<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant To Section 13 or 15 (d)
of the Securities Exchange Act of 1934
For the quarterly period ended June 30, 1999 Commission file number 1-5951
CMI CORPORATION
-----------------------------------------------------------
(Exact name of registrant as specified in its charter)
Oklahoma 73-0519810
- ------------------------------ --------------------------------------
(State of Incorporation) (I.R.S. Employer Identification No.)
I-40 & Morgan Road, P.O. Box 1985
Oklahoma City, Oklahoma 73101
---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (405) 787-6020
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Voting Class A Common Stock Par Value $.10
and Voting Common Stock Par Value $.10 21,551,895
- ------------------------------------------ ----------------------------
(Title of each class) (Outstanding at August 11, 1999)
-1 of 20-
<PAGE>
CMI CORPORATION
Index to Form 10-Q
Page
----
PART I. Financial Information
Condensed Consolidated Balance Sheets -
June 30, 1999(Unaudited), December 31, 1998
and June 30, 1998 (Unaudited) 3
Condensed Consolidated Statements of Operations -
Three Months and Six Months Ended June 30, 1999
and 1998(Unaudited) 4
Condensed Consolidated Statements of Changes in Common
Stock and Other Capital -
Six Months Ended June 30, 1999 (Unaudited), and the
Years Ended December 31, 1998 and December 31, 1997 5
Consolidated Statements of Cash Flows -
Six Months Ended June 30, 1999 and 1998 (Unaudited) 6
Notes to Condensed Consolidated Financial Statements 7
Management's Discussion and Analysis of
Financial Condition and Results of Operations 13
Quantitative and Qualitative Disclosure About Market Risk 17
PART II. Other Information
Item 1. Legal Proceedings 18
Item 2. Changes in Securities 19
Item 3. Defaults Upon Senior Securities 19
Item 4. Submission of Matters to a Vote of
Security Holders 19
Item 5. Other Information 19
Item 6. Exhibits and Reports on Form 8-K 19
Signatures 20
-2 of 20-
<PAGE>
PART I - FINANCIAL INFORMATION
CMI CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
<TABLE>
<CAPTION>
June 30 December 31 June 30
1999 1998 1998
(Unaudited) * (Unaudited)
----------- ----------- -----------
<S> <C> <C> <C>
Current assets:
Cash & cash equivalents $ 14,063 13,559 9,182
Receivables, net 29,592 28,013 35,299
Inventories
Finished equipment 25,050 37,409 23,124
Work-in-process 24,310 14,189 20,644
Raw materials & parts 54,165 51,293 35,647
-------- ------- -------
Total inventories 103,525 102,891 79,415
Other current assets 1,242 923 928
Deferred tax assets 3,538 7,200 3,221
-------- ------- -------
Total current assets 151,960 152,586 128,045
Property, plant & equipment 71,883 69,239 60,334
Less accumulated depreciation 41,579 39,692 38,346
-------- ------- -------
Net property, plant & equipment 30,304 29,547 21,988
Long-term receivables 7,149 356 380
Other assets, principally goodwill 5,096 5,322 7,975
Deferred tax assets 1,900 1,900 6,900
-------- ------- -------
$196,409 189,711 165,288
======== ======= =======
Current liabilities:
Current maturities of long-term debt $ 257 268 209
Accounts payable 18,257 21,551 17,809
Accrued liabilities 13,372 14,617 12,156
-------- ------- -------
Total current liabilities 31,886 36,436 30,174
Long-term debt 81,919 77,049 61,203
Common stock & other capital:
Class A common stock & common stock 2,155 2,155 2,151
Other capital 80,449 74,071 71,760
-------- ------- -------
Total common stock & other capital 82,604 76,226 73,911
-------- ------- -------
$196,409 189,711 165,288
======== ======= =======
</TABLE>
* Condensed from audited financial statements.
See notes to condensed consolidated financial statements.
-3 of 20-
<PAGE>
CMI CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(dollars and shares in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
-------------------- -----------------
1999 1998 1999 1998
-------- -------- ------- -------
<S> <C> <C> <C> <C>
Net Revenues $69,368 65,892 126,568 109,914
------- ------ ------- -------
Costs and Expenses:
Cost of Goods Sold 49,188 48,121 92,046 82,404
Marketing and Administrative 8,714 7,686 17,132 14,810
Engineering and Product Development 1,896 1,910 3,735 3,706
Product Line Relocation Costs - 411 - 1,351
------- ------ ------- -------
59,798 58,128 112,913 102,271
------- ------ ------- -------
Operating earnings 9,570 7,764 13,655 7,643
------- ------ ------- -------
Other Expense (Income):
Interest Expense 1,635 1,196 3,169 2,286
Interest Income (205) (285) (307) (487)
Other, net (7) (61) (7) (77)
------- ------ ------- -------
Earnings Before Income Taxes 8,147 6,914 10,800 5,921
Income Tax Expense 2,998 2,546 3,991 2,220
------- ------ ------- -------
Net Earnings $ 5,149 4,368 6,809 3,701
======= ====== ======= =======
Share Data:
Weighted Average outstanding
common shares:
Basic 21,551 21,505 21,550 21,503
Diluted 21,846 21,680 21,793 21,626
Net earnings per average
outstanding share:
Basic $ 0.24 0.20 0.32 0.17
======= ====== ======= =======
Diluted $ 0.24 0.20 0.31 0.17
======= ====== ======= =======
Dividends per common share $ 0.01 0.01 0.02 0.02
======= ====== ======= =======
</TABLE>
See notes to condensed consolidated financial statements.
-4 of 20-
<PAGE>
CMI CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN COMMON STOCK
AND OTHER CAPITAL
(dollars in thousands)
<TABLE>
<CAPTION>
==================================================================================================
Common Stock Class A Common Stock Additional
--------------- --------------------- Paid-in Treasury Retained
Shares Amount Shares Amount Capital Stock Earnings
------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance December 31,
1996 621 $ - 20,467,383 $2,047 $46,112 $ - $16,344
Net earnings - - - - - - 3,165
Purchase of treasury
stock - - - - - (32) -
Dividends paid,
common stock
($.04 per share) - - - - - - (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
Net earnings - - - - - - 6,217
Retirement of voting
common stock (19) - (20) - - - -
Retirement of treasury
stock - - (6,340) - (32) 32 -
Exercise of stock
options - - 48,860 4 273 - -
Dividends paid,
common stock
($.04 per share) - - - - - - (861)
--- ------ ---------- ------ ------- ------ -------
Balance December 31,
1998 602 - 21,548,883 2,155 50,057 - 24,014
(The information which
follows is unaudited)
Net earnings - - - - - - 6,809
Dividends paid,
common stock
($.02 per share) - - - - - - (431)
--- ------ ---------- ------ ------- ------ -------
Balance June 30,
1999 (unaudited) 602 $ - 21,548,883 $2,155 $50,057 $ - $30,392
=== ====== ========== ====== ======= ====== =======
</TABLE>
See notes to condensed consolidated financial statements.
-5 of 20-
<PAGE>
CMI CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(dollars in thousands)
<TABLE>
<CAPTION>
Six Months Ended
June 30
------------------
1999 1998
-------- --------
<S> <C> <C>
OPERATING ACTIVITIES
Net earnings $ 6,809 3,701
Adjustments to reconcile net earnings to net
cash used in operating activities:
Depreciation 2,024 1,194
Amortization 149 149
Gain on sale of assets (7) (77)
Change in assets and liabilities:
Receivables (1,579) (8,382)
Inventories (634) (10,744)
Other current assets (319) (349)
Accounts payable (3,294) 3,154
Accrued liabilities (1,245) 2,509
Deferred income taxes 3,662 2,079
Long-term receivables (6,793) 2,129
Other non-current assets, excluding amortization
of goodwill 77 (1,156)
------- -------
Net cash and cash equivalents used in operating
activities (1,150) (5,793)
------- -------
INVESTING ACTIVITIES
Proceeds from sale of assets 20 288
Capital expenditures (2,794) (3,940)
-------- ------
Net cash and cash equivalents used in investing
activities (2,774) (3,652)
------- -------
FINANCING ACTIVITIES
Payments on long-term debt (141) (121)
Net borrowings on revolving credit note 5,000 12,000
Proceeds from stock options exercised - 47
Payment of common stock dividends (431) (430)
------- -------
Net cash and cash equivalents provided by
financing activities 4,428 11,496
------- -------
Increase in cash and cash equivalents 504 2,051
Cash and cash equivalents at beginning of period 13,559 7,131
------- -------
Cash and cash equivalents at end of period $14,063 9,182
======= =======
</TABLE>
See notes to condensed consolidated financial statements.
-6 of 20-
<PAGE>
CMI CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(1) The interim condensed consolidated financial information has been
prepared in conformity with generally accepted accounting principles
applied, in all material respects, on a basis consistent with the
consolidated financial statements included in the Company's annual report
filed with the Securities and Exchange Commission for the preceding
fiscal year. The financial information as of June 30, 1999 and 1998 and
for the interim periods ended June 30, 1999 and 1998 included herein is
unaudited; however, such information reflects all adjustments consisting
of only normal recurring adjustments, which are, in the opinion of
management, necessary to a fair presentation of the results for the
interim periods.
(2) The results of operations for the six months ended June 30, 1999 are not
necessarily indicative of the results to be expected for the full year as
the Company is in a seasonal business.
(3) Reclassifications
Certain reclassifications have been made to the prior interim period to
conform to the 1999 presentation.
(4) Related Party Transactions
There have been no material changes in related party transactions since
the annual report filed for the preceding fiscal year.
(5) Commitments and Contingencies
The Company and its subsidiaries are parties to various leases relating
to plants, warehouses, office facilities, transportation vehicles, and
certain other equipment. Real estate taxes, insurance, and maintenance
expenses are normally obligations of the Company. It is expected that in
the normal course of business, the majority of the leases will be renewed
or replaced by other leases. Leases do not restrict dividends, debt, or
future leasing arrangements. All leasing arrangements contain normal
leasing terms without unusual purchase options or escalation clauses.
At June 30, 1999, the Company was contingently liable as guarantor for
certain accounts receivable sold with recourse of approximately
$7,415,000 through September 2009.
(6) Earnings Per Share
Basic earnings per share is computed by dividing net earnings 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).
-7 of 20-
<PAGE>
CMI CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
The following table reconciles the weighted average common shares outstanding
used in the calculation of basic earnings per common share to the number of
shares used in the calculation of diluted earnings per share (dollars in
thousands, except per share data):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
------------------ ----------------
<S> <C> <C> <C> <C>
1999 1998 1999 1998
---- ---- ---- ----
Net earnings -
basic and diluted $ 5,149 4,368 6,809 3,701
======= ====== ====== ======
Weighted average number of
Common shares outstanding-basic 21,551 21,505 21,550 21,503
Dilutive effect of potential
common shares issuable upon
exercise of employee stock
options 295 175 243 123
------- ------ ------ ------
Weighted average number of
common shares outstanding -
diluted 21,846 21,680 21,793 21,626
======= ====== ====== ======
Earnings per share:
Basic $ .24 .20 .32 .17
======= ====== ====== ======
Diluted $ .24 .20 .31 .17
======= ====== ====== ======
</TABLE>
(7) Litigation
As previously disclosed, on November 22, 1995, a Chicago law firm
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 law firm is 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.
The Company has denied these allegations and will continue to defend this
lawsuit.
-8 of 20-
<PAGE>
CMI CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
Since 1996, the Company has been involved in litigation in the U.S.
District Court for the Western District of Oklahoma with Cedarapids, Inc.
The Company sued Cedarapids seeking a declaratory judgement that a patent
held by Cedarapids is invalid or, in the alternative, that the Company
was not infringing upon the patent. Cedarapids subsequently filed a
counterclaim against the Company alleging that the Company was infringing
Cedarapids' patent and seeking unspecified monetary damages. In January
1997, the District Court issued an order staying this lawsuit pending the
resolution of litigation between Cedarapids and Gencor, Industries
involving the same patent. This stay was lifted in December 1997 upon
settlement of patent and other non-related litigation between Cedarapids
and Gencor, Industries. The Company anticipates this lawsuit going to
trial before the end of 1999.
In September 1998, Cedarapids filed suit against the Company in the U.S.
District Court for the Northern District of Iowa alleging that the
Company has infringed a second patent held by Cedarapids. Cedarapids is
seeking unspecified monetary damages. The Company intends to vigorously
defend both lawsuits involving Cedarapids.
There are other claims and pending legal proceedings that generally
involve product liability and employment issues. These cases are, in the
opinion of management, ordinary routine matters incidental to the normal
business conducted by the Company. In the opinion of the Company's
management after consultation with outside legal counsel, the ultimate
disposition of such proceedings, including the cases above, will not have
a materially adverse effect on the Company's consolidated financial
position, liquidity or future results of operations.
(8) Segment Information
The Company currently manages its business by operating location. As
such, the Company identifies its segments based on the geographic
locations of its manufacturing facilities. The Company has one reportable
segment, its Oklahoma City manufacturing facility. The manufacturing
facilities manufacture and market products in the mobile and materials
processing equipment categories as well as parts for the products. The
specific products manufactured at the Oklahoma City plant are as follows:
(1) mobile equipment - the Company's primary line of concrete paving
systems, pavement profiling and reclaiming/ stabilizing equipment,
weighing equipment, municipal landfill compactors, and industrial and
waste recycling grinders; and (2) materials processing equipment - hot-
mix asphalt production systems, and thermal systems for remediating
contaminated soils and sanitizing medical waste. The specific products
manufactured at the other geographic locations are as follows:
-9 of 20-
<PAGE>
CMI CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
(1) mobile equipment - lightweight grading and concrete paving and
finishing machines, and custom heavy hauling trailers; and (2) materials
processing equipment - concrete batching plants.
Following is certain financial information regarding the Company's
segments. The specific lines of heavy-duty trailers manufactured in
Oklahoma City are transferred to another operating segment through
intercompany accounts at cost and are excluded from net revenues. As a
result, the revenues reported below are all from external customers and
all dollar amounts are in thousands. General corporate expenses are not
allocated to the other operating segments, and therefore are included as
a reconciling item to reported operating earnings.
<TABLE>
<CAPTION>
Oklahoma All
City Other Total
--------------------------
<S> <C> <C> <C>
As of June 30, 1999:
Total assets $165,654 30,755 196,409
======== ====== =======
Three months ended June 30, 1999:
Net revenues $ 56,417 12,951 69,368
Costs and expenses 46,575 11,837 58,412
-------- ------ -------
Segment measure of operating
profit $ 9,842 1,114 10,956
======== ======
General corporate expenses (1,386)
-------
Operating earnings 9,570
Interest expense (1,635)
Interest income 205
Other, net 7
-------
Earnings before income taxes 8,147
Income tax expense 2,998
--------
Net earnings $ 5,149
========
Capital expenditures $ 1,942 157 2,099
======== ======= =======
Depreciation and amortization $ 935 168 1,103
======== ======= =======
</TABLE>
-10 of 20-
<PAGE>
CMI CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
<TABLE>
<CAPTION>
Oklahoma All
City Other Total
-----------------------------------
<S> <C> <C> <C>
As of June 30, 1998:
Total assets $135,454 29,834 165,288
======== ======= =======
Three months ended June 30, 1998:
Net revenues $ 52,148 13,744 65,892
Costs and expenses 44,799 11,799 56,598
-------- ------- -------
Segment measure of operating
profit $ 7,349 1,945 9,294
======== =======
General corporate expenses (1,530)
-------
Operating earnings 7,764
Interest expense (1,196)
Interest income 285
Other, net 61
-------
Earnings before income taxes 6,914
Income tax expense 2,546
-------
Net earnings $ 4,368
========
Capital expenditures $ 2,188 85 2,273
======== ======= =======
Depreciation and amortization $ 541 173 714
======== ======= =======
Six months ended June 30, 1999:
Net revenues $105,443 21,125 126,568
Costs and expenses 89,816 20,287 110,103
-------- ------- -------
Segment measure of operating
profit $ 15,627 838 16,465
======== ======= =======
General corporate expenses (2,810)
-------
Operating earnings 13,655
Interest expense (3,169)
Interest income 307
Other, net 7
-------
Earnings before income taxes 10,800
Income tax expense 3,991
-------
Net earnings $ 6,809
========
Capital expenditures $ 2,461 333 2,794
======== ====== ========
Depreciation and amortization $ 1,831 342 2,173
======== ====== ========
</TABLE>
-11 of 20-
<PAGE>
CMI CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
<TABLE>
<CAPTION>
Oklahoma All
City Other Total
---------------------------
Six months ended June 30, 1998:
<S> <C> <C> <C>
Net revenues $87,711 22,203 109,914
Costs and expenses 78,612 20,136 98,748
------- ------ -------
Segment measure of operating profit $ 9,099 2,067 11,166
======= ======
General corporate expenses (3,523)
-------
Operating earnings 7,643
Interest expense (2,286)
Interest income 487
Other, net 77
-------
Earnings before income taxes 5,921
Income tax expense 2,220
------
Net earnings $3,701
=======
Capital expenditures $ 3,763 177 3,940
======= === =======
Depreciation and amortization $ 1,003 340 1,343
======= === =======
</TABLE>
The Company has one operating location in the United Kingdom. The
location serves as a sales office and has approximately $800,000 of
assets comprised primarily of inventory, receivables, and property, plant
and equipment. All remaining assets are located in the United States.
Revenues for products were as follows (dollars in thousands):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
------------------- ---------------------
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Mobile Equipment $30,070 25,793 46,797 41,522
Material Processing Equipment 30,815 31,127 64,165 52,371
Parts and Used Equipment 8,483 8,972 15,606 16,021
------- ------ ------- -------
$69,368 65,892 126,568 109,914
======= ====== ======= =======
</TABLE>
(9) Supplemental Cash Flow Information
Cash paid for interest was $2,769,000 for the six months ended June 30,
1999 compared to $2,203,000 for the six months ended June 30, 1998. Cash
paid for income taxes was $288,000 for the six months ended June 30, 1999
compared to $109,000 for the six months ended June 30, 1998.
-12 of 20-
<PAGE>
CMI CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations
- ---------------------
Revenues increased 5 percent to $69,368,000 for the three months ended June 30,
1999, compared to $65,892,000 for the three months ended June 30, 1998.
Revenues for international shipments decreased 70 percent to $3.2 million for
the three months ended June 30, 1999 compared to $10.6 million for the three
months ended June 30, 1998. Revenues for domestic shipments increased 20
percent to $66.2 million for the three months ended June 30, 1999 compared to
$55.3 million for the three months ended June 30, 1998. Net earnings were
$5,149,000, or 24 cents per share diluted, for the three months ended June 30,
1999, compared to net earnings of $4,368,000, or 20 cents per share diluted, for
the comparable three months ended June 30, 1998.
Revenues increased 15 percent to $126,568,000 for the six months ended June 30,
1999, compared to $109,914,000 for the six months ended June 30, 1998. Revenues
for international shipments decreased 49 percent to $7.7 million for the six
months ended June 30, 1999 compared to $15.0 million for the six months ended
June 30, 1998. Revenues for domestic shipments increased 25 percent to $118.9
million for the six months ended June 30, 1999 compared to $94.9 million for the
six months ended June 30, 1998. Net earnings were $6,809,000, or 31 cents per
share diluted, for the six months ended June 30, 1999, compared to net earnings
of $3,701,000, or 17 cents per share diluted, for the comparable six months
ended June 30, 1998.
During 1999 the Company has experienced increased revenues in most of its major
equipment lines and a decrease in custom heavy-hauling trailers and landfill
compaction equipment. The increases are the direct result of the $217 billion
TEA-21 national highway bill. The decrease in custom heavy-hauling trailers was
primarily due to a union strike, which has resulted in lost production at the
Company's South Dakota manufacturing location. The union strike ended in mid
June. These factors impacted the "All Other" segment measure of operating
profit period over period as set forth in note 8. The decrease in the landfill
compaction line was primarily due to external factors relating to consolidation
in the waste management industry.
Gross margins for the three months ended June 30, 1999 averaged 29.1 percent
compared to 27.0 percent for the three months ended June 30, 1998. Gross
margins for the six months ended June 30, 1999 averaged 27.3 percent compared to
25.0 percent for the six months ended June 30, 1998. The improvement in margins
was the result of the overall production and cost benefits from recent capital
investments, as well as a favorable product mix.
Marketing and administrative expenses increased $1,028,000 for the comparable
three months ended June 30, 1999, and increased $2,322,000 for the comparable
six months ended June 30, 1999. As a percentage of revenues, marketing and
administrative expenses were 12.6 percent for the three months ended June 30,
1999, compared to 11.7 percent for the three months ended June 30, 1998, and
were 13.5 percent for the six month periods ended June 30, 1999 and 1998.
-13 of 20-
<PAGE>
Engineering and product development expenses decreased $14,000 for the
comparable three months ended June 30, 1999, and increased $29,000 for the
comparable six months ended June 30, 1999. As a percentage of revenues,
engineering and product development expenses were 2.7 percent for the three
months ended June 30, 1999, compared to 2.9 percent for the three months ended
June 30, 1998, and were 3.0 percent for the six months ended June 30, 1999,
compared to 3.4 percent for the six months ended June 30, 1998. Engineering and
product development expenses do not increase proportionately with revenue
increases.
Included in the Company's first and second quarter 1998 results were an
aggregate of $1,351,000 of product line relocation costs. These costs were
incurred moving the compactor and grinder products acquired from Rexworks, Inc.
in December 1997 from Milwaukee to Oklahoma City. These costs are included in
the general corporate expenses (see table in note 8).
Interest expense increased to $1,635,000 for the three months ended June 30,
1999, compared to $1,196,000 for the three months ended June 30, 1998, and
increased to $3,169,000 for the six months ended June 30, 1999, compared to
$2,286,000 for the six months ended June 30, 1998. The Company's effective
interest rate was comparable period-to-period. The increase in interest expense
was due to additional borrowings on the Company's revolving line of credit,
primarily for the increased working capital requirements and capital spending.
The Company's effective tax rate for the three and six months ended June 30,
1999 and 1998 was approximately 37 percent. The Company's quarterly tax rates
are estimates of its expected annual effective federal and state income tax
rates. The combined effective income tax rate for 1998 was approximately 37
percent and the Company expects a comparable annual effective rate in 1999.
Liquidity and Capital Resources
- -------------------------------
The current ratio at June 30, 1999 was 4.8-to-1 compared to 4.2-to-1 at December
31, 1998. Working capital at June 30, 1999 was $120,074,000 compared to
$116,150,000 at December 31, 1998, an increase of $3,924,000. The increase in
working capital is primarily due to an increase in receivables of $1,579,000,
and a decrease in current liabilities of $4,550,000.
Cash used in operating activities for the six months ended June 30, 1999 was
$1,150,000 compared to cash used in operating activities of $5,793,000 for the
six months ended June 30, 1998. As noted in note 2, the Company operates in a
seasonal business which normally results in increased working capital
requirements and thus cash being used in operations to fund increased inventory
levels and outstanding receivable balances during the early part of each year.
Financing activities for the six months ended June 30, 1999 provided $4,428,000,
which included $5,000,000 of borrowings from the Company's revolving line of
credit which was primarily used to fund the increase in trade and installment
receivables from December 31, 1998.
-14 of 20-
<PAGE>
Capital expenditures for the six months ended June 30, 1999 were $2,794,000
compared to $3,940,000 for the comparable six months ended June 30, 1998.
Capital expenditures are budgeted at $6,000,000 for 1999 and are expected to be
financed using internally generated funds and leasing arrangements. These
capital expenditures are being used to improve the Company's manufacturing and
product support efficiencies.
The Company amended its unsecured revolving line of credit agreement on October
13, 1998. The amendment provides for an increase in the Company's borrowing
capacity from $40,000,000 to $60,000,000. On March 12, 1999, the borrowing line
of credit was increased to $70,000,000 for a period of 120 days, but has
returned to $60,000,000 as of July 10, 1999. The Company's $30,000,000
unsecured senior notes mature from September 2000 to September 2006. The
Company's unsecured revolving line of credit matures September 2001. As of June
30, 1999, the Company had utilized $48,000,000 of the unsecured revolving line
of credit. Other long-term debts have maturity dates through September 2010 and
are expected to be paid or refinanced when due. As of June 30, 1999, the
Company was in compliance with all debt covenants.
It is the Board of Directors' current intention to continue paying a 4 cent per
share annual dividend. The Company has paid a 1 cent quarterly dividend for the
past eleven quarters.
Income Taxes
- ------------
The benefits of future tax deductions and credits not utilized by the Company in
the past are reflected as an asset to the extent the Company assesses that
future operations will "more likely than not" be sufficient to realize such
benefits. For the period ended June 30, 1999, the Company has assessed its past
earnings history and trends, sales backlog, budgeted sales, and expiration dates
of future tax deductions and credits. As a result, the Company has determined it
is "more likely than not" that the $5,438,000 tax effect of future tax
deductions and credits will be utilized. The ultimate realization of the
deferred tax assets will require aggregate taxable income of approximately $15
million to $20 million in future years.
Impact of Recently Issued Accounting Standards Not Yet Adopted
- --------------------------------------------------------------
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 is effective for fiscal years
beginning after June 15, 2000. SFAS No. 133 establishes standards for
accounting and reporting for derivative instruments, including certain
derivative instruments embedded in other contracts, and for hedging activities.
It requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those instruments
at fair value. The accounting for changes in fair value of a derivative depends
on the intended use of the derivative and the resulting designation. Adoption
of SFAS No. 133 is not expected to materially impact the Company.
-15 of 20-
<PAGE>
Impact of Year 2000 Issue
- -------------------------
An issue exists for all companies that rely on computers as the Year 2000 (Y2K)
approaches. The Y2K problem is the result of past practices in the computer
industry of using two digits rather than four to identify the applicable year.
The Company is addressing the need to ensure that its operations will not be
adversely impacted by software or other system failures related to Y2K. The
Company formed an oversight committee made up of key management and developed a
plan to coordinate identification, evaluation and implementation of any
necessary changes to internal computer systems, applications, and business
processes.
As of June 30, 1999, the Y2K committee had identified the Company's information
systems (IT) and non-information systems (non IT) that could potentially be
impacted by Y2K. As of June 30, 1999 the company has substantially completed
all of its Y2K readiness and contingency planning.
The Y2K process began in early 1996 when the Company began the software and
hardware evaluation and selection process for manufacturing and financial
reporting applications. During the third quarter of 1998 the Company replaced
the primary IT systems at its Oklahoma City location. The Company spent
approximately $2 million on this phase of the Y2K project for new computer
software and hardware which was also part of the Company's factory modernization
plan. These costs were capitalized and will be amortized over future periods.
The Company has also obtained vendor readiness statements from 99 percent of the
Company's active vendors. These statements indicate that 95 percent are either
Y2K compliant or will be by the end of 1999. The Company has determined that an
alternative supply source exists for the vendors who do not appear to be
addressing the Y2K problem.
The Company has determined its telephone systems require certain upgrades to
meet Y2K requirements. The Company anticipates Y2K compliance in this area by
September 1999 at an estimated cost of $75,000.
The Company has been testing its systems using internal programming staff and
outside computer consultants and intends to continue making any necessary
modifications to prevent disruption to its operations. The Company is in the
process of determining the most reasonably likely possible worst case scenario.
The Company does not anticipate incurring any material outside costs for future
Y2K activities. All remaining remediation efforts will be performed primarily
utilizing existing employees. The Company does not separately identify internal
costs related to Y2K efforts.
No assurances can be given that the Company will be able to completely identify
or address all Year 2000 compliance issues. Additionally, no assurances can be
given that third parties with whom the Company does business will not experience
system failures as a result of the Year 2000 issue, nor can the Company fully
predict the consequences of noncompliance.
-16 of 20-
<PAGE>
This is a Year 2000 readiness disclosure statement within the meaning of the
Year 2000 Information and Readiness Disclosure Act (P.L. 105-271).
Federal Highway Legislation
- ---------------------------
The Company has assessed the longer-range impact of the $217 billion national
highway bill (TEA-21) which currently has guaranteed appropriations over the
next five to six years. The Company's investment in capital improvements and
plant modernization efforts should have the Company positioned to take advantage
of the anticipated increased business as a result of this new legislation.
Forward-Looking Statements
- --------------------------
Statements of the Company's 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. You can identify these statements by
forward-looking words such as "may," "will," "expect," "anticipate," "believe,"
"estimate," and "continue" or similar words. 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.
Quantitative and Qualitative Disclosure About Market Risk
- ---------------------------------------------------------
The primary objective of the following information is to provide forward-looking
quantitative and qualitative information about the Company's potential exposure
to market risks. The term "market risk" for the Company refers to the risk of
increased interest expense and decreased earnings arising from adverse changes
in interest rates. These disclosures are not meant to be precise indicators of
expected future decreases in earnings, but rather indicators of reasonably
possible decreases in earnings. This forward-looking information provides
indicators of how the Company views and manages its ongoing market risk
exposures.
At June 30, 1999, the Company had long-term debt outstanding of $82.2 million.
Of this amount, $30 million bears interest at a fixed rate of 7.68 percent, and
$4.2 million bears interest at fixed rates averaging approximately 8 percent.
The remaining $48 million bears interest at variable rates which averaged
approximately 6.85 percent at June 30, 1999. A 10 percent increase in short-
term interest rates on the variable rate debt outstanding at June 30, 1999 would
approximate 69 basis points. Such an increase in interest rates would increase
the Company's interest expense by approximately $164,000 for the remainder of
the year ending December 31, 1999 assuming borrowed amounts remain outstanding.
-17 of 20-
<PAGE>
The above sensitivity analysis for interest rate risk excludes accounts
receivable, accounts payable and accrued liabilities because of the short-term
maturity of such instruments. The analysis does not consider the effect this
movement may have on other variables including changes in revenue volumes that
could be indirectly attributed to changes in interest rates. The actions that
management would take in response to such a change are also not considered. If
it were possible to quantify this impact, the results could well be different
than the sensitivity effects shown above.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
As previously disclosed, on November 22, 1995, a Chicago law firm 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 law firm is 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. The Company has denied these allegations and will continue to defend this
lawsuit.
Since 1996, the Company has been involved in litigation in the U.S. District
Court for the Western District of Oklahoma with Cedarapids, Inc. The Company
sued Cedarapids seeking a declaratory judgement that a patent held by Cedarapids
is invalid or, in the alternative, that the Company was not infringing upon the
patent. Cedarapids subsequently filed a counterclaim against the Company
alleging that the Company was infringing Cedarapids' patent and seeking
unspecified monetary damages. In January 1997, the District Court issued an
order staying this lawsuit pending the resolution of litigation between
Cedarapids and Gencor, Industries involving the same patent. This stay was
lifted in December 1997 upon settlement of patent and other non-related
litigation between Cedarapids and Gencor, Industries. The Company anticipates
this lawsuit going to trial before the end of the 1999.
In September 1998, Cedarapids filed suit against the Company in the U.S.
District Court for the Northern District of Iowa alleging that the Company has
infringed a second patent held by Cedarapids. Cedarapids is seeking unspecified
monetary damages. The Company intends to vigorously defend both lawsuits
involving Cedarapids.
There are other claims and pending legal proceedings that generally involve
product liability and employment issues. These cases are, in the opinion of
management, ordinary routine matters incidental to the normal business conducted
by the Company. In the opinion of the Company's management after consultation
with outside legal counsel, the ultimate disposition of such proceedings,
including the cases above, will not have a materially adverse effect on the
Company's consolidated financial position, liquidity or future results of
operations.
-18 of 20-
<PAGE>
Item 2. Changes in Securities.
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
On May 14, 1999, the annual meeting of shareholders of the Company was held at
the Company's corporate offices in Oklahoma City, Oklahoma. The items of
business considered at the annual meeting were as follows:
1. The election of Kenneth J. Barker, Tom Engelsman, and Bill Swisher to serve
as directors of the Company for a term of three years.
2. The ratification of certain amendments to the Company's 1992 Incentive Stock
Option Plan.
At the annual meeting, 20,135,206 votes were cast by the shareholders FOR the
election of Mr. Barker and 155,307 votes were WITHHELD; 20,127,390 votes were
cast by the shareholders FOR the election of Mr. Engelsman and 163,123 votes
were WITHHELD; 20,114,451 votes were cast by the shareholders FOR the election
of Mr. Swisher and 176,062 votes were AGAINST.
16,887,904 votes were cast by the shareholders FOR the ratification of the
amendments to the 1992 Incentive Stock Option Plan, 436,195 votes AGAINST, and
75,738 votes were ABSTAINED.
Item 5. Other information.
None.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits required by Item 601 of Regulation S-K are as follows:
Exhibit No.
-----------
3(ii) By-laws as amended
27 Financial Data Schedule
(b) The Company did not file any report on a Form 8-K during the fiscal
quarter ended June 30, 1999.
-19 of 20-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: August 11, 1999 /s/Jim D. Holland
--------------------- -------------------------------------
Jim D. Holland
Senior Vice President,
Chief Financial Officer & Treasurer
-20 of 20-
<PAGE>
EXHIBIT 3.(ii)
EXHIBIT "A"
AMENDED AND RESTATED
BYLAWS OF CMI CORPORATION
ARTICLE I
---------
Offices
-------
Section 1. The principal office shall be in Oklahoma City, County of
---------
Oklahoma, State of Oklahoma, and the Corporation may also have offices at such
other places as the Board of Directors may from time to time appoint.
ARTICLE II
----------
Seal
----
Section 1. The corporate seal shall have inscribed thereon the name of the
---------
Corporation, the year of its organization and the words "Corporate Seal,
Oklahoma 1968." Said seal may be used by causing it, or a facsimile thereof, to
be impressed or affixed or reproduced or otherwise.
ARTICLE III
-----------
Shareholders
------------
Section 1. All meetings of the shareholders shall be held in Oklahoma
---------
City, Oklahoma, or at such other place as the director may designate.
Section 2. Annual meetings of shareholders shall be held on a date and at
---------
a time selected by the Board of Directors which is mutually acceptable to all
Directors, when they shall transact such business as may properly be brought
before the meeting.
Section 3. The holders of one-third of the stock issued and outstanding,
---------
and entitled to vote thereat, present in person, or represented by proxy, shall
be requisite and shall constitute a quorum at all meetings of the shareholders
for the transaction of business, except as otherwise provided by law, by the
Certificate of Incorporation, or by these Bylaws. If, however, the holders of
such part of the issued and outstanding stock shall not be present
<PAGE>
or represented at any meeting of the shareholders, the shareholders entitled to
vote thereat, present in person, or by proxy, shall have the power to adjourn
the meeting from time to time, without notice other than announcement at the
meeting, until the requisite amount of voting stock shall be present. At such
adjourned meeting at which the requisite amount of voting stock shall be
represented, any business may be transacted which might have been transacted at
the meeting as originally notified.
Section 4. At any meeting of the shareholders, every shareholder having
---------
the right to vote shall be entitled to vote in person, or by proxy appointed by
an instrument in writing subscribed by such shareholder and bearing a date not
more than one hundred twenty (120) days prior to said meeting; unless said
instrument provides for a longer period. Each shareholder shall have one vote
for each share of stock having voting power, registered in his name on the books
of the Corporation, and except where the transfer books of the Corporation shall
have been closed or a date shall have been fixed as a record date for the
determination of its shareholders entitled to vote, no share of stock shall be
voted on at any election for directors which shall have been transferred on the
books of the Corporation within twenty days next preceding such election of
directors. Cumulative voting shall not be required or permitted.
Section 5. Written notice of the annual meeting shall be mailed to each
---------
shareholder entitled to vote thereat at such address as appears on the stock
books of the Corporation, at least ten (10) days prior to the meeting, unless
otherwise provided herein.
Section 6. A complete list of the shareholders entitled to vote at the
---------
ensuing election, arranged in alphabetical order, with the residence of each,
and the number of voting shares held by each, shall be prepared by the Secretary
and filed in the office where the election is to be held, at least ten (10) days
before every election, and shall, at all times during ordinary business hours
for a period of ten days prior to the meeting and during the whole time of said
election, be open to the examination of any shareholder.
Section 7. Special meetings of the shareholders, for any purpose, or
---------
purposes, unless otherwise prescribed by statute, may be called by the Chairman
of the Board, and shall be called by the Secretary at the request in writing of
a majority of the Board of Directors, or at the request in writing of
shareholders owning a
2
<PAGE>
majority in amount of the entire capital stock of the Corporation issued and
outstanding, and entitled to vote. Such request shall state the purpose or
purposes of the proposed meetings.
Section 8. Business transacted at all special meetings shall be confined
---------
to the objects stated in the call.
Section 9. Written notice of special meetings of the shareholders, stating
---------
the time and place and object thereof, shall be mailed, postage prepaid, at
least ten days before such meeting, to each shareholder entitled to vote thereat
at such address as appears on the books of the Corporation.
Section 10. Shareholder Action Taken at Meeting and Not by Written
---------- ------------------------------------------------------
Consent. No action required to be taken or which may be taken at any annual
- -------
meeting or special meeting of shareholders may be taken without a meeting, and
the power of shareholders to consent in writing, without a meeting, to the
taking of any action is specifically denied.
ARTICLE IV
----------
Directors
---------
Section 1. The business and affairs of this Corporation shall be managed
---------
by or under the direction of its Board of Directors. The exact number of
directors shall be fixed from time to time by the Board of Directors pursuant to
a resolution adopted by a majority of the entire Board of Directors; provided,
however, that the number of directors which shall constitute the entire Board
shall not be less than three nor more than nine. The directors shall be divided
into three classes, as nearly equal in number as possible, with the term of
office of one class expiring each year. At each annual meeting of shareholders,
the successors to the class of directors whose terms expire at that time shall
be elected to hold office for a term of three years.
Section 2. The directors may hold their meetings and have one or more
---------
offices, and keep the books of the Corporation at the offices of the Corporation
in Oklahoma City, Oklahoma, or at such other places as they may from time to
time determine.
Section 3. Newly created directorships resulting from any increase in the
---------
authorized number of directors or any vacancies in
3
<PAGE>
the Board of Directors resulting from death, resignation, retirement,
disqualification, removal from office or any other cause may be filled by a
majority vote of the remaining directors, though less than a quorum. Any
director or directors so chosen shall hold office until the next election of the
class for which such director or directors shall have been chosen, and until his
or their successors shall have been duly elected.
Section 4. In addition to the powers and authorities by these Bylaws
---------
expressly conferred upon it, the Board of Directors may exercise all such powers
of the Corporation and do all such lawful acts and things as are not by statute
or by the Certificate of Incorporation, as from time to time amended, or by
these Bylaws, as from time to time amended, directed or required to be exercised
or done by the shareholders.
Section 5. Any director or the entire Board of Directors may be removed;
---------
however, such removal must be for cause and must be approved as set forth in
this Section. Except as may otherwise be provided by law, cause for removal
shall be construed to exist only if: (1) the director whose removal is proposed
has been convicted, or where a director was granted immunity to testify where
another has been convicted, of a felony by a court of competent jurisdiction and
such conviction is no longer subject to direct appeal; (2) such director has
been adjudicated by a court of competent jurisdiction to be liable for
negligence, or misconduct, in the performance of his duty to the Corporation in
a matter of substantial importance to the Corporation and such adjudication is
no longer subject to director appeal; (3) such director has become mentally
incompetent, whether or not so adjudicated, which mental incompetency directly
affects his ability as a director of the Corporation; or (4) such director's
actions or failure to act are deemed by the Board of Directors to be in
derogation of the director's duties.
Removal for cause, as cause is defined in (1), (2) and (4) above, must be
approved by at least two-thirds of the total number of directors and by at least
a 75% vote of the shares of the Corporation then entitled to be voted at an
election for that director, and the action for removal must be brought within
one year of such conviction or adjudication. Removal for cause, as cause is
defined in (3) above, must be approved by at least two-thirds of the total
number of directors. For purposes of this paragraph, the total number of
directors will not include the
4
<PAGE>
director who is the subject of the removal determination, nor will such director
be entitled to vote thereon.
Section 6. Notwithstanding any other provision of the Certificate of
---------
Incorporation or the Bylaws of the Corporation (and notwithstanding the fact
that a lesser percentage may be specified by law, the Certificate of
Incorporation or the Bylaws), this Article IV shall not be altered, amended or
repealed except by at least a 75% affirmative vote of the shares of the
Corporation entitled to vote thereon.
ARTICLE V
---------
Committees
----------
Section 1. The Board of Directors may, by resolution passed by two-thirds
---------
of all the members of the Board of Directors, designate an executive committee
to consist of three or more members of the Board, one of whom shall be the
Chairman of the Board of the Corporation and who shall also serve as Chairman of
the Executive Committee. At all times that Recovery Equity Investors, L.P., a
Delaware limited partnership ("REI"), shall be entitled to designate individuals
for election to the Board of Directors pursuant to Section 4.1 of that certain
Investment Agreement, dated as of August 19, 1991, between the Corporation and
REI, the Executive Committee, if any, shall include such number of directors
designated by REI such that the percentage of directors designated by REI shall
be no less than the percentage of individuals which REI shall be entitled to
designate for election to the Board of Directors.
Section 2. The Executive Committee shall have and exercise all of the
---------
authority of the Board in the management of the Corporation in the interval
between meetings of the Board.
Section 3. Notwithstanding any other provision of the Certificate of
---------
Incorporation or the Bylaws of the Corporation (and not withstanding the fact
that a lesser percentage may be specified by law, the Certificate of
Incorporation or the Bylaws), the affirmative vote of two-thirds or more of all
the members of the Board of Directors shall be required to amend or repeal or
adopt any provisions inconsistent with this Article V.
5
<PAGE>
ARTICLE VI
----------
Compensation of Directors
-------------------------
Section 1. Directors and advisory directors, as such, by resolution of the
---------
Board, may receive a stated salary for serving as a member of the Board of
Directors; provided that nothing herein contained shall be construed to preclude
any director or advisory director from serving the Corporation in any other
capacity and receiving compensation therefor.
Section 2. Members of the special or standing committee may be allowed
---------
like compensation and reimbursement of expenses of attendance for attending
committee meetings.
ARTICLE VII
-----------
Meetings of the Board
---------------------
Section 1. The newly elected Board may meet at such place and time either
---------
within or without the State of Oklahoma, as shall be fixed by the vote of the
shareholders at the annual meeting, for the purpose of organization or
otherwise, and no notice of such meeting shall be necessary to the newly elected
directors in order legally to constitute the meeting; provided a majority of the
whole board shall be present; or they may meet at such place and time as shall
be fixed by the consent in writing of all the directors even though contrary to
the place and time fixed by the shareholders.
Section 2. Regular meetings of the Board may be held without notice at
---------
such time and place either within or without the State of Oklahoma as shall from
time to time be determined by the Board.
Section 3. Special meetings of the Board may be called by either the
---------
Chairman of the Board or the Chief Executive Officer on two days notice to each
director, either personally or by mail or by telegram; special meetings shall be
called by the Secretary in like manner and on like notice on the written request
of a majority of the directors.
Section 4. At all meetings of the Board, a majority of the directors shall
---------
be necessary and sufficient to constitute a quorum for the transaction of
business, and the act of a majority of the directors present at any meeting at
which there is a quorum shall
6
<PAGE>
be the act of the Board of Directors, except as may be otherwise specifically
provided by statute or by the Certificate of Incorporation, as from time to time
amended, or by these Bylaws, as from time to time amended.
Section 5. Any action that may be taken at a meeting of the directors or
---------
of a committee, may be taken without a meeting if a consent in writing, setting
forth the action so to be taken, shall be signed by all of the directors or all
of the members at the committee as the case may be and the writing or writings
are filed with the minutes of proceedings thereof.
ARTICLE VIII
------------
Officers
--------
Section 1. The Corporation shall have such officers with such titles and
---------
duties as set forth in these Bylaws or in a resolution of the Board of Directors
adopted on or after November 6, 1998. The officers of the Corporation shall be
elected by the Board of Directors. None of the officers of the Corporation need
be directors.
Section 2. Officers shall be chosen in such a manner and shall hold their
---------
offices for such term as may be determined by the Board of Directors. Each
officer shall hold office from the time of his or her election and qualification
to the time at which his or her successor is elected and qualified, or until his
or her earlier resignation, removal or death.
Section 3. Except as may otherwise be provided in any employment agreement
---------
approved by the Board of Directors, any officer of the Corporation may resign at
any time by giving written notice of such resignation to the Chairman of the
Board of Directors or to the Chief Executive Officer. Any such resignation
shall take effect at the time specified therein or, if no time be specified,
upon receipt thereof by the Chairman of the Board or the Chief Executive
Officer. The acceptance of such resignation shall not be necessary to make it
effective.
Section 4. Except as may otherwise be provided in any employment agreement
---------
approved by the Board of Directors, any officer may be removed at any time, with
or without cause, by the Board of Directors.
7
<PAGE>
Section 5. The compensation of each officer shall be determined by the
---------
Board of Directors.
ARTICLE IX
----------
Chief Executive Officer
-----------------------
Section 1. The Chief Executive Officer shall be the chief executive
---------
officer of the Corporation and, subject to the control of the Board of
Directors, shall have general and active charge, control and supervision of all
of the business and affairs of the Corporation. The Chief Executive Officer
shall report to the Board of Directors and shall direct the implementation of
the decisions, policies and procedures established by the Board of Directors.
The Chief Executive Officer shall have general authority to execute bonds, deeds
and contracts in the name and on behalf of the Corporation and in general to
exercise all of the powers generally appertaining to the chief executive officer
of a corporation.
ARTICLE X
---------
Chairman of the Board
---------------------
Section 1. The Chairman of the Board shall preside at all meetings of the
---------
directors. The Chairman of the Board shall have such powers and perform such
duties as shall be assigned to him or her by the Board of Directors.
ARTICLE XI
----------
President
---------
Section 1. The President shall have such powers and shall perform such
---------
duties as shall be assigned to him or her by the Board of Directors or the Chief
Executive Officer.
ARTICLE XII
-----------
Vice Presidents
---------------
Section 1. Each Vice President of the Corporation shall have such powers
---------
and perform such duties as shall be assigned to him or her by the Board of
Directors or the Chief Executive Officer.
8
<PAGE>
ARTICLE XIII
------------
Secretary
---------
Section 1. The Secretary shall attend all sessions of the Board of
---------
Directors and all meetings of the shareholders and record all votes and the
minutes of all proceedings in a book to be kept for that purpose, and shall
perform like duties for the standing committees when required. The Secretary
shall give, or cause to be given, notice of all meetings of the shareholders and
of the Board of Directors, and shall perform such other duties as may be
prescribed by the Board of Directors or the Chief Executive Officer. The
Secretary shall keep in safe custody the seal of the corporation, and when
authorized by the Board, affix the same to any instrument requiring it, and when
so affixed it shall be attested by his or her signature or by the signature of
the Treasurer.
ARTICLE XIV
-----------
Treasurer
---------
Section 1. The Treasurer shall have the custody of the corporate funds and
---------
securities and shall keep full and accurate accounts of receipts and
disbursements in books belonging to the Corporation and shall deposit all
moneys, and other valuable effects in the name and to the credit of the
Corporation, in such depositories as may be designated by the Board of
Directors.
Section 2. The Treasurer shall disburse the funds of the Corporation in
---------
the usual course of its business or as may be ordered by the Board of Directors,
taking proper vouchers for such disbursements, and shall render to the Board of
Directors, at the regular meetings of the Board of Directors, or whenever they
require it, an account of all his or her transactions as Treasurer and of the
financial condition of the Corporation.
Section 3. The Treasurer shall give the Corporation a bond if required by
---------
the Board of Directors in a sum, and with one or more sureties satisfactory to
the Board of Directors, for the faithful performance of the duties of his or her
office, and for the restoration to the Corporation in case of his or her death,
resignation, retirement, or removal from office, of all books, papers, vouchers,
money and other property of whatever kind in his
9
<PAGE>
or her possession or under his or her control belonging to the Corporation.
ARTICLE XV
----------
Duties of Officers May be Delegated
-----------------------------------
Section 1. In case of the absence of any officer of the Corporation, or
---------
for any other reason that the Board of Directors may deem sufficient, the Board
of Directors may delegate, for the time being, the powers or duties, or any of
them, of such officer to any other officers, or to any director, provided a
majority of the entire Board of Directors concurs therein.
ARTICLE XVI
-----------
Certificates of Stock
---------------------
Section 1. The certificates of stock of the Corporation shall be numbered
---------
and shall be entered in the books of the Corporation as they are issued. They
shall exhibit the holder's name and number of shares and shall be signed by the
Chairman of the Board, President or a Vice President and the Secretary. If the
Corporation has a transfer agent other than an employee of the Corporation, or a
registrar and a transfer clerk acting on its behalf, the signature of the
officers may be facsimiles engraved or printed.
ARTICLE XVII
------------
Transfers of Stock
------------------
Section 1. Transfers of stock shall be made on the books of the
---------
Corporation only by the person named in the certificate or by attorney, lawfully
constituted in writing, and upon surrender of the certificate therefor.
Section 2. The Board of Directors may appoint a transfer Agent and a
---------
Registrar for the Common Stock and Preferred Stock of the Corporation. The
Transfer Agent shall be in charge of the issue, transfer, and cancellation of
shares of stock and shall maintain stock transfer books, which shall include a
record of
10
<PAGE>
shareholders, giving the names and addresses of all shareholders, and the number
and class of shares held by each; shall prepare voting lists for meetings of
shareholders; shall produce and keep open these lists at the meetings; and shall
perform such other duties as may be delegated by the Board of Directors.
Shareholders shall give notice of changes of their addresses to the Transfer
Agent. The Registrar shall be in charge of preventing the over-issue of shares,
shall register all stock certificates, and perform such other duties as may be
delegated by the Board of Directors.
ARTICLE XVIII
-------------
Closing of Transfer Books
-------------------------
Section 1. The Board of Directors shall have power to close the stock
---------
transfer books of the corporation for a period not exceeding forty days
preceding the date of any meeting of shareholders or the date for payment of any
dividend or the date for the allotment of rights or the date when any change or
conversion or exchange of capital stock shall go into effect, provided, however,
that in lieu of closing the stock transfer books as aforesaid, the Board of
Directors may fix in advance a date, not exceeding forty days preceding the date
of any meeting of shareholders or the date for the payment of any dividend, or
the date for the allotment of rights, or the date when any change or conversion
or exchange of capital stock shall go into effect, as a record date for the
determination of the shareholders entitled to notice of, and to vote at, any
such meeting, or entitled to receive payment of any such dividend, or to any
such allotment of rights, or to exercise the rights in respect of any such
change, conversion or exchange of capital stock, and in such case such
shareholders and only such shareholders as shall be shareholders of record on
the date so fixed shall be entitled to such notice, of, and to vote at, such
meeting, or to receive payment of such dividend, or to receive such allotment of
rights, or to exercise such rights, as the case may be, notwithstanding any
transfer of any stock on the books of the Corporation after any such record date
fixed as aforesaid.
11
<PAGE>
ARTICLE XIX
-----------
Registered Stockholders
-----------------------
Section 1. The Corporation shall be entitled to treat the holder of record
---------
of any share or shares of stock as the holder in fact thereof and accordingly
shall not be bound to recognize any equitable or other claim or interest in such
share on the part of any person whether or not it shall have express or other
notice thereof, save as expressly provided by the laws of Oklahoma.
ARTICLE XX
----------
Lost Certificate
----------------
Section 1. Any person claiming a certificate of stock to be lost or
---------
destroyed, shall make an affidavit or affirmation of that fact and advertise the
same in such manner as the Board of Directors may require, and the Board of
Directors may, in its discretion, require the owner of the lost or destroyed
certificate or his legal representative, to give the Corporation a bond, in such
sum as it may direct, not exceeding double the value of the stock, to indemnify
the Corporation against any claim that may be made against it on account of the
alleged loss of any such certificate.
ARTICLE XXI
-----------
Checks
------
Section 1. All checks or demands for money and notes of the Corporation
---------
shall be signed by such officer or officers or such other person or persons as
the Board of Directors may from time to time designate.
ARTICLE XXII
------------
Fiscal Year
-----------
Section 1. The fiscal year shall begin the first day of January in each
---------
year.
12
<PAGE>
ARTICLE XXIII
-------------
Dividends
---------
Section 1. Dividends upon the capital stock of the Corporation subject to
---------
the provisions of the Certificate of Incorporation as from time to time amended,
may be declared by the Board of Directors at any regular or special meeting,
pursuant to law. Dividends may be paid in cash, in property, or in shares of
the capital stock of the Corporation.
Section 2. Before payment of any dividend, there may be set aside out of
---------
any funds of the Corporation available for dividends such sum or sums as the
directors from time to time, in their absolute discretion, think proper as a
reserve fund to meet contingencies, or for equalizing dividends, or for
repairing or maintaining any property of the Corporation, or for such other
purpose as the directors shall think may be for the best interests of the
Corporation, and the directors may abolish any such reserve in the manner in
which it was created, but not contrary to law, the provisions of its Certificate
of Incorporation, or the provisions of these Bylaws.
ARTICLE XXIV
------------
Directors' Annual Statement
---------------------------
Section 1. The Board of Directors shall present at each annual meeting,
---------
and when called for by vote of the shareholders at any special meeting of the
shareholders, a full and clear statement of the business and financial condition
of the Corporation. The directors may, at their discretion, designate such
report to be in lieu of causing an annual report to be sent to the shareholders.
ARTICLE XXV
-----------
Notices
-------
Section 1. Whenever under the provisions of these Bylaws notice is
---------
required to be given to any director, officer, or shareholder, it shall not be
construed to mean personal notice but such notice may be given in writing, by
mail, by depositing the same in the post office or letter box, in a postpaid,
sealed,
13
<PAGE>
wrapper, addressed to such shareholder, officer or director at such address as
appears on the books of the Corporation, or, in default of other address, to
such director, officer or shareholder at the General Post Office in Oklahoma
City, Oklahoma, and such notice shall be deemed to be given at the time when the
same shall be thus mailed.
Section 2. Any shareholder, director, or officer may waive notice required
---------
to be given under these Bylaws.
ARTICLE XXVI
------------
Section 1. These Bylaws may be altered or amended or repealed by the
---------
affirmative vote of a majority of the stock issued and outstanding and entitled
to vote thereat, at the regular or special meeting of the shareholders if notice
of the proposed alternation or amendment or repeal be contained in the notice of
the meeting, provided, however, that no change of the time or place for the
election of directors shall be made within thirty days next before the day on
which such election is to be held, and that in case of any change of such time
or place, notice thereof shall be given to each shareholder in person or by
letter mailed to his last known post office address, at least ten days before
the election is held.
Section 2. These Bylaws may be altered, amended or repealed by an
---------
affirmative vote of a majority of the Board of Directors, subject to the
conditions set forth in this article.
ARTICLE XXVII
-------------
Indemnification
---------------
Section 1. The Corporation shall indemnify any person who was or is a
---------
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the Corporation) by
reason of the fact that he is or was a director, officer, employee or agent of
the Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him
14
<PAGE>
in connection with such action, suit or proceeding if he acted in good faith and
in a manner he reasonably believed to be in or not opposed to the best interests
of the Corporation and, with respect to any criminal action or proceeding, had
no reasonable cause to believe his conduct was unlawful. The termination of any
action, suit or proceeding by judgment, order, settlement, conviction or upon a
plea of nolo contendere or its equivalent, shall not, of itself, create a
presumption that the person did not act in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interests of the
Corporation, and with respect to any criminal action or proceeding, had
reasonable cause to believe that his conduct was unlawful.
Section 2. The Corporation shall indemnify any person who was or is a
---------
party or is threatened to be made a party to any threatened, pending or
completed action or suit by or in the right of the Corporation to procure a
judgment in its favor by reason of the fact that he is or was a director,
officer, employee or agent of the Corporation or is or was serving at the
request of the Corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise against
expenses (including attorneys' fees) actually and reasonably incurred by him in
connection with the defense or settlement of such action or suit if he acted in
good faith and in a manner he reasonably believed to be in or not opposed to the
best interests of the Corporation and except that no indemnification shall be
made in respect of any claim, issue or matter as to which such person shall have
been adjudged to be liable for negligence or misconduct in the performance of
his duty to the Corporation unless and only to the extent that the District
Court of the State of Oklahoma or the court in which such action or suit was
brought shall determine upon application that, despite the adjudication of
liability but in view of all the circumstances of the case such person is fairly
and reasonably entitled to indemnity for such expenses which the District Court
of the State of Oklahoma or such other court shall deem proper.
Section 3. To the extent that a director, officer, employee, or agent of
---------
the Corporation, or a person serving in any other enterprise at the request of
the Corporation, has been successful on the merits or otherwise in defense of
any action, suit or proceeding referred to in Sections 1 and 2 of this Article,
or in defense of any claim, issue or matter therein, the Corporation shall
indemnify him against expenses (including attorneys' fees) actually and
reasonably incurred by him in connection therewith.
15
<PAGE>
Section 4. Any indemnification under Sections 1 and 2 of this Article
---------
(unless ordered by a court) shall be made by the Corporation only as authorized
in the specific case upon a determination that indemnification of the director,
officer, employee or agent is proper in the circumstances because he has met the
applicable standard of conduct set forth in Sections 1 and 2 of this Article.
Such determination shall be made (1) by the Board of Directors by a majority
vote of a quorum consisting of directors who were not parties to such action,
suit or proceeding, or (2) if such a quorum is not obtainable, or, even if
obtainable a quorum of disinterested directors so directs, by independent legal
counsel in a written opinion, or (3) by the stockholders.
Section 5. Expenses by a director, officer, employee or agent in defending
---------
a civil or criminal action, suit or proceeding may be paid by the Corporation in
advance of the final disposition of such action, suit or proceeding as
authorized by the Board of Directors in the specific case upon receipt of an
undertaking by or on behalf of the director, officer, employee or agent to repay
such amount less it shall ultimately be determined that he is entitled to be
indemnified by the Corporation as authorize in this Article.
Section 6. The indemnification provided by this Article shall not limit
---------
the Corporation from providing any other indemnification permitted by law nor
shall it be deemed exclusive of any other rights to which those seeking
indemnification may be entitled under any bylaw, agreement, vote of stockholders
or disinterested directors or otherwise, both as to action in his official
capacity and as to action in another capacity while holding such office, and
shall continue as to a person who has ceased to be a director, officer, employee
or agent and shall inure to the benefit of the heirs, executors and
administrators or such a person.
Section 7. The Corporation may purchase and maintain insurance on behalf
---------
of any person who is or was a director officer, employee or agent of the
Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against any liability asserted against him
and incurred by him in any such capacity, or arising out of his status as such
whether or not the Corporation would have the power to indemnify him against
such liability under the provisions of this Article.
16
<PAGE>
Section 8. For the purpose of this Article, references to "the
---------
Corporation" include all constituent corporations the Corporation has absorbed
in a consolidation or merger so that any person who is or was a director,
officer, employee or agent of such a constituent corporation or is or was
serving at the request of such constituent corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise shall stand in the same position under the provisions of this
Article with respect to the Corporation as he would if he had served the
Corporation in the same capacity.
Section 9. The invalidity or unenforceability of any provisions of this
---------
Article shall not affect the validity or enforceability of the remaining
provisions of this Article.
ARTICLE XXVIII
--------------
Inapplicability of Control Shares Acquisition Act
-------------------------------------------------
Section 1. Sections 1145 through 1155 of Title 18 of the Oklahoma
---------
Statutes, as amended from time to time, shall not apply to the voting rights of
the existing or future holders of shares of the capital stock of the
Corporation.
17
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 14,063
<SECURITIES> 0
<RECEIVABLES> 29,592
<ALLOWANCES> 0
<INVENTORY> 103,525
<CURRENT-ASSETS> 151,960
<PP&E> 71,883
<DEPRECIATION> 41,579
<TOTAL-ASSETS> 196,409
<CURRENT-LIABILITIES> 31,886
<BONDS> 81,919
0
0
<COMMON> 2,155
<OTHER-SE> 80,449
<TOTAL-LIABILITY-AND-EQUITY> 196,409
<SALES> 126,568
<TOTAL-REVENUES> 126,568
<CGS> 92,046
<TOTAL-COSTS> 112,913
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,169
<INCOME-PRETAX> 10,800
<INCOME-TAX> 3,991
<INCOME-CONTINUING> 6,809
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,809
<EPS-BASIC> 0.32
<EPS-DILUTED> 0.31
</TABLE>
