |       | 295      |       |
| Future state tax credits                              |       | 826      |       | 824      |       |
| Net state operating loss carryforwards                |       | 270      |       | 216      |       |
| Federal AMT carryforward                              |       | 334      |       | 363      |       |
| Federal NOL carryforward                              |       | 147      |       | —   |       |
| Capitalized organization costs                        |       | 335      |       | —   |       |
| Approximate long-term capital loss carryforward       |       | 1,474    |       | 1,474    |       |
| Other                                                 |       | 1,213    |       | 1,157    |       |
| Valuation allowance                                   |       | (1,787   | )          | (1,807   | )          |
| Total deferred tax assets                             |       | 4,657    |       | 4,081    |       |
|                                                  |       |     |       |     |       |
| Depreciation                                          |       | 1,548    |       | 2,113    |       |
| Deferred development                                  |       | 492      |       | 558      |       |
| Prepaid royalty                                       |       | 625      |       | 537      |       |
| Other                                                 |       | 547      |       | 613      |       |
| Total deferred tax liabilities                        |       | 3,212    |       | 3,821    |       |
| Net deferred tax asset (liability)                    |       | $        | 1,445      |     | $          | 260 |   |

 

15

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At both December 31, 2011 and January 1, 2011, the Company established a valuation reserve of $304,000 and $269,000, respectfully, related to the carry forward of charitable contributions deductions arising in the current and prior years due to the uncertainty that the Company will be able to utilize these deductions prior to the expiration of their carry forward periods. At January 2, 2010, the Company also established a valuation reserve related to the carry forward of the long-term capital loss related to the sale of the stock of RMRM due to the uncertainty that the Company will be able to generate offsetable long-term capital gains prior to the expiration of the carry forward period. At December 31, 2011 the reserve is approximately $1,474,000. Lastly, the Company established a valuation reserve of $9,000 related to the carry forward of a net operating loss in a state that limits the carry forward to a five-year period. For Federal purposes, Alternative Minimum Tax credits can be carried forward indefinitely. For State purposes, Net Operating Losses can be carried forward for periods ranging from 5 to 20 years for the states that the Company is required to file in. Of the $826,000 of recorded state tax credits, $760,000 relates to California Enterprise Zone hiring credits earned in prior years. These credits may be carried forward indefinitely.

 

The realization of the deferred tax assets, including net operating loss carry forwards, is subject to our ability to generate sufficient taxable income during the periods in which the temporary differences become realizable. In evaluating whether a valuation allowance is required, we consider all available positive and negative evidence, including prior operating results, the nature and reason of any losses, our forecast of future taxable income and the dates on which any deferred tax assets are expected to expire. These assumptions require a significant amount of judgment, including estimates of future taxable income. The estimates are based on our best judgment at the time made based on current and projected circumstances and conditions.

 

As a result of the evaluation of the realizability of our deferred tax assets as of December 31, 2011, we concluded that it was more likely than not that all of our deferred tax assets would be realized to the extent not reserved for by a valuation allowance.

 

The net current deferred tax assets are $1,625,000 and $1,584,000 at year-end 2011 and 2010, respectively. The Company accounts for uncertainty in income taxes recognized in its financial statements by applying GAAP’s recognition threshold and measurement attributes for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The financial statement effects of a tax position are initially recognized when it is more likely than not, based on the technical merits, that the position will be sustained upon examination. A tax position that meets the more-likely-than-not recognition threshold should initially and subsequently be measured as the largest amount of tax benefit that has a greater than 50% likelihood of being realized upon effective settlement with a taxing authority.

 

The gross amount of unrecognized tax benefits at December 31, 2011 was $51,000 compared to $53,000 at January 1, 2011. Of these totals, none of these amounts would affect the effective tax rates.

 

We classify interest and penalties recognized on the liability for unrecognized tax benefits as income tax expense. Accrued interest of $38,000 and penalties of $0 were included in our total liability for unrecognized tax benefits as of December 31, 2011 compared to interest of $37,000 and penalties of $0 as of January 1, 2011.

 

We file income tax returns in the United States Federal and various state jurisdictions. The Internal Revenue Service has completed examinations for periods through 2007. Federal tax years 2008 and on remain subject to examination. Various state income tax returns also remain subject to examination. There are no tax positions expected to be resolved within 12 months of this reporting date.

 

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (amounts in thousands):

 
| ** **                                                | ** ** | **2011** | ** ** | **2010** | ** ** |
|-----------------------------------------------------------|------------|----------|------------|----------|------------|
| Balance at Beginning of Year                              |       | $        | 53         |     | $          | 47 |   |
| Additions for tax positions related to the current   year |       | 51       |       | 53       |       |
| Reductions for statute of limitations                     |       | —   |       | —   |       |
| Reductions for tax positions of prior years               |       | (53      | )          | (47      | )          |
| Settlements                                               |       | —   |       | —   |       |
| Balance at End of Year                                    |       | $        | 51         |     | $          | 53 |   |

 

13. UNAUDITED QUARTERLY FINANCIAL DATA

 

The following table and footnotes provide summarized unaudited fiscal quarterly financial data for 2011 and 2010 (amounts in thousands, except per share amounts):

 

16

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| ** **                               | ** ** | **First**   | ** ** | **Second**  | ** ** | **Third**   | ** ** | **Fourth**  | ** ** |
|------------------------------------------|------------|-------------|------------|-------------|------------|-------------|------------|-------------|------------|
| ** **                               | ** ** | **Quarter** | ** ** | **Quarter** | ** ** | **Quarter** | ** ** | **Quarter** | ** ** |
| 2011                                     |       |        |       |        |       |        |       |        |       |
| Sales                                    |       | $           | 24,768     |        | $          | 27,975      |       | $           | 25,501     |   | $ | 28,962 |   |
| Gross profit                             |       | 4,292       |       | 6,090       |       | 5,557       |       | 4,363       |       |
| Depreciation, depletion and amortization |       | 1,092       |       | 1,089       |       | 1,012       |       | 1,000       |       |
| Net loss                                 |       |        |       |        |       |        |       |        |       |
| Continuing operations                    |       | (1,211      | )          | (26         | )          | (316        | )          | (325        | )          |
| Discontinued operations                  |       | (2          | )          | (36         | )          | (6          | )          | (26         | )          |
| Net loss                                 |       | (1,213      | )          | (62         | )          | (322        | )          | (351        | )          |
| Basic and Diluted loss per share         |       |        |       |        |       |        |       |        |       |
| Continuing operations                    |       | (.75        | )          | (.02        | )          | (.20        | )          | (.20        | )          |
| Discontinued operations                  |       | (—     | )          | (.02        | )          | (—     | )          | (.02        | )          |
|                                     |       | (.75        | )          | (.04        | )          | (.20        | )          | .(22        | )          |
|                                          |            |             |            |             |            |             |            |             |            |  |  |  |  |

 
| ** **                                | ** ** | **First**   | ** ** | **Second**  | ** ** | **Third**   | ** ** | **Fourth**  | ** ** |
|-------------------------------------------|------------|-------------|------------|-------------|------------|-------------|------------|-------------|------------|
| ** **                                | ** ** | **Quarter** | ** ** | **Quarter** | ** ** | **Quarter** | ** ** | **Quarter** | ** ** |
| 2010                                      |       |        |       |        |       |        |       |        |       |
| Sales                                     |       | $           | 23,641     |        | $          | 31,750      |       | $           | 29,142     |   | $ | 29,751 |   |
| Gross profit                              |       | 3,893       |       | 7,636       |       | 6,665       |       | 5,083       |       |
| Depreciation, depletion and amortization  |       | 1,104       |       | 1,161       |       | 1,102       |       | 1,014       |       |
| Net (loss) income:                        |       |        |       |        |       |        |       |        |       |
| Continuing operations                     |       | (1,441      | )          | 565         |       | 718         |       | (125        | )          |
| Discontinued operations                   |       | (17         | )          | (72         | )          | 22          |       | (31         | )          |
| Net (loss) income                         |       | (1,458      | )          | 493         |       | 740         |       | (156        | )          |
| Basic and Diluted (loss) income per share |       |        |       |        |       |        |       |        |       |
| Continuing operations                     |       | (.90        | )          | .35         |       | .45         |       | (.08        | )          |
| Discontinued operations                   |       | (.01        | )          | (.04        | )          | .01         |       | (.02        | )          |
|                                      |       | (.91        | )          | .31         |       | .46         |       | .(10        | )          |
|                                           |            |             |            |             |            |             |            |             |            |  |  |  |  |

 

Earnings per share are computed independently for each of the quarters presented. Therefore, the sum of the quarterly earnings per share may not equal the total for the year.

 

14. INDUSTRY SEGMENT INFORMATION

 

The Company operates primarily in two industry groups, HVAC and Construction Products. The Company has identified two reportable segments in each of the two industry groups: the Heating and Cooling segment and the Evaporative Cooling segment in the HVAC industry group and the Concrete, Aggregates and Construction Supplies segment (CACS) and the Door segment in the Construction Products industry group. The Heating and Cooling segment produces and sells gas-fired wall furnaces, console heaters and fan coils from the Company’s wholly-owned subsidiary, Williams Furnace Co. of Colton, California. The Evaporative Cooling segment produces and sells evaporative coolers from the Company’s wholly-owned subsidiary, Phoenix Manufacturing, Inc. of Phoenix, Arizona. Sales of these two segments are nationwide, but are concentrated in the southwestern United States. Concrete, aggregates and construction supplies are offered from numerous locations along the Southern Front Range of Colorado operated by the Company’s wholly-owned subsidiaries Castle Concrete Company and Transit Mix Concrete Co. of Colorado Springs and Transit Mix of Pueblo, Inc. of Pueblo. Rocky Mountain Ready Mix Concrete, Inc. of Denver, formerly included in the CACS segment, was sold on July 17, 2009 and is not included in the segment information presented in the table below but rather has been reported as a discontinued operation. Doors are fabricated and sold along with the related hardware from Colorado Springs and Pueblo through the Company’s wholly-owned subsidiary, McKinney Door and Hardware, Inc. of Pueblo, Colorado. Sales of these two segments are highly concentrated in the Southern Front Range area in Colorado although door sales are also made throughout the United States.

 

The Company evaluates the performance of its segments and allocates resources to them based on a number of criteria including operating income, return on investment and other strategic objectives. Operating income is determined by deducting operating expenses from all revenues. In computing operating income, none of the following has been added or deducted: unallocated corporate expenses, interest, other income or loss or income taxes.

 

In addition to the above reporting segments, an “Unallocated Corporate” classification is used to report the unallocated expenses of the corporate office which provides treasury, insurance and tax services as well as strategic business planning and general management services. Expenses related to the corporate information technology group are allocated to all locations, including the corporate office.

 

17

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An “Other” classification is used to report a real estate operation and the activity of the new business venture discussed in the “Nature of Business” section of Note 1. The Company purchased the residence of and made a loan to an executive of one of the Company’s subsidiaries in connection with his relocation to head this new venture. The residence is classified as an asset held for resale. The residence and the note receivable are included in the assets of the “Other” classification. The note is secured by marketable securities and bears interest at 5%.

 

The following table presents information about reported segments for the fiscal years 2011 and 2010 along with the items necessary to reconcile the segment information to the totals reported in the financial statements (amounts in thousands):

 
| ** **                                 | ** ** | **Construction Products Industry**                    | ** ** | **HVAC Industry** | ** ** | ** **                             | ** ** | ** **                  | ** ** | ** **                | ** ** |
|--------------------------------------------|------------|-----------------------------------------------------------------|------------|------------------------|------------|----------------------------------------|------------|-----------------------------|------------|---------------------------|------------|
| ** **                                 | ** ** | **Concrete,   Aggregates &   Construction   Supplies** | ** ** | **Doors**              | ** ** | **Combined   Construction   Products** | ** ** | **Heating   and   Cooling** | ** ** | **Evaporative   Cooling** | ** ** | **Combined   HVAC** | ** ** | **Unallocated   Corporate   (a)** | ** ** | **Other (b)** | ** ** | **Total** | ** ** |
| 2011                                       |       |                                                            |       |                   |       |                                   |       |                        |       |                      |       |   |   |   |   |   |   |   |   |
| Revenues   from external customers         |       | $                                                               | 31,714     |                   | $          | 12,330                                 |       | $                           | 44,044     |                      | $          | 37,480 |   | $ | 25,324 |   | $ | 62,804 |   | $ | 14 |   | $ | 344 |   | $ | 107,206 |   |
| Depreciation,   depletion and amortization |       | 3,239                                                           |       | 140                    |       | 3,379                                  |       | 379                         |       | 379                       |       | 758 |   | 56 |   | — |   | 4,193 |   |
| Operating   (loss) income                  |       | (4,975                                                          | )          | 553                    |       | (4,422                                 | )          | 2,730                       |       | 2,212                     |       | 4,942 |   | (2,582 | ) | (226 | ) | (2,288 | ) |
| Segment   assets                           |       | 32,289                                                          |       | 5,827                  |       | 38,116                                 |       | 19,600                      |       | 11,967                    |       | 31,567 |   | 5,106 |   | 1,082 |   | 75,871 |   |
| Capital   expenditures                     |       | 991                                                             |       | 62                     |       | 1,053                                  |       | 234                         |       | 188                       |       | 422 |   | 17 |   | — |   | 1,492 |   |
|                                            |            |                                                                 |            |                        |            |                                        |            |                             |            |                           |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 
| ** **                                 | ** ** | **Construction Products Industry**                    | ** ** | **HVAC Industry** | ** ** | ** **                             | ** ** | ** **                  | ** ** | ** **                |       |
|--------------------------------------------|------------|-----------------------------------------------------------------|------------|------------------------|------------|----------------------------------------|------------|-----------------------------|------------|---------------------------|------------|
| ** **                                 | ** ** | **Concrete,   Aggregates &   Construction   Supplies** | ** ** | **Doors**              | ** ** | **Combined   Construction   Products** | ** ** | **Heating   and   Cooling** | ** ** | **Evaporative   Cooling** | ** ** | **Combined   HVAC** | ** ** | **Unallocated   Corporate   (a)** | ** ** | **Other (b)** | ** ** | **Total** |   |
| 2010                                       |       |                                                            |       |                   |       |                                   |       |                        |       |                      |       |   |   |   |   |   |   |   |   |
| Revenues   from external customers         |       | $                                                               | 39,078     |                   | $          | 12,754                                 |       | $                           | 51,832     |                      | $          | 39,145 |   | $ | 22,950 |   | $ | 62,095 |   | $ | 12 |   | $ | 345 |   | $ | 114,284 |   |
| Depreciation,   depletion and amortization |       | 3,387                                                           |       | 139                    |       | 3,526                                  |       | 375                         |       | 414                       |       | 789 |   | 66 |   | — |   | 4,381 |   |
| Operating   (loss) income                  |       | (835                                                            | )          | 609                    |       | (226                                   | )          | 1,711                       |       | 1,714                     |       | 3,425 |   | (2,863 | ) | 109 |   | 445 |   |
| Segment   assets                           |       | 36,761                                                          |       | 5,528                  |       | 42,289                                 |       | 18,976                      |       | 11,876                    |       | 30,852 |   | 6,357 |   | 63 |   | 79,561 |   |
| Capital   expenditures                     |       | 459                                                             |       | 15                     |       | 474                                    |       | 186                         |       | 213                       |       | 399 |   | 12 |   | — |   | 885 |   |
|                                            |            |                                                                 |            |                        |            |                                        |            |                             |            |                           |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

----

(a)              Includes unallocated corporate office expenses and assets which consist primarily of cash and cash equivalents, prepaid expenses, property, plant and equipment and at December 31, 2011, a $4,340,000 cash deposit ($4,840,000 at January 1, 2011) with the Company’s insurer to secure the self-insured portion of claims under the Company’s casualty insurance program.

(b)             Includes a real estate operation and the new business venture discussed in Note 1.

 

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

 

All long-lived assets are in the United States. No customer accounted for 10% or more of total sales of the Company in fiscal 2011 or 2010.

 

18

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**Report of Independent Registered Public Accounting Firm**

 

Audit Committee, Board of Directors and Shareholders

Continental Materials Corporation

Chicago, Illinois

 

We have audited the accompanying consolidated balance sheets of Continental Materials Corporation as of December 31, 2011 and January 1, 2011, and the related consolidated statements of operations, shareholders’ equity and cash flows for the years then ended.  Our audit also included the years 2011 and 2010 information on the financial statement schedule listed in the Index at Part IV, Item 15(a)2.  The Company’s management is responsible for these consolidated financial statements and financial statement schedule.  Our responsibility is to express an opinion on these consolidated financial statements based on our audits and financial statement schedule based on our audits of the basic financial statements.  The financial statement schedule is presented for purposes of complying with the Securities and Exchange Commission’s rules and regulations and are not a required part of the consolidated financial statements.

 

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement.  The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.  Our audits included consideration of internal control over financial reporting as a basis for designing auditing procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.  Accordingly, we express no such opinion.  Our audits also included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management and evaluating the overall financial statement presentation.  We believe that our audits provide a reasonable basis for our opinion.

 

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Continental Materials Corporation as of December 31, 2011 and January 1, 2011, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.  Also, in our opinion, the financial statement schedule referred to above, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

 
| /s/   BKD, LLP             |   |
|----------------------------|--------|
|                       |   |
| **BKD,   LLP**             |   |
|                       |   |
| Indianapolis, Indiana |   |
| March 30,   2012      |   |

 

19

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** **

**PART IV**

 
| **Item 15.**                                                                                                                                  | ** ** | **EXHIBITS AND FINANCIAL STATEMENT SCHEDULES**                                                           |
|-----------------------------------------------------------------------------------------------------------------------------------------------|------------|----------------------------------------------------------------------------------------------------------|
|                                                                                                                                          |       |                                                                                                     |
| (a) 1                                                                                                                                    |       | The   following financial statements are included in Item 8 of Part II:                             |
|                                                                                                                                          |       | Consolidated   statements of operations for fiscal years 2011 and 2010                                   |
|                                                                                                                                          |       | Consolidated   statements of cash flows for fiscal years ended 2011 and 2010                             |
|                                                                                                                                          |       | Consolidated   balance sheets as of December 31, 2011 and January 1, 2011                      |
|                                                                                                                                          |       | Consolidated   statements of shareholders’ equity for fiscal years 2011 and 2010                    |
|                                                                                                                                          |       |                                                                                                     |
| (a) 2                                                                                                                                    |       | The   following is a list of financial statement schedules filed as part of this   Report:               |
|                                                                                                                                          |       |                                                                                                     |
|                                                                                                                                          |       | Schedule   II Valuation and Qualifying Accounts & Reserves For the Fiscal Years   2011 and 2010 |
|                                                                                                                                          |       |                                                                                                     |
| All   other schedules are omitted because they are not applicable or the   information is shown in the financial statements or notes thereto. |
|                                                                                                                                          |       |                                                                                                     |
| (a) 3                                                                                                                                    |       | The   following is a list of all exhibits filed as part of this Report:                                  |
|                                                                                                                                               |            |                                                                                                          |  |

 
| Exhibit 3   |   | Restated   Certificate of Incorporation dated May 28, 1975, as amended on   May 24, 1978, May 27, 1987 and June 3, 1999 filed as   Exhibit 3 to Form 10-K for the year ended January 1, 2005,   incorporated herein by reference.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|------------------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|             |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| Exhibit 3a  |   | Registrant’s   By-laws as amended September 19, 1975 filed as Exhibit 6 to   Form 8-K for the month of September 1975, incorporated herein by   reference.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|             |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| Exhibit 10  |   | Credit   Agreement dated April 16, 2009 among Continental Materials Corporation,   as the Company, The Various Financial Institutions Party Hereto, as Lenders,   and The PrivateBank and Trust Company, as Administrative Agent and Arranger   filed as Exhibit 10f to Form 10-K for the year ended   January 3, 2009, incorporated herein by reference; First Amendment   thereto dated as of November 18, 2009 filed as Exhibit 10.1 to   Form 10-K for the year ended January 2, 2010; the Second Amendment   thereto dated April 15, 2010 filed as Exhibit 10.2 to   Form 10-K for the year ended January 2, 2010; the Third Amendment   dated November 12, 2010 filed as Exhibit 10.1 to Form 10-Q for   the quarter ended October 2, 2010; the Fourth Amendment dated   December 31, 2010 filed as Exhibit 10.1 to Form 10-K for the   year ended January 1, 2011; the Fifth Amendment dated April 14,   2011 filed as Exhibit 10.2 to Form 10-K for the year ended   January 1, 2011; and the Amended and Restated Credit Agreement thereto   dated November 18, 2011 filed as Exhibit 10 to Form 10-Q for   the quarter ended October 1, 2011. |
|             |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| Exhibit 10a |   | Fee   Sand and Gravel Lease Between Valco, Inc. And Continental Materials   Corporation filed as Exhibit 2C to Form 8-K filed November 4,   1996, incorporated herein by reference.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|             |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| Exhibit 10b |   | Form of   Supplemental Deferred Compensation Agreement filed as Exhibit 10 to   Form 10-Q for the quarter ended July 1, 1983, incorporated herein   by reference.*                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|             |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| Exhibit 10c |   | Continental   Materials Corporation Employees Profit Sharing Retirement Plan, 2009   Amendment and Restatement filed as Exhibit 10c to Form 10-K for the   year ended January, 2, 2010.*                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|             |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| Exhibit 10d |   | Williams   Furnace Co. Employees Profit Sharing Retirement Plan, 2009 Amendment and   Restatement filed as Exhibit 10c to Form 10-K for the year ended   January, 2, 2010.*                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
|             |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| Exhibit 14  |   | Continental   Materials Corporation Code of Business Conduct and Ethics filed as   Exhibit 14 to Form 10-K/A (Amendment No. 1) for the year ended   January 3, 2004, incorporated herein by reference.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |

 

20

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| Exhibit 21   |   | Subsidiaries   of Registrant incorporated by reference from Exhibit 21 to the Original   Report.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
|-------------------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|              |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| Exhibit 23   |   | Consent   of Independent Registered Public Accounting Firm (filed herewith).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|              |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| Exhibit 31.1 |   | Rule 13a-14(a)/15d-14(a) and   Rule 13a-14(d)/15d-14(d) Certification of Chief Executive Officer   (filed herewith).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|              |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| Exhibit 31.2 |   | Rule 13a-14(a)/15d-14(a) and   Rule 13a-14(d)/15d-14(d) Certification of Chief Financial Officer   (filed herewith).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|              |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| Exhibit 32   |   | Section 1350   Certification of Chief Executive Officer and Chief Financial Officer (filed   herewith).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|              |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| Exhibit 95   |   | Mine   Safety Disclosures incorporated by reference from Exhibit 95 to the   Original Report.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|              |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| Exhibit 101  |   | The   following financial information from Continental Materials Corporation Annual   Report on Form 10-K for the fiscal year ended December 31, 2011   filed with the SEC on March 30, 2011, formatted in Extensible Business   Reporting Language (XBRL); (i) the Consolidated Statements of Operations   for the fiscal years 2011 and 2010, (ii) the Consolidated Statements of   Cash Flows for the fiscal years 2011 and 2010, (iii) the Consolidated   Balance Sheets as of December 31, 2011 and January 1, 2011, (iv) the   Consolidated Statements of Shareholders’ Equity for fiscal years 2011 and   2010, and (v) Notes to Consolidated Financial Statements.** |

 

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| *      | -       | Compensatory   plan or arrangement                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|--------|---------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
| **     |  - | Pursuant   to Rule 406T of Regulation S-T, the XBRL related information in   Exhibit 101 to the Original Report is not deemed to be “filed” for   purposes of Section 18 of the Exchange Act, or otherwise subject to the   liability of that section, and shall not be deemed part of a registration   statement, prospectus or other document filed under the Securities Act or the   Exchange Act, except as shall be expressly set forth by specific reference in   such filings. |

 

21

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SIGNATURES

 

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

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

 

Date:  March 18, 2013

 

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

 
| **SIGNATURE**              | ** ** | **CAPACITY(IES)**                       | ** ** | **DATE**            |
|----------------------------|------------|-----------------------------------------|------------|---------------------|
|                       |       |                                    |       |                |
| /S/   James G. Gidwitz     |       | Chief Executive Officer and a Director  |       |                |
| James G. Gidwitz           |       | (Principal Executive Officer)           |       | March 18, 2013 |
|                       |       |                                    |       |                |
| /S/   Joseph J. Sum        |       | Vice President, Chief Financial Officer |       |                |
| Joseph J. Sum              |       | (Principal Financial Officer)           |       | March 18, 2013 |
|                       |       |                                    |       |                |
| /S/   Mark S. Nichter      |       | Secretary and Controller                |       |                |
| Mark S. Nichter            |       | (Principal Accounting Officer)          |       | March 18, 2013 |
|                       |       |                                    |       |                |
| /S/   William D. Andrews   |       |                                    |       |                |
| William D. Andrews         |       | Director                                |       | March 18, 2013 |
|                       |       |                                    |       |                |
| /S/   Thomas H. Carmody    |       |                                    |       |                |
| Thomas H. Carmody          |       | Director                                |       | March 18, 2013 |
|                       |       |                                    |       |                |
| /S/   Betsy R. Gidwitz     |       |                                    |       |                |
| Betsy R. Gidwitz           |       | Director                                |       | March 18, 2013 |
|                       |       |                                    |       |                |
| /S/   Ralph W. Gidwitz     |       |                                    |       |                |
| Ralph W. Gidwitz           |       | Director                                |       | March 18, 2013 |
|                       |       |                                    |       |                |
| /S/   Ronald J. Gidwitz    |       |                                    |       |                |
| Ronald J. Gidwitz          |       | Director                                |       | March 18, 2013 |
|                       |       |                                    |       |                |
| /S/   Theodore R. Tetzlaff |       |                                    |       |                |
| Theodore R. Tetzlaff       |       | Director                                |       | March 18, 2013 |
|                       |       |                                    |       |                |
| /S/   Peter E. Thieriot    |       |                                    |       |                |
| Peter E. Thieriot          |       | Director                                |       | March 18, 2013 |
|                       |       |                                    |       |                |
| /S/   Darrell M. Trent     |       |                                    |       |                |
| Darrell M. Trent           |       | Director                                |       | March 18, 2013 |

 

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CONTINENTAL MATERIALS CORPORATION

 

**SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES (c) (e)**

 

for the fiscal years 2011 and 2010

 
| ** **

**COLUMN A**       | ** ** | **COLUMN B**                                | ** ** | **COLUMN C(1)**                                           | ** ** | **COLUMN D**                | ** ** | **COLUMN E**                             | ** ** |
|-------------------------------------|------------|--------------------------------------------------|------------|----------------------------------------------------------------|------------|----------------------------------|------------|-----------------------------------------------|------------|
| **Description**                     | ** ** | **Balance at   Beginning of   Period** | ** ** | **Additions   Charged to Costs   and Expenses** | ** ** | **Deductions -   Describe** | ** ** | **Balance at End of   Period** | ** ** |
| ** **                          | ** ** | ** **                                       | ** ** | ** **                                                     | ** ** | ** **                       | ** ** | ** **                                    | ** ** |
| **Year 2011**                       |       |                                             |       |                                                           |       |                             |       |                                          |       |
| Allowance for doubtful accounts (c) |       | $                                                | 580,000    |                                                           | $          | 10,000                           |       | $                                             | 90,000     | (a) | $ | 500,000 |   |
| Inventory valuation reserve (c)     |       | $                                                | 196,000    |                                                           | $          | 237,000                          |       | $                                             | 105,000    | (b) | $ | 328,000 |   |
| Reserve for self-insured losses     |       | $                                                | 2,798,000  |                                                           | $          | 3,359,000                        |       | $                                             | 3,481,000  | (d) | $ | 2,676,000 |   |
|                                |       |                                             |       |                                                           |       |                             |       |                                          |       |
| **Year 2010**                       |       |                                             |       |                                                           |       |                             |       |                                          |       |
| Allowance for doubtful accounts (c) |       | $                                                | 576,000    |                                                           | $          | 245,000                          |       | $                                             | 241,000    | (a) | $ | 580,000 |   |
| Inventory valuation reserve (c)     |       | $                                                | 384,000    |                                                           | $          | 55,000                           |       | $                                             | 243,000    | (b) | $ | 196,000 |   |
| Reserve for self-insured losses     |       | $                                                | 2,973,000  |                                                           | $          | 4,885,000                        |       | $                                             | 5,060,000  | (d) | $ | 2,798,000 |   |

 

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Notes:

(a)         Accounts written off, net of recoveries.

 

(b)         Amounts written off upon disposal of assets.

 

(c)          Reserve deducted in the balance sheet from the asset to which it applies.

 

(d)         Payments of self-insured claims including healthcare claims accrued and paid in connection with the Company’s self-insured employee healthcare benefit plan.

 

(e)          Column C (2) has been omitted as the answer would be “none”.

 

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