<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 March 31, 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 May 19, 2000)
-1 of 18-
<PAGE>
CMI CORPORATION
Index to Form 10-Q
<TABLE>
<CAPTION>
Page
----
<S> <C>
PART I. Financial Information
Condensed Consolidated Balance Sheets -
March 31, 2000(Unaudited), December 31, 1999
and March 31, 1999(Unaudited) 3
Condensed Consolidated Statements of Operations -
Three Months Ended March 31, 2000 and 1999(Unaudited) 4
Condensed Consolidated Statements of Changes in Common
Stock and Other Capital -
Three Months Ended March 31, 2000 (Unaudited), and the
Years Ended December 31, 1999 and December 31, 1998 5
Consolidated Statements of Cash Flows -
Three Months Ended March 31, 2000 and 1999(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 16
PART II. Other Information
Item 1. Legal Proceedings 17
Item 2. Changes in Securities and Use of Proceeds 18
Item 3. Defaults Upon Senior Securities 18
Item 4. Submission of Matters to a Vote of Security Holders 18
Item 5. Other Information 18
Item 6. Exhibits and Reports on Form 8-K 18
Signatures 18
</TABLE>
-2 of 18-
<PAGE>
PART I - FINANCIAL INFORMATION
CMI CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
<TABLE>
<CAPTION>
March 31, December 31, March 31,
2000 1999* 1999**
(Unaudited) (Unaudited)
------------ ------------- -------------
<S> <C> <C> <C>
Current assets:
Cash & cash equivalents $ 16,340 12,681 10,516
Receivables, net 45,161 31,257 31,124
Inventories
Finished equipment 45,687 43,124 34,430
Work-in-process 22,757 20,212 24,210
Raw materials & parts 60,515 58,566 49,356
-------- ------- -------
Total inventories 128,959 121,902 107,996
Other current assets 1,726 892 825
Deferred tax asset 6,738 7,400 7,214
-------- ------- -------
Total current assets 198,924 174,132 157,675
Property, plant & equipment 72,630 69,983 69,926
Less accumulated depreciation 40,391 38,815 40,681
-------- ------- -------
Net property, plant & equipment 32,239 31,168 29,245
Long-term receivables 586 642 331
Marketable securities, at fair value 1,450 1,417 1,615
Other assets, principally patents and goodwill 9,555 7,516 5,209
Deferred tax assets 600 600 1,900
-------- ------- -------
$243,354 215,475 195,975
======== ======= =======
Current liabilities:
Current maturities of long-term debt $ 6,403 4,551 265
Long-term debt in technical default 111,966 - -
Accounts payable 28,546 22,002 19,825
Accrued liabilities 17,203 16,316 12,718
-------- ------- -------
Total current liabilities 164,118 42,869 32,808
Long-term debt - 94,497 86,984
Common stock & other capital:
Class A common stock & common stock 2,169 2,164 2,155
Other capital 77,067 75,945 74,028
-------- ------- -------
Total common stock & other capital 79,236 78,109 76,183
-------- ------- -------
$243,354 215,475 195,975
======== ======= =======
</TABLE>
* Condensed from audited financial statements.
** As restated.
See notes to condensed consolidated financial statements.
-3 of 18-
<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
March 31
--------------------------
2000 1999*
---- ----
<S> <C> <C>
Net revenues $66,158 52,577
------- ------
Costs and expenses:
Cost of goods sold 50,960 40,579
Marketing and administrative 9,244 8,418
Engineering and product development 2,261 1,839
------- ------
62,465 50,836
------- ------
Operating earnings 3,693 1,741
------- ------
Other expense (income):
Interest expense 2,277 1,534
Interest income (196) (102)
Other, net (3) -
------- ------
Earnings before income taxes 1,615 309
Income tax expense 589 137
------- ------
Net earnings $ 1,026 172
======= ======
Share data:
Weighted average outstanding common shares:
Basic 21,656 21,549
Diluted 21,709 21,740
Net earnings per average outstanding share:
Basic $ .05 .01
======= ======
Diluted $ .05 .01
======= ======
Dividends per common share $ - .01
======= ======
</TABLE>
* As restated
See notes to condensed consolidated financial statements.
-4 of 18-
<PAGE>
CMI CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN COMMON STOCK
AND OTHER CAPITAL
(in thousands)
<TABLE>
<CAPTION>
Accumulated
Additional Other
Class A Common Stock 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 earnings - - - - - 1,026 1,026
Foreign currency translation
adjustments - - - - (199) - (199)
-------
Comprehensive income $ 827
Common stock issued 50 5 295 - - - 300
Balance March 31, 2000 21,691 $2,169 $50,905 $ - $(396) $26,558 $79,236
====== ========= ======= ======== ============= ======== =======
</TABLE>
See notes to condensed consolidated financial statements.
-5 of 18-
<PAGE>
CMI CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(dollars in thousands)
<TABLE>
<CAPTION>
Three Months Ended
March 31
----------------------
2000 1999*
---- -----
<S> <C> <C>
OPERATING ACTIVITIES
Net earnings $ 1,026 172
Adjustments to reconcile net earnings to net cash
provided by (used in) operating activities:
Depreciation 1,070 997
Amortization 189 73
Gain on sale of assets (3) -
Change in assets and liabilities, net of effects of
acquisitions of businesses:
Receivables (12,661) (3,111)
Inventories (5,024) (5,105)
Other current assets (700) 98
Accounts payable 6,255 (1,726)
Accrued liabilities 339 (1,899)
Deferred income taxes 662 (14)
Long-term receivables 56 25
Other non-current assets, excluding amortization
of goodwill (395) 40
-------- -------
Net cash and cash equivalents used in operating
activities (9,186) (10,450)
-------- -------
INVESTING ACTIVITIES
Proceeds from sale of assets 3 -
Capital expenditures (1,058) (695)
Purchases of marketable securities (33) (10)
Cash paid for business acquisitions (3,916) -
-------- -------
Net cash and cash equivalents used in investing
activities (5,004) (705)
-------- -------
FINANCING ACTIVITIES
Payments on long-term debt (81) (68)
Net borrowings on revolving credit note 17,930 10,000
Payment of common stock dividends - (215)
-------- -------
Net cash and cash equivalents provided by
financing activities 17,849 9,717
-------- -------
Increase (decrease) in cash and cash equivalents 3,659 (1,438)
Cash and cash equivalents at beginning of period 12,681 11,954
-------- -------
Cash and cash equivalents at end of period $ 16,340 10,516
======== =======
</TABLE>
* As restated
See notes to condensed consolidated financial statements.
-6 of 18-
<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 March 31, 2000 and 1999 and
for the interim periods ended March 31, 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 first quarter 1999 results have
been restated to reflect this revenue recognition policy change. The
after-tax effect of the restatement resulting from revenue recognition
issues decreased net income from that previously reported in the first
quarter 1999 Form 10-Q by approximately $536,000. Additionally, the 1999
first quarter reflects the correction of an error made in accounting for
inventories. The after-tax effect of the restatement resulting from the
inventory correction decreased net income from that previously reported
in the 1999 first quarter Form 10-Q by approximately $952,000.
(2) At March 31, 2000, the Company was not in compliance with certain
provisions of its unsecured senior notes agreement and revolving credit
agreement. Compliance with the provisions is determined each quarter
based on the results of the trailing four quarters ending on each
determination date. The Company expects the lenders to waive non-
compliance with the specific required financial covenants as of March 31,
2000. However, the Company does not expect to be in compliance with the
agreements' provisions at June 30, 2000, which noncompliance would permit
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 March 31, 2000. The Company is
currently negotiating modifications to the debt agreements that are
expected to include less restrictive financial covenants. Modified
agreements are expected to be completed prior to June 30, 2000, and the
Company has agreed to grant additional security interest in its
receivables, inventories, and certain equipment.
(3) The results of operations for the three months ended March 31, 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.
-7 of 18-
<PAGE>
CMI CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
(5) Related Party Transactions
--------------------------
There have been no material changes in related party transactions since
the annual report filed for the preceding fiscal year.
(6) Commitments and Contingencies
-----------------------------
The Company and its subsidiaries are parties to various leases relating
to plants, warehouses, office facilities, transportation vehicles, and
certain other equipment. Real estate taxes, insurance, and maintenance
expenses are normally obligations of the Company. It is expected that in
the normal course of business, the majority of the leases will be renewed
or replaced by other leases. Leases do not provide for dividend
restrictions, debt, or future leasing arrangements. All leasing
arrangements contain normal leasing terms without unusual purchase
options or escalation clauses.
At March 31, 2000, the Company was contingently liable as guarantor for
certain accounts receivable sold with recourse of approximately $6.8
million through September 2006.
(7) 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).
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):
<TABLE>
<CAPTION>
Three Months Ended
March 31
----------------------
2000 1999
---- ----
<S> <C> <C>
Weighted average number of common shares
outstanding - basic 21,656 21,549
Dilutive effect of potential common shares
issuable upon exercise of employee stock
options 53 191
------ ------
Weighted average number of common shares
outstanding - diluted 21,709 21,740
====== ======
</TABLE>
-8 of 18-
<PAGE>
CMI CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
Options to purchase 570,000 shares of common stock at $6.25 to $6.94 per
share were outstanding during the three months ended March 31, 2000, but
were not included in the computation of diluted earnings per share
because the effect would have been anti-dilutive.
(8) Acquisition of Businesses and Product Lines
-------------------------------------------
In January 2000 the Company acquired all of the outstanding stock of R.
M. Barton Co., Inc. (Barton) for approximately $2.1 million in cash, and
the assumption of approximately $1.6 million in liabilities. The purchase
price was allocated to the net assets acquired based on the preliminary
estimates of fair value and resulted in goodwill of approximately
$1.1 million which is being amortized on a straight-line basis over 15
years. Barton did not have significant operations during the first
quarter of 1999 or prior to its acquisition in January 2000, and on a pro
forma basis, assuming the acquisition occurred on January 1, 1999, the
impact to earnings would not have been material.
In February 2000 the Company acquired all of the outstanding stock of
Metra Metaalwerken B. V. B. A. (Metra) for approximately $1.8 million in
cash, 50,000 shares of the Company's Class A Common Stock (valued at
$300,000), and the assumption of approximately $900,000 in liabilities.
The purchase price was allocated to the net assets acquired based on the
preliminary estimates of fair value and resulted in goodwill of
approximately $976,000 which is being amortized on a straight-line basis
over 15 years. Metra did not have significant operations during the first
quarter of 1999 or prior to its acquisition in February 2000, and on a
pro forma basis, assuming the acquisition occurred on January 1, 1999,
the impact to earnings would not have been material.
(9) 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. The Company has, at the court's invitation,
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 in the third quarter of 2000.
-9 of 18-
<PAGE>
CMI CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
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 Cedarapid's claim is without merit and intends
to vigorously defend this lawsuit. No reserve has been established for
either of the Cedarapids cases as of March 31, 2000.
The Company has capitalized approximately $1.4 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.
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.
(10) 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 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 main facility in Oklahoma City
are as follows: mobile equipment - the Company's primary line of concrete
paving systems, and 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 falls 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.
-10 of 18-
<PAGE>
CMI CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
Following is certain financial information regarding the Company's
segments. 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.
<TABLE>
<CAPTION>
Oklahoma All
City Other Total
-------- ------- ---------
<S> <C> <C> <C>
As of March 31, 2000:
Total assets $195,060 48,294 243,354
======== ====== ========
Three months ended March 31, 2000:
Net revenues $ 51,879 14,279 66,158
Costs and expenses 47,890 13,343 61,233
-------- ------ --------
Segment measure of operating profit $ 3,989 936 4,925
======== ======
General corporate expenses (1,232)
--------
Operating earnings 3,693
Interest expense (2,277)
Interest income 196
Other, net 3
--------
Earnings before income taxes 1,615
Income tax expense 589
--------
Net earnings $ 1,026
========
Capital expenditures $ 935 123 1,058
======== ====== ========
Depreciation and amortization $ 941 318 1,259
======== ====== ========
As of March 31, 1999:
Total assets $167,279 28,696 195,975
======== ====== ========
Three months ended March 31, 1999:
Net revenues $ 44,403 8,174 52,577
Costs and expenses 40,961 8,450 49,411
-------- ------ --------
Segment measure of operating
profit (loss) $ 3,442 (276) 3,166
======== ======
General corporate expenses (1,425)
--------
Operating earnings 1,741
Interest expense (1,534)
Interest income 102
--------
Earnings before income taxes 309
Income tax expense 137
--------
Net earnings $ 172
========
Capital expenditures $ 519 176 695
======== ====== ========
Depreciation and amortization $ 896 174 1,070
======== ====== ========
</TABLE>
-11 of 18-
<PAGE>
CMI CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
The Company has one operating location in the United Kingdom and another
in Belgium. The United Kingdom location serves as a sales office and has
approximately $567,000 of assets comprised primarily of inventory,
receivables, and property, plant and equipment. The Belgium location has
approximately $5.3 million of assets comprised of receivables,
inventories, property, plant and equipment, intangibles, and other
assets. All remaining assets are located in the United States.
Revenues for products for the three months ended March 31, 2000 and 1999
were as follows (dollars in thousands):
<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
Mobile Equipment $24,979 $16,727
Materials Processing Equipment 32,933 28,727
Parts and Used Equipment 8,246 7,123
------- -------
$66,158 $52,577
======= =======
</TABLE>
(11) Subsequent Events
-----------------
Effective May 5, 2000, Tom Engelsman resigned as Chief Executive Officer
and as a director of the Company. Bill Swisher, Chairman of the Board,
was appointed by the board of directors as interim Chief Executive
Officer.
-12 of 18-
<PAGE>
CMI CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
-----------------------------------
Results of Operations
- ---------------------
Revenues increased 25.8 percent to $66.2 million for the three months ended
March 31, 2000, compared to $52.6 million for the three months ended March 31,
1999. Net revenues for international shipments decreased 2.4 percent to $4.5
million for the three months ended March 31, 2000 compared to $4.6 million for
the three months ended March 31, 1999. Net revenues for domestic shipments
increased 28.5 percent to $61.7 million for the three months ended March 31,
2000 compared to $48.0 million for the three months ended March 31, 1999. Net
earnings were $1.03 million, or 5 cents per diluted share, for the three months
ended March 31, 2000, compared to a net earnings of $172,000, or one cent per
diluted share, for the comparable three months ended March 31, 1999.
The Company's revenue increase consisted of a $4.9 million increase in the
Company's hot mix asphalt production systems, a $3.7 million increase in the
Company's paving and trimming and reclaiming/stabilizing equipment, a $2.5
million increase in the Company's trailer line and a $1.1 million increase in
concrete plants. Revenue also increased $1.4 million due to the acquisition of
R. M. Barton Co., Inc. in January 2000.
Gross margins for the three months ended March 31, 2000 averaged 23.0 percent
compared to 22.8 percent for the three months ended March 31, 1999. Backlog was
$58 million at March 31, 2000 compared to $60 million at March 31, 1999.
Marketing and administrative expenses increased $826,000 for the three months
ended March 31, 2000. As a percentage of net revenues, marketing and
administrative expenses were 14.0 percent for the three months ended March 31,
2000, compared to 16.0 percent for the three months ended March 31, 1999.
Marketing and administrative expenses increased due to: 1) consulting fees paid
to the George Group to evaluate and improve the Company's manufacturing
processes, production efficiencies, and sales and marketing operations, with the
goal of overhauling the Company's overall business structure, and 2) the
additional marketing and administrative expenses of R. M. Barton Co., Inc.
Engineering and product development expenses increased $422,000 for the three
months ended March 31, 2000. As a percentage of net revenues, engineering and
product development expenses were 3.4 percent for the three months ended March
31, 2000, compared to 3.5 percent for the three months ended March 31, 1999.
Engineering and product development expenses increased primarily due to costs
incurred relating to design changes and enhancements to the Series 3000 and 6000
concrete pavers.
Interest expense increased to $2.3 million for the three months ended March 31,
2000, compared to $1.5 million for the three months ended March 31, 1999. The
Company's average effective interest rate increased approximately 13 basis
points over March 31, 1999, to 8.38% at March 31, 2000. The increase in interest
expense is primarily due to additional borrowings on the Company's revolving
line of credit, primarily for the increased working capital requirements and
capital spending, and business acquisitions.
-13 of 18-
<PAGE>
The Company's effective tax rate for the three months ended March 31, 2000 and
1999 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 1999 was approximately 38 percent.
Liquidity and Capital Resources
- -------------------------------
The Company amended its unsecured revolving line of credit agreement on February
3, 2000 to increase the Company's borrowing capacity from $70 million to $100
million. As of March 31, 2000, the Company had utilized $82 million of the
unsecured revolving line of credit which matures September 2001. In April 2000
$5 million was paid down on the revolving line of credit. 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 March 31, 2000, the Company was not in compliance with certain provisions of
its unsecured senior notes agreement and revolving credit agreement. Compliance
with the provisions is determined each quarter based on the results of the
trailing four quarters ending on each determination date. The Company expects
the lenders to waive non-compliance with the specific required financial
covenants as of March 31, 2000. However, the Company does not expect to be in
compliance with the agreements' provisions at June 30, 2000, which noncompliance
would permit 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 March 31, 2000. The Company is currently negotiating
modifications to the debt agreements that are expected to include less
restrictive financial covenants. Modified agreements are expected to be
completed prior to June 30, 2000, and the Company has agreed to grant additional
security interest in its receivable, inventories, and certain equipment.
The current ratio at March 31, 2000, was 1.21-to-1 (includes the long-term debt
in technical default of $112.0 million) compared to 4.06-to-1 at December 31,
1999, and working capital at March 31, 2000 was $34.8 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 is the primary cause for the change in the current ratio and working
capital. Working capital was also impacted by an increase in cash of $3.7
million, an increase in receivables of $13.9 million, an increase in inventories
of $7.1 million partially offset by an increase in other current liabilities of
$9.3 million.
Cash used in operating activities for the three months ended March 31, 2000 was
$9.2 million compared to cash used in operating activities of $10.5 million for
the three months ended March 31, 1999. This decrease was due to increased
receivables and increased inventories, which was offset by an increase in
current liabilities and higher net income. The receivable increase from December
31, 1999 is due to the $13.6 million increase in net revenues quarter over
quarter. As noted in note 3, 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 three
months ended March 31, 2000 provided $17.8 million, which included $17.9 million
of borrowings from the Company's revolving line of credit which was primarily
used to fund the increase in receivables and inventories from December 31, 1999.
-14 of 18-
<PAGE>
Capital expenditures for the three months ended March 31, 2000 were $1.1 million
compared to $695,000 for the comparable three months ended March 31, 1999.
Capital expenditures are budgeted at $5.6 million for 2000 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.
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 March 31, 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 $7.3 million of net deferred tax assets will be
realized. The ultimate realization of the deferred tax assets will require
aggregate taxable income of approximately $18 million to $22 million in future
years.
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 101A was issued by the SEC on March 24, 2000 and delays the
required implementation date of SAB 101 until the second quarter of 2000. SAB
101 summarizes certain views of the SEC staff in applying generally accepted
accounting principles to revenue recognition in financial statements. The
Company has not yet determined the impact on its financial position or results
of operations of adopting SAB 101 in the second quarter of 2000, which will be
accomplished through a cumulative effect adjustment determined as of January 1,
2000.
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 Company understands the SEC staff is
preparing 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.
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.
-15 of 18-
<PAGE>
In March 2000, the FASB issued Interpretation No. 44, "Accounting for Certain
Transactions Involving Stock Compensation - an interpretation of APB Opinion No.
25" ("FIN 44"). Among other issues, this interpretation clarifies the
definition of employee for purposes of applying APB Opinion No. 25, Accounting
for Stock Issued to Employees ("APB 25"), the criteria for determining whether a
plan qualifies as a noncompensatory plan, the accounting consequence of various
modifications to the terms of previously fixed stock options or awards, and the
accounting for an exchange of stock compensation awards in a business
combination. This Interpretation is effective July 1, 2000, but certain
conclusions in this Interpretation cover specific events that occur after either
December 15, 1998, or January 12, 2000. Management believes that FIN 44 will
not have a material effect on the financial position or results of operations of
the Company upon adoption.
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. 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 March 31, 2000, the Company had long-term debt outstanding of $118.4 million.
Of this amount, $30 million bears interest at a fixed rate of 7.68%, and $6.4
million bears interest at fixed rates averaging approximately 8.00%. The
remaining $82.0 million bears interest at variable rates which averaged
-16 of 18-
<PAGE>
approximately 8.08% at March 31, 2000. The Company had $17 million more
variable rate borrowings at March 31, 2000 than at December 31, 1999, and the
average rate at which the variable rate borrowings accrue interest was 33 basis
points (.33%) higher at March 31, 2000 compared to December 31, 1999. A 10%
increase in short-term interest rates on the variable rate debt outstanding at
March 31, 2000 would approximate 81 basis points. Such an increase in interest
rates would increase the Company's interest expense by approximately $497,000
for the remainder of the year ending December 31, 2000 assuming borrowed amounts
remain outstanding.
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.
The Company believes that Cedarapids' patent is invalid, and thus, that the
Triple Drum Mixer patent is valid. The Company has, at the court's invitation,
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
in the third quarter 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. 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 March 31, 2000.
-17 of 18-
<PAGE>
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.
On February 17, 2000 the Company issued 50,000 chares of Class A Common Stock to
Jacobus Reamen and Agnes Schrevres as part of the consideration paid for the
capital stock of Metra Metallwerken B. V. B. A. This sale was exempt from
registration under Section 4 (2) of the Securities Act of 1933, no public
offering being involved.
Item 3. Defaults Upon Senior Securities.
See note 2 to condendsed 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 March 31, 2000.
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: May 19, 2000 /s/Jim D. Holland
----------------- -------------------------------------
Jim D. Holland
Senior Vice President,
Chief Financial Officer & Treasurer
-18 of 18-
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