UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

FORM 10-Q

x      QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2012

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)

(312) 541-7200

(Registrant’s telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last report)

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

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

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

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: Common Stock, $0.25 par value, shares outstanding at August 10, 2012: 1,634,278.

PART I — FINANCIAL INFORMATION

Item 1.   Financial Statements

CONTINENTAL MATERIALS CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

JUNE 30, 2012 and DECEMBER 31, 2011

(000’s omitted except share data)

See notes to condensed consolidated financial statements.

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CONTINENTAL MATERIALS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS

FOR THE THREE MONTHS ENDED JUNE 30, 2012 AND JULY 2, 2011

(Unaudited)

(000’s omitted except per-share amounts)

See notes to condensed consolidated financial statements

3

CONTINENTAL MATERIALS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS

FOR THE SIX MONTHS ENDED JUNE 30, 2012 AND JULY 2, 2011

(Unaudited)

(000’s omitted except per-share amounts)

See notes to condensed consolidated financial statements

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CONTINENTAL MATERIALS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE SIX MONTHS ENDED JUNE 30, 2012 AND JULY 2, 2011

(Unaudited)

(000’s omitted)

See notes to condensed consolidated financial statements

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CONTINENTAL MATERIALS CORPORATION

SECURITIES AND EXCHANGE COMMISSION FORM 10-Q

NOTES TO THE QUARTERLY CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

QUARTER ENDED JUNE 30, 2012

(Unaudited)

1.              Basis of Presentation:

The unaudited interim condensed consolidated financial statements included herein are prepared pursuant to the Securities and Exchange Commission rules and regulations for reporting on Form 10-Q. Accordingly, certain information and footnote disclosures normally accompanying the annual consolidated financial statements have been omitted. The condensed consolidated balance sheet of the Company as of December 31, 2011 has been derived from the audited consolidated balance sheet of the Company as of that date. The interim condensed consolidated financial statements and notes should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s latest annual report on Form 10-K. In the opinion of management, the condensed consolidated financial statements include all adjustments (none of which were other than normal recurring adjustments) necessary for a fair statement of the results for the interim periods. Discontinued operations refer to the residual activity related to Rocky Mountain Ready Mix (RMRM), a Colorado corporation sold by the Company on July 17, 2009.

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

The Company has established a valuation reserve related to the carry-forward of all charitable contributions deductions arising from prior years and the portion of contributions in 2012 that the Company believes it will be unable to utilize prior to the expiration of their carry-forward periods. At January 1, 2011, the Company also established a valuation reserve of $1,474,000 against 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. For Federal purposes, net operating losses can be carried forward for a period of 20 years while alternative minimum tax credits can be carried forward indefinitely. For state purposes, net operating losses can be carried forward for periods ranging from 5 to 20 years for the states that the Company is required to file in. California Enterprise Zone credits can be carried forward indefinitely while Colorado credits can be carried forward for 7 years. As of June 30, 2012, the Company did not consider it necessary to establish a valuation reserve related to the net operating losses.

The Company’s income tax returns are subject to audit by the Internal Revenue Service (IRS) and state tax authorities. The amounts recorded for income taxes reflect the Company’s tax positions based on research and interpretations of complex laws and regulations. The Company accrues liabilities related to uncertain tax positions taken or expected to be taken in its tax returns. The IRS has completed examinations for periods through 2007 and is currently examining the 2008 and 2009 periods. Various state income tax returns also remain subject to examination.

3.              Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value measurements must maximize the use of observable inputs and minimize the use of unobservable inputs. There is a hierarchy of three levels of inputs that may be used to measure fair value:

Level 1   Quoted prices in active markets for identical assets or liabilities.

Level 2        Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3        Unobservable inputs supported by little or no market activity and are significant to the fair value of the assets or liabilities. Unobservable inputs shall reflect the assumptions that market participants would use when pricing the asset or liability including assumptions about risk.

The following methods were used to estimate the fair value of all other financial instruments recognized in the accompanying balance sheet.

Cash and Cash Equivalents: The carrying amount approximates fair value and was valued as Level 1.

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Notes Receivables with Related Parties: It was not practical to estimate the fair value of long-term receivables and payables with related parties. The terms of the amounts reflected in the balance sheet at June 30, 2012 are more fully discussed in the 10-K for the fiscal year ended December 31, 2011.

Notes Payable and Long-term Debt: Fair value is estimated based on the borrowing rates currently available to the Company for bank loans with similar terms and maturities and determined through the use of a discounted cash flow model. The carrying amount of long-term debt represents a reasonable estimate of the corresponding fair value as the Company’s debt is held at variable interest rates and was valued as Level 2.

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

5.              Operating results for the first six months of 2012 are not necessarily indicative of performance for the entire year due to the seasonality of most of our products. Historically, sales of the Evaporative Cooling segment are higher in the first and second quarters, sales of the Concrete, Aggregates and Construction Supplies (CACS) segment are higher in the second and third quarters and sales of the Heating and Cooling segment are higher in the third and fourth quarters. The sales of the Door segment are more evenly spread throughout the year. The economic recession and financial market turmoil that began in the latter part of 2008 has had a significant detrimental effect on the construction industry in general and on our construction related businesses in particular since that time and is expected to continue to do so for the foreseeable future.

6.              There is no difference in the calculation of basic and diluted earnings per share (EPS) for the three-month or six-month periods ended June 30, 2012 and July 2, 2011 as the Company does not have any dilutive instruments.

7.              The Company operates primarily in two industry groups, Heating, Ventilation and Air Conditioning (HVAC) and Construction Products. Within each of these two industry groups, the Company has identified two reportable segments: the Heating and Cooling segment and the Evaporative Cooling segment in the HVAC industry group and the CACS segment and the Door segment in the Construction Products industry group.

The Heating and Cooling segment 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 (WFC). The Evaporative Cooling segment produces and sells evaporative coolers from the Company’s wholly-owned subsidiary, Phoenix Manufacturing, Inc. of Phoenix, Arizona (PMI). 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 collectively referred to as Transit Mix Concrete Co. (TMC). Doors are fabricated and sold along with the related hardware from Colorado Springs and Pueblo, Colorado through the Company’s wholly-owned subsidiary, McKinney Door and Hardware, Inc. of Pueblo, Colorado (MDHI). 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.

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. An “Other” classification is used to report a real estate operation and the activity of the new business venture, Williams EcoLogix, Inc. 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. The residence is classified as “Real estate held for resale” on the condensed consolidated balance sheet. The residence and the loan receivable are included in the assets of the “Other” classification. The related party loan is secured by marketable securities and bears interest at 5%.

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

The following table presents information about reported segments for the six-month and three-month periods ended June 30, 2012 and July 2, 2011 along with the items necessary to reconcile the segment information to the totals reported in the financial statements (amounts in thousands):

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(a)    Segment assets are as of December 31, 2011.

(b)    Capital expenditures are presented on the accrual basis of accounting.

There are no differences in the basis of segmentation or in the basis of measurement of segment profit or loss from the last Annual Report on Form 10-K.

8.              Identifiable amortizable intangible assets as of June 30, 2012 include a restrictive land covenant and customer relationships. Collectively, these assets were carried at $209,000, net of $511,000 accumulated amortization. The pre-tax amortization expense for intangible assets during the quarter ended June 30, 2012 was $16,000 compared to $32,000 for the quarter ended July 2, 2011 and $33,000 and $65,000 for the six months ended June 30, 2012 and July 2, 2011, respectively.

Based upon the intangible assets recorded on the balance sheet at June 30, 2012, amortization expense for the next five years is estimated to be as follows: 2012 — $65,000; 2013 — $58,000; 2014 — $52,000; 2015 — $45,000 and 2016 —$21,000.

9.              During the first quarter of 2012, the Company provided a letter of credit to replace the $4,340,000 of cash deposited for self-insured claims with the Company’s insurance carrier.

10.       The Company issued a total of 12,000 shares to the eight eligible board members effective January 6, 2012 as full payment for their 2012 retainer fee. The shares were issued under the 2010 Non-Employee Directors Stock Plan.

11.       The Company is involved in litigation matters related to its business, principally product liability matters related to the gas-fired heating products and fan coil products in the Heating and Cooling segment. In the Company’s opinion, none of these proceedings, when concluded, will have a material adverse effect on the Company’s consolidated results of operations, cash flows or financial

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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. The Company incurred expenses related to this litigation during the quarter ended June 30, 2012 of $92,000 compared to $319,000 during the quarter ended July 2, 2011 and $227,000 and $455,000 for the six months ended June 30, 2012 and July 2, 2011, respectively. The Company has entered into a Contingent Fee Agreement with the two legal firms engaged with regard to the Pikeview insurance claim. Under the terms of this agreement the Company has agreed to pay a fixed amount of non-contingent legal fees. In addition to the non-contingent fees, the Company has agreed to pay a contingent fee of 33% of any settlement proceeds or court award in excess of the sum of the non-contingent legal fees, all other litigation expenses and $500,000. The maximum compensation to the Company’s legal counsel is limited to three times their normal billing rates. As of June 30, 2012 approximately 93% of the non-contingent legal fees have been paid. A director of the Company is a partner in one of the firms that has been engaged.

The Company is also involved in a lawsuit to recover a receivable. There has been no significant change since the discussion in the Form 10-K filed with the Securities and Exchange Commission for the fiscal 2011 year.

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

Company Overview

See Note 7 for an overview of the Company.

Liquidity and Capital Resources

As noted above, various factors affect the sales of the Company’s products. Historically, the Company has experienced operating losses during the first quarter except when construction activity is strong along the Southern Front Range of Colorado and the weather is mild. Operating results typically improve in the second and third quarters reflecting more favorable weather conditions in Colorado and the seasonal sales of the Evaporative Cooling segment. Fourth quarter results can vary based on weather conditions in Colorado as well as in the principal markets for the Company’s heating equipment. Notwithstanding weather conditions, however; the Company expects that construction activity along the Southern Front Range of Colorado will remain weak for the balance of 2012.

The Company typically experiences operating cash flow deficits during the first half of the year reflecting operating results, the use of sales dating programs (extended payment terms) related to the Evaporative Cooling segment and payments of the prior year’s accrued incentive bonuses and Company profit-sharing contributions, if any. As a result, the Company’s borrowings against its revolving credit facility tend to peak during the second quarter and then decline over the remainder of the year. This trend has continued during the first six months of 2012.

Cash provided by operations was $416,000 during the first six months of 2012 compared to the $471,000 of cash provided during the first six months of 2011. The Company’s operating cash flow during the first six months of 2012 was positive despite the operating loss primarily due to a decrease in receivables and an increase in accounts payable and accrued expenses. The operating cash flow during the first six months of 2011 was positive primarily due to a decrease in receivables partially offset by an increase in inventories and a decrease in accounts payable and accrued expenses.

The Company was in compliance with all loan covenants as of the fiscal quarter ended June 30, 2012. Because the maturity date of the revolving credit line portion of the Company’s credit agreement is May 1, 2015, the outstanding revolving credit balances at June 30, 2012 and December 31, 2011 were classified as long-term obligations.

During the six months ended June 30, 2012, investing activities used $615,000 of cash compared to $954,000 of cash used in the prior year’s period. Capital expenditures during the first six months of 2012 were $643,000, well below historical levels, and primarily represented purchases related to the site development at the Pueblo aggregates operations as well as routine replacements and upgrades to equipment in the Heating and Cooling segment and the Evaporative Cooling segment.

Financing activities during the first six months of 2012 provided $240,000 compared to the $575,000 provided during the 2011. Scheduled debt repayments were made during the first six months of both 2012 and 2011. During the first quarter of 2012, the Company provided a bank letter of credit to replace the $4,340,000 of cash deposited with the Company’s casualty insurance provider for self-insured claims. The returned cash was used to reduce the outstanding revolving bank loan.

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During the first six months of 2012, the highest amount of Company borrowings outstanding under the revolving credit line was $8,150,000 and the average amount outstanding was $4,526,000.

Results of Operations - Comparison of Quarter Ended June 30, 2012 to Quarter Ended July 2, 2011

In the ensuing discussions of the results of operations the term gross profit means the amount determined by deducting cost of sales before depreciation, depletion and amortization from sales. The gross profit ratio is gross profit divided by sales.

Consolidated sales in the second quarter of 2012 were $29,747,000 or $1,772,000 (6.3%) more than second quarter of 2011. Sales in three of the Company’s four segments were moderately higher in 2012 while sales in the Heating and Cooling segment slightly declined. Business conditions in the Construction, Aggregates and Construction Supply (“CACS”) and Door segment were particularly weak in the second quarter of 2011 and were only marginally improved in the second quarter of 2012. The consolidated gross profit ratio for the current year quarter was 18.5% compared to 21.8% in the second quarter of 2011. All four of the Company’s business segments experienced lower gross profit ratios due to a number of varying factors including price competition, sales mix and higher manufacturing costs. Consolidated selling and administrative expenses were only $32,000 higher in the 2012 quarter compared to the prior year. Lower litigation expenses associated with the Pikeview insurance claim were offset by increased sales expenses in the Company’s HVAC business units. Consolidated selling and administrative expenses, as a percentage of consolidated sales, decreased from 18.1% to 17.1%. The operating loss for the second quarter of 2012 was $629,000 compared to $83,000 of operating income in the second quarter of 2011.

Net interest expense (exclusive of amortization of deferred financing fees) was $141,000 in the second quarter of 2012 compared to $109,000 in the second quarter of 2011. The average interest rate in the second quarter of 2012, including the effect of an interest rate swap and finance charges on letters of credit was approximately 7.8% compared to approximately 4.1% in the second quarter of 2011. Excluding finance charges on letters of credit the average interest rate was 6.2% in the second quarter of 2012 compared to 4.1% in the second quarter of 2011. Average total outstanding indebtedness was approximately $8,064,000 in 2012 compared to approximately $12,560,000 in 2011. The reduction in outstanding indebtedness primarily reflects the replacement of a $4,340,000 cash collateral deposit previously placed with the Company’s casualty insurance provider with a bank letter of credit on March 1, 2012.

A discussion of operations by segment follows.

Construction Products

The table below presents a summary of operating information for the two reportable segments within the Construction Products group for the quarters ended June 30, 2012 and July 2, 2011 (amounts in thousands):

Concrete, Aggregates and Construction Supplies Segment

Overall construction activity in the Company’s principal markets of Colorado Springs and Pueblo, Colorado remained at a depressed level although revenues increased by $831,000 (9.1%) compared to the second quarter of 2011. Concrete yardage,

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excluding flow-fill material for a particular project, increased by just 1%. The market in Colorado Springs exhibited meaningful improvement compared to the prior year but the market in Pueblo weakened even further. Sales of aggregates (sand, crushed limestone and gravel) including those used internally were 26.6% higher in the 2012 quarter compared to the comparable quarter of 2011. However, most of the increased aggregate volume was for secondary, lower priced materials. The gross profit ratio for the CACS segment as a whole was approximately 4 points lower in the second quarter of 2012. The gross profits of the aggregates operations fell substantially due to the unfavorable shift in product mix, competitive pricing and an increase in repairs and maintenance expenditures. The Pikeview Quarry remains closed although the Company continues to work with the Colorado Division of Reclamation, Mining and Safety on a plan to resume operations there. The litigation over the insurance claim pertaining to the 2008 landslide at the Pikeview Quarry is ongoing. A pre-trial conference is scheduled for the latter part of September. Selling and administrative expenses were lower in the second quarter of 2012 principally due to reduced litigation costs related to the Pikeview insurance claim. The operating loss for the CACS segment in the second quarter of 2012 includes a $17,000 gain on the sale of equipment. There was $140,000 of such gains in the second quarter of 2011.

Door Segment

Sales during the second quarter of 2012 in the Door segment increased $632,000 or 21.9% from the comparable 2011 quarter.  The Door segment is to some extent subject to the same construction market influences. The gross profit ratio for the 2012 quarter was 4.5 points lower compared to the prior year principally due to more competitive bid prices.

HVAC Products

The table below presents a summary of operating information for the two reportable segments within the HVAC products group for the quarters ended June 30, 2012 and July 2, 2011 (amounts in thousands):

Heating and Cooling Segment

Sales in the Heating and Cooling segment decreased by just $104,000 (1.7%) in the second quarter of 2012 compared to the comparable 2011 quarter. Lower furnace sales were largely offset by increased fan coil sales in an improving commercial construction market. The gross profit ratio for this segment decreased by approximately 4.1 points due to the change in product sales mix. Gross profit margins on fan coils are typically lower than those on the furnace product line. Selling and administrative expenses were $97,000 higher in the second quarter of 2012 due to an increase in legal expenses related to product liability claims.

Evaporative Cooling Segment

Unit sales during the quarter ended June 30, 2012 in the Evaporative Cooling segment were virtually unchanged compared to the prior year quarter. Sales revenue increased by $412,000 (4.2%) largely due to increased selling prices. The gross profit ratio declined by 1.3 points as some higher material and factory overhead costs and a reduced production volume more than offset the increase in selling prices. Selling, general and administrative expenses increased by $101,000 principally due to an increase in the engineering staff and new product development efforts.

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Results of Operations - Comparison of Six Months Ended June 30, 2012 to Six Months Ended July 2, 2011

In the ensuing discussions of the results of operations the term “gross profit” means the amount determined by deducting cost of sales before depreciation, depletion and amortization from sales. The “gross profit ratio” is gross profit divided by sales.

Consolidated sales in the first half of 2012 were $54,143,000, 2.7% higher than in the first six months of 2011. Sales results at all of the four Company’s business segments showed improvement compared to the first half of 2011. The consolidated gross profit ratio was 19.0% in the first half of 2012 compared to 19.7% in the first six months of 2011. In the first half of 2012 three of the Company’s four business segments experienced reduced gross profit ratios. The Heating & Cooling segment realized a higher gross profit ratio as profit margins on fan coils improved from rather depressed levels a year ago. Consolidated selling and administrative expenses were $502,000 higher in the first half of 2012 compared to the first half of the prior year. Consolidated selling and administrative expenses, as a percentage of consolidated sales, increased from 18.7% to 19.2%. The Company’s two HVAC businesses incurred higher selling and administrative expenses in the first half of 2012 compared to the first half of the prior year. The other two business segments had lower or the same level of expense. Operating income in 2012 includes a $17,000 gain on the sale of some equipment. In the first half of 2011, gains on the sale of depreciable equipment were $140,000.

The operating loss for the first half of 2012 was $2,164,000 compared to a loss of $1,538,000 in 2011.

Net interest expense (exclusive of amortization of deferred financing fees) was $275,000 in the first half of 2012 compared to $302,000 in the first half of 2011. The average interest rate in the first half of 2012, including the effect of an interest rate swap and finance charges on letters of credit was approximately 6.4% compared to approximately 5.6% in the first six months of 2011. Excluding finance charges on letters of credit the average interest rate was 5.4% in the first half of 2012 compared to 5.6% in the first six months of 2011. Average total outstanding indebtedness was approximately $9,525,000 in 2012 compared to approximately $11,721,000 in 2011. The reduction in outstanding indebtedness primarily reflects the replacement of a $4,340,000 cash collateral deposit previously placed with the Company’s casualty insurance provider with a bank letter of credit on March 1, 2012. After adjusting for the impact of the letter of credit issuance and the resultant reduction of outstanding revolving credit, the borrowings under the revolving credit line were higher in the first half of 2012 compared to the prior year.

Income taxes are recorded based upon the effective rate for the year estimated at the end of each quarter. The effective rate estimated as of June 30, 2012 was 37% compared to 35.5% for the first half of 2011.

A discussion of operations by segment follows.

Construction Products

The table below presents a summary of operating information for the two reportable segments within the Construction Products group for the six months ended June 30, 2012 and July 2, 2011 (amounts in thousands):

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Concrete, Aggregates and Construction Supplies Segment

Sales in the Concrete, Aggregates and Construction Supplies segment increased by just 1.3% in the first six months of 2012 compared to the first six months of the prior year. The same unfavorable market and demand factors mentioned in the analysis for the second quarter were also relevant to the first half of 2012. Concrete yardage decreased by 10.7% compared to the first six months of 2011. Concrete volume in Pueblo was particularly weak. Sales of aggregates (sand, crushed limestone and gravel) including those used internally were approximately 23.7% higher in the first six months of 2012 compared to the first six months of 2011. As in the second quarter this additional aggregate demand was for lower priced secondary products. See discussion for the second quarter regarding the status of the Pikeview Quarry. The combined gross profit ratio for the CACS segment in the first half of 2012 was approximately 3.0 points lower compared to the first half of 2011 for the reasons noted in the second quarter commentary plus lower concrete volume in Pueblo. Selling and administrative expenses were lower in the first six months of 2012 as a result of reduced expenses in connection with the Pikeview insurance claim litigation.

Door Segment

Sales during the first six months of 2012 in the Door segment increased $449,000 or 7.5% from the comparable 2011 period. The gross profit ratio in 2012 declined by 4.0 points due to more competitive bid prices.

HVAC Products

The table below presents a summary of operating information for the two reportable segments within the HVAC products group for the six months ended June 30, 2012 and July 2, 2011 (amounts in thousands):

Heating and Cooling Segment

Sales in the Heating and Cooling segment increased by $367,000 (2.5%) in the first half of 2012 from the comparable period in 2011. Furnace sales for the first six months of 2012 declined by 10.6% compared to the first six months of 2011. In 2011 some rehabilitation projects at multi-family dwellings boosted furnace sales. There were little of these same sales opportunities available in 2012. Fan coil sales were significantly higher on a percentage basis as that particular market is showing signs of a recovery from a particularly slow period. The gross profit ratio for this segment improved by 3.3 points due a substantial improvement in fan coil margins from an unacceptably low level experienced in the first half of 2011. Selling and administrative expenses increased by $551,000 due to increased sales incentives for furnace customers and higher legal expenses related to product liability claims.

Evaporative Cooling Segment

Sales in the Evaporative Cooling segment increased by 2.3% in the first six months of 2012 compared to the 2011 first half. However, unit shipments were down by 2%. The gross profit ratio was modestly lower than a year ago. Some increased material costs and higher factory overheads more than offset the increase in selling prices. Selling and administrative costs increased by $214,000. Additional sales promotion and advertising expenses and new product development efforts contributed to the higher sales and administrative expenses. As a percentage of sales, these expenses increased from 10.6% to 11.7%.

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CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States which require the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of June 30, 2012 and December 31, 2011 and affect the reported amounts of revenues and expenses for the periods reported. Actual results could differ from those estimates.

Information with respect to the Company’s critical accounting policies which the Company believes could have the most significant effect on the Company’s reported results and require subjective or complex judgments by management is contained in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2011.

OUTLOOK

The revenues of the CACS segment are dependent on the level of construction activity along the Front Range in Southern Colorado. Bidding activity has begun to exhibit modest improvement. However, despite announced concrete pricing increases to the building trades, the pricing on most bid jobs remains highly competitive. Future increases in cement and/or diesel costs could also pressure margins.

The Door segment’s sales are also, to a significant extent, reliant on new construction. The sales backlog of the Door segment at the end of the second quarter of 2012 was comparable to both the 2011 year-end and July 2, 2011 levels. Pricing is expected to remain highly competitive.

July typically marks the end of the selling season for evaporative coolers. Unit sales in the first part of July 2012 were running slightly below expectations.

In-season furnace sales later this year will be largely weather-dependent. Fan coil sales are generally driven by the level of commercial construction, particularly the development of new hotels. Recent bidding activity indicates that the commercial construction market may be slowly improving from a period of very weak demand over the past few years. Competitive pricing is expected to persist.

RECENTLY ISSUED ACCOUNTING STANDARDS

See Note 4 for a discussion of recently issued accounting standards.

MATERIAL CHANGES TO CONTRACTUAL OBLIGATIONS

There were no material changes to contractual obligations that occurred during the quarter ended June 30, 2012.

FORWARD-LOOKING STATEMENTS

The foregoing discussion contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended. Such forward-looking statements are based on the beliefs of the Company’s management as well as on assumptions made by and information available to the Company at the time such statements were made.  When used in this Report, words such as “anticipates,” “believes,” “contemplates,” “estimates,” “expects,” “plans,” “projects,” and similar expressions are intended to identify forward-looking statements. Actual results could differ materially from those projected in the forward-looking statements as a result of factors including but not limited to: weather, interest rates, availability of raw materials and their related costs, national and local economic conditions, competitive forces and changes in governmental regulations and policies. Some of these factors are discussed in more detail in the Company’s 2011 Annual Report on Form 10-K. Changes in accounting pronouncements could also alter projected results. Forward-looking statements speak only as of the date they were made, and the Company undertakes no obligation to update them.

Item 3.         Quantitative and Qualitative Disclosures About Market Risk

There were no material changes in the market risks or legal proceedings that the Company is exposed to since those discussed in the Company’s 2011 Annual Report on Form 10-K.

Item 4.                     Controls and Procedures

(a)                     Evaluation of Disclosure Controls and Procedures.

The Company’s Chief Executive Officer and Chief Financial Officer, with the participation of management, have evaluated the effectiveness of the Company’s disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (Exchange Act) as of June 30, 2012. The Chief Executive Officer and Chief

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Financial Officer, based on that evaluation, concluded that our disclosure controls and procedures were effective and were reasonably designed to ensure that all material information relating to the Company (including its subsidiaries) required to be disclosed in this quarterly report is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission.

(b)                     Changes in Internal Control Over Financial Reporting.

The Company continually reassesses its internal control over financial reporting and makes changes as deemed prudent.  During the quarter ended June 30, 2012, there were no material weaknesses identified in our review of internal control over financial reporting and no significant changes in the Company’s internal control over financial reporting occurred during the quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II - OTHER INFORMATION

Item 2.                     Unregistered Sales of Equity Securities and Use of Proceeds

The Company has not purchased any of its common stock to become treasury stock during the period April 1, 2012 through June 30, 2012.  However, the Company reserved 150,000 treasury shares representing the maximum number allowed to be granted under the 2010 Non-Employee Directors Stock Plan (“Plan”) to non-employee directors in lieu of a cash base director retainer fee. The Company issued a total of 12,000 shares to eight eligible members of the Board of Directors effective January 6, 2012 as payment of the base director retainer fee for 2012.

On January 19, 1999, the Company initiated purchases under the current open-ended program to repurchase its common stock. Purchases are made on the open market or in block trades at the discretion of management. The dollar amount authorized for the program has been periodically increased by the Board of Directors and approved by the Company’s lender under the Company’s prior credit facility. As of June 30, 2012, $1,307,404 of the authorized amount remains available for stock purchases. The Company’s credit agreement contains certain restrictions on the Company’s ability to repurchase its stock. Amendments to the credit agreement have retained these restrictions.

Item 4.                     Mine Safety Disclosure

The Company’s aggregates mining operations, all of which are surface mines, are subject to regulation by the Federal Mine Safety and Health Administration (MSHA) under the Federal Mine Safety and Health Act of 1977 (as amended, the “Mine Act”). MSHA inspects these operations on a regular basis and issues various citations and orders when it believes a violation of the Mine Act has occurred. Information concerning mine safety violations and other regulatory matters required to be disclosed by Section 1503(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act and Item 104 of SEC Regulation S-K is included in Exhibit 95 to this quarterly report on Form 10-Q.

Item 6.                                 Exhibits

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*     Pursuant to Rule 406T of Regulation S-T, the XBRL related information in Exhibit 101 to this Quarterly Report on Form 10-Q shall not be 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.

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.