<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 1-5951
CMI CORPORATION
(Exact name of registrant as specified in its charter)
Oklahoma 73-0519810
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
I-40 & Morgan Road
P.O. Box 1985
Oklahoma City, OK 73101
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (405) 787-6020
Securities registered pursuant to Section 12(b) of the Act:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
------------------- ---------------------
VOTING CLASS A COMMON STOCK PAR VALUE $.10 NEW YORK STOCK EXCHANGE
Securities registered pursuant to Section 12(g) of the Act:
NONE
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 by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the Voting Class A Common Stock (Class A
Common Stock) and the Voting Common Stock (Common Stock) held by non-affiliates
of the registrant on March 23, 1998 was $52,463,469.
The number of shares of the registrant outstanding on March 23, 1998 was
21,500,043 shares of Class A Common Stock and 602 shares of Common Stock.
DOCUMENTS INCORPORATED BY REFERENCE
DOCUMENTS FORM 10-K REFERENCE
--------- -------------------
PROXY STATEMENT FOR THE ANNUAL MEETING OF SHAREHOLDERS PART III
TO BE HELD ON MAY 14, 1998
<PAGE>
CMI CORPORATION
FORM 10-K
DECEMBER 31, 1997
TABLE OF CONTENTS
PART I PAGE
Item 1. Business................................................ 3
Item 2. Properties.............................................. 9
Item 3. Legal Proceedings....................................... 10
Item 4. Submission of Matters to a Vote of Security Holders..... 10
Executive Officers of the Registrant.................... 10
PART II
Item 5. Market for the Registrant's Common Stock and
Related Shareholder Matters............................. 12
Item 6. Selected Financial Data................................. 13
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations..................... 13
Item 8. Financial Statements and Supplementary Data............. 22
Item 9. Changes in and Disagreements With Accountants on
Accounting and Financial Disclosure..................... 45
PART III
Items 10.-13. All Items Are Incorporated by Reference to the Company's
Proxy Statement for the Annual Meeting of Shareholders
to be held on May 14, 1998.............................. 45
PART IV
Item 14. Exhibits, Consolidated Financial Statement Schedule, and
Reports on Form 8-K..................................... 45
SIGNATURES..................................................... 48
<PAGE>
CMI CORPORATION
FORM 10-K
December 31, 1997
===============================================================================
PART I
Item 1. Business
--------
(a) General Development of Business
-------------------------------
Unless the context requires otherwise, as used herein, the term "Company" means
CMI Corporation and its consolidated subsidiaries. Information regarding 1997
business developments is located in Item 1(c).
(b) Financial Information About Industry Segments
---------------------------------------------
The Company currently operates in one industry segment and information regarding
this segment is located in Item 1(c). See consolidated financial statements for
financial information (Item 8).
(c) Narrative Description of Business
---------------------------------
The Company was incorporated in Oklahoma in 1926. Since 1964, the Company has
manufactured and marketed automated equipment for the road and heavy
construction industry. The Company is an industry leader in the design and
manufacture of automated equipment for the construction and maintenance of
highways, city streets, airport runways, county roads, bridges, and parking
lots. The Company's products include asphalt plants; asphalt pavement recycling
systems; concrete pavers; machines for concrete placing and spreading,
finishing, texturing, and curing; pavement profiling machines; pavement
reclaimers; a complete line of automated fine grading, materials spreading and
placing equipment; soil stabilizers; and a series of multiple use machines, that
can be configured for either rear to side discharge, for placing base and/or
paving materials. The Company also produces trailers, used by the construction
and mining industries, industrial scales, bridge and canal paving equipment, and
thermal systems for remediating contaminated soils. The Company has won market
recognition by producing products emphasizing recycling and energy conservation.
During the fourth quarter of 1997, the Company expanded its product offerings by
acquiring two manufacturers of concrete production plants and two product lines
from a third manufacturer. The Company first acquired the Ross Company of
Brownwood, Texas, a nearly 50 year old manufacturer of concrete central and
ready mix plants. Ross has a strong reputation for innovative ready mix plants,
both portable and stationery. The second concern acquired was the 75 year old
C.S. Johnson Company of Champaign, Illinois. C.S. Johnson was the pioneer in
the design and manufacture of large mass pour concrete central mix plants used
on some of the world's largest construction projects. Notable past projects
include the Hoover
3
<PAGE>
CMI CORPORATION
FORM 10-K
December 31, 1997
===============================================================================
and Grand Coulie Dams. Johnson plants are currently providing the concrete for
the world's largest construction project of modern times, the Three Gorges Dam
in China. Finally, the Company acquired the TRASHMASTER Landfill compaction
line and three hard materials grinding machines for the demolition and wood
wastes industry from Rexworks, Inc. of Milwaukee, Wisconsin.
In late 1991, the President signed into law the Intermodal Surface
Transportation Efficiency Act of 1991 (ISTEA-91) providing authorizations for
total funding of more than $155 billion over a six-year period for highways,
highway safety, and mass transportation programs. ISTEA-91, which expired
September 30, 1997, had a positive impact on the Company, as well as the road
and heavy construction industry as a whole. As in fiscal 1996, Federal Highway
Trust Fund spending was set at just over $20 billion for fiscal 1997, continuing
a pattern of funding in recent years, but below the amount authorized by
Congress under ISTEA-91. After failing to re-authorize a new multi-year federal
highway construction funding program during 1997, Congress passed an extension
of the old program through April 30, 1998. In March 1998, the Senate passed the
ISTEA II re-authorization providing $173 billion over six years for federal
highway investment, a 43% increase over the previous six year authorization.
The House bill, BESTEA, is expected to be passed by the April 30, 1998 deadline
and it is expected to provide more funds for highways than the measure passed by
the Senate.
The North American Free Trade Agreement (NAFTA) and General Agreement on Tariff
and Trade (GATT) continue to have a positive impact on the heavy construction
industry through increased export sales in North America and Europe.
Principal product information is as follows:
Hot Mix Asphalt Production Systems:
-----------------------------------
The Company has continued to market and deliver its popular parallel flow hot
mix asphalt production and recycling plants to customers. The Company has
been providing the asphalt plant industry with this parallel flow technology
since approximately 1978.
In 1993, the Company completed design work on a new counter-flow hot mix
asphalt production plant. This new plant was introduced under the trade name
"TRIPLE-DRUM." Production tests showed that the plant has superior heat
transfer performance compared to other counter-flow plant designs, especially
for recycle operations. The ease with which TRIPLE-DRUMs are passing tough
exhaust emissions standards with high production rates, even under adverse
production conditions, has been noticed by the industry and is resulting in
stronger sales.
4
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CMI CORPORATION
FORM 10-K
December 31, 1997
===============================================================================
The Company introduced a new line of batch type hot mix asphalt production
plants during 1994, and introduced yet another series of metric sized batch
plants for international markets during the first quarter of 1996.
The Company's parallel flow, TRIPLE-DRUM, and batch type hot mix asphalt
production and recycling systems provide a wide range of technologies to
serve the needs of the industry.
Concrete Paving Systems:
------------------------
The Company manufactures and markets worldwide a complete line of street and
highway class concrete slipform paving and paving train support machines.
The popularity of these machines relates directly to job site performance,
which often has resulted in contractors earning performance bonuses for
pavement smoothness as recorded by profileograph measuring. Some contractors
have even recovered the original purchase cost of a machine from the bonuses
of a single job.
The Company's highway class pavers incorporate machine improvements into the
basic machine design, making features like computerized crowning and
automatic placement of dowel bars less costly to add. During 1995, the
Company introduced a new 3000 series of AUTO-GRADE slipform pavers which
features a double telescoping mainframe to more easily accommodate changes in
paving width. The series is available in two and four track models and is
ideal for city streets, lane additions and ramp paving. The Company
introduced a new line of curb and gutter pavers and smaller slipform pavers
in 1996, which are being marketed under the trade name, METRO-PAV. Upgraded
versions of its remaining AUTO-GRADE pavers were also introduced in 1996.
Pavement Profiling Equipment:
-----------------------------
The Company introduced the industry's first dedicated pavement milling
machine in 1976. Since that time, the Company's line of "ROTO-MILL" Pavement
Profilers has set the standards for the fast developing pavement restoration
and recycling market. The Company offers a wide range of models from small
utility machines to the PR-1200, the world's largest pavement profiling
machine. Current models include the PR-500C, PR-650, and PR-800-7, all
half-lane width machines; the PR-1050, and PR-1200, full lane width machines;
and two utility rubber tire models, the PRT-225 and PRT-525. During 1997, the
Company introduced the PR-525, a track version of the highly mobile PRT-525.
5
<PAGE>
CMI CORPORATION
FORM 10-K
December 31, 1997
===============================================================================
Reclaiming/Stabilizing Equipment:
---------------------------------
The Company's popular RS-500, a road reclamation and soil stabilization
machine introduced in 1991, has had strong growth in sales over the past six
years. Now marketed under the trade name, ROTO-MIXER, the productivity and
versatility of these machines have created new work classifications and
markets for recycling and pavements; and have dramatically increased the
productivity of older methods. Current models include the RS-425, RS-500B and
RS-650. During 1998, the Company plans to introduce the RS-450, a new higher
production addition for governmental and smaller project markets.
Remediation Equipment:
----------------------
During 1994, the Company began marketing its newly designed Enviro-Tech
Thermal Soil Remediation System. Soil remediation is a process whereby
non-hazardous contaminates like oil, jet fuel, and other hydrocarbon-based
pollutants are removed from the soil in a thermal process. Soil remediation
systems use similar equipment and processes as the Company's asphalt
production systems.
The Company has engineered and is marketing remediation systems with
production ranges from 80 to 160 tons per hour. The Company's systems have
been used at military and industrial sites, where they have set new
production records which actually doubled the tons per hour produced on any
previous jobs of similar nature.
Waste, Construction and Demolition Equipment:
---------------------------------------------
The product acquisitions from Rexworks gives CMI a solid market position in
the waste, construction and demolition markets with three separate grinder
designs; the Biogrind, Maxigrind and Megagrind. These models cover a broad
range of grinding requirements from municipal greenwaste, land clearing,
industrial waste and construction and demolition. Each model is designed for
both wide application, and niche markets with its broad range. Customer
loyalty to the models is excellent and many traditional CMI customers own
these units; many more are prospects.
Weighing Equipment:
-------------------
The Company manufactures and distributes a broad line of electronic scales
for construction, transportation, material processing, mining, energy,
agricultural, and industrial applications. These systems permit direct
linkage to data processing equipment to speed material processing, record
keeping, and billing. The Company also markets
6
<PAGE>
CMI CORPORATION
FORM 10-K
December 31, 1997
===============================================================================
high technology automatic computer controls for continuous material blending,
weighing, record keeping, inventory tracking, invoicing, and report writing.
These control systems are primarily marketed with the Company's hot mix
asphalt production plants and soil remediation systems.
Load King Division:
-------------------
Load King, headquartered in Elk Point, South Dakota, manufactures a broad
line of heavy duty trailers for equipment and material hauling. Bottom
discharge material trailers and a family of redesigned rock hauler trailers
have been added to the broad line of folding gooseneck and lightweight
detachable gooseneck trailers engineered to meet individual state weight
distribution requirements. Load King also responds to customer requirements
for custom heavy haul trailers. During 1995, the Company began manufacturing
its popular bottom dump trailers at its Oklahoma City manufacturing facility.
The added production at the Oklahoma City manufacturing facility has reduced
Load King's response time for filling dealer orders for these products and
has permitted the Elk Point manufacturing facility to concentrate on the
production of custom heavy hauling units.
Bid-Well Division:
------------------
Bid-Well, headquartered in Canton, South Dakota, is an industry leader in the
development and manufacture of a wide variety of specialized lightweight
grading and concrete paving and finishing machines for construction
markets. This equipment includes bridge deck pavers and concrete overlay
machines, building floor pavers and finishers, and specialized graders,
pavers, and finishers for slope and canal paving.
Marketing and Distribution. The Company's construction equipment is sold
- --------------------------
directly to end users and through independent dealers. The Company's scale and
trailer products are sold through independent dealers. All products are sold in
the United States and in foreign markets, except for weighing equipment and
products manufactured by the Load King Division which are sold substantially in
the United States.
Sources and Availability of Raw Materials. The principal component parts used
- -----------------------------------------
in the Company's manufacturing of its pavement maintenance and construction
equipment that are supplied by others include gas and diesel engines, hydraulic
cylinders, tires, bearings, and raw steel. The Company has not experienced any
delays in its component parts deliveries or
7
<PAGE>
CMI CORPORATION
FORM 10-K
December 31, 1997
===============================================================================
received inferior component parts that have adversely affected its business. In
addition, the Company purchases many of these components from a variety of
outside suppliers and believes that alternate sources of supply exist for
substantially all items.
Importance of Patents. The Company has obtained patent protection on certain
- ---------------------
components and features incorporated into its products, which expire on various
dates. The Company's patents, together with licenses under patents owned by
others, are considered by the Company to be adequate for the conduct of its
business. The Company is of the opinion that the loss of any single patent or
group of related patents would not materially affect the Company's business.
Seasonal Nature of the Business. The Company's business is seasonal in nature
- -------------------------------
and precedes the months in which highway and road construction and restoration
generally occur. A large portion of the Company's orders for its products are
received in the months of November through July, with heavy shipments occurring
in the months of March through August.
Practices Relating to Working Capital. The Company recognizes revenue when
- -------------------------------------
sales transactions are completed, which is when products are shipped or title
has transferred to the customer. Sales generally require a down payment or
trade allowance and are due within normal trade terms. The Company also sells
certain products under installment sales contracts. Inventories are carried in
proportion to customer requirements and fluctuate in relation to the seasonal
nature of the Company's business.
Dependence Upon a Single Customer or a Few Customers. The Company was not
- ----------------------------------------------------
dependent on any single customer or group of customers during 1995 through 1997.
Competitive Conditions. The Company is one of the largest producers of pavement
- ----------------------
maintenance and construction equipment in the United States. The Company has
won substantial market recognition in the pavement maintenance and construction
industry by producing products emphasizing recycling and energy conservation.
Numerous companies produce equipment with similar features and the construction
equipment market remains competitive. Competition is based primarily on price,
product quality, financing, productivity, quality of construction, service, and
availability of replacement parts.
Company-Sponsored Engineering and Product Development Activities. The Company
- ----------------------------------------------------------------
invests significant resources in the development, enhancement, refinement, and
production of new technologies for the road and heavy construction industry.
The Company patents new technologies relating to
8
<PAGE>
CMI CORPORATION
FORM 10-K
December 31, 1997
===============================================================================
significant changes and development of finished products. See discussion
regarding current engineering and product development activities under principal
product information and also see Management's Discussion and Analysis of
Financial Conditions and Results of Operations (Item 7).
Environmental Laws and Regulations. The Company is subject to various
- ----------------------------------
environmental laws and regulations, none of which have a current or expected
future material financial impact on the Company.
Employees. The Company had approximately 1,590 employees as of December 31,
- ----------
1997.
(d) Financial Information About Foreign and Domestic Operations and Export
-----------------------------------------------------------------------
Sales
-----
The Company had export sales to unaffiliated customers through foreign dealers
and representatives as follows (dollars in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
------- ------ ------
<S> <C> <C> <C>
North and Central America, other than the
United States 8,043 11,904 4,455
South America 6,764 5,177 4,904
Asia 3,954 4,284 4,657
Australia 1,453 5,071 1,206
Europe 928 2,607 1,081
Other regions 7 396 356
------- ------ ------
Total export sales $21,149 29,439 16,659
======= ====== ======
</TABLE>
See Consolidated Financial Statements (Item 8).
Item 2. Properties
----------
The Company has total plant, office, and warehouse areas of approximately
904,000 square feet, which are located in four states.
9
<PAGE>
CMI CORPORATION
FORM 10-K
December 31, 1997
===============================================================================
The largest manufacturing plant, including the corporate headquarters, has
approximately 600,000 square feet and is located in Oklahoma City, Oklahoma.
Other principal manufacturing plants and offices owned by the Company,
aggregating approximately 304,000 square feet, are located in South Dakota,
Texas, and Iowa. The Company also leases approximately 95,000 square feet of
manufacturing plants and offices located in Illinois. These facilities are
adequate for the current and expected near future operations of the Company.
In addition, the Company owns 110 acres of land in Tennessee currently being
held for sale.
Item 3. Legal Proceedings
-----------------
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. 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 postjudgment interest and other costs.
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 case above, will not have a materially adverse
effect on the Company's consolidated financial position, liquidity or future
results of operations.
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
Not applicable.
Executive Officers of the Registrant
- ------------------------------------
Pursuant to General Instruction G(3) of Form 10-K, the following list is
included as an unnumbered item in Part I of this Form 10-K in lieu of being
included in the Company's Proxy Statement for the Annual Meeting of Shareholders
to be held on May 14, 1998.
10
<PAGE>
CMI CORPORATION
FORM 10-K
December 31, 1997
===============================================================================
The following is a list of names, listed alphabetically, and ages of all the
executive officers of the registrant indicating all positions and offices with
the registrant held by each such person and each such person's principal
occupations or employment during the past five years.
<TABLE>
<CAPTION>
Age as of
Name March 23, 1998 Offices and Positions Held
- ---- -------------- --------------------------------------
<S> <C> <C>
Albert L. Basey 60 President and Chief Operating Officer
since February 1997 (1)
Robert L. Curtis 58 Vice President, Sales and Marketing
since November 1996 (2)
Jim D. Holland 53 Senior Vice President, Treasurer,
and Chief Financial Officer since
August 1984
Bill Swisher 67 Chief Executive Officer since 1964
Thane Swisher 41 Vice President and Secretary since
(Son of Bill Swisher) October 1987
</TABLE>
(1) Mr. Basey has held manufacturing and general management positions with
industrial companies for over 30 years; including the position of president
and chief operating officer for one of AT&T's Business Units.
(2) Mr. Curtis has held marketing and general management positions with
industrial companies for 30 years; including the positions of vice
president, marketing and sales for Eagle Picher Construction Equipment
Division; and president of Roadtec, a Division of Astec Industries.
11
<PAGE>
CMI CORPORATION
FORM 10-K
December 31, 1997
===============================================================================
PART II
Item 5. Market for the Registrant's Common Stock and Related Shareholder Matters
------------------------------------------------------------------------
Principal Market and Stock Prices:
- ----------------------------------
The Company's Class A Common Stock is traded on the New York Stock Exchange.
The closing market price for the Company's Class A Common Stock on March 23,
1998, was $4.81. The table below presents the high and low market prices for
the Company's common shares for each three month period in 1997 and 1996. The
following information was obtained from the monthly market statistics report
prepared by the New York Stock Exchange.
<TABLE>
<CAPTION>
1997 1996
-------------------------------- ---------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
3/31 6/30 9/30 12/31 3/31 6/30 9/30 12/31
----- ----- ----- ----- ----- ---- ----- -----
Common shares:
High $5.13 4.75 5.50 6.50 $5.88 6.00 4.13 4.88
Low 4.25 3.88 3.94 4.13 4.75 4.25 3.75 4.13
</TABLE>
Approximate Number of Shareholders:
- -----------------------------------
The number of holders of record of the Company's common shares as
of March 23, 1998, was 1,698.
Dividend Information:
- ---------------------
The following table summarizes dividend payments authorized by the
Company's Board of Directors:
Per Share
Type Record Date Payment Date Amount
---- ---------- ------------ ---------
Common 11/15/96 12/03/96 $ .01
Common 02/18/97 03/03/97 .01
Common 05/16/97 06/12/97 .01
Common 08/15/97 09/02/97 .01
Common 11/21/97 12/01/97 .01
Common 03/12/98 03/18/98 .01
It is the Board of Director's present intention to continue paying regular
quarterly cash dividends. Prior to the 1996 cash dividend, 1981 was the last
year a cash dividend had been made on the Company's Class A Common Stock or
Common Stock.
12
<PAGE>
CMI CORPORATION
FORM 10-K
December 31, 1997
===============================================================================
See Management's Discussion and Analysis of Financial Condition and Results of
Operations (Item 7) and Notes to Consolidated Financial Statements (Item 8).
Item 6. Selected Financial Data
-----------------------
The following selected financial data should be read in conjunction with the
consolidated financial statements of the Company, including notes and
supplementary information appearing elsewhere herein.
FIVE-YEAR SELECTED FINANCIAL DATA - (DOLLARS IN THOUSANDS, EXCEPT PER SHARE
DATA)
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
-------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net revenues $154,014 138,788 130,578 128,005 100,564
Operating earnings 6,746 10,987 11,743 15,032 10,204
Net earnings (1) 3,165 5,461 17,501 22,618 8,032
Earnings per common share - diluted (1) .15 .25 .82 1.07 .37
Total assets (2) 144,428 113,454 109,219 89,744 65,362
Long-term debt and redeemable
preferred stock (2) 49,274 34,103 27,628 27,599 27,114
Cash dividends per common share $ .04 .01 - - -
</TABLE>
(1) Included in 1995 and 1994 net earnings are deferred tax benefits of
approximately $8.8 million and $10 million, respectively, relating to
previously unrecognized tax benefits related to Statement of Financial
Accounting Standards No. 109.
(2) Total assets and long-term debt for 1997 reflects the impact of
acquisitions of businesses (See Notes to Consolidated Financial Statements,
Item 8).
The acquisitions did not have a material impact on net revenues, operating
earnings or net earnings in 1997.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
-----------------------------------------------------------------------
of Operations
- -------------
Changes in Financial Condition, Liquidity, and Capital Resources
- ----------------------------------------------------------------
During 1997, the Company's liquidity and capital resources remained strong. On
October 1, 1997, the Company acquired all the outstanding stock of Brownwood
Ross Company, a concrete plant manufacturing company, for $2.4
13
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CMI CORPORATION
FORM 10-K
December 31, 1997
===============================================================================
million. On October 24, 1997, the Company acquired certain assets of CS Johnson
Corporation, a concrete plant manufacturing company, for $.8 million. On
December 17, 1997, the Company acquired certain assets related to the landfill
and embankment compactor and material reduction grinder product lines from
Rexworks, Inc. for $20.5 million. The acquisitions were funded with existing
cash, 75,000 shares of Voting Class A Common Stock, and $15.0 million in debt.
The Company will incur some costs in 1998 to relocate the landfill and
embankment compactor and material reduction product lines of Rexworks, Inc. from
Milwaukee to Oklahoma City; however, overall these acquisitions are expected to
contribute to both revenue and earnings for the full year of 1998.
The $30 million 7.68%, unsecured senior notes issued in September 1996 mature
from September 2000 to September 2006. The $25 million unsecured revolving line
of credit obtained in September 1996 provides for interest at the LIBOR rate
plus 1.25% to 2.0% or prime rate less 0.5% to 1.25%. The rate is determined
based on the ratio of funded debt to earnings before interest, taxes,
depreciation and amortization and is adjusted every ninety days. The rate was
7.66% at December 31, 1997. The revolving line of credit was increased to $40
million effective December 31, 1997 and matures December 2000. As of December
31, 1997, the Company had utilized $15 million of the unsecured revolving line
of credit. Other long-term debt has a maturity date of September 2010 and is
expected to be paid when due. The debt-to-total-capital percentage was 41.2% at
December 31, 1997 compared to 34.8% at December 31, 1996. The increase in debt-
to-total-capital percentage is largely due to funding for acquisitions.
The Company maintains a fleet financing agreement with a third party lender
related to the rental of finished products to customers. Generally, these
financings range from three months to three years and are secured by the
specific finished product. These financing arrangements provide the Company with
additional short-term working capital and the ability to offer more attractive
financing to its customers. The fleet financing agreement provides for interest
at the prime rate. At December 31, 1997, the Company had no outstanding
obligations under this agreement.
In January 1993, the Company entered into separate loan agreements with Recovery
Equity Investors L.P., a shareholder, and Larry Hartzog, a shareholder and board
member, to borrow $1.97 million at a fixed interest rate of 9%. In connection
with the loan agreements, the lenders purchased stock purchase warrants from the
Company entitling them to purchase up to 600,000 aggregate shares of the
Company's Class A Common Stock at an exercise price of $3.75 per share. The
lenders paid $50,000 for these stock purchase warrants. In July 1995, the $1.97
million was paid in accordance with the loan agreements. In January 1997, the
lenders exercised the stock purchase warrants for 600,000 aggregate shares of
the Company's Class A Common Stock at an exercise price of $3.75 per share. The
additional $2.25 million in working capital was used for general corporate
purposes.
14
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CMI CORPORATION
FORM 10-K
December 31, 1997
===============================================================================
The Company's new financing and various other loan agreements and arrangements
should provide the Company with sufficient working capital to finance its
operations.
Other Changes in Financial Condition, Liquidity, and Capital Resources
- ----------------------------------------------------------------------
Working capital increased to approximately $84.0 million at December 31, 1997
from $75.8 million at December 31, 1996. The increase in working capital is
primarily the result of increased receivables of approximately $9.0 million and
inventories of approximately $10.0 million offset by an increase in current
liabilities of approximately $9.8 million. Included in working capital at
December 31, 1997 was approximately $6.0 million of receivables purchased from
Rexworks, approximately $8.6 million of inventories purchased from Rexworks and
approximately $2.5 million of Rexworks' current liabilities assumed.
The increase in receivables is the result of increased fourth quarter sales and
receivables purchased from Rexworks. The current ratio at December 31, 1997 was
4.42-to-1 compared to 6.10-to-1 at December 31, 1996.
Capital expenditures were $5.3 million in 1997, an increase of $1.9 million from
the prior year. Capital expenditures are made to continue the improvement of the
Company's manufacturing and product support efficiencies. Capital expenditures
for 1998 are budgeted at $11.0 million. Capital expenditures will be funded
with cash from operations and debt.
In connection with a 1985 acquisition, the Company issued 4,800 shares of 7%
Series B Preferred Stock with a $4.8 million redemption value. The preferred
stock accrued dividends at the rate of $70 per share per year. The cumulative
dividends were payable each January and July and had to be fully paid or
declared with funds set aside for payment before any dividend could be declared
or paid on any other class of the Company's stock. The preferred stock carried a
redemption price of $1,000 per share. During the period from 1988 to 1995, 1,350
shares of the preferred stock were redeemed and certain dividends were accrued
and paid. During 1996, the Company paid approximately $4.8 million for the
redemption of 3,450 shares of preferred stock plus accrued dividends. As of
December 31, 1996, the Company had redeemed all outstanding preferred shares.
During 1997, the Company paid a quarterly cash dividend of one cent per share.
During the first quarter of 1998, the Company's Board of Directors authorized
payment of a quarterly cash dividend of one cent per share. It is the Board of
Director's present intention to continue paying regular quarterly cash
dividends.
15
<PAGE>
CMI CORPORATION
FORM 10-K
December 31, 1997
===============================================================================
Accounting for Income Taxes - Income taxes are accounted for using the asset and
- ---------------------------
liability method under which deferred income taxes are recognized for the tax
consequences of "temporary differences" by applying enacted statutory tax rates
applicable to future years to differences between the financial statement
carrying amounts and the tax bases of existing assets and liabilities. The
effect on deferred taxes for a change in tax rates is recognized as income in
the period that includes the enactment date.
The Company has a net deferred tax asset after consideration of the valuation
allowance of approximately $12.2 million and $15.8 million at December 31, 1997
and 1996, respectively. The benefit of future tax deductions and credits not
utilized by the Company in the past is reflected as an asset to the extent that
the Company assesses that future operations will "more likely than not" be
sufficient to realize such benefits. The Company has assessed its past earnings
history and trends, sales backlog, budgeted sales, reversing taxable temporary
differences and expiration dates of future tax deductions and credits. As a
result, the Company has determined it is "more likely than not" that the $12.2
million of net deferred tax assets will be realized. The ultimate realization
of future tax deductions and credits will require aggregate taxable income of
approximately $32 million to $37 million in future years.
Results of Operations
- ---------------------
1997 SALES AND EARNINGS. The Company's net revenues for the year ended December
31, 1997 rose to $154.0 million from $138.8 million for the year ended December
31, 1996. Net earnings for 1997 were $3.2 million versus $5.5 million in 1996,
or 15 cents per share for 1997 versus 25 cents per share for 1996.
The Company's international sales decreased to $21.1 million in 1997 from $29.4
million in 1996 and $16.7 million in 1995, resulting in a decrease of
approximately 28% from 1996 and an increase of approximately 26% over 1995. The
Company's domestic sales were $132.9 million in 1997 and $109.4 million in 1996,
an increase of approximately 21%. The increase in net revenues was primarily
attributable to increased volume from the Company's core products. The
acquisitions completed during the fourth quarter of 1997 did not significantly
impact 1997 net revenues.
The decrease in international sales is primarily attributed to declines in
Australia and North and Central America (other than the United States) offset by
an increase in South America. The declines are primarily a result of unusually
strong sales realized in 1996.
16
<PAGE>
CMI CORPORATION
FORM 10-K
December 31, 1997
===============================================================================
The funding of the ISTEA-91 legislation and the commitment of the U.S. Congress
and federal government to fund the improvement of the infrastructure has had a
significant impact on the Company's industry the past several years. After
failing to re-authorize a new multi-year federal highway construction funding
program during 1997, Congress passed an extension of the old program through
April 30, 1998. In March 1998, the Senate passed the ISTEA II re-authorization
providing $173 billion over six years for federal highway investment, a 43%
increase over the previous six year authorization. The House bill, BESTEA, is
expected to be passed by the April 30, 1998 deadline and it is expected to
provide more funds for highways than the measure passed by the Senate.
The Company's gross margins were 25.2% down from 28.9% in the prior year. One
reason for the decline is the Company's strategy to gain market share in the
asphalt arena and the associated pricing pressures encountered. However, the
primary cause for the decrease is the plant re-engineering program begun in 1997
with a long term goal of lowering costs of goods sold primarily by controlling
labor costs while maximizing productivity and efficiency. In addition, in
connection with the re-engineering efforts, the Company focused on improving the
quality of its products and ensuring stringent quality standards were met prior
to shipping equipment. These efforts required significant commitment of capital
and man hours during the transition and resulted in increases in costs of sales
during the first six months of 1997. The costs improved in the third and fourth
quarters, but the impact on overall 1997 margins was negative.
Marketing and administrative expenses increased $2.4 million in 1997 due to
increased sales efforts. As a percentage of net revenues, marketing and
administrative expenses were approximately 16.5% in 1997 from approximately
16.6% in 1996.
Engineering and product development costs remained level as a percentage of net
revenues at approximately 4%. The Company continues to be committed to setting
standards of quality within the industry. During 1997, the Company introduced
the PR-525, a track version of the highly mobile PRT-525 mill. During 1998, the
Company will be introducing the RS-450, a new higher production road reclaimer
and soil stabilization machine for governmental and smaller project markets.
Additionally during 1998, the Company will be introducing a Medical Waste
Grinder for the health care industry. These new products further emphasize the
Company's commitment to product development and product enhancement.
17
<PAGE>
CMI CORPORATION
FORM 10-K
December 31, 1997
===============================================================================
Interest expense decreased $27,000 from the prior year. The Company's average
borrowings increased over 1996 largely due to the $30.0 million private
placement completed in September 1996 and the $15.0 million funding from the
Company's line-of-credit in December 1997. The increase in average borrowings
in 1997 was partially offset by more favorable borrowing rates under the
Company's new financing arrangements.
Income tax expense was $2.0 million in 1997 compared to $3.2 million in 1996.
The Company's 1997 and 1996 earnings were fully taxed at a rate of approximately
36.5%. The exclusion of losses of the Company's foreign subsidiary in
determining tax expense is the primary factor which increases the Company's
financial tax rate.
The acquisitions completed during the fourth quarter of 1997 did not
significantly contribute to 1997 net revenues and net earnings. During 1998,
the Company anticipates an increase in net revenues of approximately $45 million
from these acquisitions. Gross margins are comparable to the Company's existing
core products. As a result of these acquisitions the Company anticipates an
increase in marketing and administrative expenses of approximately $2.0 million,
engineering and product development costs of approximately $1.0 million, and
interest expenses of approximately $1.0 million. Overall these acquisitions are
expected to be accretive to net earnings for the full year of 1998.
1996 SALES AND EARNINGS. The Company's net revenues for the year ended December
31, 1996 rose to $138.8 million from $130.6 million for the year ended December
31, 1995. Net earnings for 1996 were $5.5 million versus $17.5 million in 1995,
or 25 cents per share for 1996 versus 82 cents per share for 1995. The
Company's 1995 earnings per share of 82 cents included a tax benefit of 55
cents. The Company's earnings per share on a fully taxed basis would have been
25 cents per share in 1996 versus 27 cents a share in 1995.
The Company's international sales increased to $29.4 million in 1996 from $16.7
million in 1995 and $23.8 million in 1994, resulting in an increase of
approximately 76% over 1995 and an increase of approximately 24% over 1994.
During 1996, the North American Free Trade Agreement ("NAFTA") continued to
favorably impact the Company's sales in international markets.
The Company's domestic sales were $109.4 million in 1996 from $113.9 million in
1995, a decrease of approximately 4%. Domestic sales in 1996 were negatively
impacted by developments in Washington, D.C., notably the uncertainty about the
government highway funding. This impact was felt during the first half of 1996
by the Company in the form of customers delaying or canceling purchases of
equipment for the spring or summer construction seasons due to the uncertainty
of business.
18
<PAGE>
CMI CORPORATION
FORM 10-K
December 31, 1997
===============================================================================
Although the Company's 1996 domestic sales were impacted by the uncertainty
surrounding the government highway funding, the development of the domestic
highways and mass transportation system has had and will continue to have a
positive impact on the Company. The continued funding of the ISTEA-91
legislation and the commitment of the U.S. Congress and federal government to
fund the improvement of the infrastructure has had a significant impact on the
Company's industry the past several years. The Company anticipates continued
success as the government approved funding for ISTEA-91 legislation was set at
approximately $20 billion for fiscal 1997.
The Company's gross margins were 28.9% down from 29.6% in the prior year. This
reduction in margins is primarily the result of increased manufacturing costs as
a percent of net revenues. This was primarily the result of the mix of products
sold in 1996 as compared to 1995.
Marketing and administrative expenses increased in 1996 due to increased sales
efforts. As a percentage of net revenues, marketing and administrative expenses
increased to approximately 16.6% in 1996 from approximately 16.3% in 1995. This
increase is largely due to the Company's participation in the 1996 CONEXPO trade
show. The Company had the largest display at the 1996 show held in Las Vegas,
Nevada, in March 1996. Excluding expenses related to CONEXPO, marketing and
administrative expenses as a percentage of net revenues decreased to
approximately 16.0% in 1996.
During 1996, the Company also continued taking steps to increase its market
share in the international market place. This included an increased
international sales force and a more aggressive advertising and marketing
campaign to enlarge the Company's share of potential markets. Efforts by the
Company proved to be effective with a 76% increase in international sales over
the prior year. In addition, the Company continued to provide customer
demonstrations for new and existing product, to participate in other industry
trade shows, and to increase its domestic sales force.
Engineering and product development costs remained level as a percentage of net
revenues at approximately 4%. The Company continues to be committed to setting
standards of quality within the industry. During 1996, the Company hired a
director of quality and a new director of engineering, reflecting the Company's
commitment to product development and product enhancement through the addition
and enhancement of key management positions. Also, the Company introduced
several new products at the 1996 CONEXPO trade show. New products included a
series of metric batch plants, upgraded versions of the AUTO-GRADE pavers, a new
line of curb and gutter pavers and smaller slipform pavers, and a utility-sized
rubber-tired pavement profiler machine. These new products further emphasize
the Company's commitment to product development and product enhancement.
19
<PAGE>
CMI CORPORATION
FORM 10-K
December 31, 1997
===============================================================================
Interest expense decreased $233,000 from the prior year as a result of more
favorable borrowing rates under the Company's new financing arrangements.
Income tax expense was $3.2 million in 1996 compared to an $8.2 million net
income tax benefit recognized in 1995. The Company's 1996 earnings were fully
taxed, whereas 1995 earnings benefited from previously unrecognized tax benefits
related to Statement 109.
Impact of Recently Issued Accounting Standards Not Yet Adopted
- --------------------------------------------------------------
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 130, "Reporting Comprehensive Income."
SFAS No. 130 is effective for fiscal years beginning after December 15, 1997.
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. The Company
currently does not have any components of comprehensive income that are not
included in net income. The Company will adopt SFAS No. 130 in 1998.
Also in June 1997, SFAS No. 131, "Disclosures about Segments of an Enterprise
and Related Information," was issued. SFAS No. 131 is effective for periods
beginning after December 15, 1997. SFAS No. 131 requires that a public entity
report financial and descriptive information about its reportable segments.
Operating segments are components of an enterprise about which separate
financial information is available that is evaluated regularly by the chief
operating decision maker in deciding how to allocate resources and in assessing
performance. The Company will adopt SFAS No. 131 in 1998. However, such
adoption is not expected to impact the Company's financial disclosures because
the Company's current operations are limited to one reportable operating segment
under SFAS No. 131's definitions.
Impact of Year 2000 Issue
- -------------------------
An issue exists for all companies that rely on computers as the Year 2000
approaches. The "Year 2000" problem is the result of past practices in the
computer industry of using two digits rather than four to identify the
applicable year. This practice will result in incorrect results when computers
perform arithmetic operations, comparisons or data field sorting involving years
later than 1999. In connection with the plant re-engineering program the
Company is currently implementing a new manufacturing and financial reporting
system which is Year 2000 compliant.
20
<PAGE>
CMI CORPORATION
FORM 10-K
December 31, 1997
===============================================================================
The Company anticipates that it will be able to test its entire system using its
internal programming staff and outside computer consultants and intends to make
any necessary modifications to prevent disruption to its operations. Future
costs in connection with any such modifications and completion of implementation
are not expected to be material.
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.
Clean Air Act
- -------------
In 1990, the United States Congress passed certain amendments to the National
Clean Air Act. As required by the National Clean Air Act, the implementation of
the 1990 amendments may take up to seven years. The 1990 amendments have
required certain products manufactured by the Company to be equipped with new
pollution control devices. Additional products manufactured by the Company may
require new pollution control devices. The Company believes that it will
continue to be able to meet the implementation dates as required by the 1990
amendments.
Inflation
- ---------
The Company did not experience any significant inflationary impact on its costs
of materials.
21
<PAGE>
CMI CORPORATION AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Item 8. Financial Statements and Supplementary Data
-------------------------------------------
PAGE
Independent Auditors' Report............................................ 23
- ----------------------------
Consolidated Financial Statements
- ---------------------------------
Consolidated Statements of Earnings,
Years ended December 31, 1997, 1996, and 1995........................ 24
Consolidated Balance Sheets, December 31, 1997 and 1996................ 25
Consolidated Statements of Changes in Common Stock and Other Capital,
Years ended December 31, 1997, 1996, and 1995........................ 27
Consolidated Statements of Cash Flows,
Years ended December 31, 1997, 1996, and 1995........................ 28
Notes to Consolidated Financial Statements,
December 31, 1997, 1996, and 1995.................................... 29
Information required by schedules called for under Regulation S-X is either not
applicable, not material, or is included in the consolidated financial
statements or notes thereto.
22
<PAGE>
INDEPENDENT AUDITORS' REPORT
----------------------------
The Board of Directors and Stockholders
CMI Corporation:
We have audited the consolidated financial statements of CMI Corporation and
subsidiaries (the Company) as listed in the accompanying index. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of CMI Corporation and
subsidiaries as of December 31, 1997 and 1996, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1997, in conformity with generally accepted accounting
principles.
KPMG Peat Marwick LLP
Oklahoma City, Oklahoma
February 23, 1998
23
<PAGE>
CMI CORPORATION AND SUBSIDIARIES
Consolidated Statements of Earnings
Years ended December 31, 1997, 1996, and 1995
(dollars in thousands, except per share data)
===============================================================================
<TABLE>
<CAPTION>
1997 1996 1995
--------- -------- --------
<S> <C> <C> <C>
Net revenues $154,014 138,788 130,578
-------- ------- -------
Costs and expenses:
Cost of goods sold 115,172 98,694 91,915
Marketing and administrative 25,450 23,098 21,239
Engineering and product development 6,646 6,009 5,681
-------- ------- -------
147,268 127,801 118,835
-------- ------- -------
Operating earnings 6,746 10,987 11,743
-------- ------- -------
Other expense (income):
Interest expense 2,906 2,933 3,166
Interest income (1,351) (616) (568)
Other, net (4) 44 (172)
-------- ------- -------
Earnings before income taxes 5,195 8,626 9,317
Income tax expense (benefit) 2,030 3,165 (8,184)
-------- ------- -------
Net earnings $ 3,165 5,461 17,501
======== ======= =======
Share data:
Net earnings applicable to common shares $ 3,165 5,189 17,170
Weighted average outstanding common
shares:
Basic 21,225 20,426 20,367
Diluted 21,318 20,708 20,893
Net earnings per average outstanding
common share:
Basic $ .15 .25 .84
======== ======= =======
Diluted $ .15 .25 .82
======== ======= =======
Dividends per common share $ .04 .01 -
======== ======= =======
</TABLE>
See notes to consolidated financial statements.
24
<PAGE>
CMI CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 1997 and 1996
(dollars in thousands)
===============================================================================
<TABLE>
<CAPTION>
Assets 1997 1996
------ -------- -------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 7,131 7,160
Receivables less allowance for doubtful accounts
of $1,035 and $496 at December 31, 1997 and 1996,
respectively 26,917 17,857
Inventories:
Finished equipment 28,618 31,972
Work-in-process 14,910 6,890
Raw materials and parts 25,143 19,835
-------- -------
Total inventories 68,671 58,697
Other current assets 579 187
Deferred tax asset 5,300 6,700
-------- -------
Total current assets 108,598 90,601
-------- -------
Property, plant, and equipment:
Land 2,086 1,757
Buildings 14,995 11,239
Machinery and equipment 37,697 33,390
Other 1,961 1,209
-------- -------
56,739 47,595
Less accumulated depreciation and amortization 37,288 35,248
-------- -------
Net property, plant, and equipment 19,451 12,347
Long-term receivables 2,509 352
Deferred tax asset 6,900 9,100
Other assets, principally goodwill 6,970 1,054
-------- -------
Total assets $144,428 113,454
======== =======
</TABLE>
See notes to consolidated financial statements.
25
<PAGE>
CMI CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets, Continued
December 31, 1997 and 1996
(dollars in thousands)
===============================================================================
<TABLE>
<CAPTION>
Liabilities, Common Stock and Other Capital 1997 1996
- ------------------------------------------- ------- --------
<S> <C> <C>
Current liabilities:
Current maturities of long-term debt $ 259 256
Accounts payable 14,655 6,409
Accrued liabilities 9,647 8,183
-------- -------
Total current liabilities 24,561 14,848
-------- -------
Long-term debt 49,274 34,103
Common stock and other capital:
Common stock:
Par value $.10; shares issued and outstanding
- 621 at December 31, 1997 and 1996 - -
Class A common stock:
Par value $.10; shares issued
- 21,506,383 and 20,467,383 at December 31, 1997
and 1996, respectively 2,151 2,047
Additional paid-in capital 49,816 46,112
Retained earnings 18,658 16,344
Treasury stock, 6,340 shares at cost (32) -
-------- -------
70,593 64,503
Commitments and contingencies (notes 13 and 14)
-------- -------
Total liabilities, common stock and other
capital $144,428 113,454
======== =======
</TABLE>
See notes to consolidated financial statements.
26
<PAGE>
CMI CORPORATION AND SUBSIDIARIES
Consolidated Statements of Changes in Common Stock and Other Capital
Years ended December 31, 1997, 1996, and 1995
(dollars in thousands)
===============================================================================
<TABLE>
<CAPTION>
Retained
Common Stock Class A Common Stock Additional Earnings
----------------- -------------------- Paid-in Treasury (Accumulated
Shares Amount Shares Amount Capital Stock Deficit)
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance December 31,
1994 621 $ - 20,351,591 $2,035 $46,229 $ - $(6,131)
Net earnings - - - - - - 17,501
Dividends declared
and accretion on
preferred stock - - - - (321) - (10)
Exercise of stock
options - - 29,792 3 93 - -
---- ---- ---------- ------ ------- ---- -------
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
===== ==== ========== ====== ======= ==== =======
</TABLE>
See notes to condensed consolidated financial statements.
27
<PAGE>
CMI CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended December 31, 1997, 1996, and 1995
(dollars in thousands)
===============================================================================
<TABLE>
<CAPTION>
1997 1996 1995
--------- -------- --------
<S> <C> <C> <C>
Operating activities:
Net earnings $ 3,165 5,461 17,501
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation 2,527 2,199 1,757
Amortization 47 176 58
Loss (gain) on sale of assets (4) 59 (190)
Change in assets and liabilities net of effects
of acquisitions of businesses:
Receivables (1,645) (6,126) 5,495
Inventories 532 4,402 (15,535)
Other, current assets (249) 202 (268)
Accounts payable 5,414 (5,008) 3,285
Accrued liabilities (203) (252) 777
Deferred tax asset 2,343 3,000 (8,800)
Long-term receivables (2,157) 783 (484)
Other, non-current assets (1,275) (610) 26
-------- ------- -------
Net cash and cash equivalents provided by
operating activities 8,495 4,286 3,622
-------- ------- -------
Investing activities:
Sale of cash equivalents - restricted - 150 753
Proceeds from sale of assets 113 41 676
Capital expenditures (5,259) (3,413) (2,323)
Payments made for acquisitions of businesses (19,876) - -
-------- ------- -------
Net cash and cash equivalents used in
investing activities (25,022) (3,222) (894)
-------- ------- -------
Financing activities:
Payments on long-term debt (1,052) (3,449) (5,899)
Borrowings on long-term debt - 30,000 3,050
Net borrowings (payments) on revolving credit note 15,000 (14,526) 2,044
Net borrowings (payments) on fleet financing agreement - (3,097) 323
Proceeds from stock options exercised 1,183 120 96
Proceeds from stock warrants exercised 2,250 - -
Payment of common stock dividends (851) (205) -
Payment of preferred stock dividends - (272) (653)
Redemption of preferred stock - (4,537) (1050)
Purchase of treasury stock (32) - -
-------- ------- -------
Net cash and cash equivalents provided by
(used in) financing activities 16,498 4,034 (2,089)
-------- ------- -------
Increase (decrease) in cash and cash equivalents (29) 5,098 639
Cash and cash equivalents at beginning of year 7,160 2,062 1,423
-------- ------- -------
Cash and cash equivalents at end of year $ 7,131 7,160 2,062
======== ======= =======
</TABLE>
See notes to consolidated financial statements.
28
<PAGE>
CMI CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1997, 1996, and 1995
===============================================================================
(1) Description of Business and Summary of Significant Accounting Policies
----------------------------------------------------------------------
Description of Business
-----------------------
Since 1964, CMI Corporation and its subsidiaries (the Company) have
manufactured and marketed automated equipment for the road and heavy
construction industry. The Company's automated construction equipment has
a wide variety of uses in the maintenance, construction, paving, and
resurfacing of highways, city streets, parking lots, airport runways,
tunnels, and bridges. The Company's raw materials are readily available,
and the Company is not dependent on a single supplier or only a few
suppliers.
Seasonal Nature of the Business
-------------------------------
The Company's business is seasonal in nature and precedes the months in
which highway and road construction and restoration generally occur. A
large portion of the Company's orders for its products are received in the
months of November through July, with heavy shipments occurring in the
months of March through August.
Principles of Consolidation
---------------------------
The consolidated financial statements include the accounts of CMI
Corporation and its subsidiaries. All significant intercompany balances and
transactions have been eliminated in consolidation.
Cash and Cash Equivalents
-------------------------
For purposes of the statement of cash flows, the Company considers
unrestricted cash and cash equivalents with maturities of less than three
months to be cash equivalents.
Business and Credit Concentrations
----------------------------------
The Company's customers are not concentrated in any specific geographic
region, but are concentrated in the road and heavy construction business.
No single customer accounted for a significant amount of the Company's
sales, and there were no significant accounts receivable from a single
customer. The Company reviews a customer's credit history before extending
credit. The Company establishes an allowance for doubtful accounts based
upon factors surrounding the credit risk of specific customers, historical
trends, and other information. To reduce credit risk, the Company
generally requires a down payment on large equipment orders, and
international sales are generally secured by letters of credit.
29
<PAGE>
CMI CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
===============================================================================
The Company had short-term notes receivable and sales-type lease payments
due from customers included in accounts receivable of approximately
$5,874,000 and $1,321,000 at December 31, 1997 and 1996, respectively.
Inventories
-----------
Inventories are stated at the lower of cost or market, cost being
determined using the first-in, first-out (FIFO) method. Costs included in
inventories consist of materials, labor, and manufacturing overhead which
are related to the purchase and production of inventories.
Property, Plant, and Equipment
------------------------------
Property, plant, and equipment, stated at cost or the present value of
minimum lease payments for assets under capital leases, are depreciated
over the estimated useful lives of the assets using the straight-line
method. Estimated useful lives for buildings, machinery and equipment, and
other property, plant, and equipment range from 3 to 33, 3 to 15, and 2 to
10 years, respectively. Significant improvements and betterments are
capitalized if they extend the useful life of the asset. Routine repairs
and maintenance are expensed when incurred.
The Company adopted the provisions of Statement of Financial Accounting
Standards (SFAS) No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of," on January 1, 1996.
SFAS No. 121 requires that long-lived assets and certain identifiable
intangibles be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net cash flows
expected to be generated by the asset. If such assets are considered to be
impaired, the impairment to be recognized is measured by the amount by
which the carrying amount of the assets exceed the fair value of the
assets. Assets to be disposed of are reported at the lower of the carrying
amount or fair value less costs to sell.
Other Assets
------------
Other assets include loan acquisition costs and other intangible assets.
Loan acquisition costs are being amortized on a straight-line basis over
the life of the related loan agreement. Also included in other assets is
the excess of acquisition costs over the fair value of net assets acquired
(goodwill). Goodwill is being amortized on a straight-line basis over a
fifteen year period.
30
<PAGE>
CMI CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
================================================================================
Intangible assets are evaluated periodically, and if conditions warrant, an
impairment valuation allowance is provided. The Company assesses
recoverability of its intangible assets under the provisions of SFAS No.
121.
Revenue Recognition
-------------------
Revenue is recognized when sales transactions are completed, which is when
products are shipped or title has transferred to the customer.
Income Taxes
------------
Income taxes are accounted for using the asset and liability method under
which deferred income taxes are recognized for the tax consequences of
"temporary differences" by applying enacted statutory tax rates applicable
to future years to differences between the financial statement carrying
amounts and the tax bases of existing assets and liabilities. The effect
on deferred taxes for a change in tax rates is recognized in income in the
period that includes the enactment date.
Stock Option Plan
-----------------
Prior to January 1, 1996, the Company accounted for its stock options in
accordance with the provisions of Accounting Principles Board ("APB")
Opinion No. 25, "Accounting for Stock Issued to Employees," and related
interpretations. As such, compensation expense would be recorded on the
date of grant only if the current market price of the underlying stock
exceeded the exercise price. On January 1, 1996, the Company adopted SFAS
No. 123, "Accounting for Stock-Based Compensation," which permits entities
to recognize as expense over the vesting period the fair value of all
stock-based awards on the date of grant. Alternatively, SFAS No. 123 also
allows entities to continue to apply the provisions of APB Opinion No. 25
and provide pro forma net income and pro forma earnings per share
disclosures for employee stock option grants made in 1995 and future years
as if the fair-value-based method defined in SFAS No. 123 had been applied.
The Company has elected to continue to apply the provisions of APB Opinion
No. 25 and provide the pro forma disclosure provisions of SFAS No. 123.
31
<PAGE>
CMI CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
===============================================================================
Earnings Per Common Share
-------------------------
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 was not material to the
Company's prior period earnings per share data. The previously reported
amounts for earnings per share were restated using basic earnings per share
and diluted earnings per share.
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 income applicable to common shares
and weighted average common shares outstanding used in the calculation of
basic and diluted earnings per common share for the years 1997, 1996 and
1995 (in thousands, except per share data):
<TABLE>
<CAPTION>
Year ended December 31
-----------------------
1997 1996 1995
------- ------ ------
<S> <C> <C> <C>
Net income $ 3,165 5,461 17,501
Less dividends on preferred stock and
accretion of preferred stock discount - 272 331
------- ------ ------
Net earnings applicable to common shares,
basic and diluted $ 3,165 5,189 17,170
======= ====== ======
Weighted average number of common
shares outstanding - basic 21,225 20,426 20,367
Dilutive effect of potential common shares
issuable upon exercise of employee
stock options and stock purchase warrants 93 282 526
------- ------ ------
Weighted average number of common
shares outstanding - diluted 21,318 20,708 20,893
======= ====== ======
Earnings per share
Basic $ 0.15 0.25 0.84
Diluted $ 0.15 0.25 0.82
</TABLE>
32
<PAGE>
CMI CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
================================================================================
Use of Estimates
----------------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Fair Value of Financial Instruments
-----------------------------------
The carrying amounts of cash and cash equivalents, receivables, accounts
payable, and accrued liabilities approximate fair value because of the
short maturity of these instruments. The carrying amounts of long-term
receivables and long-term debt approximates fair value as the effective
rates for these instruments are comparable to market rates at year-end.
(2) Acquisition of Businesses and Product Lines
-------------------------------------------
On December 17, 1997, the Company acquired substantially all of the assets
of Rexworks, Inc's TRASHMASTER Landfill compaction product line and three
hard materials grinding machines for approximately $20.5 million which
included assumption of certain liabilities related to the product lines.
The purchase price was allocated to the assets acquired based on their
estimated fair values, and approximately $16 million was allocated to
receivables and inventory. The excess of the purchase price over the fair
value of the net assets acquired (goodwill) was approximately $4.1 million
and is being amortized on a straight-line basis over 15 years.
The financial statements reflect the preliminary allocation of the purchase
price. The allocation has not been finalized due to certain pre-
acquisition contingencies identified by the Company relating to impairment
of assets and contingent liabilities. Accordingly, in 1998 goodwill
associated with the acquisition may increase.
In October 1997, the Company acquired all of the outstanding stock of
Brownwood Ross Company for $2.4 million in cash, and certain assets of CS
Johnson Corporation for $425,000 in cash and 75,000 shares of the Company's
common stock (valued at $375,000), and the assumption of approximately
$321,000 in liabilities. The purchase price was allocated to the assets
acquired based on their estimated fair values.
33
<PAGE>
CMI CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
================================================================================
The 1997 acquisitions described above were accounted for by the purchase
method of accounting for business combinations. Accordingly, the
accompanying consolidated statements of operations do not include any
revenues or expenses related to these acquisitions prior to the respective
closing dates. The cash portions of the acquisitions were financed through
available cash and borrowings from the Company's line of credit. Following
are the Company's unaudited pro forma results for 1997 and 1996 assuming
the acquisitions occurred on January 1, 1996 (in thousands, except for per
share data):
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Net revenues $189,199 $176,635
Net earnings 4,146 6,566
Net earnings per common share:
Basic .19 .32
Diluted .19 .32
Weighted average outstanding common shares:
Basic 21,281 20,501
Diluted 21,375 20,783
</TABLE>
These unaudited pro forma results have been prepared for comparative
purposes only and do not purport to be indicative of the results of
operations which would have actually resulted had the combinations been in
effect on January 1, 1996, or of future results of operations.
(3) Long-Term Debt and Notes Payable to Related Parties
---------------------------------------------------
Long-term debt and notes payable at December 31 are summarized as follows
(dollars in thousands):
1997 1996
---- ----
Series A Senior Notes, unsecured, with interest at
7.68%, due from September 2000 to September 2006 $30,000 30,000
Revolving line of credit, unsecured, with interest
at 7.66% at December 31, 1997, due December 2000 15,000 -
4.4% to 8.25% (8.1% weighted average rate) fixed rate
bonds, collateralized by a first security interest
in certain real property, due September 2010 4,092 4,275
34
<PAGE>
CMI CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
===============================================================================
Lease-purchase obligations and notes payable due
through October 2008, with interest from 6.25% to
11.93%, collateralized by certain buildings and
equipment 441 84
------- ------
49,533 34,359
Less current maturities of long-term debt 259 256
------- ------
$49,274 34,103
======= ======
In September 1996, the Company completed a $30 million private placement of
unsecured series A senior notes and established a $25 million unsecured
revolving line of credit with Bank of Oklahoma, N.A. of Oklahoma City. The
$55 million in new financing replaced the existing $30 million credit
agreement which had been in place since 1991. A portion of the proceeds
from the $30 million unsecured series A senior notes were used to retire
higher-interest debt and to redeem the Company's preferred stock. The $25
million unsecured revolving line of credit obtained in September 1996
provides for interest at the LIBOR rate plus 1.25% to 2.0% or prime rate
less 0.5% to 1.25%. The rate is determined based on the ratio of funded
debt to earnings before interest, taxes, depreciation and amortization and
is adjusted every ninety days. Effective December 31, 1997 the unsecured
revolving line of credit was increased to $40 million.
The Company's fleet financing agreement allows the Company to borrow 100
percent of the net sales price of specific equipment under lease contracts.
The terms of the individual borrowings under the financing agreement are
consistent with the lease contracts and generally range from three months
to three years. Borrowings under the fleet financing agreement are secured
by the specific equipment. As of December 31, 1997 and 1996, the Company
had no borrowings outstanding under the fleet financing agreement.
Certain debt agreements contain restrictions on working capital, net worth
(minimum of approximately $49.6 million at December 31, 1997), and other
restrictive covenants. At December 31, 1997, the Company was in compliance
with these covenants.
In January 1993, the Company entered into separate loan agreements with
Recovery Equity Investors, L.P. (REI), a shareholder, and Mr. Larry
Hartzog, a shareholder and member of the Company's board of directors, to
borrow $1,970,000 at a fixed interest rate of 9 percent, due in July 1995.
In July 1995, the $1,970,000 was paid in accordance with the loan
agreements. The loan agreements also included the issuance of stock
purchase warrants entitling REI and Mr. Hartzog to
35
<PAGE>
CMI CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
===============================================================================
purchase up to 600,000 aggregate shares of the Company's Class A Common
Stock at an exercise price of $3.75 per share. At the date of the loan
agreement, the closing price of the Company's Class A Common Stock was
$3.50. The lenders paid $50,000 for the stock purchase warrants. The
Company allocated the total proceeds from the debt and the stock purchase
warrants based on their book values which were determined to be their
respective fair values. In January 1997, REI and Mr. Hartzog exercised the
stock purchase warrants at an exercise price of $3.75 per share purchasing
600,000 shares of the Company's Class A Common Stock.
The aggregate maturities of long-term debt for each of the five years
subsequent to December 31, 1997, are as follows (dollars in thousands):
1998 $ 259
1999 254
2000 19,542
2001 4,564
2002 4,586
Thereafter 20,328
-------
$49,533
=======
(4) Redeemable Preferred Stock
--------------------------
In connection with a 1985 acquisition, the Company issued 4,800 shares of
7% Series B Preferred Stock with a $4.8 million redemption value. The
preferred stock accrued dividends at the rate of $70 per share per year.
The cumulative dividends were payable each January and July and had to be
fully paid or declared with funds set aside for payment before any dividend
could be declared or paid on any other class of the Company's stock. The
preferred stock carried a redemption price of $1,000 per share. During the
period from 1988 to 1995, 1,350 shares of the preferred stock were redeemed
and certain dividends were accrued and paid. During 1996, the Company paid
approximately $4.8 million for the redemption of 3,450 shares of preferred
stock plus accrued dividends. As of December 31, 1996 the Company had
redeemed all outstanding preferred shares.
(5) Common Stock and Other Capital
------------------------------
In 1991, the Company entered into an Investment Agreement with REI pursuant
to which, the Company sold REI 6,666,667 shares of Common Stock
(subsequently Class A Common Stock) at $.75 per share. The Investment
Agreement contains various covenants and restricts the Company from taking
certain actions without the prior written consent of REI.
36
<PAGE>
CMI CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
===============================================================================
On February 14, 1992, the Company filed an amended and restated certificate
of incorporation, which authorizes 20,000 shares of common stock and
45,000,000 shares of Class A Common Stock. Additionally, the Company
effected a 1-for-2,000 reverse split of the common stock and declared a
stock dividend of 1,999 shares of Class A Common Stock for each whole share
of common stock outstanding following the reverse split. Owners of the
remaining common stock could exchange each share of common stock for one
share of Class A Common Stock. The exchange offer expired on April 30,
1992. At December 31, 1997 and 1996, 621 shares of common stock had not
been exchanged. The Class A Common Stock has certain transfer restrictions
in order to prevent a change in ownership, which could limit or eliminate
the Company's income tax net operating loss carryforwards (see note 8).
On February 3, 1987, the Company authorized and declared a dividend of
rights to purchase shares of common stock, subsequently Class A Common
Stock, (the Rights) at the rate of one Right for each share of Class A
Common Stock outstanding to shareholders of record as of February 4, 1987.
The Rights Agreement was amended to exclude REI and the chairman of the
board and chief executive officer from the definition of an acquiring
person. The Rights are exercisable upon the occurrence of certain events.
In the event the Company is acquired in a merger or other business
combination transaction (including one in which the Company is a surviving
corporation), excluding REI and the chairman of the board and chief
executive officer, it is provided that each of the Rights will entitle its
holder to purchase, at the then current exercise price of the Rights, that
number of shares of Class A Common Stock of the surviving company, which at
the time of such transaction would have a market value of two times the
exercise price of the Rights. Therefore, each of the Rights entitled the
holder, until February 4, 1997, to buy one share of Class A Common Stock at
an exercise price of one-half of its market value at the time of exercise.
The Rights were evidenced by the Class A Common Stock certificate and were
not exercisable or transferable apart from the Class A Common Stock until
fifteen days after a person, excluding REI and the chairman of the board
and chief executive officer, acquires 20 percent or more, or makes a tender
offer for 30 percent or more, of the Class A Common Stock. The exercise
price and the number of shares of Class A Common Stock issuable upon the
exercise of the Rights were subject to adjustment in certain cases to
prevent dilution. The Rights did not have any voting rights and were
redeemable, at the option of the Company, at a price of $.01 per Right
until fifteen days subsequent to any person or entity acquiring beneficial
ownership, excluding REI and the chairman of the board and chief executive
officer, of at least 20 percent of the Class A Common Stock. Under terms of
the Rights Agreement, the Rights expired on February 4, 1997.
37
<PAGE>
CMI CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
===============================================================================
(6) Stock Option Plans
------------------
The Company has established the 1992 Incentive Stock Option Plan (the Plan)
for its employees, as approved by the shareholders. The Plan has two
features: (1) stock options and (2) stock appreciation rights. The Plan
is administered by the Compensation Committee of the Board of Directors.
The granting of stock options and/or appreciation rights is at the sole
discretion of the Compensation Committee. Board members are not allowed to
participate in the Plan. A maximum of 1,000,000 stock options and/or
appreciation rights may be granted under the Plan. The exercise price of
the stock options is the market value of Class A Common Stock at the date
of grant. Generally, the options vest and become exercisable ratably over
a four-year period, commencing six months after the grant date. The
Compensation Committee is entitled in its discretion to grant options with
vesting periods which are different from the standard four year period. In
a limited number of instances, the Compensation Committee has exercised its
discretion and has granted options with both shorter and longer vesting
periods than the standard four year period.
At December 31, 1997, there were 270,208 additional options available for
grant under the Plan. The per share weighted-average fair value of stock
options granted during 1997, 1996, and 1995 was $2.27, $2.14, and $3.54
respectively, on the date of grant using the Black Scholes option-pricing
model with the following weighted-average assumptions: 1997 - expected
volatility 56%, expected dividend yield .9%; risk-free interest rate of
5.5%, and an expected life of 5 years. 1996 - expected volatility 58%,
expected dividend yield 1%, risk-free interest rate of 5.5%, and an
expected life of 5 years; 1995 - expected volatility 58%, expected dividend
yield 0%, risk-free interest rate of 5.5%, and an expected life of 5 years.
The Company applies APB Opinion No. 25 in accounting for its stock options
and, accordingly, no compensation cost has been recognized for stock
options in the financial statements. Had the Company determined
compensation cost based on the fair value at the grant date for its stock
options under SFAS No. 123, the Company's net earnings would have been
reduced to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1997 1996 1995
------- ----- ------
<S> <C> <C> <C> <C>
Net earnings As reported $3,165 5,461 17,501
Pro forma 3,008 5,374 17,460
Earnings per share - diluted As reported $ 0.15 0.25 0.82
Pro forma 0.14 0.25 0.82
</TABLE>
38
<PAGE>
CMI CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
===============================================================================
Pro forma net earnings reflects only options granted in 1997, 1996, and
1995. Therefore, the full impact of calculating compensation cost for
stock options under SFAS No. 123 is not reflected in the pro forma net
earnings amounts presented above because compensation cost is reflected
over the options' vesting period of 5 years and compensation cost for
options granted prior to January 1, 1995 is not considered.
Stock appreciation rights may be issued with stock options or separately,
at the sole discretion of the Compensation Committee. Stock appreciation
rights, if granted, would be payable in shares of Class A Common Stock over
the same vesting period as the stock options. At December 31, 1997, no
stock appreciation rights had been granted.
Stock option activity during the periods indicated is as follows:
Number of Weighted-Average
Shares Exercise Price
--------- ----------------
Balance at December 31, 1994 500,000 $3.54
Granted 100,000 6.44
Exercised 29,792 3.25
Forfeited 60,000 5.06
Expired 10,208 6.80
-------
Balance at December 31, 1995 500,000 $3.89
Granted 150,000 4.17
Exercised 1,000 3.25
-------
Balance at December 31, 1996 649,000 $3.95
Granted 85,000 4.50
Exercised 364,000 3.25
Expired 35,000 3.25
-------
Balance at December 31, 1997 335,000 $4.93
=======
At December 31, 1997, the range of exercise prices and weighted-average
remaining contractual life of outstanding options was $4.125 - $6.75 and
3.6 years, respectively.
At December 31, 1997, 1996, and 1995, the number of options exercisable was
94,175, 374,125, and 250,000, respectively, and the weighted-average
exercise price of those options was $5.64, $3.46, and $3.25, respectively.
In February 1993, a member of the board of directors received options to
purchase 10,000 shares of Class A Common Stock at the then current market
price of $4.875 per share. The options were immediately exercisable. No
options had been exercised at December 31, 1997.
39
<PAGE>
CMI CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
================================================================================
In 1992, a consulting firm, of which a former board member is a director,
received options for the purchase of up to 100,000 shares of Class A Common
Stock for past services rendered. These options were immediately
exercisable at an exercise price of $1.38 per share. The Company recorded
approximately $125,000 in expense in 1992 for these options. These options
were exercised in 1996.
(7) Leases
------
The Company leases equipment to customers under short-term and long-term
contracts. Short-term contracts generally range from three to six months.
Rental income from short-term leases was approximately $1,961,000,
$2,935,000, and $2,096,000, for the years ended December 31, 1997, 1996,
and 1995, respectively.
The Company's long-term leases generally qualify as sales-type leases. The
net investment in such leases is included in receivables. Future minimum
lease payments to be received for long-term leases are as follows (dollars
in thousands):
1998 $5,874
1999 1,127
2000 74
2001 305
2002 187
Thereafter 816
------
$8,383
======
(8) Income Taxes
------------
Income tax expense (benefit) consisted of the following (dollars in
thousands):
1997 1996 1995
Current tax expense $ 173 165 616
Deferred tax expense (benefit) 1,857 3,000 (8,800)
------ ----- ------
$2,030 3,165 (8,184)
====== ===== ======
The deferred tax benefit in 1995 consisted of a reduction of the beginning-
of-the-year valuation allowance of $12,479,000, offset by a deferred tax
expense of $3,679,000.
40
<PAGE>
CMI CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
===============================================================================
Income tax expense (benefit) differed from the amounts computed by applying
the U.S. federal income tax rate of 35% to earnings before income taxes in
1997, 1996, and 1995, as a result of the following (dollars in thousands):
1997 1996 1995
------ ------- -------
Computed expected tax expense $1,818 3,019 3,261
State income taxes 185 336 380
Reduction of valuation allowance (357) (37) (12,479)
Other, net 384 (153) 654
------ ------- -------
$2,030 3,165 (8,184)
====== ======= =======
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities at December 31, 1997
and 1996, are as follows (dollars in thousands):
1997 1996
---- ----
Net operating loss and other
carryforwards $11,359 14,139
Other, net 3,364 3,559
------- ------
Deferred tax assets 14,723 17,698
Deferred tax liability (plant and
equipment temporary differences) (2,249) (1,267)
------- ------
12,474 16,431
Less valuation allowance 274 631
------- ------
Net deferred tax asset $12,200 15,800
======= ======
During 1995, the Company reduced the valuation allowance to recognize a
deferred tax asset of $18.8 million at December 31, 1995. The deferred tax
asset at December 31, 1997 and 1996 was $12.2 million and $15.8 million,
respectively. The recognized deferred tax asset is based upon expected
utilization of net operating loss and other carryforwards and reversal of
certain temporary differences. The ultimate realization of the deferred
tax asset will require aggregate taxable income of approximately $32
million to $37 million in future years.
The estimated taxable income for 1997 before utilization of income tax net
operating loss carryforwards was approximately $5.8 million. The estimated
taxable income for 1996 before utilization of income tax net operating loss
carryforwards was approximately $7.6 million. The taxable loss for 1995 was
approximately $10 million. This differs from earnings before income taxes
for 1995 as a result of realizing a loss on the sale of the assets of CMI
Energy Conversion Systems, Inc. (CMI Energy) for tax purposes. The loss
was recognized for financial reporting purposes in prior years when the
assets of CMI Energy were reduced to estimated realizable value.
41
<PAGE>
CMI CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
===============================================================================
The Company has assessed its past earnings history and trends, sales
backlog, budgeted sales (including sales of acquired businesses in 1997,
see note 2), reversing taxable temporary differences and expiration dates
of carryforwards and has determined that it is more likely than not that
the $12,200,000 of net deferred tax assets will be realized. The remaining
valuation allowance of approximately $274,000 is maintained against
deferred tax assets which the Company has determined to not be realizable.
At December 31, 1997, the Company has tax net operating loss carry forwards
of approximately $20,827,000 for federal income tax purposes. Such
carryforwards, which may provide future tax benefits, expire as follows:
$5,707,000 in 2005, $4,810,000 in 2006, and $10,310,000 in 2010. Future
changes in ownership, as defined by section 382 of the Internal Revenue
Code, could limit the amount of net operating loss carryforwards used in
any one year (see note 5).
(9) Export Sales
------------
The Company had export sales of approximately $21.1 million, $29.4 million,
and $16.7 million in 1997, 1996, and 1995, respectively. These sales were
made through foreign dealers and representatives. A significant portion of
these sales were made in Asia, Australia, South America, and North and
Central America, excluding the United States.
(10) Employee Benefit Plan
---------------------
The Company has a defined contribution plan whereby eligible employees may
contribute pretax wages in accordance with the provisions of the plan. At
the discretion of the Board of Directors, the Company matches certain
contributions made by eligible employees. Discretionary matching
contributions of approximately $269,000, $155,000, and $128,000 were made
in 1997, 1996, and 1995, respectively.
(11) Supplemental Quarterly Financial Information (unaudited)
--------------------------------------------------------
Following is a summary of the unaudited interim results of operations for
the years ended December 31 (in thousands, except per share data):
<TABLE>
<CAPTION>
1997
--------------------------------------------
First Second Third Fourth Full
Quarter Quarter Quarter Quarter Year
------- ------- ------- -------- -------
<S> <C> <C> <C> <C> <C>
Net revenues $41,713 46,105 36,078 30,118 154,014
Net earnings(loss) $ 1,424 2,230 1,433 (1,922) 3,165
Net earnings(loss)
per common share:
Basic $ .07 .11 .07 (.09) .15
Diluted $ .07 .11 .07 (.09) .15
</TABLE>
42
<PAGE>
CMI CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
===============================================================================
1996
-----------------------------------------
First Second Third Fourth Full
Quarter Quarter Quarter Quarter Year
------- ------- ------- ------- ----
Net revenues $36,493 38,758 36,636 26,901 138,788
Net earnings(loss) $ 2,095 1,784 2,333 (751) 5,461
Net earnings(loss)
per common share:
Basic $ .10 .09 .11 (.04) .25
Diluted $ .10 .09 .11 (.04) .25
In the fourth quarter of 1997, the Company recognized adjustments to reduce
the carrying value of inventory and accounts receivable by $1.1 million and
$400,000, respectively, and to increase the reserves for warranty and legal
contingencies by $550,000 and $400,000, respectively. The net effect of
the fourth quarter adjustments increased the net loss by approximately
$1.6 million.
(12) Supplemental Cash Flow Information
----------------------------------
Cash paid for interest amounted to approximately $2,804,000, $2,346,000,
and $3,166,000 in 1997, 1996, and 1995, respectively.
Cash paid for income taxes amounted to approximately $249,000, $315,000 and
$277,000 in 1997, 1996, and 1995, respectively.
A 1997 acquisition (see note 2) included consideration in the form of the
Company's Voting Class A Common Stock. The fair value of stock issued was
approximately $375,000.
(13) 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 restrict dividends, debt, or future leasing
arrangements. All leasing arrangements contain normal leasing terms
without unusual purchase options or escalation clauses. Rent expense was
$715,000 in 1997, $419,000 in 1996, and $460,000 in 1995.
Minimum rental commitments under all non-cancelable leases for five years
subsequent to December 31, 1997, are approximately as follows: $1,061,000
in 1998, $709,000 in 1999, $281,000 in 2000, $265,000 in 2001, and $265,000
in 2002.
43
<PAGE>
CMI CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
================================================================================
At December 31, 1997, the Company was contingently liable as guarantor for
certain accounts receivable sold with recourse of approximately $3,982,000
through December 2002.
(14) 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 postjudgment interest and other costs.
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 case above, will
not have a materially adverse effect on the Company's consolidated
financial position, liquidity or future results of operations.
(15) CMI Energy Conversion Systems, Inc.
-----------------------------------
In 1983, a subsidiary of the Company, CMI Energy, indefinitely suspended
construction of a solid waste disposal facility (the
Project). In connection with the Project, the Company contracted with the
City of Oklahoma City (the City) to receive municipal solid waste.
In 1995, the Company sold the assets of CMI Energy for cash and a five year
note bearing interest at eight percent. As a result of the sale, a letter
of credit in the amount of $675,000 held by the City, securing the
Company's performance under the solid waste delivery contract, was
released. CMI Energy did not materially affect the Company's results of
operations in 1995.
(16) Related Party Transactions
--------------------------
During 1997, the Company leased certain manufacturing plants and offices
located in Champaign, Illinois, from the now active President of CMI
Johnson-Ross. The current lease is for twenty-four months at a rate of
$15,000 per month. Aggregate lease payments for the period ended December
31, 1997 were $33,500.
44
<PAGE>
CMI CORPORATION
FORM 10-K
December 31, 1997
===============================================================================
Item 9. Changes in and Disagreements With Accountants on Accounting and
---------------------------------------------------------------
Financial Disclosure
--------------------
None.
PART III
In accordance with the provisions of General Instruction G(3), Items 10, 11, 12,
and 13 are incorporated herein by reference to the Company's Proxy Statement for
the Annual Meeting of Shareholders to be held on May 14, 1998.
PART IV
Item 14. Exhibits, Consolidated Financial Statement Schedules, and Reports
------------------------------------------------------------------
on Form 8-K
-----------
(a) Consolidated Financial Statements and Consolidated Financial Statement
-----------------------------------------------------------------------
Schedule
--------
1. Consolidated Financial Statements:
----------------------------------
See Index to Consolidated Financial Statements at Item 8 on Page 22 of this
Form 10-K.
2. Consolidated Financial Statement Schedules:
-------------------------------------------
Information required by schedules called for under regulation S-X is either
not applicable, not material, or is included in the consolidated financial
statements or notes thereto.
3. Exhibits
--------
(Numbered in accordance with Regulation S-K Item 601)
45
<PAGE>
CMI CORPORATION
FORM 10-K
December 31, 1997
===============================================================================
Page Number or
Exhibit Incorporation by
Number Description Reference to
- ------- ----------- ----------------
(3i) Amended and Restated Certificate Exhibit 2 on Form 8-K,
of Incorporation dated February 18, 1992;
and Exhibit (3i)
on Form 10-Q dated
August 14, 1995
(3ii) Amended and Restated By-Laws Exhibit 6 on Form 8-K,
dated August 26, 1991
(4) The registrant, by signing this report,
agrees to furnish the Securities and
Exchange Commission, upon its request,
a copy of any instrument which defines
the right of holders of long-term debt of
the registrant and all of its subsidiaries
for which consolidated or unconsolidated
its subsidiaries on a consolidated basis.
(10) Separate loan and warrant agreements with Exhibit 1 of the 1992
REI and Larry Hartzog. Form 10-K dated March 8,
1993
(10) Stock Purchase Agreement Exhibit 10 of Form 10-Q
dated May 2, 1995
46
<PAGE>
CMI CORPORATION
FORM 10-K
December 31, 1997
===============================================================================
(21) Subsidiaries of the Registrant:
Place of Incorporation
Name or Organization
---- ---------------
CMI Limited Partnership Oklahoma
CMI Sales Co. Oklahoma
Product Support, Inc. Oklahoma
Machinery Investment Corporation Oklahoma
CMI International (U.K.), Ltd. England
CMI Energy Conversion Systems, Inc. Oklahoma
CMI OIL Corporation Oklahoma
CMI Dakota Co. South Dakota
CMI Metro-Pav, Inc. Iowa
Transport Trailer Manufacturing Company Oklahoma
Brownwood Ross Company Texas
CMI Johnson Corporation Illinois
(23) Consent of Independent Auditors Exhibit 23 of this
Form 10-K
(27) Financial Data Schedule Exhibit 27 on this
Form 10-K
(b) Reports on Form 8-K
-------------------
Form 8-K disclosing the acquisitions of the landfill and embankment
compactor and material reduction grinder divisions owned by Rexworks, Inc.,
a Delaware Corporation, was filed December 24, 1997.
47
<PAGE>
CMI CORPORATION
FORM 10-K
December 31, 1997
===============================================================================
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized:
(Registrant)
CMI CORPORATION
By: /s/ Bill Swisher Dated: March 23, 1998
-----------------------------------
Bill Swisher
Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.
By: /s/ Kenneth J. Barker Dated: March 23, 1998
------------------------------------
Kenneth J. Barker
Director
By: /s/ Albert L. Basey Dated: March 23, 1998
------------------------------------
Albert L. Basey
President and Chief Operating
Officer
By: /s/ Robert L. Curtis Dated: March 23, 1998
------------------------------------
Robert L. Curtis
Vice President, Sales and Marketing
By: /s/ Joseph J. Finn-Egan Dated: March 23, 1998
------------------------------------
Joseph J. Finn-Egan
Director
By: /s/ Ronald A. Kahn Dated: March 23, 1998
------------------------------------
Ronald A. Kahn
Director
48
<PAGE>
CMI CORPORATION
FORM 10-K
December 31, 1997
================================================================================
SIGNATURES
By: /s/ Larry D. Hartzog Dated: March 23, 1998
------------------------------------
Larry D. Hartzog
Director
By: /s/ Jim D. Holland Dated: March 23, 1998
------------------------------------
Jim D. Holland
Senior Vice President, Treasurer
and Chief Financial Officer
By: /s/ Jeffrey A. Lipkin Dated: March 23, 1998
------------------------------------
Jeffrey A. Lipkin
Director
By: /s/ J. Larry Nichols Dated: March 23, 1998
------------------------------------
J. Larry Nichols
Director
By: /s/ Matthew J. Rohwer Dated: March 23, 1998
------------------------------------
Matthew J. Rohwer
Controller
By: /s/ Thomas P. Stafford Dated: March 23, 1998
------------------------------------
Thomas P. Stafford
Director
By: /s/ Bill Swisher Dated: March 23, 1998
------------------------------------
Bill Swisher
Chairman of the Board and
Chief Executive Officer
49
<PAGE>
Exhibit 23
----------
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
CMI Corporation:
We consent to incorporation by reference in the registration statement on Form
S-8 (No. 33-66274) of CMI Corporation of our report dated February 23, 1998,
relating to the consolidated balance sheets of CMI Corporation and subsidiaries
as of December 31, 1997 and 1996, and the related consolidated statements of
earnings, changes in common stock and other capital, and cash flows for each of
the years in the three-year period ended December 31, 1997, which report appears
in the December 31, 1997, annual report on Form 10-K of CMI Corporation.
KPMG Peat Marwick LLP
Oklahoma City, Oklahoma
March 27, 1998
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<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-1-1997
<PERIOD-END> DEC-31-1997
<CASH> 7,131
<SECURITIES> 0
<RECEIVABLES> 26,917
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<INVENTORY> 68,671
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<COMMON> 2,151
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<SALES> 154,014
<TOTAL-REVENUES> 154,014
<CGS> 115,172
<TOTAL-COSTS> 147,268
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<INTEREST-EXPENSE> 2,906
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<INCOME-TAX> 2,030
<INCOME-CONTINUING> 3,165
<DISCONTINUED> 0
<EXTRAORDINARY> 0
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<NET-INCOME> 3,165
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