<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
OR
[ ] 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: 333-34061
CAMBRIDGE, INDUSTRIES, INC.
CE AUTOMOTIVE TRIM SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
Cambridge -- DELAWARE Cambridge -- 38-3188000
CE-Michigan CD-38-2173408
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization identification No.)
555 Horace Brown Drive 48071
Madison Heights, MI (Zip Code)
(Address of principal executive offices)
(248) 616-0500 None
(Registrant's telephone number, including area code) (Name of exchange on
which registered)
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 the
filing requirements for the past 90 days. Yes [ ] No [X]
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Number of shares of Common Stock, $0.01 par value per share, outstanding at
September 30, 1999: 1,000
<PAGE>
CAMBRIDGE INDUSTRIES, INC.
FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 1999
INDEX
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C>
Part I -- Financial Information
Item 1 - Financial Statements
Condensed Consolidated Balance Sheets - September 30, 1999 and December
31, 1998 3
Condensed Consolidated Statements of Operations - Three and Nine Months
Ended September 30, 1999 and 1998 4
Condensed Consolidated Statements of Cash Flows - Nine Months Ended
September 30, 1999 and 1998 5
Notes to the Condensed Unaudited Consolidated Financial Statements
6
Item 2 - Management's discussion and analysis of financial condition and
results of operations 18
</TABLE>
2
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
CAMBRIDGE INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
-------------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash ..................................................... $ 1,347 $ 4,474
Receivables .............................................. 84,990 80,516
Inventories (Note 3) ..................................... 25,012 25,625
Reimbursable tooling costs ............................... 16,991 22,914
Deferred income taxes and other .......................... 6,336 5,788
--------- ---------
Total current assets .............................................. 134,676 139,317
Property, plant and equipment, net of accumulated
depreciation of $110,723 and $89,904, respectively .............. 188,528 193,338
Other assets ...................................................... 31,025 31,167
--------- ---------
Total assets ...................................................... $ 354,229 $ 363,822
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Current portion of long-term debt ........................ $ 14,879 $ 17,272
Accounts payable ......................................... 69,617 65,227
Accrued liabilities ...................................... 26,219 30,140
--------- ---------
Total current liabilities ......................................... 110,715 112,639
Noncurrent liabilities:
Long-term debt ........................................... 320,504 315,029
Postretirement health care benefits ...................... 25,743 23,431
Deferred income taxes and other .......................... 3,546 3,545
--------- ---------
Total liabilities ................................................. 460,508 454,644
Commitments and contingencies (Note 4)
Stockholders' equity (deficit):
Common stock, $.01 par value, 3,000 shares
Authorized, 1,000 shares issued and
outstanding ............................................ 1 --
Paid-in capital .......................................... 17,737 17,808
Accumulated other comprehensive income ................... 182 (466)
Accumulated deficit ...................................... (124,199) (108,164)
--------- ---------
Total stockholders' (deficit) ..................................... (106,279) (90,822)
--------- ---------
Total liabilities and stockholders' equity (deficit) .............. $ 354,229 $ 363,822
========= =========
</TABLE>
See accompanying Notes to Condensed Unaudited Consolidated Financial Statements
3
<PAGE>
CAMBRIDGE INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------------------- ------------------------------
1999 1998 1999 1998
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Sales .......................................... $ 129,275 $ 112,097 $ 399,922 $ 352,957
Cost of sales .................................. 120,325 102,690 357,685 315,903
--------- --------- --------- ---------
Gross profit ................................... 8,950 9,407 42,237 37,054
Selling, general and administrative expenses.... 10,560 9,210 32,303 27,744
--------- --------- --------- ---------
Income/(loss) from operations .................. (1,610) 197 9,934 9,310
Other expense (income):
Interest expense .......................... 9,222 7,988 26,589 23,664
Equity loss in joint venture .............. 348 -- 1,474 --
Other, net ................................ (158) (514) (89) (610)
--------- --------- --------- ---------
Income (loss) before income tax and change in
accounting method ........................... (11,022) (7,277) (18,040) (13,744)
Income tax expense (benefit) ................... -- (2,745) (2,201) (5,349)
Cumulative effect of accounting change,
net of tax benefit .......................... -- -- 199 --
--------- --------- --------- ---------
Net (loss) ..................................... $ (11,022) $ (4,532) $ (16,038) $ (8,395)
========= ========= ========= =========
</TABLE>
See accompanying Notes to Condensed Unaudited Consolidated Financial Statements
1998 data has been restated.
4
<PAGE>
CAMBRIDGE INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
---------------------------
1999 1998
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) ................................................. $(16,038) $ (8,395)
Adjustments to reconcile net income / (loss) to net cash provided
by operating activities:
Depreciation and amortization ..................................... 22,938 22,477
Postretirement benefit expenses, net of cash payments ............. 2,312 2,117
Income tax provision .............................................. (2,201) (5,349)
Equity loss in joint venture ...................................... 1,474 --
Cumulative effect of accounting change ............................ 311 --
Changes in assets and liabilities, excluding the effect
of acquisitions:
Receivables ....................................................... (4,474) 21,004
Inventories ....................................................... 613 1,629
Reimbursable tooling costs ........................................ 5,923 (2,085)
Accounts payable and accrued liabilities .......................... 469 (17,467)
Other ............................................................. (1,673) 1,976
-------- --------
Net cash provided by operating activities .............................. 9,654 15,907
Cash flows from investing activities:
Purchase of property, plant and equipment ......................... (17,917) (16,343)
Other ............................................................. 207 (850)
-------- --------
Net cash (used in) investing activities ................................ (17,710) (17,193)
Cash flows from financing activities:
Net change in revolving debt ...................................... 22,000 6,500
Repayment of long-term debt and capital lease obligations ......... (17,603) (6,627)
Adjustment of note due seller ..................................... 519 --
Repurchase stock .................................................. (69) --
-------- --------
Net cash provided by /(used in) financing activities ................... 4,847 (127)
-------- --------
Effect of foreign currency rate fluctuations on cash ................... 82 (306)
-------- --------
Net (decrease) in cash ................................................. (3,127) (1,719)
Cash at beginning of period ............................................ 4,474 3,788
-------- --------
Cash at end of period .................................................. $ 1,347 $ 2,069
======== ========
</TABLE>
See accompanying Notes to Condensed Unaudited Consolidated Financial Statements.
1998 data has been restated.
5
<PAGE>
CAMBRIDGE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
1. BASIS OF PRESENTATION
The accompanying condensed unaudited consolidated financial statements have been
prepared in accordance with Rule 10-01 of Regulation S-X and, in the opinion of
management, contain all adjustments, consisting of only normal recurring
adjustments, necessary to present fairly the financial position of Cambridge
Industries, Inc. and its subsidiaries (the "Company") as of September 30, 1999
and the results of its operations for the three and nine month periods ended
September 30, 1999 and 1998, and its cash flows for the nine month periods ended
September 30, 1999 and 1998.
During the fourth quarter of 1998, the Company recorded significant adjustments
that impacted reported results for the first three quarters. These adjustments
corrected the treatment of amounts applied against purchase accounting reserves
and charged them against operating expenses. The effect of these adjustments was
to reduce gross profit by $1.3 million, $.2 million and $1.2 million and
increase net loss by $1.2 million, $.1 million and $.7 million for the quarters
ending March 31, June 30 and September 30, respectively. The data above for 1998
reflect the impact of those adjustments.
The condensed unaudited consolidated financial statements should be read in
conjunction with the Company's consolidated financial statements as of December
31, 1998 and for each of the three years in the periods ended December 31, 1998,
1997, and 1996. The results of operations for the three and nine month periods
ended September 30, 1999 and 1998 are not necessarily indicative of the
operating results for the full year. Certain reclassifications have been made to
prior year financial statements to conform to the 1999 presentations.
2. CHANGES IN ACCOUNTING PRINCIPLES
The Company adopted Statement of Position 98-5, "Reporting on the Costs of
Start-Up Activities", in the first quarter of 1999. This statement requires
companies to expense all previously capitalized start up costs upon adoption and
requires all future start up costs to be treated as period costs. In accordance
with the provisions of the statement in the first quarter of 1999 the Company
wrote off $0.3 million ($0.2 million, net of tax) of start up costs associated
with its joint venture with Dos Manos Technologies.
Effective January 1, 1998, the Company adopted Statement of Financial Accounting
Standards No. 130, ("SFAS 130"), "Reporting Comprehensive Income." SFAS 130
requires that all items recognized under accounting standards as components of
comprehensive earnings be reported in an annual financial statement with the
same prominence as other items presented in the annual financial statements.
This Statement also requires that an entity classify items of other
comprehensive earnings by their nature in an annual financial statement. For
example, other comprehensive earnings may include foreign currency translation
adjustments, minimum pension liability adjustments, and unrealized gains and
losses on marketable securities classified as
6
<PAGE>
available-for-sale. Annual financial statements for prior periods will be
reclassified, as required. The Company's total comprehensive earnings were as
follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------------- ---------------------------
1999 1998 1999 1998
------ ------ ------ ------
(DOLLARS IN THOUSANDS) (DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Net (loss) $(11,022) $ (4,532) $(16,038) $ (8,395)
Other comprehensive income:
Unrealized foreign currency translation 195 (225) 648 (306)
-------- -------- -------- --------
Total comprehensive (loss) $(10,827) $ (4,757) $(15,390) $ (8,701)
======== ======== ======== ========
</TABLE>
3. INVENTORIES
At September 30, 1999 (unaudited) and December 31, 1998, inventories consist of
the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Finished goods .................................................... $ 5,301 $ 4,890
Work-in-process ................................................... 6,110 8,106
Raw materials ..................................................... 12,851 11,946
Supplies .......................................................... 1,530 1,571
-------- --------
Total .................................................... 25,792 26,513
Less allowance for obsolescence and lower of cost or market reserve (780) (888)
-------- --------
Inventories .............................................. $ 25,012 $ 25,625
======== ========
</TABLE>
4. COMMITMENT AND CONTINGENCIES
The company has letters of credit outstanding of $4,650,000 at September 30,
1999. The Company also is a guarantor of a $240,000 line of credit of an
unconsolidated equity subsidiary.
The Company is subject to lawsuits and claims pending or asserted with respect
to matters in the ordinary course of business. The Company does not believe that
the outcome of these uncertainties will have a material impact on the Company's
financial position or results of operations or cash flows.
5. BUSINESS SEGMENTS
The Company's businesses are organized, managed, and internally reported as
three segments. The segments, which are based on differences in customers and
products, technologies and services, are Automotive and Light Truck, Commercial
Truck and Industrial and Non-Automotive. The Automotive and Light Truck Industry
segment produces molded engineered plastic components for automotive original
equipment manufacturers. This segment primarily supplies components for
automotive interiors, exteriors, and power trains. The Commercial Truck Industry
segment produces molded, engineered plastics for the commercial transportation
industry. The segment
7
<PAGE>
primarily supplies external body panel components for class 4 through class 8
commercial trucks. The Industrial and Non-Automotive segment produces various
plastic components for the agricultural, appliance, commercial construction, and
recreational transportation industries. Net sales by segment exclude
inter-segment sales. Operating income consists of net sales less applicable
operating costs and expenses related to those sales. The Company's general
corporate expenses are excluded from segment operating income. Earnings before
interest, taxes, depreciation and amortization ("EBITDA") by segment consists of
operating income, other expense (income) net, adjusted for interest, taxes,
depreciation, and amortization. The Company is not dependent on any single
product or market.
CAMBRIDGE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
BUSINESS SEGMENT INFORMATION
NINE MONTHS ENDED SEPTEMBER 30
Commercial Corporate & Total
Year Automotive Truck Industrial Unallocated Company
---- ---------- ----- ---------- ----------- -------
<S> <C> <C> <C> <C> <C> <C>
Net Sales 1999 $214,947 $168,412 $16,563 $ -- $ 399,922
1998 183,758 144,670 24,529 352,957
Operating Income* 1999 13,444 9,146 (1,097) (11,559) 9,934
1998 7,695 7,694 1,031 (7,110) 9,310
EBITDA** 1999 24,468 18,080 (371) (10,690) 31,487
1998 23,394 17,575 1,870 (10,442) 32,397
THREE MONTHS ENDED SEPTEMBER 30
Commercial Corporate & Total
Year Automotive Truck Industrial Unallocated Company
---- ---------- ----- ---------- ----------- -------
<S> <C> <C> <C> <C> <C> <C>
Net Sales 1999 $ 70,345 $ 53,533 $5,397 $ -- $ 129,275
1998 59,480 46,174 6,443 -- 112,097
Operating Income* 1999 2,084 (61) (184) (3,449) (1,610)
1998 (379) 2,225 200 (1,849) 197
EBITDA** 1999 6,146 2,895 176 (3,111) 6,106
1998 7,627 5,364 351 (5,262) 8,080
</TABLE>
* Operating income includes unallocated corporate overhead expenses.
** EBITDA includes operating income, other expense (income) net, adjusted for
interest, taxes, depreciation and amortization.
8
<PAGE>
The following table reconciles EBITDA to pretax income (loss):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
EBITDA $ 6,106 $ 8,080 $ 31,487 $ 32,397
Less:
Depreciation and amortization 7,906 7,369 22,938 22,477
Interest expense 9,222 7,988 26,589 23,664
-------- -------- -------- --------
Pretax loss, before cumulative effect
of change in accounting method $(11,022) $ (7,277) $(18,040) $(13,744)
======== ======== ======== ========
</TABLE>
6. CONSOLIDATING INFORMATION
The Company's senior subordinated notes (the "Notes") are guaranteed by CE
Automotive Trim Systems, Inc. ("CE"), a wholly owned consolidated subsidiary of
the Company, but are not guaranteed by the Company's two other consolidated
subsidiaries, its Brazilian subsidiary, Cambridge Industrial do Brasil, Ltd. and
Voplex of Canada. The following condensed consolidating financial information
presents the financial position, results of operations and cash flows of (i) the
Company, as parent, as if it accounted for its subsidiaries on the equity
method; (ii) CE, the guarantor subsidiary, and (iii) Voplex of Canada and the
Brazilian subsidiary, as non-guarantor subsidiaries. Separate financial
statements of CE are not presented herein as management does not believe that
such statements are material. CE had no revenues or operations during the
periods presented. The financial position and operating results of the
non-guarantor subsidiaries do not include any allocation of overhead or similar
charges.
9
<PAGE>
CAMBRIDGE INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEET
SEPTEMBER 30, 1999
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
NON-
GUARANTOR GUARANTOR ELIMINATIONS/
PARENT SUBSIDIARIES SUBSIDIARY ADJUSTMENTS CONSOLIDATED
--------- ------------ ---------- ------------- ------------
<S> <C> <C> <C> <C> <C>
ASSETS
- ------
Current Assets
Cash ........................................ $ 495 $ 852 $ -- $ -- $ 1,347
Receivables ................................. 79,241 5,749 -- -- 84,990
Inventories ................................. 23,390 1,622 -- -- 25,012
Reimbursable tooling costs .................. 16,552 439 -- -- 16,991
Deferred income taxes and other ............. 6,281 55 -- -- 6,336
--------- --------- --------- --------- ---------
Total current assets .................... 125,959 8,717 -- -- 134,676
Property, plant and equipment, net ............... 186,284 2,244 -- -- 188,528
Other long-term assets ........................... 30,962 63 -- -- 31,025
Investment in consolidated subsidiaries .......... 6,032 -- -- (6,032) --
--------- --------- --------- --------- ---------
Total assets ............................ $ 349,237 $ 11,024 $ -- $ (6,032) $ 354,229
========= ========= ========= ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities
Current portion of long-term debt ........... $ 14,477 $ 402 $ -- $ -- $ 14,879
Accounts payable ............................ 68,672 945 -- -- 69,617
Accrued liabilities ......................... 25,724 495 -- -- 26,219
--------- --------- --------- --------- ---------
Total current liabilities ............... 108,873 1,842 -- -- 110,715
Noncurrent liabilities
Long-term debt .............................. 317,685 2,819 -- -- 320,504
Postretirement healthcare benefits .......... 25,743 -- -- -- 25,743
Deferred income taxes and other long-
term liabilities .......................... 3,546 -- -- -- 3,546
--------- --------- --------- --------- ---------
Total liabilities ....................... 455,847 4,661 -- -- 460,508
Stockholders' equity (deficit)
Common stock ................................ 1 -- -- -- 1
Paid-in capital ............................. 17,737 5,257 -- (5257) 17,737
Accum. other comprehensive income .......... (149) 331 -- -- 182
Retained earnings (accumulated deficit) ..... (124,199) 775 -- (775) (124,199)
--------- --------- --------- --------- ---------
Total stockholders' equity (deficit)..... (106,610) 6,363 -- (6,032) (106,279)
--------- --------- --------- --------- ---------
Total liabilities and stockholders'
equity (deficit) ...................... $ 349,237 $ 11,024 $ -- $ (6,032) $ 354,229
========= ========= ========= ========= =========
</TABLE>
10
<PAGE>
CAMBRIDGE INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEET
DECEMBER 31, 1998
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
NON-
GUARANTOR GUARANTOR ELIMINATIONS/
PARENT SUBSIDIARIES SUBSIDIARY ADJUSTMENTS CONSOLIDATED
--------- ------------ ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
ASSETS
- ------
Current Assets
Cash ........................................ $ 4,141 $ 333 $ -- $ -- $ 4,474
Receivables ................................. 74,310 6,206 -- -- 80,516
Inventories ................................. 23,745 1,880 -- -- 25,625
Reimbursable tooling costs .................. 22,590 324 -- -- 22,914
Deferred income taxes and other ............. 5,703 85 -- -- 5,788
--------- --------- ---------- --------- ---------
Total current assets .................... 130,489 8,828 -- -- 139,317
Property, plant and equipment, net ............... 189,559 3,779 -- -- 193,338
Other long-term assets ........................... 31,080 87 -- -- 31,167
Investment in consolidated subsidiaries .......... 6,395 -- -- (6,395) --
--------- --------- ---------- --------- ---------
Total assets ................................ $ 357,523 $ 12,694 $ -- $ (6,395) $ 363,822
========= ========= ========== ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities
Current portion of long-term debt ........... $ 16,729 $ 543 $ -- $ -- $ 17,272
Accounts payable ............................ 64,073 1,154 -- -- 65,227
Accrued liabilities ......................... 29,739 401 -- -- 30,140
--------- --------- ---------- --------- ---------
Total current liabilities ............... 110,541 2,098 -- -- 112,639
Noncurrent liabilities
Long-term debt .............................. 310,510 4,519 -- -- 315,029
Workers' compensation ....................... -- -- -- -- --
Postretirement healthcare benefits .......... 23,431 -- -- -- 23,431
Other liabilities ........................... 3,545 -- -- -- 3,545
--------- --------- ---------- --------- ---------
Total liabilities ....................... 448,027 6,617 -- -- 454,644
Stockholders' equity (deficit)
Common stock ................................ -- -- -- -- --
Paid-in capital ............................. 17,808 5,257 -- (5,257) 17,808
Accum. other comprehensive income ........... (148) (318) -- -- (466)
Retained earnings (accumulated deficit) ..... (108,164) 1,138 -- (1,138) (108,164)
--------- --------- ---------- --------- ---------
Total stockholders' equity (deficit) .... (90,504) 6,077 -- (6,395) (90,822)
--------- --------- ---------- --------- ---------
Total liabilities and equity (deficit)... 357,523 $ 12,694 $ -- $ (6,395) $ 363,822
========= ========= ========== ========= =========
</TABLE>
11
<PAGE>
CAMBRIDGE INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1999
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
NON-
GUARANTOR GUARANTOR ELIMINATIONS/
PARENT SUBSIDIARIES SUBSIDIARY ADJUSTMENTS CONSOLIDATED
--------- ------------ ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Sales .................................. $ 126,125 $ 3,150 $ -- $ -- $ 129,275
Cost of sales .......................... 117,651 2,674 -- -- 120,325
--------- --------- ---------- --------- ---------
Gross profit ........................... 8,474 476 -- -- 8,950
Selling, general and administrative
expenses ............................ 10,224 336 -- -- 10,560
--------- --------- ---------- --------- ---------
Income /(loss) from operations ......... (1,750) 140 -- -- (1,610)
Other expense (income)
Interest expense .................. 9,157 65 -- -- 9,222
Other, net ........................ 190 -- -- -- 190
--------- --------- ---------- --------- ---------
Income (loss) before income tax ........ (11,097) 75 -- -- (11,022)
Income tax expense (benefit) ........... -- -- -- -- --
--------- --------- ---------- --------- ---------
Income (loss) before equity in income of
consolidated subsidiaries ............ (11,097) 75 -- -- (11,022)
Equity in income of consolidated
subsidiaries ......................... 75 -- -- (75) --
--------- --------- ---------- --------- ---------
Net income (loss) ...................... $ (11,022) $ 75 $ -- $ (75) $ (11,022)
========= ========= ========== ========= =========
</TABLE>
12
<PAGE>
CAMBRIDGE INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1998
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
NON-
GUARANTOR GUARANTOR ELIMINATIONS/
PARENT SUBSIDIARIES SUBSIDIARY ADJUSTMENTS CONSOLIDATED
--------- ------------ ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Sales .................................. $ 108,266 $ 3,831 $ -- $ -- $ 112,097
Cost of sales .......................... 99,400 3,290 -- -- 102,690
--------- --------- ----------- --------- ---------
Gross profit ........................... 8,866 541 -- -- 9,407
Selling, general and administrative
expenses ............................ 8,799 411 -- -- 9,210
--------- --------- ----------- --------- ---------
Income from operations ................. 67 130 -- -- 197
Other expense (income)
Interest expense .................. 8,043 (55) -- -- 7,988
Other, net ........................ (596) 82 -- -- (514)
--------- --------- ----------- --------- ---------
Income (loss) before income tax ........ (7,380) 103 -- -- (7,277)
Income tax expense (benefit) ........... (2,846) 101 -- -- (2,745)
--------- --------- ----------- --------- ---------
Income (loss) before equity in income of
consolidated subsidiaries ............ (4,534) 2 -- -- (4,532)
Equity in income of consolidated
subsidiaries ......................... 2 -- -- (2) --
--------- --------- ----------- --------- ---------
Net income (loss) ...................... $ (4,532) $ 2 $ -- $ (2) $ (4,532)
========= ========= =========== ========= =========
</TABLE>
13
<PAGE>
CAMBRIDGE INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1999
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
NON-
GUARANTOR GUARANTOR ELIMINATIONS/
PARENT SUBSIDIARIES SUBSIDIARY ADJUSTMENTS CONSOLIDATED
--------- ------------ ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Sales .................................. $ 391,433 $ 8,489 $ -- $ -- $ 399,922
Cost of sales .......................... 349,839 7,846 -- -- 357,685
--------- --------- ---------- --------- ---------
Gross profit ........................... 41,594 643 -- -- 42,237
Selling, general and administrative
expenses ............................ 31,335 968 -- -- 32,303
--------- --------- ---------- --------- ---------
Income / (loss) from operations ........ 10,259 (325) -- -- 9,934
Other expense (income)
Interest expense .................. 26,414 175 -- -- 26,589
Other, net ........................ 1,385 -- -- -- 1,385
--------- --------- ---------- --------- ---------
Income before income tax ............... (17,540) (500) -- -- (18,040)
Income tax expense ..................... (2,302) 101 -- -- (2,201)
--------- --------- ---------- --------- ---------
Income (loss) before equity in income of
consolidated subsidiaries ............ (15,238) (601) -- -- (15,839)
Equity in income of consolidated
subsidiaries ......................... (601) -- -- 601 --
Cumulative effect of accounting change,
net of tax benefit ................... 199 -- -- -- 199
--------- --------- ---------- --------- ---------
Net income (loss) ...................... $ (16,038) $ (601) $ -- $ 601 $ (16,038)
========= ========= ========== ========= =========
</TABLE>
14
<PAGE>
CAMBRIDGE INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1998
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
NON-
GUARANTOR GUARANTOR ELIMINATIONS/
PARENT SUBSIDIARIES SUBSIDIARY ADJUSTMENTS CONSOLIDATED
--------- ------------ ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Sales .................................. $ 339,538 $ 13,419 $ -- $ -- $ 352,957
Cost of sales .......................... 304,549 11,354 -- -- 315,903
--------- --------- ---------- --------- ---------
Gross profit ........................... 34,989 2,065 -- -- 37,054
Selling, general and administrative
expenses ............................ 26,440 1,304 -- -- 27,744
--------- --------- ---------- --------- ---------
Income from operations ................. 8,549 761 -- -- 9,310
Other expense (income)
Interest expense .................. 23,586 78 -- -- 23,664
Other, net ........................ (495) (115) -- -- (610)
--------- --------- ---------- --------- ---------
Income (loss) before income tax ........ (14,542) 798 -- -- (13,744)
Income tax expense (benefit) ........... (5,576) 227 -- -- (5,349)
--------- --------- ---------- --------- ---------
Income (loss) before equity in income of
consolidated subsidiaries ............ (8,966) 571 -- -- (8,395)
Equity in income of consolidated
subsidiaries ......................... 571 -- -- (571) --
--------- --------- ---------- --------- ---------
Net income (loss) ...................... $ (8,395) $ 571 $ -- $ (571) $ (8,395)
========= ========= ========== ========= =========
</TABLE>
15
<PAGE>
CAMBRIDGE INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1999
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
NON-
GUARANTOR GUARANTOR
PARENT SUBSIDIARIES SUBSIDIARY CONSOLIDATED
------ ------------ ---------- ------------
<S> <C> <C> <C> <C>
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES ....... $ 9,077 $ 577 $ -- $ 9,654
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property, plant and equipment ............ (17,777) (140) -- (17,917)
Other ................................................. 207 -- -- 207
-------- -------- -------- --------
NET CASH (USED) IN INVESTING ACTIVITIES ..................... (17,570) (140) -- (17,710)
CASH FLOWS FROM FINANCING ACTIVITIES
Net borrowings from revolving debt .................... 22,000 -- -- 22,000
Repayment of long-term debt ........................... (17,603) -- -- (17,603)
Adjustment of note due seller ......................... 519 -- -- 519
Repurchase paid-in capital ............................ (69) -- -- (69)
-------- -------- -------- --------
NET CASH PROVIDED BY/(USED IN) FINANCING ACTIVITIES .. 4,847 -- -- 4,847
Effect of foreign currency rate fluctuations on cash ...... -- 82 -- 82
-------- -------- -------- --------
Net increase(decrease) in cash ............................ (3,646) 519 -- (3,127)
Cash at beginning of period ............................... 4,141 333 -- 4,474
-------- -------- -------- --------
Cash at end of period ..................................... $ 495 $ 852 $ -- $ 1,347
======== ======== ======== ========
</TABLE>
16
<PAGE>
CAMBRIDGE INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1998
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
NON-
GUARANTOR GUARANTOR
PARENT SUBSIDIARIES SUBSIDIARY CONSOLIDATED
-------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES.... $ 16,847 $ (940) -- $ 15,907
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisitions, net of cash acquired .................... (850) -- -- (850)
Purchases of property, plant and equipment ............ (16,092) (251) -- (16,343)
-------- -------- -------- --------
NET CASH (USED IN) INVESTING ACTIVITIES .......... (16,942) (251) (17,193)
CASH FLOWS FROM FINANCING ACTIVITIES
Net borrowings from revolving debt .................... 6,500 -- -- 6,500
Repayment of long-term debt ........................... (6,627) -- -- (6,627)
-------- -------- -------- --------
NET CASH USED IN FINANCING ACTIVITIES ............ (127) -- -- (127)
-------- -------- -------- --------
Effect of foreign currency rate fluctuations on cash... -- (306) -- (306)
-------- -------- -------- --------
Net decrease in cash .................................. (222) (1,497) -- (1,719)
Cash at beginning of period ........................... 1,646 2,142 -- 3,788
-------- -------- -------- --------
Cash at end of period ................................. $ 1,424 $ 645 $ -- $ 2,069
======== ======== ======== ========
</TABLE>
17
<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
FORWARD LOOKING INFORMATION
This Quarterly Report contains, and from time to time the Company expects to
make, certain forward-looking statements regarding its business, financial
condition and results of operations. In connection with the "Safe Harbor"
provisions of the Private Securities Reform Act of 1995 (the "Reform Act"), the
Company intends to caution readers that there are several important factors that
could cause the Company's actual results to differ materially from those
projected in its forward-looking statements, whether written or oral, made
herein or that may be made from time to time by or on behalf of the Company.
Readers are cautioned that such forward-looking statements are only predictions
and that actual events or results may differ materially. The Company undertakes
no obligation to publicly release the results of any revisions to the
forward-looking statements to reflect events or circumstances or to reflect the
occurrence of unanticipated events.
The Company wishes to ensure that meaningful cautionary statements accompany any
forward-looking statements in order to comply with the terms of the safe harbor
provided by the Reform Act. Accordingly, the Company has set forth a list of
important factors that could cause the Company's actual results to differ
materially from those expressed in forward-looking statements or predictions
made herein and from time to time by the Company. Specifically, the Company's
business, financial condition and results of operations could be materially
different from such forward-looking statements and predictions as a result of
(i) customer pressures that could impact sales levels and product mix, including
customer sourcing decisions, customer evaluation of market pricing on products
produced by the Company and customer cost-cutting programs; (ii) the impact on
the Company's operations and cash flows caused by labor strikes or work
stoppages at the Company's OEM customers; (iii) operational difficulties
encountered during the launch of major new OEM programs; (iv) the ability of the
Company to integrate acquisitions into its existing operations and achieve
expected cost savings; (v) the availability of funds to the Company for
strategic acquisitions and capital investments to enhance existing production
and distribution capabilities; and (vi) the ability of the Company, as well as
its vendors, and customers, to address year 2000 processing issues on a timely
basis.
RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------- ---------------------
1999 1998 1999 1998
------ ------- ------ -------
% OF % OF % OF % OF
SALES SALES SALES SALES
------ ------- ------ -------
<S> <C> <C> <C> <C>
Sales .......................................... 100.0% 100.0% 100.0% 100.0%
Gross profit ................................... 6.9% 8.4% 10.6% 10.5%
Selling, general and administrative expenses.... 8.2% 8.2% 8.1% 7.9%
(Loss) before income tax ....................... (8.5)% (6.5)% (4.5)% (3.9)%
Net (loss) ..................................... (8.5)% (4.0)% (4.0)% (2.4)%
</TABLE>
18
<PAGE>
THREE MONTHS ENDED SEPTEMBER 30, 1999 VS. THREE MONTHS ENDED SEPTEMBER 30, 1998
SALES
The Company's sales increased by $17.2 million, or 15.3% to $129.3 million in
the three month period ended September 30, 1999, compared to $112.1 million in
the three month period ended September 30, 1998. Sales in the Automotive segment
increased by $10.9 million or 15.4% for the third quarter 1999 compared to the
third quarter 1998. Sales in the third quarter 1998 were depressed by work
stoppages at General Motors. The Company also enjoyed substantially increased
sales on the GM Silverado, which was launched in 1998.
The Commercial Truck segment's sales increased 15.9% or $7.3 million for the
third quarter of 1999 compared to the third quarter 1998, to $53.5 million.
Strong sales to Freightliner accounted for the majority of the increase.
Sales dropped $1.0 million in the Industrial segment for the third quarter 1999
versus the third quarter 1998. Sales decreased by 16.2% from $6.4 million in
1998 to $5.4 million. The reduction in sales revenue was caused by weaker demand
for agricultural equipment, a soft economy in Brazil, and a lower foreign
currency translation rate of the Company's Brazilian sales.
GROSS PROFIT
On a consolidated basis, gross profit decreased by $.4 million, or 4.8%, to $9.0
million for the third quarter of 1999, compared to $9.4 million for the third
quarter of 1998. Gross margin as a percent of sales decreased from 8.4% in 1998
to 6.9% in 1999. The decrease in gross profit primarily resulted from higher
production costs ($4.0 million), substantially offset by the favorable impacts
of increased volume ($3.5 million) and improved product mix. The increase in
production costs primarily resulted from launch costs and other production
inefficiencies incurred in the Commercial Truck segment. The favorable sales
volume impact was concentrated in the Automotive segment, reflecting additional
sales to General Motors, compared to the third quarter of 1998 which was
unfavorably impacted by a General Motors strike.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses ("SG&A"') of $10.6 million were
8.2% of sales for the three months ended September 30, 1999 period, compared to
$9.2 million or 8.2% of sales for the same 1998 period. The increase in SG&A of
$1.4 million was due in part to the Company's continuing investment in such
areas as program management, business expansion efforts, sales and marketing,
and information systems.
NET INCOME
The company recorded a net loss of $11.0 million in the 1999 period, compared to
the net loss of $4.5 million in the 1998 period. This increase in net loss was
the result of the gross profit reduction and SG&A increase mentioned above,
combined with increased interest expense and the elimination of the tax benefit
of losses; the increase in interest expense was $1.2 million, with
19
<PAGE>
interest expense of $9.2 million for the 1999 period, compared to $8.0 million
for the 1998 period. The increase in interest expense for the 1999 period was
primarily attributable to an increase in interest rates. The Company did not
record a tax benefit on its losses during the third quarter of 1999, as it now
expects a loss for the year as a whole. In 1998, the Company recorded tax
benefit of $2.7 million for the quarter.
NINE MONTHS ENDED SEPTEMBER 30, 1999 VS. NINE MONTHS ENDED SEPTEMBER 30, 1998
SALES
Sales increased $47.0 million or 13.3% to $399.9 million in the nine month
period ended September 30, 1999, compared to $352.9 million in the nine month
period ended September 30, 1998. The increase was primarily attributable to
changes in volumes on certain programs and changes in product mix as indicated
above.
Sales in the Automotive segment increased by $31.2 million, or 14.5%, to $214.9
million, or 14.5%, for the nine months ended September 30, 1999 compared to
$183.7 million for the nine months ended September 30, 1998. This was the result
of a robust automotive market, and work stoppages at General Motors in the
comparable 1998 period which depressed that period's sales. Light trucks
accounted for most of the overall increase.
The Commercial Truck segment's sales increased $23.7 million or 14.1%, to $168.4
million, for the nine months ended September 30, 1999 compared to same period in
1998. Sales to Freightliner were responsible for the majority of the increase.
Sales fell $8.0 million, or 32.5%, in the Industrial segment for the nine months
ended September 30, 1999 versus the same period during the prior year. Domestic
sales dropped $4.8 million, primarily due to the low demand for agricultural
equipment. Sales in Brazil, measured in the Brazilian currency (Reais), fell
about 19% during the nine months ended September 30, 1999 versus the same period
in 1998. Additionally, the inter-bank foreign currency exchange rate dropped
from an average of approximately .87 during the 1998 period to approximately .57
for the 1999 period, thus further shrinking sales in terms of U.S. dollars. The
combination of these two factors decreased sales $3.2 million during the 1999
period, compared to the nine month period in 1998.
GROSS PROFIT
On a consolidated basis, gross profit increased by $5.2 million, or 14.0%, to
$42.2 million in 1999, compared to $37.0 million for 1998. Gross margin as a
percent of sales increased from 10.5% in 1998 to 10.6% in 1999. The increase in
gross profit primarily resulted from higher sales volumes ($8.1 million) and
improved product mix, the impacts of which were partially offset by higher
production costs. The Automotive and Commercial Truck segments contributed $7.5
million and $2.3 million, respectively, to gross profit as a result of higher
sales volumes. Sales volume decreased in the Industrial segment due to soft
agricultural sales which resulted in a decrease of $1.8 million in gross profit
in 1999 compared to 1998. In 1999, the Commercial Truck Group incurred
approximately $4 million in production costs related to several product
20
<PAGE>
launches and other production inefficiencies that unfavorably impact gross
profit.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses ("SG&A") of $32.3 million increased
to 8.1% of sales for the nine months ended September 30, 1999, compared to $27.7
million or 7.9% of sales for the same 1998 period. The increase in SG&A of $4.6
million was due in part to the Company's expenditures required to manage future
booked business in such areas as program management, business expansion efforts,
sales and marketing, and information systems.
NET INCOME
The Company recorded a net loss of $16.0 million in the 1999 period, compared to
the net loss of $8.4 million in the 1998 period. This increased loss was the
result of the items mentioned above and an increase in interest expense of $2.9
million to $26.6 million for the 1999 period, compared to $23.7 million for the
1998 period, and reduced tax benefits of losses. The increase in interest
expense for the 1999 period was primarily attributable to the increase in
interest rates, an increase in debt levels, and amortization of additional
deferred financing costs which were incurred in January 1999 as a result of the
Fourth Waiver and Amendment of the Company's credit agreement. During the
9-month period ending September 30, 1999, the Company booked tax benefits
of $2.2 million, compared with tax benefits of $5.3 million in the same 1998
period. While the company recorded a tax benefit on its losses through the
second quarter of 1999, it did not record a tax benefit on its losses during the
third quarter, as it now expects a loss for the year as a whole.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary cash needs historically have been for operating expenses,
working capital and capital expenditures. Acquisitions have been financed
through debt facilities collateralized by the Company's assets and cash flows.
Management expects future cash will be required for capital expenditures to meet
new program requirements for Ford and GM.
The Company is planning to begin operations at a new facility in Celaya
Guanajuato, Mexico in the first half of 2000. This facility will provide
components for Ford's H215, GM's GMT 805 and GMT 250/257. In addition, the
Company is planning to facilitize the production of a new truck box for the GMT
800 program, scheduled to launch in late 2000 or early 2001. During the 4th
Quarter of 1999, the Company will complete the tooling and facilities required
to produce fenders for Ford's P225 program, scheduled to launch in January 2000.
The scope of these and other important customer programs has significantly
expanded since the Company's intial capital spending plans were communicated
with its bank group. Furthermore, some capital expenditures have been incurred
that were originally planned to be handled as an operating lease. Since the
lease financing was not in place at the time the Company purchased the
equipment, the Company's expenditures were deemed a purchase for accounting
purposes. In order to enter into an operating lease for this project, the
Company will need to enter into a sale and leaseback transaction, which requires
a waiver under its credit agreement. Consequently, current projections are that
the Company will likely spend more than the $26.2 million capital expenditure
limit for 1999 per the credit agreement. The Company is in process of working
with its agent bank to obtain a covenant waiver.
21
<PAGE>
The Company's credit agreement (prior to the Fourth Waiver and Amendment)
allowed the Company to borrow up to $280.0 million. The credit agreement
consisted of $205.0 million in aggregate principal amount of term loans and a
$75.0 million revolving credit facility available for working capital and
general corporate purposes. The A Term Loans and B Term Loans of the credit
agreement mature on the fifth and eighth anniversary of the initial borrowing,
respectively, and will require annual principal payments (payable in quarterly
installments) totaling approximately $13.9 million in 1999, $16.4 million in
2000, $21.4 million in 2001, $34.0 million in 2002, $35.0 million in 2003, $40.0
million in 2004, and $37.1 million in 2005. The revolving credit portion of the
credit agreement matures on the fifth anniversary of the initial borrowing. The
interest rate under the credit agreement is based on the Eurodollar rate plus
the applicable Eurodollar margin. In July 1997, the Company issued $100 million
face amount of its 10 1/4% senior subordinated notes (the "Notes") due in 2007.
In September 1998, the Company entered into a Second Waiver and Amendment and in
January 1999 the Company entered into a Third Waiver and Amendment pursuant to
which certain restrictive covenants contained in the credit agreement were
waived and amended. On February 23, 1999, the Company entered into a Fourth
Waiver and Amendment to the credit agreement with the Agent and other
institutions, which is effective as of December 31, 1998 through and including
March 31, 2000. Under the Fourth Waiver and Amendment, the aggregate outstanding
principal amount of the revolving credit facility shall not at any time exceed
$65 million, and shall not exceed $50 million on the last day of the month. The
amendments in 1999 required the Company to prepay $13.9 million of term loans
during the first quarter of 1999 and pay a $1.4 million amendment fee. The
Fourth Waiver and Amendment also increased the interest rate by 1.0 % on the
term loans and the revolving credit facility. In addition, certain restrictive
covenants were waived and amended. The credit agreement, together with the
Second, Third, and Fourth Waivers and Amendments, is referred to as the ("Credit
Agreement"). Letters of Credit outstanding under the Credit Agreement are
limited to $5.3 million.
The amended Credit Agreement eliminated covenant requirements at December 31,
1998, and amended the covenants for periods through March 31, 2000. The Company
was in compliance with the amended covenants as of March 31, 1999, June 30, 1999
and September 30, 1999.
Based on the Company's current business forecast for the quarter ending December
31, 1999 and early fiscal 2000, as well as new contract commitments awarded by
key customers, the Company currently believes that it will be out of compliance
with certain of the financial and capital expenditure covenants contained in the
Credit Agreement. The Company has historically had good relations with its
lender group and is currently in discussions with its agent bank regarding
modification or waiver of the affected covenants. In addition, unless the
Company obtains additional sources of capital, the Company anticipates that it
may have insufficient cash available in the first half of fiscal 2000 to meet
its capital expenditure requirements. In order to meet these capital needs, the
Company is currently evaluating, with its financial advisors, its strategic
alternatives including possible debt and equity financings. There can be no
assurances as to the outcome of the Company's efforts with respect to the
foregoing.
22
<PAGE>
CASH FLOWS
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
Cash flow from: 1999 1998 1999 1998
--------- --------- -------- --------
<S> <C> <C> <C> <C>
Operating activities $ 6,225 $ 4,398 $ 9,654 $ 15,907
Investing activities (10,212) (4,797) (17,710) (17,193)
Financing activities 4,345 826 4,847 (127)
Foreign currency fluctuations 380 (225) 82 (306)
-------- -------- -------- --------
Net cash flow $ 738 $ 202 $ (3,127) $ (1,719)
======== ======== ======== ========
</TABLE>
During the third quarter of 1999, the Company provided cash flow from operations
of $6.2 million. Cash used from operations before changes in working capital
items was $(1.8) million which included non-cash adjustments of (1) $7.9 million
of depreciation and amortization; (2) $.8 million charge to income for
post-retirement benefits; (3) $0.2 million deferred income tax expense; and (4)
$0.4 million equity loss in the Company's joint venture. Decreases in working
capital provided cash of $8.0 million. The decreases in working capital were
primarily the result of the timing of cash receipts and cash payments.
Net cash flow from operating activities for the third quarter of 1998 was $4.4
million. Net loss for the third quarter of 1998 was $4.5 million. The non-cash
adjustments of $7.7 million primarily consisted of depreciation and amortization
of $7.3 million, and a non-cash charge to income for postretirement benefits of
$0.7 million. Changes in working capital components provided $3.5 million,
primarily the result of timing of collections on trade accounts receivable and
payments of accounts payable and accrued interest.
The Company spent approximately $9.9 million on capital items for the
three-month period ended September 30, 1999, in comparison to approximately $4.8
million for the 1998 period. Items purchased in 1999 relate to the GM H-car
program, GM truck box, Ford Excursion tri-door, GMT 800 program, and other
programs and various equipment upgrades.
At September 30, 1999, the following summarizes the debt outstanding and unused
credit availability (dollars in thousands):
<TABLE>
<CAPTION>
Total Amount Unused
Commitment Outstanding Availability
---------- ----------- ------------
<S> <C> <C> <C>
Revolving credit* $ 65,000 $ 46,000 $ 19,000
Term debt 205,000 183,800 --
Senior subordinated notes 100,000 100,000 --
Capital leases & seller notes 3,497 3,497 --
Other 2,086 2,086 --
-------- -------- --------
TOTAL $375,583 $335,383 $ 19,000
======== ======== ========
</TABLE>
23
<PAGE>
* As described in the preceding section in Liquidity and Capital Resources, the
revolving credit facility shall not exceed at any time $65 million, and shall
not exceed $50 million on the last day of each month.
YEAR 2000 COMPLIANCE
The Company is aware of the issues associated with the programming code in
existing computer and other operating systems as the millennium (year 2000)
approaches. The issue is whether the date sensitive information within the
various operating systems will properly recognize the date when the year changes
to 2000. The systems that do not properly recognize such information could
generate erroneous data or cause a system to fail.
The "Year 2000" problem relates to computer systems that have time and
date-sensitive programs that were designed to read years beginning with "19",
but may not properly recognize the year 2000. If a computer system or software
application used by the Company or a third party dealing with the Company fails
because of the inability of the system or application to properly read the year
"2000," the results could conceivably have a material adverse effect on the
Company.
As a key supplier to the transportation industry, the Company's major exposure
for Year 2000 problems is the effect of shutting down production at one of its
customers' factories. While lost revenues from such an event are a concern for
the Company, the greater risks are the consequential damages for which the
Company could be liable if it in fact is found responsible for the shutdown of
one of its customers' facilities. Such a finding could have a material adverse
impact on the Company's results of operations.
The most likely way in which the Company would shut down production at a
customer's facility is by being unable to supply parts to that customer. The
parts supplied by the Company, in most instances, are integral components of the
end products produced by the customer, and the inability to provide them may
render the customer unable to manufacture and sell its products. Breakdowns in
any number of the Company's computer systems and applications could prevent the
Company from being able to manufacture and ship its products. Examples are
failures in the Company's manufacturing application software, barcoding systems,
computer chips embedded in plant floor equipment, lack of supply of materials
from its suppliers, or lack of power, heat or water from utilities servicing its
facilities. The Company's products do not contain computer devices that require
remediation to meet Year 2000 requirements. A review of the Company's status
with respect to remediating its computer systems for Year 2000 compliance is
presented below.
The Company utilizes an IBM AS400 based computer system for its financial and
manufacturing reporting systems. In addition to this centralized processing
system, the company is installing local-area networks ("LANs") and wide-area
networks ("WANs"). All AS400 software, both operating system and applications,
have undergone revisions, or are in the process of undergoing revisions to
ensure their compliance with Y2K requirements. All of the expenditures related
to the year 2000 remediation have been funded thorough normal operating cash
flows. The operating system on the AS400 has been upgraded to the latest version
that IBM guarantees to
24
<PAGE>
be Year 2000 compliant.
As for applications software, the Company's Information System group achieved
Y2K compliance during July 1999. They will continue to test the system to verify
its readiness during the balance of the year.
Personal computers and network systems are also in the process of being upgraded
to Windows NT. This process has required the replacement of more than ninety
percent of all current personal computers and file servers. The replacement is
scheduled to be finished by December 1999 or January 2000. All applications
being processed on personal computers are not mission critical to the Company's
operations. The only remaining area of some concern is in end-user computing -
the processing of data in spreadsheets and personal data bases that a particular
user may have set up. The correction of any date-related calculations is
expected to be made by the end users.
Although there can be no assurance that the Company has identified and corrected
every Year 2000 problem found in the computer applications used in its
production processes, the Company believes that it has in place a comprehensive
program to identify and correct any such problems, and now considers its
information systems software to be year 2000 compliant.
The Company is also reviewing its building and utility systems (heat, light,
phones, etc.) for the impact of Year 2000. Many of the systems in this area are
Year 2000 ready. While the Company is working diligently with all of its utility
suppliers and has no reason to expect that they will not meet their required
Year 2000 compliance targets, there can be no assurance that these suppliers
will in fact meet the Company's requirements. The failure of any such supplier
to fully remediate its systems for Year 2000 compliance could cause a shutdown
of one or more of the Company's plants, which could impact the Company's ability
to meet its obligations to supply products to its customers.
The Company has also commenced a program to assess the Year 2000 compliance
efforts of its equipment and material suppliers. The Company has sent
comprehensive questionnaires to all of its significant suppliers regarding their
Year 2000 compliance and is attempting to identify any problem areas with
respect to them. This program will be ongoing and the Company's efforts with
respect to specific problems identified will depend in part upon its assessment
of the risk that any such problems may cause the shutdown of a customer's plant
or other problem which the Company believes would have a material adverse impact
on its operations. Because the Company cannot control the conduct of its
suppliers, there can be no guarantee that Year 2000 problems originating with a
supplier will not occur. The Company has not yet developed contingency plans in
the event of a Year 2000 failure caused by a supplier or third party, but
intends to do so if a specific problem is identified through the program
described above. In some cases, especially with respect to its utility vendors,
alternative suppliers may not be available.
As a Tier 1 supplier in the auto industry, the Company takes an active role in
many industry-sponsored organizations, including the Automotive Industry Action
Group ("AIAG"). The AIAG has been proactive in working with OEM's and Tier 1, 2
and 3 suppliers to ensure that the industry as a whole addresses the Year 2000
problem. Tools to assist in achieving compliance
25
<PAGE>
include standardized questionnaires, regular meetings of members, follow-up by
AIAG personnel regarding answers to questionnaires, etc. The Company continues
to work with such industry groups to ensure compliance.
The information presented above sets forth the key steps taken by the Company to
address the Year 2000 problem. There can be no absolute assurance that third
parties will convert their systems in a timely manner and in a way that is
compatible with the Company's systems. The Company believes that its actions
with suppliers will minimize these risks and that the cost of Year 2000
compliance for its information and production systems will not be material to
its consolidated results of operations and financial position.
SIGNATURES
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.
Cambridge Industries, Inc.
Date: November 15, 1999
/s/ Donald C. Campion
-----------------------------------
Donald C. Campion
Chief Financial Officer
/s/ Donald C. Campion
-----------------------------------
Donald C. Campion
Chief Accounting Officer
26
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
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0
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