<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15 (d)
of the Securities Exchange Act of 1934
For quarter ended September 30, 1998 Commission file number 1-5951
CMI CORPORATION
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Oklahoma 73-0519810
------------------------ ------------------------------------
(State of Incorporation) (I.R.S. Employer Identification No.)
I-40 & Morgan Road, P.O. Box 1985
Oklahoma City, Oklahoma 73101
- ---------------------------------------- -----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (405) 787-6020
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
--- ---
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Voting Class A Common Stock Par Value $.10
and Voting Common Stock Par Value $.10 21,549,483
- ------------------------------------------ -------------------------------
(Title of each class) (Outstanding at November 13, 1998)
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CMI CORPORATION
Index
Page
----
PART I. Financial Information
Condensed Consolidated Balance Sheets -
September 30, 1998, December 31, 1997 and
September 30, 1997 3
Condensed Consolidated Statements of Operations -
Three Months and Nine Months Ended
September 30, 1998 and 1997 4
Condensed Consolidated Statements of Changes in
Common Stock and Other Capital - September 30, 1998
and the Years Ended December 31, 1997 and December 31,
1996 5
Condensed Consolidated Statements of Cash Flows -
Nine Months Ended September 30, 1998 and 1997 6
Notes to Condensed Consolidated Financial
Statements 7
Management's Discussion and Analysis of
Financial Condition and Results of Operations 10
PART II. Other Information
Item 1. Legal Proceedings 14
Item 2. Changes in Securities 14
Item 3. Defaults Upon Senior Securities 14
Item 4. Submission of Matters to a Vote of 14
Security Holders
Item 5. Other Information 14
Item 6. Exhibits and Reports on Form 8-K 14
Signatures 15
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PART I - FINANCIAL INFORMATION
CMI CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
September 30 December 31 September 30
1998 1997 1997
(Unaudited) * (Unaudited)
----------- ----------- ------------
Current assets:
Cash and cash equivalents $ 8,320 7,131 17,240
Receivables, net 26,509 26,917 20,886
Inventories
Finished equipment 31,277 28,618 18,980
Work-in-process 16,515 14,910 12,403
Raw materials and parts 44,253 25,143 20,397
-------- ------- -------
Total inventories 92,045 68,671 51,780
Other current assets 1,266 579 943
Deferred tax asset 2,305 5,300 3,875
-------- ------- -------
Total current assets 130,445 108,598 94,724
Property, plant and equipment 68,140 56,739 52,054
Less accumulated depreciation 39,073 37,288 36,475
-------- ------- -------
Net property, plant and equipment 29,067 19,451 15,579
Long-term receivables 174 2,509 3,114
Other assets, principally goodwill 5,435 6,970 1,284
Deferred tax assets 6,900 6,900 9,100
-------- ------- -------
$172,021 144,428 123,801
======== ======= =======
Current liabilities:
Current maturities of long-term debt $ 239 259 207
Accounts payable 16,667 14,655 9,268
Accrued liabilities 13,255 9,647 8,023
-------- ------- -------
Total current liabilities 30,161 24,561 17,498
Long-term debt 66,083 49,274 33,948
Common shares and other capital:
Class A common stock and
common stock 2,155 2,151 2,143
Other capital 73,622 68,442 70,212
-------- ------- -------
Total common shares and other
capital 75,777 70,593 72,355
-------- ------- -------
$172,021 144,428 123,801
======== ======= =======
* Condensed from audited financial statements.
See notes to condensed consolidated financial statements.
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CMI CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(dollars and shares in thousands, except per share data)
Three Months Ended Nine Months Ended
September 30 September 30
-------------------- -------------------
1998 1997 1998 1997
---------- -------- --------- --------
Net revenues $48,860 36,078 158,774 123,896
------- ------ ------- -------
Costs and expenses:
Cost of goods sold 35,002 25,801 117,406 91,480
Marketing and administrative 7,942 6,083 22,752 18,315
Engineering and
product development 1,968 1,550 5,674 4,693
Product line relocation
costs 68 - 1,419 -
------- ------ ------- -------
44,980 33,434 147,251 114,488
Operating earnings 3,880 2,644 11,523 9,408
Other expense (income):
Interest expense 1,284 743 3,570 2,174
Interest income (277) (418) (764) (904)
Other, net - - (77) -
------- ------ ------- -------
Earnings before income taxes 2,873 2,319 8,794 8,138
Income tax expense 1,022 886 3,242 3,051
------- ------ ------- -------
Net earnings $ 1,851 1,433 5,552 5,087
======= ====== ======= =======
Share data:
Net earnings applicable
to common shares $ 1,851 1,433 5,552 5,087
Weighted average outstanding
common shares:
Basic 21,536 21,328 21,514 21,140
Diluted 21,685 21,381 21,648 21,237
Net earnings per average
outstanding share:
Basic $ .09 .07 .26 .24
======= ====== ======= =======
Diluted $ .09 .07 .26 .24
======= ====== ======= =======
Dividends per common share $ .01 .01 .03 .03
======= ====== ======= =======
See notes to condensed consolidated financial statements.
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CMI CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN COMMON STOCK
AND OTHER CAPITAL
(dollars in thousands)
<TABLE>
<CAPTION>
COMMON STOCK CLASS A COMMON STOCK ADDITIONAL
--------------- --------------------- PAID-IN TREASURY RETAINED
SHARES AMOUNT SHARES AMOUNT CAPITAL STOCK EARNINGS
------- ------ ------------ ------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance December 31,
1995 621 $ - 20,381,383 $2,038 $46,001 $ - $11,360
Net earnings - - - - - - 5,461
Dividends declared
and accretion on
preferred stock - - - - - - (272)
Dividends paid,
common stock - - - - - - (205)
Exercise of stock
options - - 86,000 9 111 - -
------- ------ ------------ ------- ----------- --------- ---------
Balance December 31,
1996 621 - 20,467,383 2,047 46,112 - 16,344
Net earnings - - - - - - 3,165
Purchase of treasury
stock - - - - - (32) -
Dividends paid,
common stock - - - - - - (851)
Common stock issued - - 75,000 8 367 - -
Exercise of stock
warrants - - 600,000 60 2,190 - -
Exercise of stock
options - - 364,000 36 1,147 - -
------- ------ ------------ ------- ----------- --------- ---------
Balance December 31,
1997 621 - 21,506,383 2,151 49,816 (32) 18,658
(The information which
follows is unaudited)
Net earnings - - - - - - 5,552
Retirement of voting
common stock (19) - (22) - - - -
Retirement of treasury
stock - - (6,340) - (32) 32 -
Exercise of stock
options - - 48,860 4 272 - -
Dividends paid,
common stock - - - - - - (644)
------- ------ ------------ ------- ----------- --------- ---------
Balance September 30,
1998 (Unaudited) 602 $ - 21,548,881 $2,155 $50,056 $ - $23,566
======= ====== ============ ======= =========== ========= =========
</TABLE>
See notes to condensed consolidated financial statements.
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CMI CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(dollars in thousands)
Nine Months Ended
September 30
-----------------
1998 1997
------ ------
OPERATING ACTIVITIES
Net earnings $ 5,552 5,087
Adjustments to reconcile net earnings to net cash
provided by (used in) operating activities:
Depreciation 1,912 1,810
Amortization 224 35
Gain on sale of assets (78) -
Change in assets and liabilities:
Receivables 408 (3,029)
Inventories (23,374) 6,917
Other, current assets (687) (756)
Accounts payable 2,012 2,859
Accrued liabilities 3,608 (160)
Deferred tax asset 2,995 2,825
Long-term receivables 2,335 (2,762)
Other non-current assets, net of amortization
of goodwill 1,311 (266)
-------- ------
Net cash and cash equivalents provided by
(used in) operating activities (3,782) 12,560
-------- ------
INVESTING ACTIVITIES
Proceeds from sale of assets 308 107
Capital expenditures (11,758) (5,149)
-------- ------
Net cash and cash equivalents used in investing
activities (11,450) (5,042)
-------- ------
FINANCING ACTIVITIES
Payments on long-term debt (211) (204)
Net borrowings on revolving credit note 17,000 -
Proceeds from stock options exercised 276 1,183
Proceeds from stock warrants exercised - 2,250
Payment of common stock dividends (644) (635)
Purchase of treasury stock - (32)
-------- ------
Net cash and cash equivalents provided by
financing activities 16,421 2,562
-------- ------
Increase in cash and cash equivalents 1,189 10,080
Cash and cash equivalents at beginning of period 7,131 7,160
-------- ------
Cash and cash equivalents at end of period $ 8,320 17,240
======== ======
See notes to condensed consolidated financial statements.
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CMI CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(1) The interim condensed consolidated financial information has been prepared
in conformity with generally accepted accounting principles applied, in all
material respects, on a basis consistent with the consolidated financial
statements included in the annual report filed with the Securities and
Exchange Commission for the preceding fiscal year. The financial
information as of September 30, 1998 and 1997 and for the interim periods
ended September 30, 1998 and 1997 included herein is unaudited; however,
such information reflects all adjustments consisting of only normal
recurring adjustments, which are, in the opinion of management, necessary
to a fair presentation of the results for the interim periods.
(2) The results of operations for the nine months ended September 30, 1998 are
not necessarily indicative of the results to be expected for the full year.
The Company is in a seasonal business, whereas normally at least 60 percent
of the Company's revenues occur in the first six months of each calendar
year.
(3) Certain reclassifications have been made to the prior interim periods to
conform to the 1998 presentations.
(4) There have been no material changes in related party transactions since the
annual report filed for the preceding fiscal year.
(5) Commitments and Contingencies
The Company and its subsidiaries are parties to various leases relating to
plants, warehouses, office facilities, transportation vehicles, and certain
other equipment. Real estate taxes, insurance, and maintenance expenses are
normally obligations of the Company. It is expected that in the normal
course of business, the majority of the leases will be renewed or replaced
by other leases. Leases do not provide for dividend restrictions, debt, or
future leasing arrangements. All leasing arrangements contain normal
leasing terms without unusual purchase options or escalation clauses.
At September 30, 1998, the Company was contingently liable as guarantor for
certain accounts receivable sold with recourse of approximately $8,411,000
through September 2006.
(6) In February 1997, the Financial Accounting Standards Board issued SFAS No.
128, "Earnings Per Share." SFAS No. 128 revised the previous calculation
methods and presentations of earnings per share. The statement requires
that all prior-period earnings per share data be restated. The Company
adopted SFAS No. 128 in the fourth quarter of 1997 as required by the
statement. The effect of adopting SFAS No. 128 did not result in a change
to the Company's 1997 third quarter or year-to-date earnings per share
data, as previously reported, except the previously reported amounts for
earnings per share are presented using basic earnings per share and diluted
earnings per share.
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Under the provisions of SFAS No. 128, basic earnings per share is computed
by dividing net earnings (loss) applicable to common stock by the weighted
average number of common shares outstanding for the period. Diluted
earnings per share reflects the potential dilution that could occur if the
Company's outstanding stock options were exercised (calculated using the
treasury stock method).
The following table reconciles the net earnings applicable to common shares
and weighted average common shares outstanding used in the calculation of
basic and diluted earnings per common share (dollars and shares in
thousands, except per share data):
Three Months Ended Nine Months Ended
September 30 September 30
------------------ -----------------
1998 1997 1998 1997
------- ------ ------ ------
Net earnings applicable to
common shares, basic and diluted $ 1,851 1,433 5,552 5,087
======= ====== ====== ======
Weighted average number of outstanding
common shares - basic 21,536 21,328 21,514 21,140
Dilutive effect of potential common
shares issuable upon exercise of
employee stock options and stock
purchase warrants 149 53 134 97
------- ------ ------ ------
Weighted average number of outstanding
common shares - diluted 21,685 21,381 21,648 21,237
======= ====== ====== ======
Earnings per share:
Basic $ .09 .07 .26 .24
======= ====== ====== ======
Diluted $ .09 .07 .26 .24
======= ====== ====== ======
(7) Litigation
As previously disclosed, on November 22, 1995, certain attorneys,
previously engaged by the Company in connection with prior patent
litigation, filed suit against the Company in the Circuit Court of Cook
County, Illinois. On December 20, 1995, the case was removed to the United
States District Court for the Northern District of Illinois, Eastern
Division. The attorneys are seeking to recover approximately $1.4 million
of legal fees and costs alleged to be owing by the Company, together with
prejudgment and post judgment interest and other costs.
Since 1996, the Company has been involved in litigation in the U.S.
District Court for the Western District of Oklahoma with Cedarapids, Inc.
The Company sued Cedarapids seeking a declaratory judgment that a patent
held by Cedarapids is invalid or, in the alternative, that the Company was
not infringing upon the patent. Cedarapids subsequently filed a
counterclaim against the Company alleging that the Company was infringing
Cedarapids' patent and seeking unspecified monetary damages. In January
1997, the District Court issued an
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order staying this lawsuit pending the resolution of litigation between
Cedarapids and Gencor, Industries involving the same patent at issue in the
lawsuit between the Company and Cedarapids. This stay was lifted in
December 1997 and the lawsuit is currently set for trial in January 1999.
In September 1998, Cedarapids filed suit against the Company in the U.S.
District Court for the Northern District of Iowa alleging that the Company
has infringed upon a second patent held by Cedarapids. Cedarapids is
seeking unspecified monetary damages. The Company intends to vigorously
defend this lawsuit.
There are numerous other claims and pending legal proceedings that
generally involve product liability and employment issues. These cases are,
in the opinion of management, ordinary routine matters incidental to the
normal business conducted by the Company. In the opinion of the Company's
management after consultation with outside legal counsel, the ultimate
disposition of such proceedings, including the cases above, will not have a
materially adverse effect on the Company's consolidated financial position,
liquidity or future results of operations.
(8) Comprehensive Income
The Company adopted the provisions of SFAS No. 130, "Reporting
Comprehensive Income," on January 1, 1998. SFAS No. 130 establishes
standards for reporting and display of "Comprehensive Income" and its
components in a set of financial statements. It requires that all items
that are required to be recognized under accounting standards as components
of comprehensive income be reported in a financial statement that is
displayed with the same prominence as other financial statements. Through
September 30, 1998, the Company does not have any items included in
comprehensive income that are not already included in the Company's
condensed consolidated statements of operations.
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CMI CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations
During the fourth quarter of 1997 the Company acquired all the outstanding stock
of Brownwood Ross Company, a concrete plant manufacturing company; certain
assets of CS Johnson Corporation, a concrete plant manufacturing company; and
certain assets related to the landfill and embankment compactor and material
reduction grinder product lines from Rexworks, Inc. The results of operations
for the three months and nine months ended September 30, 1998 include these
operations.
Revenues increased 35.4 percent to $48,860,000 for the three months ended
September 30, 1998, compared to $36,078,000 for the three months ended September
30, 1997. Most of the increased revenues for the three months ended September
30, 1998 were from the newly acquired operations. Net earnings were $1,851,000,
or 9 cents per share, for the three months ended September 30, 1998, compared to
$1,433,000, or 7 cents per share, for the comparable three months ended
September 30, 1997.
Revenues increased 28.2 percent to $158,774,000 for the nine months ended
September 30, 1998, compared to $123,896,000 for the nine months ended September
30, 1997. The revenue increase for the nine months ended September 30, 1998
resulted from the newly acquired operations. Net earnings were $5,552,000, or 26
cents per share, for the nine months ended September 30, 1998, compared to
$5,087,000, or 24 cents per share, for the nine months ended September 30, 1997.
Gross margin, as a percentage of net revenues, was 28.4 percent for the three
months ended September 30, 1998, compared to 28.5 percent for the three months
ended September 30, 1997. Gross margin, as a percentage of net revenues, was
26.1 percent for the nine months ended September 30, 1998, compared to 26.2
percent for the nine months ended September 30, 1997.
The Company's factory modernization plan at Oklahoma City that has been
discussed in previous quarters continues to progress. Several of the long lead-
time capital improvements are now in service. The Company is starting to see
added productivity and expects to cut costs by reducing the dependence on
outside suppliers. The Company has noted improvements in its gross margins from
the first quarter of 1998 (22.1 percent) and second quarter of 1998 (27.0
percent).
Marketing and administrative expenses increased $1,859,000 for the comparable
three months ended September 30, 1998, and increased $4,437,000 for the
comparable nine months ended September 30, 1998. Most of the increased expenses
are the result of marketing efforts related to the newly acquired operations.
Consulting fees in the amount of $300,000 related to the Company's year 2000
system conversion also impacted the Company's administrative expenses for the
three months and nine months ended September 30, 1998. As a percentage of net
revenues marketing and administrative expenses were 16.3 percent for the three
months ended September 30, 1998, compared to 16.9 percent for the three months
ended September 30, 1997, and were 14.3 percent for the nine months ended
September 30, 1998, compared to 14.8 percent for the nine months ended September
30, 1997.
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Engineering and product development expense increased $418,000 for the
comparable three months ended September 30, 1998, and increased $981,000 for the
comparable nine months ended September 30, 1998. As a percentage of net
revenues engineering and product development expenses were 4.0 percent for the
three months ended September 30, 1998, compared to 4.3 percent for the three
months ended September 30, 1997, and were 3.6 percent for the nine months ended
September 30, 1998, compared to 3.8 percent for the nine months ended September
30, 1997.
Product line relocation costs for the three months and nine months ended
September 30, 1998 were $68,000 and $1,419,000, respectively. These costs were
incurred by the Company to move the landfill and embankment compactor and
material reduction grinder product lines from Rexworks, Inc. in Milwaukee to
Oklahoma City. The Company does not anticipate future quarters being impacted by
these relocation costs.
Interest expense increased to $1,284,000 for the three months ended September
30, 1998, compared to $743,000 for the three months ended September 30, 1997 and
increased to $3,570,000 for the nine months ended September 30, 1998, compared
to $2,174,000 for the nine months ended September 30, 1997. The Company's
effective interest rate was comparable period to period. The increase in
interest expense is due to additional borrowings on the Company's revolving line
of credit primarily for the acquisitions completed during the fourth quarter of
1997 and increased working capital requirements for the nine months ended
September 30, 1998.
Interest income was $277,000 for the three months ended September 30, 1998,
compared to $418,000 for the three months ended September 30, 1997 and was
$764,000 for the nine months ended September 30, 1998, compared to $904,000 for
the nine months ended September 30, 1997.
The Company's effective tax rate for the three months and nine months ended
September 30, 1998 and 1997 was approximately 37 percent. The Company's
quarterly tax rates are estimates of its expected annual effective federal and
state income tax rates. The combined effective income tax rate for 1997 was
approximately 37 percent and the Company expects a comparable annual effective
rate in 1998.
Liquidity and Capital Resources
The current ratio at September 30, 1998 was 4.3-to-1 compared to 5.41-1 at
September 30, 1997. Working capital at September 30, 1998 was $100,284,000
compared to $77,226,000 at September 30, 1997, an increase of $23,058,000. The
increase in working capital is due to an increase in inventories of $40,265,000
and an increase in receivables of $5,623,000; offset by, a decrease in cash of
$8,920,000, an increase in accounts payable of $7,399,000 and an increase in
accrued liabilities of $5,232,000. The increase in inventories, primarily raw
materials and purchased parts, from December 31, 1997 is largely the result of
an increased production schedule and the 1997 fourth quarter acquisitions. The
Company's finished goods inventories also increased as a result of a shortfall
in projected third quarter revenues. The Company anticipates the traditionally
soft fourth quarter revenues might approach the third quarter revenues reported
here-in which should help reduce inventory levels toward the end of 1998.
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Cash used in operating activities for the nine months ended September 30, 1998
was $3,782,000 compared to cash provided by operating activities of $12,560,000
for the nine months ended September 30, 1997. The significant change in cash
from operating activities is primarily due to increased inventories. Financing
activities for the nine months ended September 30, 1998 provided an additional
$16,421,000, which included $17,000,000 of borrowings from the Company's
revolving line of credit which was primarily used to fund the increase in
inventories.
Capital expenditures for the nine months ended September 30, 1998 were
$11,758,000 compared to $5,149,000 for the comparable nine months ended
September 30, 1997. Capital expenditures now budgeted at $12,500,000 for 1998,
originally budgeted at $11,000,000, are being financed using internally
generated funds and leasing programs. These capital expenditures are being used
to improve the Company's manufacturing and product support efficiencies.
The Company amended its revolving line of credit agreement on October 13, 1998.
The amendment allows for an increase in its borrowing line from $40,000,000 to
$60,000,000. The Company's $30,000,000 unsecured senior notes mature from
September 2000 to September 2006. The Company's $60,000,000 unsecured revolving
line of credit matures September 2001. As of September 30, 1998, the Company
had utilized $32,000,000 of the unsecured revolving line of credit. Other
long-term debts have maturity dates through September 2010 and are expected to
be paid or refinanced when due. As of September 30, 1998 the Company was in
compliance with all debt covenants.
During the third quarter of 1998, the Company continued to pay a quarterly cash
dividend of one cent per share on September 2, 1998, to holders of record at the
close of business on August 26, 1998. It is the Board of Directors intention to
continue paying quarterly cash dividends.
Income Taxes
The benefits of future tax deductions and credits not utilized by the Company in
the past are reflected as an asset to the extent the Company assesses that
future operations will "more likely than not" be sufficient to realize such
benefits. For the period ended September 30, 1998, the Company has assessed its
past earnings history and trends, sales backlog, budgeted sales, and expiration
dates of future tax deductions and credits. As a result, the Company has
determined it is "more likely than not" that $9,205,000 of the benefits of
future tax deductions and credits will be utilized. The ultimate realization of
the deferred tax assets will require aggregate taxable income of approximately
$27 million to $32 million in future years.
Impact of Year 2000 Issue
An issue exists for all companies that rely on computers as the Year 2000 (Y2K)
approaches. The Y2K problem is the result of past practices in the computer
industry of using two digits rather than four to identify the applicable year.
The Company is addressing the need to ensure that its operations will not be
adversely impacted by software or other system failures related to Y2K. The
Company has formed an oversight committee made up of key management positions
and has developed a plan to coordinate identification, evaluation and
implementation of any necessary changes to internal computer systems,
applications, and business processes.
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As of September 30, 1998, the Y2K committee had identified the Company's
information systems (IT) and non-information systems (non IT) that could
potentially be impacted by Y2K. Prior to the end of 1998 the Company plans to
have a detailed schedule of events that will be required to correct any
remaining Y2K problems. This schedule will include a list of identified
problems, prioritization of the problems, and identified solutions. The Company
plans to be complete with all Y2K readiness and contingency planning by June
1999.
The Y2K process began in early 1996 when the Company began the software and
hardware selection and evaluation process for its manufacturing and financial
reporting applications. During the third quarter of 1998 the Company replaced
the primary IT operations at the Oklahoma City location. Approximately $2
million was spent by the Company on this phase of the Y2K project which was also
part of the Company's factory modernization plan. These costs were capitalized
and will be expensed over future periods.
The Company has also obtained a vendor readiness statement from approximately 99
percent of the Company's active vendors. These statements indicated that 95
percent were either Y2K compliant or would be by June 1999. The Company has
determined that an alternative supply source exists for the vendors who do not
appear to be addressing the Y2K problem.
Non IT systems being considered include communication technologies. The Company
has determined its communication technologies require certain upgrades to meet
Y2K requirements. The Company anticipates Y2K compliance in this area by June
1999 at a estimated cost of $150,000.
The Company has been able to test its entire system using internal programming
staff and outside computer consultants and intends to continue making any
necessary modifications to prevent disruption to its operations. The Company
spent $300,000 in consulting fees related to Y2K and IT systems during the third
quarter 1998 and estimates that another $500,000 will be spent with outside
consultants related to Y2K and IT systems. The Company has not identified the
most reasonably likely worst case scenario in the event the Company does not
obtain Y2K readiness. This will be performed during contingency planning which
will occur during 1999.
No assurances can be given that the Company will be able to completely identify
or address all year 2000 compliance issues, or that third parties with whom the
Company does business will not experience system failures as a result of the
year 2000 issue, nor can the Company fully predict the consequences of
noncompliance.
Federal Highway Legislation
The Company is accessing the longer-range impact of the $217 billion national
highway bill (TEA-21) over the next five to six years. The significant
investment in capital improvements and plant modernization efforts has the
Company positioned to take advantage of any increased business as a result of
this new legislation.
The Company has begun to see an impact in the form of a 150 percent increase in
order backlog. The Company's backlog at September 30, 1998 was $35 million
compared to $14 million at September 30, 1997. Newly acquired operations make up
$10 million of the $21 million increase in sales backlog, while pre-acquisition
operations makes up the remaining $11 million.
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Forward Looking Statements
Statements of the Company or management's intentions, beliefs, anticipations,
expectations and similar expressions concerning future events contained in this
report constitute "forward looking statements" as defined in the Private
Securities Litigation Reform Act of 1995. As with any future event, there can
be no assurance that the events described in forward looking statements made in
this report will occur or that the results of future events will not vary
materially from those described in the forward looking statements made in this
report. Important factors that could cause the Company's actual performance and
operating results to differ materially from the forward looking statements
include, but are not limited to, highway funding, adverse weather conditions,
general economic conditions and political changes both domestically and
overseas.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
Since 1996, the Company has been involved in litigation in the U.S. District
Court for the Western District of Oklahoma with Cedarapids, Inc. The Company
sued Cedarapids seeking a declaratory judgment that a patent held by Cedarapids
is invalid or, in the alternative, that the Company was not infringing upon the
patent. Cedarapids subsequently filed a counterclaim against the Company
alleging that the Company was infringing Cedarapids' patent and seeking
unspecified monetary damages. In January 1997, the District Court issued an
order staying this lawsuit pending the resolution of litigation between
Cedarapids and Gencor, Industries involving the same patent at issue in the
lawsuit between the Company and Cedarapids. This stay was lifted in December
1997 and the lawsuit is currently set for trial in January 1999.
In September 1998, Cedarapids filed suit against the Company in the U.S.
District Court for the Northern District of Iowa alleging that the Company has
infringed upon a second patent held by Cedarapids. Cedarapids is seeking
unspecified monetary damages. The Company intends to vigorously defend this
lawsuit.
ITEM 2. CHANGES IN SECURITIES.
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
ITEM 5. OTHER INFORMATION.
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits required by Item 601 of Regulation S-K are as follows:
Exhibit No.
-----------
27 Financial Data Schedule
(b) The Company did not file any report on a Form 8-K during the fiscal
quarter ended September 30, 1998.
-14 of 15-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: November 13, 1998 /s/Jim D. Holland
--------------------- --------------------------------------
Jim D. Holland
Senior Vice President, Treasurer and
Chief Financial Officer
-15 of 15-
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