UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

FORM 10-Q

For the quarterly period ended September 28, 2013

OR

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 November 7, 2013: 1,646,674.

PART I — FINANCIAL INFORMATION

Item 1.         Financial Statements

CONTINENTAL MATERIALS CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

SEPTEMBER 28, 2013 and DECEMBER 29, 2012

 (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 SEPTEMBER 28, 2013 AND SEPTEMBER 29, 2012

(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 OPERATIONS AND RETAINED EARNINGS

FOR THE NINE MONTHS ENDED SEPTEMBER 28, 2013 AND SEPTEMBER 29, 2012

(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 NINE MONTHS ENDED SEPTEMBER 28, 2013 AND SEPTEMBER 29, 2012

(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 SEPTEMBER 28, 2013

(Unaudited)

1.              Basis of Presentation:

The unaudited interim condensed consolidated financial statements included herein are prepared pursuant to the Securities and Exchange Commission (the “Commission”) rules and regulations for reporting on Form 10-Q. Accordingly, certain information and footnote disclosures normally accompanying the annual consolidated financial statements have been omitted. The condensed consolidated balance sheet of the Company as of December 29, 2012 has been derived from the audited consolidated balance sheet of the Continental Materials Corporation, together with its subsidiaries, as applicable, (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 Annual Report on Form 10-K for the fiscal year ended December 29, 2012 (the “2012 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. Certain reclassifications have been made to the fiscal 2012 Consolidated Financial Statements to conform to the 2013 presentation. The reclassifications had no effect on the consolidate results of operations, the net increase in cash or the total assets, liabilities or shareholders equity of the Company.

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 2013 that the Company believes it will be unable to utilize prior to the expiration of their carry-forward periods. The Company also established a valuation reserve related to the carry-forward of the long-term capital loss generated by the sale of the stock of Rocky Mountain Ready Mix Concrete, Inc. on July 17, 2009 due to the uncertainty that the Company will be able to generate offsetable long-term capital gains prior to the 2014 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.

The Company’s income tax returns are subject to audit by the Internal Revenue Service (the “IRS”) and state tax authorities. The amounts recorded for income taxes reflect the Company’s tax positions based on research and interpretations of complex laws and regulations. The Company accrues liabilities related to uncertain tax positions taken or expected to be taken in its tax returns. The IRS has completed examinations for periods through 2009. 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 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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Note Receivable from Related Party: It was not practical to estimate the fair value of long-term receivables and payables with related parties. The terms of the amount reflected in the balance sheet at December 29, 2012 are more fully discussed in the Form 10-K for the fiscal year ended December 29, 2012.

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.              On July 27, 2012, the Financial Accounting Standards Board (FASB) issued Accounting Standard Update (ASU) 2012-02, Intangibles — Goodwill and Other (Topic 350); Testing Indefinite-Lived Assets for Impairment. ASU 2012-02 provides entities with an option to first assess qualitative factors to determine whether events or circumstances indicate that it is more likely than not that the indefinite-lived intangible asset is impaired. If an entity concludes that it is more than 50% likely that an indefinite-lived asset is not impaired, no further analysis is required. However, if an entity concludes otherwise, it would be required to determine the fair value of the indefinite-lived intangible asset to measure the amount of actual impairment, if any, as currently required under United States Generally Accepted Accounting Principles (US GAAP). ASU 2012-02 is effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012. The adoption of this pronouncement did not have a material impact on the Company’s financial statements.

There are currently no 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 nine months of 2013 are not necessarily indicative of performance for the entire year due to the seasonality of most of the Company’s products. Historically, sales of the Evaporative Cooling segment are higher in the first and second quarters, sales of the Concrete, Aggregates and Construction Supplies (CACS) segment are higher in the second and third quarters and sales of the Heating and Cooling segment are higher in the third and fourth quarters. Sales of the Door segment are generally more evenly spread throughout the year.

6.              There is no difference in the calculation of basic and diluted earnings per share (EPS) for the three-month or nine-month periods ended September 28, 2013 and September 29, 2012 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. The Company has identified two reportable segments within each of the industry groups: the Heating and Cooling segment and the Evaporative Cooling segment in the HVAC industry group and the CACS segment and the Door segment in the Construction Products industry group.

The Heating and Cooling segment 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. 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., both located in Colorado Springs, Colorado and Transit Mix of Pueblo, Inc. of Pueblo, Colorado (the three companies collectively are referred to as “TMC”). The Door segment sells hollow metal doors, door frames and related hardware, wood doors, lavatory fixtures and electronic access and security systems from the Company’s wholly-owned subsidiary, McKinney Door and Hardware, Inc. (MDHI) which operates out of facilities in Pueblo and Colorado Springs, Colorado. Sales of these two segments are highly concentrated in the Southern Front Range of Colorado although door sales are also made throughout the United States.

In addition to the above reporting segments, an “Unallocated Corporate” classification is used to report the unallocated expenses of the corporate office which provides treasury, insurance and tax services as well as strategic business planning and general management services. Expenses related to the corporate information technology group are allocated to all locations, including the corporate office. An “Other” classification is used to report a real estate operation and the activity of Williams EcoLogix, Inc. (WEI). WEI is a wholly owned subsidiary of Continental Materials Corporation which was set up in anticipation of distributing a product that was being developed by a third party. Development of the product has ceased and the sole employee was terminated in February 2013. WEI is currently dormant and the Company does not expect to incur any additional significant expenses related to this subsidiary.

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

The following table presents information about reported segments for the nine-month and three-month periods ended September 28, 2013 and September 29, 2012 along with the items necessary to reconcile the segment information to the totals reported in the financial statements (dollar amounts in thousands):

(a)           Segment assets are as of December 29, 2012.

(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 2012 Form 10-K.

8.              Identifiable amortizable intangible assets as of September 28, 2013 include a restrictive land covenant and customer relationships. Collectively, these assets were carried at $132,000, net of $588,000 accumulated amortization. The pre-tax amortization expense for intangible assets during the quarter ended September 28, 2013 was $14,000 compared to $16,000 for the quarter ended September 29, 2012, and was $44,000 for the nine months ended September 28, 2013 as compared to $49,000 for the nine months ended September 29, 2012.

Based upon the intangible assets recorded on the balance sheet at September 28, 2013, amortization expense for the next five years is estimated to be as follows: 2013 – $58,000; 2014 – $52,000; 2015 – $45,000; 2016 – $21,000 and 2017 – $0.

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 February 11, 2013 as full payment for their 2013 retainer fee. 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. All shares were issued under the 2010 Non-Employee Directors Stock Plan.

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11.       The Company entered into an Amended and Restated Credit Agreement (the “Credit Agreement”) effective November 18, 2011 which provided the Company with a revolving credit facility in the amount of $20,000,000 (“Revolving Commitment”) and funded a term loan in the original principal amount of $4,648,000. 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 Commitment 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 Offered Rate (LIBOR) or prime rate based option.

The Credit Agreement either limits or requires prior approval by the lender of additional borrowings, acquisition of stock of other companies, purchase of treasury shares and payment of cash dividends. Payment of accrued interest is due monthly or at the end of the applicable LIBOR period 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 the First Amendment to Credit Agreement effective March 21, 2013 to reduce the Revolving Commitment to $15,000,000 and to modify certain of the financial covenants, related definitions and test dates. Capitalized terms used, but not otherwise defined herein, have the meanings ascribed thereto in the Credit Agreement. The Credit Agreement as amended provides for the following:

·                  The Company must not permit Earnings Before Interest, Taxes, Depreciation and Amortization (Minimum EBITDA) to be less than $1,500,000 for the nine month period ending September 28, 2013 or permit the Minimum EBITDA to be less than $2,500,000 for the fiscal year ending December 28, 2013.

·                  The Minimum Fixed Charge Coverage Ratio is not permitted to be below 1.0 to 1.0 for the Computation Period ending March 29, 2014 increasing to 1.15 to 1.0 for the Computation Period ending June 28, 2014 and each Fiscal Quarter end thereafter.

·                  The Company must maintain a Minimum Tangible Net Worth as of the last day of any Computation Period of $35,000,000 increased by (but not decreased by) 50% of the Consolidated Net Income beginning with the 2013 fiscal year.

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

·                  With respect to the Computation Periods ending March 30, 2013 and June 29, 2013, if the Revolving Outstandings are less than $5,000,000 and Excess Availability is greater than $5,000,000, then the only financial covenants under the Credit Agreement to be tested in respect of such Computation Periods shall be Tangible Net Worth and the Balance Sheet Leverage Ratio.

·                  The Company must pay within 120 days after the end of each Fiscal Year, an amount equal to fifty percent of Excess Cash Flow for such Fiscal Year. The lender waived this covenant for the 2012 fiscal year.

·                  Annual capital expenditures may not exceed $4,000,000.

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

·                  The maturity date of the credit facility is 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%.

Definitions under the Credit Agreement as amended are as follows:

·                  Minimum 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. There are no loans owed by any of the referenced parties at September 28, 2013 or as of the date of this filing except for a fully reserved loan of $352,000 to the former president of WEI made during the first quarter of fiscal 2011in conjunction with his relocation.

·                  Excess Cash Flow is defined as meaning for any period, the remainder of (a) Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) for such period, minus (b) the sum, without duplication, of (i) scheduled repayments of principal of the term loan made during such period, plus (ii) voluntary prepayments of the term loan during such period, plus (iii) mandatory prepayments of the term loan during such period to the extent the amount of such mandatory prepayment was included in EBITDA for such period, plus (iv) cash payments made in such period with respect to capital expenditures, plus (v) all income taxes paid in cash by the Company during such period, plus (vi) cash interest expense of the Company during such period.

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

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

12.       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.

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

The Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) is intended to help investors understand the Company’s results of operations, financial condition and current business environment. The MD&A is provided as a supplement to, and should be read in conjunction with, the Company’s unaudited consolidated financial statements and related notes included elsewhere in this Quarterly Report and the 2012 Form 10-K.

Company Overview

For an overview of the Company’s operations and operating structure, see Note 7 to the condensed consolidated financial statements contained in this Quarterly Report.

Liquidity and Capital Resources

Various factors affect the sales of the Company’s products which in turn, can impact the Company’s liquidity and capital resources. 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 construction activity along the Southern Front Range of Colorado to improve from the 2012 level but not fully recover to pre-2009 levels.

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 is likely to continue; however, the Company ended 2012 with sufficient cash such that borrowing against the revolving credit facility was limited to $100,000 for one day during the nine months ended September 28, 2013.

Cash provided by operations was $1,819,000 during the first nine months of 2013 compared to the $1,554,000 of cash provided during the first nine months of 2012. The Company’s operating cash flow during the first nine months of 2013 was positive despite the operating loss primarily due to a decrease in receivables and the proceeds from the sale of the real estate held for resale. The Company’s operating cash flow during the first nine months of 2012 was positive despite the operating loss primarily due to a net reduction in working capital during the first nine months of 2012.

During the nine months ended September 28, 2013, investing activities used $1,925,000 of cash compared to the $1,457,000 of cash used in the prior year’s period. The Company continued to closely monitor capital expenditures during the first nine months of 2013 despite the growth in sales volume. Capital expenditures for both periods remain well below historical levels. The 2013 purchases primarily represent purchases of manufacturing equipment and related tooling and dies to improve efficiency in the HVAC and the purchase of five 2009 used mixer trucks with a modest amount of mileage in the CACS segment in response to increased concrete sales volume.

Financing activities during the first nine months of 2013 used $500,000. Financing activities during the first nine months of 2012 used $260,000. Scheduled debt repayments were made during both the 2013 and 2012 nine-month periods. The Company also purchased $125,000 of Company stock in June 2013. During the first nine months of 2012, the Company provided a letter of credit to replace the $4,340,000 of cash deposited with the insurance company for self-insured claims. The returned cash was used to repay the outstanding revolving credit borrowings bank loan.

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The Credit Agreement

As discussed in Note 11 to the condensed consolidated financial statements contained in this Quarterly Report, the Company maintains a Credit Agreement, which as amended, provides for a Revolving Commitment of $15,000,000 and a term loan that had an original principal balance of $4,648,000 and an outstanding principal balance as of September 28, 2013 of $3,533,000. 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 Commitment are limited to 80% of eligible accounts receivable and 50% of eligible inventories. Borrowings under the Credit Agreement bear interest based on a LIBOR or prime rate based option.

The Credit Agreement either limits or requires prior approval by the lender of additional borrowings, acquisition of stock of other companies, purchase of treasury shares and payment of cash dividends. Payment of accrued interest is due monthly or at the end of the applicable LIBOR period 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 had outstanding borrowings against the revolving credit facility for one day during the second quarter of 2013. The Company used a portion of the cash received from the settlement of the Pikeview litigation in December 2012 to pay off all of the then outstanding revolving credit. At all times since the inception of the Credit Agreement, the Company has had sufficient qualifying and eligible assets such that the entire revolving credit facility was available to the Company.

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 was in compliance with all debt covenants as of September 28, 2013 and expects to be in compliance with all loan covenants through fiscal year-end 2013. However, beginning with the end of the first fiscal quarter of 2014, a trailing twelve-month Fixed Charge Coverage Ratio of at least 1.0 to 1.0 is required. Attaining the required fixed charge coverage will in part depend on the operating results in the first quarter of 2014 and the level of capital spending for the twelve-month covenant period. Currently, the Company is not certain that it will attain the required fixed charge coverage in 2014. However, due to the low level of secured funded debt, a Balance Sheet Leverage Ratio of .09 to 1.0 as of the end of the third quarter of 2013, substantial credit availability under the revolving credit line and expectations of modest revolving credit requirements over the next twelve months, the Company expects to be able to negotiate a satisfactory financing arrangement with its present lender in the event it cannot attain the required Fixed Charge Coverage Ratio.

Results of Operations - Comparison of the Three Months Ended September 28, 2013 to the Three Months Ended September 29, 2012

(In the ensuing discussions of the results of operations the Company defines the term gross profit as 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 third quarter of 2013 were $28,865,000, a decrease of $301,000 or 1.0% compared to the third quarter of 2012. Sales in the CACS segment declined $858,000 (6.8%). An increase in ready mix concrete sales was more than offset by lower sales of aggregates and construction supplies. The lower aggregate sales reflect the low production yields from the Company’s Pueblo gravel operation. Sales in the Door segment were $908,000 (29.5%) higher in the third quarter of 2013 compared to the comparable 2012 quarter. Sales in the Heating and Cooling segment were $796,000 (10.4%) lower in the third quarter of 2013 compared to the same period in 2012. The lower sales for this segment are attributable to a still weak demand for fan coils due to a slower pace of new hotel construction. Sales in the Evaporative Cooling segment were $531,000 (9.4%) higher in the third quarter of 2013 compared to the third quarter of the prior year. The higher evaporative cooler sales reflect a combination of moderately higher unit volume and an increase in average selling prices.

The consolidated gross profit ratio in the third quarter of 2013 was 17.7% compared to 19.0% in the same period of 2012. The CACS segment experienced a decline of 5.8 points in its gross profit ratio principally due to the low yields and higher costs of the Pueblo gravel operation. The gross profit ratio in the Door and Evaporative Cooling segment improved while the gross profit ratio in the Heating and Cooling segment was just slightly lower.

Consolidated selling and administrative expenses, excluding expenses related to the WEI project, remained virtually the same as the year-ago period. As a percentage of consolidated sales, selling and administrative expenses were 16.5% in both the third quarter of 2013 and 2012.

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Depreciation and amortization charges in the third quarter of 2013 were $156,000 less than in the third quarter of 2012. This reduction reflects the reduced level of capital spending in the past three years especially in the CACS segment.

The operating loss in the third quarter of 2013 was $337,000 compared to an operating loss of $165,000 in the third quarter of the prior year. The operating loss of the CACS segment was $520,000 higher in the third quarter of 2013 compared to the same quarter of 2012.

Net interest expense includes interest on outstanding funded debt, finance charges on outstanding letters of credit, the fee on the unused revolving credit line and other recurring fees charged by the lending bank. In the third quarter of 2013 net interest expense was $95,000 compared to $135,000 in the third quarter of 2012. The weighted average interest rate on outstanding funded debt in the third quarter of 2013, including the fee on the unused line of credit and other recurring bank charges but excluding finance charges on letters of credit was approximately 6.4% compared to 5.7% in the third quarter of 2012. Average outstanding funded debt in the third quarter of 2013 was $3,533,000. There was no outstanding revolving credit at any time during the third quarter of 2013. In the third quarter of 2012 average outstanding funded debt was $7,733,000 consisting of $3,700,000 of revolving credit and $4,033,000 of term debt. At the end of the third quarter of 2013 the outstanding term debt was $3,533,000 compared to $4,033,000 at the end of the third quarter of 2012. There was no outstanding revolving credit at the end of the third quarter of 2013 compared to $3,800,000 outstanding at the end of the third quarter of 2012.  The Company used a portion of the cash received from the settlement of the Pikeview litigation in December 2012 to pay off all of the then outstanding revolving credit. The reduction in outstanding term debt reflects the scheduled quarterly repayments.

The Company’s effective income tax rate reflects federal and state statutory income tax rates adjusted for non-deductible expenses, tax credits and other tax items. The estimated effective income tax rate in the third quarter of 2013 was a benefit of 43.9% compared to an estimated benefit of 35.7% for the third quarter of 2012.

The Company operates four businesses in two industry groups. The businesses are seasonal, weather sensitive and subject to cyclical factors. The following addresses various aspects of operating performance focusing on the reportable segments within each of the two industry groups.

Construction Products

The table below presents a summary of operating information for the two reportable segments within the Construction Products industry group for the three months ended September 28, 2013 and September 29, 2012 (dollar amounts in thousands):

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Concrete, Aggregates and Construction Supplies Segment

The product offerings of the CACS segment consist of ready mix concrete, aggregates and construction supplies. Ready mix concrete and aggregates are produced at multiple locations in or near Colorado Springs and Pueblo, Colorado. Construction supplies encompass numerous products purchased from third party suppliers and sold to the construction trades particularly concrete sub-contractors. In the third quarter of 2013, concrete, aggregates and construction supplies accounted for approximately 70%, 21% and 9% of sales of the CACS segment, respectively, including aggregates consumed internally in the production of concrete. In the third quarter of 2012, the sales mix between concrete, aggregates and construction supplies was 62%, 26% and 12%, respectively. Sales including aggregates consumed internally were virtually unchanged in the third quarter of 2013 compared to the same period in 2012. Sales to third parties decreased $858,000 (6.8%). An increase in concrete sales was more than offset by lower aggregate and construction supply sales. Ready mix concrete sales, excluding flow fill material, increased by $1,053,000 (13.5%) in 2013. Concrete volume increased by just 3.6 %. Average concrete prices, excluding flow fill material, increased by approximately 9.5% compared to 2012. Most of this increase is reflective of higher selling prices. Changes in product mix had a nominal impact on the change in average selling price. While concrete prices have increased, the market remains sharply competitive especially on large construction projects. Cement costs per yard increased by 10.6% in the third quarter of 2013 compared to the same period in 2012. Cement is the highest cost raw material used in the production of ready mix concrete. Batching cash costs per yard were 5.6% higher in the third quarter of 2013 compared to the third quarter of 2012. Delivery cash costs per yard were 24.7% higher. In the third quarter of 2013 independent contract trucking was utilized to service certain jobs. No outside trucking services were utilized in the third quarter of 2012. Delivery wages and related payroll benefit expenses, repairs and maintenance and diesel fuel costs per yard were $1.75, $1.60 and 36¢ higher in 2013, respectively. The gross profit ratio from concrete declined from 8.8% in the third quarter of 2012 to 6.5% in 2013. Sales of flow fill material were not material in either quarter.

The CACS segment also produces and sells sand, crushed limestone and gravel (collectively “aggregates”) from various deposits in and around Colorado Springs and Pueblo, Colorado. In the third quarters of 2013 and 2012, aggregates were produced from four separate locations; two in or near Colorado Springs and two in or near Pueblo. Sales volume (tons) of construction aggregates, including those used internally in the production of ready mix concrete, decreased by 44.4% in the third quarter of 2013 compared to the third quarter of 2012. Average selling prices, excluding delivery charges, increased 2.5%. Net sales of construction aggregates, including those consumed internally in the production of concrete and including delivery charges, decreased by 29.9%. At the gravel operation located on the east side of Pueblo, the Company is currently encountering a very high ratio of sand to rock. Except for the sand required in the production of concrete, the demand for sand in the Pueblo area is very weak. This low yield of saleable products had a significant adverse impact on sales volume, unit costs and gross profits at the Pueblo aggregate operation. Sales volume (tons) from the Pueblo gravel operation in the third quarter of 2013 was 42.5% below the year ago quarter. In the third quarter of 2012 the aggregates division sold approximately 59,500 tons of recycled concrete most of it for one project. Sales of recycled concrete in 2013 were nominal. The lower sales volume of the Pueblo gravel operation and recycled concrete accounted for all of the diminished aggregate sales. The Company’s Colorado Springs’ sand operation also produces industrial sand used in well fracking, the production of stucco and other purposes.  As a percentage of total tons of aggregates sold in the third quarter of 2013 and 2012, industrial sand sales were only approximately 1.4% and 1.1%, respectively. Overall production volume of all limestone sand and gravel products was 2.2% higher in the third quarter of 2013 compared to the same period in 2012. The loss (negative gross profit) from all aggregate operations in the third quarter of 2013 was $69,000 compared to gross profit of $539,000 in the third quarter of 2012. The diminished results can virtually all be attributed to the Pueblo sand and gravel operation.

Sales of construction supplies decreased by $442,000 (28.3%) in the third quarter of 2013 compared to the prior year quarter. Management was less aggressive in bidding some jobs in an effort to improve the gross profit ratio. The gross profit increased to 13.1% from 12.0% in 2012.

Depreciation expenses decreased by $148,000 reflecting a lower level of capital spending in the last three years.

Selling and administrative expenses were $103,000 lower in the third quarter of 2013 compared to the same period in 2012. In the third quarter of 2012 expenses associated with the Pikeview insurance litigation were $180,000.

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The prices of two commodities, cement and diesel fuel, can have a significant effect on the results of operations of this segment.  The Company negotiates cement prices with producers who have production facilities in or near the concrete markets that the Company serves. The Company may negotiate separate cement prices for large construction projects depending on the demand for and availability of cement from the local producers. The Company buys diesel fuel from local distributors and occasionally enters into a short term arrangement with a distributor whereby the price of diesel fuel is fixed for a period of up to six months. In the past year the Company has not hedged diesel fuel prices. Increases in the cost of these two commodities have a direct effect on the results of operations depending upon whether competitive conditions prevailing in the marketplace enable the Company to adjust its selling prices to recover the increased costs.

Door Segment

The Door segment sells hollow metal doors, door frames and related hardware, wood doors, lavatory fixtures and electronic access and security systems.  Nearly all of the Door segments sales are for commercial and institutional buildings such as schools and healthcare facilities.  Approximately 65% to 70% of the sales of the Door segment are related to jobs obtained through a competitive bidding process.  Bid prices may be higher or lower than bid prices on similar jobs in the prior year.  The Door segment does not track unit sales of the various products through its accounting or management reporting.  Management relies on the level of the sales backlog, the trend in sales and the gross profit rate in managing the business.

Door sales in the third quarter of 2013 were $908,000 (29.5%) more than in the third quarter of the previous year. The construction markets in general and within the State of Colorado in particular continue to demonstrate a recovery from the weak demand experienced during the recent slow construction period. Bidding activity since the beginning of 2012 has remained steady although bid prices are still competitive. The gross profit ratio in the third quarter of 2013 was 23.3%, up from 21.2% in the comparable quarter of 2012. The increase in the gross profit ratio is reflective of the higher sales volume which allowed for better labor efficiency coupled with the fixed nature of some of the shop overhead costs.

Sales and administrative expenses decreased by $14,000 compared to the third quarter of 2012 in spite of the higher sales principally due to some reduction in employee healthcare expenses. As a percentage of sales, sales and administrative expenses were 13.0% and 17.3%, respectively, in the third quarters of 2013 and 2012.

The Door segment sales backlog at the end of the third quarter of 2013 was $5,479,000 compared to $4,682,000 a year ago.

HVAC Products

The table below presents a summary of operating information for the two reportable segments within the HVAC products industry group for the three months ended September 28, 2013 and September 29, 2012 (dollar amounts in thousands):

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Heating and Cooling Segment

In the third quarter of 2013, approximately 77% of sales in the Heating and Cooling segment consisted of wall furnaces and heaters. Fan coils accounted for 18% of the segment’s sales and other products made up the remaining 5%. In the third quarter of 2012 these shares of total segment sales were 67%, 29% and 4%, respectively. Overall sales in the Heating and Cooling segment in the third quarter of 2013 decreased by $796,000 (10.4%) compared to the same period in 2012. Unit shipments of furnaces and heaters were 3.0% lower in the third quarter of 2013 compared to the third quarter of 2012. Dollar sales of furnaces and heaters were approximately 4.0% higher in the third quarter of 2013 as average selling prices were about 7.4% higher compared to a year ago. Approximately one-half of the increase in the average price represents price increases and the other half reflects sales mix factors.

Sales of fan coils decreased by $1,041,000 compared to the third quarter of 2012. Typically, approximately 90% of the sales of fan coils are custom-made systems for hotels and other commercial buildings. Demand for fan coils remains soft due principally to a still relatively slow pace of new hotel construction, although in recent months the level of construction spending in the lodging industry in the United States has improved. Fan coil jobs are obtained through a competitive bidding process. Since every bid job is a unique configuration of materials and parts, the company does not track units of sales or production as such unit volume data would not be useful in managing the business. Management focuses on the current level of sales, the sales backlog, and the contribution margin in managing the fan coil business. Contribution margin is measured by deducting variable manufacturing costs and variable selling expenses from sales for a particular product line and is used as an internal measure of profitability for a product or product line. The fan coil contribution margin percentage in the third quarter of 2013 was at a satisfactory level but did drop by approximately 3 percentage points compared to the third quarter of 2012. The fan coil sales backlog at the end of the third quarter of 2013 was approximately $1,247,000 compared to $562,000 a year ago.

The Heating and Cooling segment’s gross profit ratio for the third quarter of 2013 was 27.7% compared to 28.0% in the third quarter of 2012. The lower gross profit ratio is attributable to a reduced level of furnace production.

Selling and administrative expenses in the third quarter of 2013 were $62,000 lower than the third quarter of the previous year.  Legal expenses were approximately $139,000 lower in the 2013 quarter. As a percentage of sales, selling and administrative expenses were 25.0% in the third quarter of 2013 compared to 23.2% in 2012.

Evaporative Cooling Segment

Unit sales of evaporative coolers in the third quarter of 2013 were approximately 8.3% higher than in the third quarter of 2012. Sales revenues increased by $531,000, approximately 9.4%, compared to the same period in the prior year. Average selling prices per unit were just 1% higher compared to a year ago. Sales mix in the third quarter was similar between the two years. The gross profit ratio in the third quarter of 2013 was 25.2% compared to 21.6% a year ago. The improved gross profit ratio is largely attributable to an increased production level and improved factory performance. Selling and administrative expenses were $166,000 (22.6%) higher in the third quarter of 2013. As a percentage of sales, selling and administrative expenses were 14.5% and 12.9% in the third quarter of 2013 and 2012, respectively.

Both businesses in the HVAC group are sensitive to changes in prices for a number of different raw materials, commodities and purchased parts. Prices of steel and copper in particular can have a significant effect on the results of operations of this group. Neither company is currently a party to any hedging arrangements with regard to steel or copper.

Results of Operations - Comparison of Nine Months Ended September 28, 2013 to Nine Months Ended September 29, 2012

(In the ensuing discussions of the results of operations the Company defines the term gross profit as 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 nine months of 2013 were $87,935,000, an increase of $4,626,000 or 5.6% compared to the first nine months of 2012. Sales at all four of the Company’s segments were higher in 2013 except for the Heating and Cooling segment. Sales in the CACS segment increased $2,063,000 (7.0%) while sales in the Door segment improved by $2,582,000 (27.1%). The increase in sales in these two segments is reflective of the continuing but moderate improvement in the southern Colorado construction markets. Sales in the combined HVAC businesses were only about .5% higher in the first nine months of 2013 compared to the first nine months of 2012 as a $791,000 improvement in the Evaporative Cooling segment was offset by a $580,000 decline in the Heating and Cooling segment.

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The consolidated gross profit ratio in the first nine months of 2013 was 18.8% compared to 19.0% in the first nine months of 2012. A two point decline in the gross profit ratio in the CACS segment offset improved gross profit performance in the other three segments.

Selling and administrative expenses, excluding expenses related to the WEI project, in the first nine months of 2013 were $374,000 (2.5%) lower compared to the year-ago period. Lower legal expenses in CACS and Heating and Cooling segment were principal contributors to the reduced selling and administrative expenses. Also, sales and marketing expenses associated with the Heating and Cooling segment’s fan coil business were lower in 2013 reflecting the closing of the Oklahoma City sales office in the early part of 2012. As a percentage of consolidated sales, selling and administrative expenses were 16.6% in the first nine months of 2013 compared to 18.3% in the same period of the prior year.

Depreciation and amortization charges in the first nine months of 2013 were $610,000 (20.8%) less than in the first nine months of 2012. This reduction reflects the reduced level of capital spending in the past three years especially in the CACS segment.

The results for the nine months of 2013 include charges of $726,000 pertaining to the WEI. This subsidiary was established for the purpose of serving as the exclusive North American distributor of a product being developed by a third party. The performance of the product in a series of laboratory tests was not satisfactory. The owner of the technology and intellectual property ceased further development in 2013. The sole employee of the WEI was terminated in February 2013. A settlement with this employee was reached in July 2013. The expenses for 2013 include a charge of $352,000 to establish a reserve for a note receivable from this employee and a severance payment of $225,000. The 2013 expenses also include approximately $50,000 of legal expenses incurred in connection with negotiating the settlement agreement. The expenses of WEI in the first nine months of 2012, including compensation of the sole employee, were approximately $268,000. The Company expects that any future expenses related to WEI, if any, will be minimal.

The operating loss, including the WEI expenses of $726,000, in the first nine months of 2013 was $1,096,000 compared to an operating loss of $2,329,000 in the first nine months of the prior year. The prior year operating loss included $268,000 of expenses associated with WEI. The lower operating loss is reflective of improved operating results at all four of the Company’s segments. Substantially lower legal and depreciation expenses in the CACS segment were partially offset by the losses in its Pueblo aggregates operation.

In the first nine months of 2013 net interest expense was $274,000 compared to $400,000 (exclusive of amortization of deferred financing costs) in 2012. The weighted average interest rate on outstanding funded debt in the first nine months of 2013, including the fee on the unused line of credit and other recurring bank charges but excluding finance charges on letters of credit was approximately 6.6% compared to 5.7% in 2012. Excluding the effect of an interest rate swap in effect during the first quarter of 2012 the interest rate for the first nine months of 2012 would have been 5.9%. Average outstanding funded debt in the first nine months of 2013 was $3,658,000. There was only one day during the first nine months of 2013 that the Company borrowed any revolving credit funds. In the first nine months of 2012 average outstanding funded debt was $8,605,000 consisting of $4,475,000 of revolving credit and $4,130,000 of term debt.

The Company’s effective income tax rate reflects federal and state statutory income tax rates adjusted for non-deductible expenses, tax credits and other tax items. The estimated effective income tax rate related to the loss from continuing operations in the first nine months of 2013 was a benefit of 36.5% compared to an estimated benefit of 37.0% for the first nine months of 2012.

A discussion of operations by segment follows.

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Construction Products

The table below presents a summary of operating information for the two reportable segments within the Construction Products industry group for the nine months ended September 28, 2013 and September 29, 2012 (dollar amounts in thousands):

Concrete, Aggregates and Construction Supplies Segment

In the first nine months of 2013 concrete, aggregates and construction supplies accounted for approximately 69%, 22% and 9% of sales of the CACS segment, respectively, including aggregates consumed internally in the production of concrete. In the first nine months of 2012 the sales mix between concrete, aggregates and construction supplies was 62%, 27% and 11%, respectively. Sales including aggregates consumed internally increased by $2,682,000 (8.0%). Sales to third parties increased $2,063,000 (7.0%).  The higher sales reflect a continuing but moderate improvement in the local construction markets from depressed conditions that prevailed from 2009 through 2011. Ready mix concrete sales, excluding flow fill material, increased by $5,117,000 (27.9%) in 2013. Concrete volume increased by 18.8%. Average concrete prices, excluding flow fill material, increased by 7.6% compared to the first nine months of 2012. Most of this 7.6% increase is reflective of higher selling prices. Changes in product mix had a nominal impact on the change in average selling price. While concrete prices have increased, the market remains sharply competitive especially on large construction projects. Cement costs per yard increased by 9.6% in the first nine months of 2013 compared to the same period in 2012. Cement is the highest cost raw material used in the production of ready mix concrete. Batching cash costs were 98 cents per yard lower in the first nine months of 2013 compared to the same period in 2012 principally due to the efficiency typically experienced when volume improves. Delivery cash costs per yard increased by $1.06 per yard. The increase was principally attributable to drivers’ labor costs, contract trucking services and a slight increase fuel costs per yard. The gross profit ratio from concrete improved from 4.7% in the first nine months of 2012 to 7.1% in 2013. Sales of flow fill material in the first nine months of 2013 were only $41,000 compared to $721,000 in the first nine months of 2012.

In the first nine months of 2013 and 2012 aggregates were produced from four separate locations: two in or near Colorado Springs and two in or near Pueblo. Sales volume (tons) of construction aggregates, including those used internally in the production of ready mix concrete, decreased by 17.1% in 2013. Average selling prices increased by approximately 76 cents per ton or approximately 13.6%. The higher price is largely reflective of a change in product mix. Sales of aggregates, including those consumed internally in the production of concrete, decreased by approximately13.4%. As mentioned in the discussion of the third quarter results, the Company’s gravel operation located on the east side of Pueblo has encountered a high ratio of sand to rock throughout 2013. Most of the sand, except for that used by the Company in the production of ready mix concrete, is not readily salable in the current market. The low yield had a significant adverse impact on unit costs and gross profits at the Pueblo aggregate operation. The operations at the Black Canyon Quarry ceased during the second quarter while the operations at the Pikeview Quarry resumed in late May of 2013. Also, production activity at all aggregate operations in the first quarter of 2013 was hampered by weather conditions which were worse than typically experienced in the first quarter of the year. Industrial sand sales were approximately 1.2% and 2.7% of total aggregate sales volume in the first nine months of 2013 and 2012, respectively. Overall production volume of all limestone, sand and gravel products was 15% lower in the first nine months of 2013 compared

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to the same period in 2012. The gross profit from all aggregate operations in the first nine of 2013 was a negative $508,000 compared to positive $727,000 in the first nine months of 2012 principally due to the low yields and higher production costs of the Pueblo gravel operation.

Sales of construction supplies fell by $239,000 (7.2%) in the first nine months of 2013 compared to the same period in 2012. The gross profit ratio decreased slightly from 9.0% to 8.70%.

Depreciation expenses decreased by $553,000 compared to the first nine months of 2012 due to a lower level of capital spending in the last three years.

Selling and administrative expenses were $321,000 lower in the first nine months of 2013 compared to the same period in 2012.  The expenses in 2012 included $406,000 of expenses associated with the Pikeview insurance litigation.

Door Segment

Door sales during the first nine months of 2013 increased $2,582,000 or 27.1% from the comparable 2012 period. As mentioned in the discussion of the third quarter, the higher sales reflect the continuing recovery of the slow construction markets that prevailed from 2009 until 2012. The gross profit ratio increased slightly from 22.3% for the first nine months of 2012 to 22.6% for the first nine months of 2013.

Sales and administrative expenses increased by $50,000 compared to the first nine months of 2012 principally due to the higher sales volume. As a percentage of sales, these expenses were 13.6% and 16.7% in the first nine months of 2013 and 2012, respectively.

HVAC Products

The table below presents a summary of operating information for the two reportable segments within the HVAC products industry group for the nine months ended September 28, 2013 and September 29, 2012 (dollar amounts in thousands):

Heating and Cooling Segment

In the first nine months of 2013, approximately 73% of sales in the Heating and Cooling segment consisted of wall furnaces and heaters. Fan coils accounted for 22% of the segment’s sales and other products made up the remaining 5%. In the first nine months of 2012 these shares of total segment sales were 62%, 34% and 4%, respectively. Overall sales in the Heating and Cooling segment in the first nine months of 2013 decreased by $580,000 (2.6%) compared to the same period in 2012. Unit shipments of furnaces and heaters were 16.0% higher in the first nine month of 2013 compared to 2012. Most of the increase in unit sales occurred in the first quarter of the year which the Company believes was primarily weather driven. Dollar sales of furnaces and heaters were 17.3% higher in the first nine of 2013. The average selling price for a furnace was approximately 2.5% higher in 2013 compared to the prior year.

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Sales of fan coils decreased by approximately $2,826,000 (36.2%) compared to the first nine months of 2012. In addition to the slow pace of hotel construction mentioned in the prior discussion, the Company serviced a $1,800,000 hotel project in Atlanta, Georgia in the first quarter of 2012. There was no similarly sized job in the first half of 2013. Typically, approximately 90% of the sales of fan coils are custom-made systems for hotels and other commercial buildings. The jobs are obtained through a competitive bidding process. Since every bid job is a unique configuration of materials and parts, the Company does not track units of sales or production as such unit volume data would not be useful in managing the business. Management focuses on the current level of sales, the sales backlog, and the contribution margin in managing the fan coil business. Contribution margin is measured by deducting variable manufacturing costs and variable selling expenses from sales for a particular product line and is used as an internal measure of profitability for a product or product line. The fan coil contribution margin percentage in the first nine months of 2013 was at a satisfactory level and about 2.1 percentage points higher than in the first nine months of 2012.

The Heating and Cooling segment’s gross profit ratio for the first nine months of 2013 was 30.9% compared to 29.2% in the same period of 2012. The higher gross profit ratio is principally related to a higher level of furnace production, the improved fan coil contribution margin and the change in product mix as typically profit margins on furnaces and heaters are higher than the margins on fan coils.

Selling and administrative expenses in the first nine months of 2013 were $621,000 lower than the first nine months of the previous year. Legal expenses were approximately $442,000 lower in 2013 primarily due to addressing a number of product liability claims closed during 2012. In addition, marketing and sales expenses related to the fan coil product line were reduced by approximately $145,000 as a result of the closing of the Oklahoma City sales office in the early part of 2012 and the lower fan coil sales in 2013. As a percentage of sales, selling and administrative expenses were 23.6% in the first nine months of 2013 compared to 25.7% for the same period in 2012.

Evaporative Cooling Segment

Sales in the Evaporative Cooling segment increased $791,000 or 3.7% in the first nine months of 2013 compared to the comparable period in 2012. Unit sales were 3.5% lower in 2013. Average selling price per unit increased approximately 7.5%. There was a higher ratio of single inlet and commercial coolers sold in the first nine months of 2013 compared to the same period in 2012.The single inlet and commercial coolers are higher priced compared to the standard residential models. Also, parts sales were higher in 2013. Combined, the product mix and parts factors accounted for an increase in the average price of approximately 4.6%. Increases in selling prices accounted for the remaining 2.9%. The gross profit ratio increased from 23.1% in the first nine months of 2012 to 24.6% in 2013. The gross profit ratio on single inlet and commercial coolers is generally higher than on standard residential units.

Selling and administrative expenses were $233,000 higher in the 2013 period due to increased salaries, additional sales staff and new product development efforts. As a percentage of net sales these expenses were 12.7% in the first nine months of 2013 compared to 12.0% for the first nine months of 2012.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The condensed consolidated financial statements contained in this Quarterly Report have been prepared in accordance with US GAAP 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 September 28, 2013 and December 29, 2012 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 2012 Form 10-K.

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OUTLOOK

The revenues of the CACS segment are dependent on the level of construction activity along the Front Range in Southern Colorado as well as the level of price competition. Construction activity continues to exhibit modest and thus far sustained improvement during the past twelve to fifteen months. The Southern Colorado Economic Forum projects an increase of 23% in residential construction in El Paso County in 2014. The replacement of homes destroyed in the 2012 Waldo Canyon fire and the 2013 Black Forest fire is expected to be a significant contributor to the increased residential construction. The Forum also projects that commercial construction will be 20% higher in 2014 compared to 2013. The sequestration of federal government spending could have a negative influence on construction spending at the various military installations in and around Colorado Springs. Residential and commercial construction spending in Pueblo County is not expected to increase significantly in 2014 compared to 2013.

Concrete pricing has improved although the pricing on most bid jobs remains highly competitive. The Company anticipates that the delivered cost of aggregates to the Colorado Springs ready mix plants over the next few years will be lower than that experienced from the end of 2008 until May 2013 due to the reopening of the Pikeview Quarry and its proximity to the batch plants. Further improvement in the CACS operating results will depend on a sustained improvement in the Southern Colorado construction markets and the ability to maintain or enhance ready mix concrete prices especially in response to any increases in cement and/or fuel costs. The Company is working to reduce or eliminate the operating losses at the Pueblo aggregate operation. However, if the current high ratio of sand to rock persists, there can be no assurance that the losses can be readily reduced.

The Door segment’s sales are also, to a significant extent, reliant on new construction. The sales backlog of the Door segment at September 28, 2013 was 17% higher than the September 29, 2012 level, however, pricing remains competitive.

July typically marks the end of the selling season for evaporative coolers. Evaporative cooler sales in October and November are generally quite modest. Pre-season sales typically begin in December and the Company expects pre-season sales to be similar to the prior year.

In-season furnace sales will be largely weather-dependent. Fan coil sales are generally driven by the level of commercial construction, particularly the development of new hotels. Sales during 2013 to date have lagged well behind the 2012 level however; the backlog at the end of the third quarter of 2013 has more than doubled from the prior period level. According to a U.S. government economic survey, construction spending in the lodging industry in the United States is up approximately 26% as of the end of August 2013 compared to a year ago. However, such spending is still down 60% compared to the peak level reached in August 2008. The Company’s own bidding activity indicates that lodging construction spending is improving from a period of very weak demand over the past few years.

RECENTLY ISSUED ACCOUNTING STANDARDS

See Note 4 to the condensed consolidated financial statements contained in this Quarterly Report 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 September 28, 2013.

FORWARD-LOOKING STATEMENTS

This Quarterly Report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended by Section 21-E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). 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 Quarterly 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 various factors including but not limited to: weather, interest rates, availability of raw materials and their related costs, economic conditions and competitive forces in the regions where the Company does business, changes in governmental regulations and policies and the ability of the Company to obtain credit on commercially reasonable terms. Changes in accounting pronouncements could also alter projected results. Other factors not currently anticipated may also materially and adversely affect the Company’s results of operations, cash flows and financial position. There can be no assurance that future results will meet expectations. While the Company believes that the forward-looking statements in this Quarterly Report are reasonable, readers

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should not place reliance on any forward-looking statement. In addition, these statements speak only as of the date they were made. The Company does not undertake any obligation to update or alter any statements whether as a result of new information, future events or otherwise, except as may be required by applicable law.

Item 3.   Quantitative and Qualitative Disclosures About Market Risk

The Company is a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and as such, is not required to provide information in response to this item.

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 September 28, 2013. The Chief Executive Officer and Chief Financial Officer, based on that evaluation, concluded that the Company’s disclosure controls and procedures are 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 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 September 28, 2013, 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

Items 1, 1A, 3 and 5 are not applicable or the answer to such items is negative; therefore, the items have been omitted and no reference is required in this Quarterly Report.

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

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 the base director retainer fee. The Company issued a total of 12,000 shares to eight eligible board members effective February 11, 2013 as full payment of the base retainer fee for 2013. On January 6, 2012, the Company issued a total of 12,000 shares to eight eligible board members as full payment of the base retainer fee for 2012. At September 28, 2013, a total of 102,000 shares remain eligible for issuance under the Plan.

In addition, the Company purchased 8,111 share of its common stock to become treasury stock on June 17, 2013. The Company previously had established an open-ended program to repurchase its common stock under which the Board authorized purchases up to a maximum amount of $2,750,000. Repurchases may be made on the open market or in block trades at the discretion of management. As of September 28, 2013, $1,182,413 of the authorized amount remained available for stock repurchases. The Credit Agreement contains certain restrictions on the Company’s ability to repurchase its stock. The Company did not purchase any shares of common stock during the three months ended September 28, 2013.

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.

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Item 6.   Exhibits

*                 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.