<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 September 30, 2000 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 $.10 602
Voting Common Stock Par Value $.10 21,690,886
------------------------------------------ ----------------------------------
(Title of each class) (Outstanding at November 13, 2000)
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<PAGE>
CMI CORPORATION
Index to Form 10-Q
<TABLE>
<CAPTION>
Page
----
<S> <C>
PART I. Financial Information
Condensed Consolidated Balance Sheets -
September 30, 2000(Unaudited), December 31, 1999
and September 30, 1999(Unaudited) 3
Condensed Consolidated Statements of Operations -
Three Months and Nine Months Ended September 30, 2000
and 1999(Unaudited) 4
Condensed Consolidated Statements of Changes in Common
Stock and Other Capital -
Nine Months Ended September 30, 2000 (Unaudited), and the
Years Ended December 31, 1999 and December 31, 1998 5
Consolidated Statements of Cash Flows -
Nine Months Ended September 30, 2000 and 1999(Unaudited) 6
Notes to Condensed Consolidated Financial Statements 7
Management's Discussion and Analysis of
Financial Condition and Results of Operations 14
Quantitative and Qualitative Disclosure About Market Risk 19
PART II. Other Information
Item 1. Legal Proceedings 20
Item 2. Changes in Securities and Use of Proceeds 20
Item 3. Defaults Upon Senior Securities 20
Item 4. Submission of Matters to a Vote of 20
Security Holders
Item 5. Other Information 21
Item 6. Exhibits and Reports on Form 8-K 21
Signatures 21
</TABLE>
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<PAGE>
PART I - FINANCIAL INFORMATION
CMI CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
<TABLE>
<CAPTION>
September 30 December 31 September 30
2000 1999 1999**
(Unaudited) * (Unaudited)
----------- ----------- ------------
<S> <C> <C> <C>
Current assets:
Cash & cash equivalents $ 14,229 12,681 11,365
Receivables, net 30,005 31,257 34,005
Inventories
Finished equipment 46,123 43,124 29,786
Work-in-process 18,091 20,212 18,564
Raw materials & parts 50,886 58,566 58,135
------- ------- -------
Total inventories 115,100 121,902 106,485
Other current assets 944 892 1,873
Deferred tax assets 6,700 7,400 4,174
------- ------- -------
Total current assets 166,978 174,132 157,902
Property, plant & equipment 75,503 69,983 68,255
Less accumulated depreciation 42,693 38,815 38,020
------- ------- -------
Net property, plant & equipment 32,810 31,168 30,235
Long-term receivables 921 642 2,095
Marketable securities, at fair value 1,655 1,417 1,696
Other assets, principally goodwill 10,822 7,516 4,985
Deferred tax assets 5,828 600 1,900
------- ------- -------
$219,014 215,475 198,813
======= ======= =======
Current liabilities:
Current maturities of long-term debt $ 10,623 4,551 278
Long-term debt in default 106,341 - -
Accounts payable 16,944 22,002 16,651
Accrued liabilities 17,667 16,316 13,703
------- ------- -------
Total current liabilities 151,575 42,869 30,632
Long-term debt - 94,497 86,850
Minority Interest 507 - -
Common stock & other capital:
Class A common stock & common stock 2,169 2,164 2,155
Other capital 64,763 75,945 79,176
------- ------- -------
Total common stock & other capital 66,932 78,109 81,331
------- ------- -------
$219,014 215,475 198,813
======= ======= =======
</TABLE>
* Condensed from audited financial statements. ** As restated See notes to
condensed consolidated financial statements.
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<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 Nine Months Ended
September 30 September 30
------------------- ------------------
2000 1999* 2000 1999*
---- ----- ---- -----
<S> <C> <C> <C> <C>
Net revenues $ 46,864 53,392 176,915 176,750
--------- -------- --------- ---------
Costs and expenses:
Cost of goods sold 35,692 39,266 148,246 130,304
Marketing and administrative 8,512 10,027 30,193 27,159
Engineering and product development 1,943 2,362 7,087 6,097
--------- -------- --------- ---------
46,147 51,655 185,526 163,560
--------- -------- --------- ---------
Operating earnings (loss) 717 1,737 (8,611) 13,190
Other expense (income):
Interest expense 3,054 1,603 7,929 4,772
Interest income (430) (423) (955) (730)
Minority interest 50 - 50 -
Other, net 2 57 (99) 50
--------- -------- --------- ---------
Earnings (loss) before income taxes (1,959) 500 (15,536) 9,098
Income tax expense (benefit) (477) 169 (4,711) 3,356
--------- -------- --------- --------
Net earnings (loss) $ (1,482) 331 (10,825) 5,742
========= ======== ========= ========
Share data:
Weighted average outstanding
Common shares:
Basic 21,691 21,552 21,680 21,551
Diluted 21,691 21,875 21,680 21,820
Net earnings (loss) per average Outstanding share:
Basic $ (0.07) 0.02 (0.50) 0.27
========= ======== ========= ========
Diluted $ (0.07) 0.02 (0.50) 0.26
========= ======== ========= ========
Dividends per common share $ - 0.01 - 0.03
========= ======== ========= ========
</TABLE>
* As restated
See notes to condensed consolidated financial statements.
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<PAGE>
CMI CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN COMMON STOCK
AND OTHER CAPITAL
(in thousands, except per share data)
<TABLE>
<CAPTION>
Accumulated
Class A Common Stock Additional Other
-------------------- Paid-in Treasury Comprehensive Retained
Shares Amount Capital Stock Loss Earnings Total
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance December 31, 1997 21,506 $2,151 $49,816 $ (32) - $18,658 $70,593
Net earnings - - - - - 6,217 6,217
Retirement of treasury stock (6) - (32) 32 - - -
Exercise of stock options 49 4 273 - - - 277
Dividends paid, common stock
($.04 per share) - - - - - (861) (861)
------- ----- ------ ---- ------ ------ ------
Balance December 31, 1998 21,549 $2,155 $50,057 $ - - $24,014 $76,226
Net earnings - - - - - 2,489 2,489
Unrealized loss on available
for sale securities, net of
tax benefit of $113 - - - - (197) - (197)
------
Comprehensive income $2,292
Retirement of voting common
stock - - (1) - - - (1)
Exercise of stock options 35 3 160 - - - 163
Common stock issued 57 6 394 - - - 400
Dividends paid, common stock
($.045 per share) - - - - - (971) (971)
------- ------ ------- ---- ------ ------- ------
Balance December 31, 1999 21,641 2,164 50,610 - (197) 25,532 78,109
(all remaining information
is unaudited)
Net loss - - - - - (10,825) (10,825)
Unrealized gain on available
for sale securities, net of
taxes of $48 - - - - 85 - 85
Foreign currency translation
adjustments - - - - (737) - (737)
------
Comprehensive loss $ (11,477)
Common stock issued 50 5 295 - - - 300
------- ----- ------ ---- ---- ------ ------
Balance September 30, 2000 21,691 $2,169 $50,905 $ - $(849) $14,707 $66,932
======= ===== ====== ==== ==== ====== ======
</TABLE>
See notes to condensed consolidated financial statements.
5 of 21
<PAGE>
CMI CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(dollars in thousands)
<TABLE>
<CAPTION>
Nine Months Ended
September 30
-------------------------
2000 1999*
---- -----
<S> <C> <C>
OPERATING ACTIVITIES
Net earnings (loss) $ (10,825) 5,742
Adjustments to reconcile net earnings (loss) to net
cash used in operating activities:
Depreciation 3,480 3,013
Amortization 432 224
Loss (Gain) on sale of assets (99) 50
Change in assets and liabilities, net of effects of acquisitions of businesses:
Receivables 5,355 (5,992)
Inventories 10,669 (3,594)
Other current assets 117 (950)
Accounts payable (6,299) (4,900)
Accrued liabilities (3,630) (914)
Deferred income taxes (4,576) 3,026
Long-term receivables (269) (1,739)
Other non-current assets, excluding amortization
of goodwill (1,197) 112
------ ------
Net cash and cash equivalents used in operating
activities (6,842) (5,922)
------ ------
INVESTING ACTIVITIES
Proceeds from sale of assets 109 49
Purchases of marketable securities (106) (91)
Cash paid for business acquisitions (5,316) -
Capital expenditures (2,202) (3,799)
------ ------
Net cash and cash equivalents used in investing
activities (7,515) (3,841)
------ ------
FINANCING ACTIVITIES
Payments on long-term debt (316) (189)
Borrowings on long-term debt 3,373 -
Net borrowings on revolving credit note 12,808 10,000
Minority interest 40 -
Stock options exercised - 10
Payment of common stock dividends - (647)
------ ------
Net cash and cash equivalents provided by
financing activities 15,905 9,174
------ -------
Increase (decrease) in cash and cash equivalents 1,548 (589)
Cash and cash equivalents at beginning of period 12,681 11,954
------ -------
Cash and cash equivalents at end of period $14,229 11,365
====== =======
</TABLE>
* As restated
See notes to condensed consolidated financial statements.
6 of 21
<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 accounting principles generally accepted in the United
States of America 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 September 30, 2000 and 1999
and for the interim periods ended September 30, 2000 and 1999 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.
In the fourth quarter of 1999, the Company modified its revenue recognition
policy with respect to sales of asphalt plants for which the customer had
taken ownership but which had not been shipped at the customer's request.
Previously reported third quarter 1999 results have been restated to
reflect this revenue recognition policy change as well as inventory
corrections. The after-tax effect of the restatement resulting from revenue
recognition issues and inventory corrections decreased net income from that
previously reported in the third quarter 1999 Form 10-Q by approximately
$1.8 million.
(2) At September 30, 2000, the Company was not in compliance with certain
provisions of its unsecured senior notes agreement and its revolving credit
agreement, and the Company did not make a required payment on the unsecured
senior notes in the third quarter of 2000. Compliance with these provisions
is determined each quarter based on the results of the trailing four
quarters ending on each determination date. In addition, the Company does
not expect to be in compliance with the agreements' provisions at December
31, 2000. This noncompliance permits the lenders to accelerate the
Company's debt under the senior notes agreement and the revolving credit
agreement. As a result, borrowings under the senior notes agreement and the
revolving credit agreement have been classified as current liabilities at
September 30, 2000. The Company has obtained forbearance agreements with
its lenders, which run through November 15, 2000 with the option to extend
to December 15, 2000. The extension is contingent upon payment of
additional fees and meeting certain terms and conditions. The Company is
currently negotiating with its lenders to restructure its debt in the form
of a less restrictive, fully collateralized, asset based loan agreement.
Restructured debt agreements are expected to be completed in 2000, and the
Company has granted security interests in its receivables, inventories,
machinery and equipment, and real estate. The Company has capitalized debt
issuance costs of approximately $76,000, which will be expensed in the
fourth quarter of 2000 upon signing new financing agreements.
7 of 21
<PAGE>
CMI CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
(3) The results of operations for the nine months ended September 30, 2000 are
not necessarily indicative of the results to be expected for the full year
as the Company is in a seasonal business.
(4) Reclassifications
-----------------
Certain reclassifications have been made to the prior interim period to
conform to the 2000 presentation.
(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 September 30, 2000 the Company was contingently liable as guarantor for
certain accounts receivable sold with recourse of approximately $3.0
million through September 2009.
(6) Earnings Per Share
------------------
Basic earnings (loss) 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 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
(shares in thousands):
Three Months Ended Nine Months Ended
September 30 September 30
----------------- -----------------
2000 1999 2000 1999
---- ---- ---- ----
Weighted average number of
common shares outstanding-basic 21,691 21,552 21,680 21,551
Dilutive effect of potential
common shares issuable upon
exercise of employee stock
options - 323 - 269
------- ------- ------- -------
Weighted average number of
common shares outstanding -
diluted 21,691 21,875 21,680 21,820
====== ====== ======= =======
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<PAGE>
CMI CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
Options to purchase 245,000 shares of common stock at $2.75 to $6.81 per
share were outstanding at September 30, 2000. These were not included in
the computation of diluted loss per share because the effect would have
been anti-dilutive.
(7) Litigation
----------
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 Cedarapids' patent. Cedarapids subsequently filed a
counterclaim against the Company seeking damages in excess of $43 million,
alleging that the Company's patented Triple Drum Mixer product design
infringes on a patent held by Cedarapids. In July 1999, the court granted
Cedarapids' motion for partial summary judgment, and ruled that the
Company's Triple Drum Mixer product design literally infringes certain
claims of the Cedarapids' patent. The court's judgment is limited to the
issue of infringement and not the issue of validity. The Company believes
that Cedarapids' patent is invalid, and thus, that the Triple Drum Mixer
patent is valid. In March 2000, at the court's invitation, the Company
filed a motion for summary judgment on the issue of validity. The court
has not ruled on this motion. In the opinion of counsel, Cedarapids'
claims are highly inflated, and may not be recoverable under various
defenses. The trial of this lawsuit was completed in April 2000. The
Company expects a ruling from the court by the end of 2000.
In September 1998, Cedarapids filed a separate suit against the Company in
the U. S. District Court for the Northern District of Iowa alleging that
the Company has infringed upon a second patent held by Cedarapids.
Cedarapids is seeking damages in excess of $10 million in this lawsuit.
The Company believes that Cedarapids' claim is without merit and intends
to vigorously defend this lawsuit. No reserve has been established for
either of the Cedarapids cases as of September 30, 2000.
The Company has capitalized approximately $1.8 million in legal fees
incurred in defense of the Triple Drum patent. These costs will be
expensed in the case of an unfavorable outcome of the lawsuit pending in
the Western District of Oklahoma or amortized over the remaining life of
the patent if the Company is successful in its defense of this lawsuit.
9 of 21
<PAGE>
CMI CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
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 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 other proceedings will not have a material 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 its individual manufacturing
facilities. The Company has one reportable segment, its main Oklahoma City
manufacturing facility. The Oklahoma City facility and the Company's other
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 facility are as
follows: 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 green waste
grinding machines; and materials processing equipment - hot-mix asphalt
production systems, and thermal systems for remediating contaminated soils
and sanitizing medical waste. The products manufactured at the "Other"
facilities include concrete batching plants, which fall into the
processing equipment category; and light weight grading and concrete
paving and finishing machines, custom heavy hauling and heavy-duty
trailers, and small utility sized pavement profilers and pavement
reclaiming machines, all of which fall into the mobile equipment category.
Following is certain financial information regarding the Company's
Oklahoma City facility and all other manufacturing facilities. The
revenues reported below are all from external customers. General corporate
expenses are not allocated to the operating segments; rather, such
expenses are included as a reconciling item to reported operating earnings
(dollars in thousands).
10 of 21
<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 September 30, 2000:
Total assets $167,323 51,691 219,014
======= ======= =======
Three months ended September 30, 2000:
Net revenues $ 31,518 15,346 46,864
Costs and expenses 30,466 14,416 44,882
------- ------- -------
Segment measure of operating
profit $ 1,052 930 1,982
======= =======
General corporate expenses (1,265)
-------
Operating earnings 717
Interest expense (3,054)
Interest income 430
Other, net (52)
-------
Loss before income taxes (1,959)
Income tax benefit (477)
-------
Net loss $ (1,482)
=======
Capital expenditures $ 227 89 316
====== ======= =======
Depreciation and amortization $ 968 395 1,363
====== ======= =======
As of September 30, 1999:
Total assets $166,992 31,821 198,813
======= ======= =======
Three months ended September 30, 1999:
Net revenues $ 41,637 11,755 53,392
Costs and expenses 39,401 10,851 50,252
------- ------- -------
Segment measure of operating
profit $ 2,236 904 3,140
======= =======
General corporate expenses (1,403)
-------
Operating earnings 1,737
Interest expense (1,603)
Interest income 423
Other, net (57)
-------
Earnings before income taxes 500
Income tax expense 169
-------
Net earnings $ 331
======
Capital expenditures $ 743 262 1,005
======= ======= ======
Depreciation and amortization $ 876 188 1,064
======= ======= ======
</TABLE>
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<PAGE>
CMI CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
<TABLE>
<CAPTION>
Oklahoma All
City Other Total
----------------------------------------------
<S> <C> <C> <C>
Nine months ended September 30, 2000:
Net revenues $ 130,781 46,134 176,915
Costs and expenses 137,271 43,443 180,714
------- ------- -------
Segment measure of operating
profit (loss) $ (6,490) 2,691 (3,799)
====== =======
General corporate expenses (4,812)
-------
Operating loss (8,611)
Interest expense (7,929)
Interest income 955
Other, net 49
-------
Loss before income taxes (15,536)
Income tax benefit (4,711)
-------
Net loss $(10,825)
=======
Capital expenditures $ 1,670 532 2,202
======= ======= =======
Depreciation and amortization $ 2,850 1,062 3,912
======= ======= =======
Nine months ended September 30, 1999:
Net revenues $ 143,870 32,880 176,750
Costs and expenses 128,188 31,158 159,346
------- ------- --------
Segment measure of operating profit $ 15,682 1,722 17,404
======== ========
General corporate expenses (4,214)
-------
Operating earnings 13,190
Interest expense (4,772)
Interest income 730
Other, net (50)
-------
Earnings before income taxes 9,098
Income tax expense 3,356
-------
Net earnings $ 5,742
=======
Capital expenditures $ 3,204 595 3,799
======= ======= =======
Depreciation and amortization $ 2,707 530 3,237
======= ======= =======
</TABLE>
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<PAGE>
CMI CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
At September 30, 2000, the Company had one operating location in the United
Kingdom, one in Belgium, and another in Brazil. The United Kingdom location
serves as a sales office and has approximately $70,000 of long-lived assets
comprised of property, plant and equipment. The Belgium location, which
manufactures a high-tech line of midrange concrete slipform pavers, has
approximately $930,000 of long-lived assets comprised primarily of
property, plant and equipment and other assets. The Brazilian location
which manufactures low volume asphalt plants, asphalt pavers and surface
finishing machines, has approximately $3 million of long-lived assets
comprised primarily of property, plant and equipment and other assets. At
September 30, 2000 all remaining assets were located in the United States.
Revenues for products were as follows (dollars in thousands):
Three Months Ended Nine Months Ended
September 30 September 30
--------------------- ------------------
2000 1999 2000 1999
----- ---- ---- ----
Mobile Equipment $19,703 25,460 68,066 72,257
Material Processing Equipment 18,994 18,515 82,487 79,470
Parts and Used Equipment 8,167 9,417 26,362 25,023
------- ------ ------- -------
$46,864 53,392 176,915 176,750
======= ====== ======= =======
(9) Supplemental Cash Flow Information
----------------------------------
Cash paid for interest was $8.0 million for the nine months ended September
30, 2000 compared to $4.6 million for the nine months ended September 30,
1999. Cash paid for income taxes was $157,000 for the nine months ended
September 30, 2000 compared to $289,000 for the nine months ended September
30, 1999.
(10) Business Acquisitions
---------------------
On July 26, 2000 the Company acquired 75% of the outstanding equity of
Cifali & Cia Ltda. (Cifali), a Brazilian company located in Cachoeirinha,
Brazil, for $1.4 million in cash and the assumption of approximatley $5.2
million in liabilities. An additional $900,000 payable in three annual
installments of $300,000, is contingent upon Cifali attaining certain
levels of net earnings for each of the fiscal years ending December 31,
2001, 2002 and 2003. The purchase price was allocated to the net assets
acquired based on the preliminary estimates of fair value and resulted in
no goodwill being recorded. Cifali did not have significant operations
prior to its acquisition in July 2000 and accordingly, the proforma effect
on the Company's results of operations is not material.
13 of 21
<PAGE>
CMI CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations
---------------------
Revenues decreased 12.2 percent to $46.9 million for the three months ended
September 30, 2000, compared to $53.4 million for the three months ended
September 30, 1999. Revenues for international shipments increased 0.9 percent
to $5.2 million for the three months ended September 30, 2000 compared to $5.1
million for the three months ended September 30, 1999. Revenues for domestic
shipments decreased 13.6 percent to $41.7 million for the three months ended
September 30, 2000 compared to $48.3 million for the three months ended
September 30, 1999. The Company's net loss was $1.5 million, or .07 cents per
share, for the three months ended September 30, 2000, compared to net earnings
of $331,000, or 2 cents per share, for the three months ended September 30,
1999.
Revenues increased 0.1 percent to $176.9 million for the nine months ended
September 30, 2000, compared to $176.7 million for the nine months ended
September 30, 1999. Revenues for international shipments increased 67.7 percent
to $21.7 million for the nine months ended September 30, 2000 compared to $12.9
million for the nine months ended September 30, 1999. Revenues for domestic
shipments decreased 5.2 percent to $155.2 million for the nine months ended
September 30, 2000 compared to $163.8 million for the nine months ended
September 30, 1999. The Company's net loss was $10.8 million, or 50 cents per
share, for the nine months ended Sept 30, 2000, compared to net earnings of $5.7
million, or 26 cents per share, for the nine months ended September 30, 1999.
The Company's revenue was flat year over year. Gains in hot mix asphalt plants,
heavy-duty trailers, and additional revenue from recent acquisitions totaled
approximately $22.7 million, but were offset by declines in the soil remediation
and automated equipment product lines. The lower quarter over quarter revenues
appear to be part of a larger trend in the industry. The decline in equipment
sales is due to several factors including higher interest rates, increased costs
of petroleum products such as diesel, gasoline and liquid asphalt, and
historical election year indecision.
Gross margins for the three months ended September 30, 2000 averaged 23.8
percent compared to 26.5 percent for the three months ended September 30, 1999.
Gross margins for the nine months ended September 30, 2000 averaged 16.2 percent
compared to 26.3 percent for the nine months ended September 30, 1999. The
decline in margins is due to inventory write downs of approximately $5.2 million
taken in the second quarter. In addition, margins were adversely impacted by
$1.5 million due to equipment sold during the second quarter of 1999, which was
returned during the second quarter of 2000. Margins were further adversely
impacted by the change in product mix (lower percentage of mobile equipment
revenues which experience higher margins) during the second and third quarters
of 2000.
The Company's inventory build up over the past two years has impacted the
Company's financing (the Company has maintained higher debt levels to finance
the inventory) and has increased the risk of possible obsolescence. Cash flow is
important to the Company at this time, in light of the current year operating
14 of 21
<PAGE>
losses and its high level of bank debt. As such, the Company's plan is to turn
much of this inventory to cash. Management is continuing a widespread
investigation of inventory items, which are no longer, used in the manufacturing
process for items in the current production schedule. If these particular parts
cannot be used or sold by the parts department, the Company plans to utilize
alternative options to liquidate this inventory. In this way, the Company would
reduce inventory levels and improve cash flows. Because of this change in
circumstances, the Company reevaluated its inventory reserves and established
market value estimates based on transactions in the short term, rather than the
amounts which the Company could realize if it held these inventories for
extended periods. Adjustments to the valuation reserves were made in the second
quarter, and the impact of these changes was not material in the third quarter.
Marketing and administrative expenses decreased $1.5 million for the comparable
three months ended September 30, 2000, and increased $3.0 million for the
comparable nine months ended September 30, 2000. As a percentage of revenues,
marketing and administrative expenses were 18.2 percent for the three months
ended September 30, 2000, compared to 18.8 percent for the three months ended
September 30, 1999, and were 17.1 percent for the nine month period ended
September 30, 2000 compared to 15.4 percent for the nine month period ended
September 30, 1999. The increase in marketing and administrative expenses over
the prior year is attributable to higher legal fees, consulting fees, fees
associated with acquisitions not consummated, employee severance costs and the
additional marketing and administrative expenses of R. M. Barton Co., Inc., CMI
Belgium, and Cifali. The legal fees are primarily associated with the litigation
with Cedarapids, Inc. The Company expects legal fees to remain high during the
duration of the litigation with Cedarapids, Inc. The consulting fees are
primarily associated with the George Group, a consulting firm used by the
Company to assist with business process reengineering. The contract with the
George Group was terminated in May 2000. The Company conducted an extensive
operations review in May 2000. Based on this review it was determined that the
Company's overhead costs had risen beyond levels which could be tolerated given
the Company's industry, history and volume of business the Company was
achieving. Annualized cost cuts of approximately $4.8 million in marketing and
administrative expenses have been made by reducing administrative overhead,
consulting services and other non-essential costs. These cost cuts were achieved
through reductions in salaries and discretionary spending.
Engineering and product development expenses decreased $419,000 for the three
months ended September 30, 2000, and increased $990,000 for the nine months
ended September 30, 2000. As a percentage of revenues, engineering and product
development expenses were 4.1 percent for the three months ended September 30,
2000, compared to 4.4 percent for the three months ended September 30, 1999, and
were 4.0 percent for the nine months ended September 30, 2000, compared to 3.4
percent for the nine months ended September 30, 1999. Engineering and product
development expenses increased due to new development and enhancements in the
Company's reclaiming and stabilizing machines, Roto-Mills and grinding machines.
In addition, costs increased due to design changes and enhancements to the
Series 3000 and 6000 concrete pavers.
Interest expense increased to $3.1 million for the three months ended September
30, 2000, compared to $1.6 million for the three months ended September 30,
1999, and increased to $7.9 million for the nine months ended September 30,
2000,
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compared to $4.8 million for the nine months ended September 30, 1999. The
increase in interest expense over last year was due to an increase in the
effective interest rate of approximately 250 basis points and due to additional
borrowings on the Company's revolving line of credit, primarily for the
increased working capital requirements required during the first half of the
year and recent acquisitions.
Liquidity and Capital Resources
-------------------------------
The Company amended its revolving line of credit agreement on February 3, 2000
to increase the Company's borrowing capacity from $70 million to $100 million.
Under the forbearance agreements the line was reduced to $80 million on
September 26, 2000. If necessary the Company continues to have the ability to
make draw downs on the line of credit. As of September 30, 2000, the Company had
utilized $77 million of the unsecured revolving line of credit, which matures
September 2001. The Company's $30,000,000 unsecured senior notes mature from
September 2000 to September 2006. Other long-term debts have maturity dates
through September 2010 and are expected to be paid or refinanced when due.
At September 30, 2000, the Company was not in compliance with certain provisions
of its unsecured senior notes agreement and its revolving credit agreement, and
the Company did not make a required payment on the unsecured senior notes in the
third quarter of 2000. Compliance with these provisions is determined each
quarter based on the results of the trailing four quarters ending on each
determination date. In addition, the Company does not expect to be in compliance
with the agreements' provisions at December 31, 2000. This noncompliance permits
the lenders to accelerate the Company's debt under the senior notes agreement
and the revolving credit agreement. As a result, borrowings under the senior
notes agreement and the revolving credit agreement have been classified as
current liabilities at September 30, 2000. The Company has obtained forbearance
agreements with its lenders, which run through November 15, 2000 with the option
to extend to December 15, 2000. The extension is contingent upon payment of
additional fees and meeting certain terms and conditions. The Company is
currently negotiating with its lenders to restructure its debt in the form of a
less restrictive, fully collateralized, asset based loan agreement. Restructured
debt agreements are expected to be completed in 2000, and the Company has
granted security interests in its receivables, inventories, machinery and
equipment, and real estate.
The current ratio at September 30, 2000 was 1.10-to-1 (includes the long-term
debt in default of $106.3 million) compared to 4.06-to-1 at December 31, 1999.
Working capital at September 30, 2000 was $15.4 million compared to $131.3
million at December 31, 1999. The classification of the amounts outstanding
under the senior notes agreement and the revolving credit agreement as current
liabilities was the primary cause for the change in the current ratio and
working capital.
Cash used in operating activities for the nine months ended September 30, 2000
was $6.8 million compared to cash used in operating activities of $5.9 million
for the nine months ended September 30, 1999. For the nine months ended
September 30, 2000 cash was being used to fund the current losses and for the
nine months ended September 30, 1999 cash was being used to fund the build up in
inventories. Financing activities for the nine months ended September 30, 2000
provided approximately $15.9 million, which included $12.8 million of borrowings
from the
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Company's revolving line of credit which was primarily used to fund working
capital needs, capital expenditures and the recent acquisitions of R.M. Barton
Co., Inc. and Metra Metaalwerken B.V.B.A.
Capital expenditures for the nine months ended September 30, 2000 were $2.2
million compared to $3.8 million for the nine months ended September 30, 1999.
Capital expenditures are budgeted at $1.2 million for the remainder of 2000 and
are expected to be financed using internally generated funds. These capital
expenditures are being used to improve the Company's manufacturing and product
support efficiencies.
Due to the Company's current year net loss, the Board of Directors has decided
to suspend the Company's semi-annual dividend until business conditions improve.
In addition, as a result of the defaults on the unsecured senior notes agreement
and the revolving credit agreements, the Company is prohibited from paying
dividends until new agreements are reached.
Income Taxes
------------
The benefits of future tax deductions and credits not utilized by the Company in
the past are reflected as an asset to the extent the Company assesses that
future operations will "more likely than not" be sufficient to realize such
benefits. For the period ended September 30, 2000, 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 $12.5 million 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
$33 million to $35 million in future years. If the Company is unable to generate
taxable income, additional valuation allowances may be required in future
periods.
The net loss generated year to date at September 30, 2000 has resulted in the
Company reassessing the likelihood of it being able to utilize certain tax
credits that are set to expire at the end of 2000 and 2001. The Company has
determined that it is unlikely that $520,000 in tax credits set to expire at the
end of 2000 and $388,000 in credits set to expire at the end of 2001 will be
able to be utilized to offset future taxable income. Adjustments were made in
the second and third quarters to establish a valuation allowance against these
deferred tax assets. The valuation allowance established includes the effect of
the tax credits to expire in 2001, and the effect on the Company's estimated
annual tax rate for 2000 and the application of that estimated effective tax
rate to pre-tax loss for the nine months ended September 30, 2000 for the tax
credits to expire in 2000.
Impact of Recently Issued Accounting Standards Not Yet Adopted
--------------------------------------------------------------
In December 1999 the Securities and Exchange Commission (SEC) released Staff
Accounting Bulletin No. 101 - "Revenue Recognition in Financial Statements,"
(SAB 101). SAB 101 summarizes certain views of the SEC staff in applying
generally accepted accounting principles to revenue recognition in financial
statements. The SEC delayed the required implementation of SAB 101 until the
fourth quarter of 2000.
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The Company's normal terms of sale of its asphalt plants include an obligation
to assist customers by providing servicemen at the customer site to assist in
readying the plants for start-up. The SEC staff has issued a document to address
significant implementation issues related to SAB 101. To the extent that SAB 101
ultimately changes revenue recognition practices, including those relative to
"installment obligations," revenue from asphalt plant sales may be required to
be recorded later than under current accounting policies of the Company. The
Company has not yet determined the impact on its financial position or results
of operations of adopting SAB 101 in the fourth quarter of 2000, which, if
required, will be accomplished through a cumulative effect adjustment determined
as of January 1, 2000, with possible adjustments to revenue recognized in the
first three quarters of 2000.
In June 1998, the Financial Accounting Standards Board (FASB) 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.
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 four to five years. Management believes that the Company's investment in
capital improvements and plant modernization efforts will have the Company well
positioned to take advantage of the anticipated increased business as a result
of this 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, restructuring of existing debt
agreements, adverse weather conditions, general economic conditions and
political changes both domestically and overseas.
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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 September 30, 2000, the Company had long-term debt outstanding of $117.0
million. Of this amount, $30 million bears interest at a fixed rate of 7.68
percent, and $9.5 million bears interest at fixed rates averaging approximately
8.5 percent. The remaining $77.0 million bears interest at variable rates which
averaged approximately 10.0 percent at September 30, 2000. The Company had $12.8
million more variable rate borrowings at September 30, 2000 than at December 31,
1999, and the average rate at which the variable rate borrowings accrued
interest was 225 basis points (2.25%) higher at September 30, 2000 compared to
December 31, 1999. A 10 percent increase in short-term interest rates on the
variable rate debt outstanding at September 30, 2000 would approximate 100 basis
points. Such an increase in interest rates would increase the Company's interest
expense by approximately $193,000 for the remainder of the year ending December
31, 2000 assuming borrowed amounts remain constant.
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.
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
Cedarapids' patent. Cedarapids subsequently filed a counterclaim against the
Company seeking damages in excess of $43 million, alleging that the Company's
patented Triple Drum Mixer product design infringes on a patent held by
Cedarapids. In July 1999, the court granted Cedarapids' motion for partial
summary judgment, and ruled that the Company's Triple Drum Mixer product design
literally infringes certain claims of the Cedarapids' patent. The court's
judgment is limited to the issue of infringement and not the issue of validity.
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The Company believes that Cedarapids' patent is invalid, and thus, that the
Triple Drum Mixer patent is valid. In March 2000 at the court's invitation, the
Company filed a motion for summary judgment on the issue of validity. The court
has not ruled on this motion. In the opinion of counsel, Cedarapids' claims are
highly inflated, and may not be recoverable under various defenses. The trial of
this lawsuit was completed in April 2000. The Company expects a ruling from the
court by the end of 2000.
In September 1998, Cedarapids filed a separate suit against the Company in the
U. S. District Court for the Northern District of Iowa alleging that the Company
has infringed upon a second patent held by Cedarapids. Cedarapids is seeking
damages in excess of $10 million in this lawsuit. The Company believes
Cedarapids' claim is without merit and intends to vigorously defend this
lawsuit. No reserve has been established for either of the Cedarapids cases as
of September 30, 2000.
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 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 other proceedings will
not have a material adverse effect on the Company's consolidated financial
position, liquidity or future results of operations.
Item 2. Changes in Securities and Use of Proceeds.
None.
Item 3. Defaults Upon Senior Securities.
See note 2 to condensed consolidated financial statements.
Item 4. Submission of Matters to a Vote of Security Holders.
None
Item 5. Other information.
None.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits required by Item 601 of Regulation S-K are as follows:
Exhibit No.
----------
27 Financial Data Schedule
(b) The Company did not file any report on a Form 8-K during the fiscal
quarter ended September 30, 2000.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: November 13, 2000 /s/ Jim D. Holland
------------------------ -------------------------------------
Jim D. Holland
Senior Vice President,
Chief Financial Officer & Treasurer
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