<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant To Section 13 or 15 (d)
of the Securities Exchange Act of 1934
For the quarterly period ended June 30, 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 August 18, 2000)
1 of 21
<PAGE>
CMI CORPORATION
Index to Form 10-Q
Page
----
PART I. Financial Information
Condensed Consolidated Balance Sheets -
June 30, 2000(Unaudited), December 31, 1999
and June 30, 1999(Unaudited) 3
Condensed Consolidated Statements of Operations -
Three Months and Six Months Ended June 30, 2000
and 1999(Unaudited) 4
Condensed Consolidated Statements of Changes in Common
Stock and Other Capital -
Six Months Ended June 30, 2000 (Unaudited), and the
Years Ended December 31, 1999 and December 31, 1998 5
Consolidated Statements of Cash Flows -
Six Months Ended June 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 21
Security Holders
Item 5. Other Information 21
Item 6. Exhibits and Reports on Form 8-K 21
Signatures 21
2 of 21
<PAGE>
PART I - FINANCIAL INFORMATION
CMI CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
<TABLE>
<CAPTION>
June 30 December 31 June 30
2000 1999 1999**
(Unaudited) * (Unaudited)
----------- --------- -----------
<S> <C> <C> <C>
Current assets:
Cash & cash equivalents $ 17,296 12,681 12,427
Receivables, net 35,096 31,257 26,305
Inventories
Finished equipment 43,600 43,124 27,558
Work-in-process 18,179 20,212 24,310
Raw materials & parts 52,353 58,566 52,665
-------- ------- -------
Total inventories 114,132 121,902 104,533
Other current assets 981 892 1,242
Deferred tax assets 10,470 7,400 4,342
-------- ------- -------
Total current assets 177,975 174,132 148,849
Property, plant & equipment 73,462 69,983 71,883
Less accumulated depreciation 41,557 38,815 41,579
-------- ------- -------
Net property, plant & equipment 31,905 31,168 30,304
Long-term receivables 919 642 7,149
Marketable securities, at fair value 1,617 1,417 1,636
Other assets, principally goodwill 9,663 7,516 5,096
Deferred tax assets 1,778 600 1,900
-------- ------- -------
$223,857 215,475 194,934
======== ======= =======
Current liabilities:
Current maturities of long-term debt $ 6,260 4,551 257
Long-term debt in technical default 110,228 - -
Accounts payable 23,644 22,002 18,257
Accrued liabilities 15,171 16,316 13,295
-------- ------- -------
Total current liabilities 155,303 42,869 31,809
Long-term debt - 94,497 81,919
Common stock & other capital:
Class A common stock & common stock 2,169 2,164 2,155
Other capital 66,385 75,945 79,051
-------- ------- -------
Total common stock & other capital 68,554 78,109 81,206
-------- ------- -------
$223,857 215,475 194,934
======== ======= =======
</TABLE>
* Condensed from audited financial statements.
** As restated
See notes to condensed consolidated financial statements.
3 of 21
<PAGE>
CMI CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(dollars and shares in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
-------------------- -----------------
<S> <C> <C> <C> <C>
2000 1999* 2000 1999*
-------- ------ ------- -------
Net Revenues $ 63,893 70,781 130,051 123,358
-------- ------ ------- -------
Costs and Expenses:
Cost of Goods Sold 59,020 50,459 112,554 91,038
Marketing and Administrative 11,784 8,714 21,681 17,132
Engineering and Product Development 2,883 1,896 5,144 3,735
-------- ------ ------- -------
73,687 61,069 139,379 111,905
-------- ------ ------- -------
Operating earnings (loss) (9,794) 9,712 (9,328) 11,453
-------- ------ ------- -------
Other Expense (Income):
Interest Expense 2,598 1,635 4,875 3,169
Interest Income (329) (205) (525) (307)
Other, net (98) (7) (101) (7)
-------- ------ ------- -------
Earnings (loss) before income taxes (11,965) 8,289 (13,577) 8,598
Income Tax Expense (Benefit) (3,645) 3,050 (4,234) 3,187
-------- ------ ------- -------
Net Earnings (Loss) $ (8,320) 5,239 (9,343) 5,411
======== ====== ======= =======
Share Data:
Weighted Average outstanding
common shares:
Basic 21,641 21,551 21,649 21,550
Diluted 21,641 21,846 21,649 21,793
Net earnings (loss) per average
outstanding share:
Basic $(0.38) 0.24 (0.43) 0.25
======== ====== ======= =======
Diluted $(0.38) 0.24 (0.43) 0.25
======== ====== ======= =======
Dividends per common share $ - 0.01 - 0.02
======== ====== ======= =======
</TABLE>
* As restated
See notes to condensed consolidated financial statements.
4 of 21
<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
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 loss - - - - - (9,343) (9,343)
Unrealized gain on available
for sale securities, net of
taxes of $48 - - - - 85 - 85
Foreign currency translation
adjustments - - - - (597) - (597)
-------
Comprehensive loss $(9,855)
Common stock issued 50 5 295 - - - 300
--------- --------- ---------- -------- ------------- -------- -------
Balance June 30, 2000 21,691 $2,169 $50,905 $ - $(709) $16,189 $68,554
========= ========= ========== ======== ============= ======== =======
</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>
Six Months Ended
June 30
------------------
<S> <C> <C>
2000 1999*
------- ------
OPERATING ACTIVITIES
Net earnings (loss) $(9,343) 5,411
Adjustments to reconcile net earnings to net
cash used in operating activities:
Depreciation 2,227 2,024
Amortization 322 149
Gain on sale of assets (101) (7)
Change in assets and liabilities, net of effects of
acquisitions of businesses:
Receivables (2,596) 1,708
Inventories 9,803 (1,642)
Other current assets 45 (319)
Accounts payable 1,353 (3,294)
Accrued liabilities (1,693) (1,322)
Deferred income taxes (4,296) 2,858
Long-term receivables (277) (6,793)
Other non-current assets, excluding
amortization
of goodwill (1,037) 77
------- ------
Net cash and cash equivalents used in operating
activities (5,593) (1,150)
------- ------
INVESTING ACTIVITIES
Proceeds from sale of assets 109 20
Purchases of marketable securities (67) (31)
Cash paid for business acquisitions (3,916) -
Capital expenditures (1,886) (2,794)
------- ------
Net cash and cash equivalents used in investing
activities (5,760) (2,805)
------- ------
FINANCING ACTIVITIES
Payments on long-term debt (222) (141)
Borrowings on long-term debt 3,373 -
Net borrowings on revolving credit note 12,817 5,000
Payment of common stock dividends - (431)
------- ------
Net cash and cash equivalents provided by
financing activities 15,968 4,428
------- ------
Increase in cash and cash equivalents 4,615 473
Cash and cash equivalents at beginning of period 12,681 11,954
------- ------
Cash and cash equivalents at end of period $17,296 12,427
======= ======
</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 generally accepted accounting principles
applied, in all material respects, on a basis consistent with the
consolidated financial statements included in the Company's annual report
filed with the Securities and Exchange Commission for the preceding
fiscal year. The financial information as of June 30, 2000 and 1999 and
for the interim periods ended June 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 second 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 increased net income from that previously reported in the second
quarter 1999 Form 10-Q by approximately $90,000.
(2) At June 30, 2000, the Company was not in compliance with certain
provisions of its unsecured senior notes agreement and its revolving
credit agreement. 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 September 30, 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 June 30,
2000. 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 agreed to grant
security interests in its receivables, inventories, and certain
equipment. Based solely on discussions with the lenders, management
believes the Company will have the ability to utilize the revolving line-
of-credit to fund working capital needs; however, no formal amendments or
agreements have been reached with the lenders.
(3) The results of operations for the six months ended June 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.
7 of 21
<PAGE>
CMI CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
(5) Commitments and Contingencies
-----------------------------
The Company and its subsidiaries are parties to various leases relating
to plants, warehouses, office facilities, transportation vehicles, and
certain other equipment. Real estate taxes, insurance, and maintenance
expenses are normally obligations of the Company. It is expected that in
the normal course of business, the majority of the leases will be renewed
or replaced by other leases. Leases do not restrict dividends, debt, or
future leasing arrangements. All leasing arrangements contain normal
leasing terms without unusual purchase options or escalation clauses.
At June 30, 2000 the Company was contigently liable as guarantor for
certain accounts receivable sold with recourse of approximately $3.1
million through September 2009.
(6) Earnings Per Share
------------------
Basic earnings per share is computed by dividing net earnings applicable
to common stock by the weighted average number of common shares
outstanding for the period. Diluted earnings per share reflects the
potential dilution that could occur if the Company's outstanding stock
options were exercised (calculated using the treasury stock method).
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 Six Months Ended
June 30 June 30
--------------------- -----------------
2000 1999 2000 1999
------ ------ ------ ------
<S> <C> <C> <C> <C>
Weighted average number of
Common shares outstanding-basic 21,641 21,551 21,649 21,550
Dilutive effect of potential
common shares issuable upon
exercise of employee stock
options - 295 - 243
------ ------ ------ ------
Weighted average number of
common shares outstanding -
diluted 21,641 21,846 21,649 21,793
====== ====== ====== ======
</TABLE>
8 of 21
<PAGE>
CMI CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
Options to purchase 295,000 shares of common stock at $4.13 to $6.81 per
share were outstanding at June 30, 2000. The dilutive effect of potential
common shares issuable upon exercise of employee stock options was 844
shares and 26,865 shares for the three months and six months ended June
30, 2000, respectively, but 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
December 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 June 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
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 plant 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 (dollars in thousands)
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.
Oklahoma All
City Other Total
-------------------------------
As of June 30, 2000:
Total assets $177,483 46,374 223,857
======= ======= =======
10 of 21
<PAGE>
CMI CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
<TABLE>
<CAPTION>
Oklahoma All
City Other Total
---------------------------
Three months ended June 30, 2000:
<S> <C> <C> <C>
Net revenues $ 47,384 16,509 63,893
Costs and expenses 55,688 15,864 71,372
-------- ------- -------
Segment measure of operating
profit (loss) $ (8,304) 825 (7,479)
======== =======
General corporate expenses (2,315)
--------
Operating loss (9,794)
Interest expense (2,598)
Interest income 329
Other, net 98
--------
Loss before income taxes (11,965)
Income tax benefit (3,645)
--------
Net loss $ (8,320)
========
Capital expenditures $ 508 320 828
======== ======= =======
Depreciation and amortization $ 940 350 1,290
======== ======= =======
Oklahoma All
City Other Total
---------------------------
As of June 30, 1999:
Total assets $164,179 30,755 194,934
======== ======= =======
Three months ended June 30, 1999:
Net revenues $ 57,830 12,951 70,781
Costs and expenses 47,846 11,837 59,683
-------- ------- -------
Segment measure of operating profit $ 9,984 1,114 11,098
======== ======= =======
General corporate expenses (1,386)
-------
Operating earnings 9,712
Interest expense (1,635)
Interest income 205
Other, net 7
--------
Earnings before income taxes 8,289
Income tax expense 3,050
--------
Net earnings $ 5,239
========
Capital expenditures $ 1,942 157 2,099
======== ======= =======
Depreciation and amortization $ 935 168 1,103
======== ======= =======
</TABLE>
11 of 21
<PAGE>
CMI CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
<TABLE>
<CAPTION>
Oklahoma All
City Other Total
--------------------------
Six months ended June 30, 2000:
<S> <C> <C> <C>
Net revenues $ 99,263 30,788 130,051
Costs and expenses 106,805 29,027 135,832
-------- ------ --------
Segment measure of operating
profit (loss) $ (7,542) 1,761 (5,781)
======== ======
General corporate expenses (3,547)
--------
Operating loss (9,328)
Interest expense (4,875)
Interest income 525
Other, net 101
--------
Loss before income taxes (13,577)
Income tax benefit (4,234)
--------
Net loss $ (9,343)
========
Capital expenditures $ 1,443 443 1,886
======== ====== ========
Depreciation and amortization $ 1,882 667 2,549
======== ====== ========
</TABLE>
<TABLE>
<CAPTION>
Oklahoma All
City Other Total
--------------------------
Six months ended June 30, 1999:
<S> <C> <C> <C>
Net revenues $102,233 21,125 123,358
Costs and expenses 88,808 20,287 109,095
-------- ------ -------
Segment measure of operating profit $ 13,425 838 14,263
======== ======
General corporate expenses (2,810)
-------
Operating earnings 11,453
Interest expense (3,169)
Interest income 307
Other, net 7
-------
Earnings before income taxes 8,598
Income tax expense 3,187
-------
Net earnings $5,411
=======
Capital expenditures $2,461 333 2,794
======== ====== =======
Depreciation and amortization $1,831 342 2,173
======== ====== =======
</TABLE>
12 of 21
<PAGE>
CMI CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
At June 30, 2000 the Company had one operating location in the United
Kingdom and another in Belgium. The United Kingdom location serves as a
sales office and has approximately $224,000 of assets comprised primarily
of inventory, receivables, and property, plant and equipment. The Belgium
location, which manufactures a high-tech line of midrange concrete slipform
pavers, has approximately $5.2 million of assets comprised primarily of
receivables, inventories, property, plant and equipment, intangibles, and
other assets. At June 30, 2000 all remaining assets were located in the
United States.
Revenues for products were as follows (dollars in thousands):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
----------------- ----------------
2000 1999 2000 1999
------- ------ ------- -------
<S> <C> <C> <C> <C>
Mobile Equipment $23,384 30,070 48,363 49,797
Material Processing Equipment 30,560 32,228 63,493 60,955
Parts and Used Equipment 9,949 8,483 18,195 15,606
------- ------ ------- -------
$63,893 70,781 130,051 123,358
======= ====== ======= =======
</TABLE>
(9) Supplemental Cash Flow Information
----------------------------------
Cash paid for interest was $4.5 million for the six months ended June 30,
2000 compared to $2.8 million for the six months ended June 30, 1999. Cash
paid for income taxes was $150,000 for the six months ended June 30, 2000
compared to $288,000 for the six months ended June 30, 1999.
13 of 21
<PAGE>
CMI CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations
---------------------
Revenues decreased 9.7 percent to $63.9 million for the three months ended June
30, 2000, compared to $70.8 million for the three months ended June 30, 1999.
Revenues for international shipments increased 80.2 percent to $5.8 million for
the three months ended June 30, 2000 compared to $3.2 million for the three
months ended June 30, 1999. Revenues for domestic shipments (includes Canadian
revenues) decreased 14.0 percent to $58.1 million for the three months ended
June 30, 2000 compared to $67.6 million for the three months ended June 30,
1999. The Company's net loss was $8.3 million, or 38 cents per share, for the
three months ended June 30, 2000, compared to net earnings of $5.2 million, or
24 cents per share, for the three months ended June 30, 1999.
Revenues increased 5.4 percent to $130.1 million for the six months ended June
30, 2000, compared to $123.4 million for the six months ended June 30, 1999.
Revenues for international shipments increased 19.1 percent to $9.3 million for
the six months ended June 30, 2000 compared to $7.8 million for the six months
ended June 30, 1999. Revenues for domestic shipments increased 4.5 percent to
$120.8 million for the six months ended June 30, 2000 compared to $115.6 million
for the six months ended June 30, 1999. The Company's net loss was $9.3
million, or 43 cents per share, for the six months ended June 30, 2000, compared
to net earnings of $5.4 million, or 25 cents per share, for the six months ended
June 30, 1999.
The Company's revenue increase year over year consisted of a $10.0 million
increase in the Company's hot mix asphalt production systems, a $4.3 million
increase in the Company's trailer line and a $1.4 million increase in component
revenue. Revenue also increased $5.3 million due to the acquisition of R. M.
Barton Co., Inc. in January 2000 and the acquisition of Drion Constructie
B.V.B.A. in October 1999. These increases were offset by declines in the
Company's soil remediation product line of $4.4 million, Roto-Mill product line
of $1.1 million, reclaiming and stabilizing equipment line of $6.6 million, and
its landfill compaction equipment line of $2.3 million. The decrease in the
three months ended revenues as compared to the prior year is due to a decrease
in mobile equipment sales.
Gross margins for the three months ended June 30, 2000 averaged 7.6 percent
compared to 28.7 percent for the three months ended June 30, 1999. Gross
margins for the six months ended June 30, 2000 averaged 13.5 percent compared to
26.2 percent for the six months ended June 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 quarter of 2000.
14 of 21
<PAGE>
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
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.
Marketing and administrative expenses increased $3.1 million for the comparable
three months ended June 30, 2000, and increased $4.5 million for the comparable
six months ended June 30, 2000. As a percentage of revenues, marketing and
administrative expenses were 18.4 percent for the three months ended June 30,
2000, compared to 12.3 percent for the three months ended June 30, 1999, and
were 16.7 percent for the six month period ended June 30, 2000 compared to 13.9
percent for the six month period ended June 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. and CMI Belgium. 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 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. 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 increased $1.0 million for the
three months ended June 30, 2000, and increased $1.4 million for the six months
ended June 30, 2000. As a percentage of revenues, engineering and product
development expenses were 4.5 percent for the three months ended June 30, 2000,
compared to 2.7 percent for the three months ended June 30, 1999, and were 4.0
percent for the six months ended June 30, 2000, compared to 3.0 percent for the
six months ended June 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.
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Interest expense increased to $2.6 million for the three months ended June 30,
2000, compared to $1.6 million for the three months ended June 30, 1999, and
increased to $4.9 million for the six months ended June 30, 2000, compared to
$3.2 million for the six months ended June 30, 1999. The increase in interest
expense over last year was due to an increase in the effective interest rate of
approximately 210 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
of R.M. Barton Co., Inc. and Metra Metaalwerken B.V.B.A.
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.
As of June 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 June 30, 2000, the Company was not in compliance with certain provisions of
its unsecured senior notes agreement and its revolving credit agreement.
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 September 30, 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 June
30, 2000. 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 agreed to grant security interests in its receivables,
inventories, and certain equipment. Based solely on discussions with the lenders
management believes the Company will have the ability to utilize the revolving
line-of-credit to fund working capital needs; however, no formal amendments or
agreements have been reached with the lenders.
The current ratio at June 30, 2000 was 1.15-to-1 (includes the long-term debt in
technical default of $110.2 million) compared to 4.06-to-1 at December 31, 1999.
Working capital at June 30, 2000 was $22.7 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.
Cash used in operating activities for the six months ended June 30, 2000 was
$5.6 million compared to cash used in operating activities of $1.2 million for
the six months ended June 30, 1999. As stated in note 3 to the condensed
consolidated financial statements, 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
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<PAGE>
during the early part of each year. Financing activities for the six months
ended June 30, 2000 provided approximately $16.0 million, which included $12.8
million of borrowings from the 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 six months ended June 30, 2000 were $1.9 million
compared to $2.8 million for the six months ended June 30, 1999. Capital
expenditures are budgeted at $2.3 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.
Income Taxes
------------
The benefits of future tax deductions and credits not utilized by the Company in
the past are reflected as an asset to the extent the Company assesses that
future operations will "more likely than not" be sufficient to realize such
benefits. For the period ended June 30, 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 $12.2 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.
The net loss generated year to date at June 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. Therefore, an adjustment of $648,000 was made
in the second quarter 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 six months ended June 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. The Company has not yet determined the impact on its
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financial position or results of operations of adopting SAB 101 in the fourth
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.
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 things, 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 became 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. 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.
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<PAGE>
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.
Quantitative and Qualitative Disclosure About Market Risk
---------------------------------------------------------
The primary objective of the following information is to provide forward-looking
quantitative and qualitative information about the Company's potential exposure
to market risks. The term "market risk" for the Company refers to the risk of
increased interest expense and decreased earnings arising from adverse changes
in interest rates. These disclosures are not meant to be precise indicators of
expected future decreases in earnings, but rather indicators of reasonably
possible decreases in earnings. This forward-looking information provides
indicators of how the Company views and manages its ongoing market risk
exposures.
At June 30, 2000, the Company had long-term debt outstanding of $116.5 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 8.53 percent at June 30, 2000. The Company had $12.8 million more
variable rate borrowings at June 30, 2000 than at December 31, 1999, and the
average rate at which the variable rate borrowings accrued interest was 78 basis
points (.78%) higher at June 30, 2000 compared to December 31, 1999. A 10
percent increase in short-term interest rates on the variable rate debt
outstanding at June 30, 2000 would approximate 85 basis points. Such an
increase in interest rates would increase the Company's interest expense by
approximately $328,000 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.
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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. 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 December 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 June 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.
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Item 4. Submission of Matters to a Vote of Security Holders.
On June 2, 2000, the annual meeting of shareholders of the Company was held at
the Company's corporate offices in Oklahoma City, Oklahoma. The items of
business considered at the annual meeting were as follows:
1. The election of Joseph J. Finn-Egan, Jeffrey A. Lipkin, and J. Larry Nichols
to serve as directors of the Company for a term of three years.
2. The approval of the CMI Corporation Deferred Compensation Plan.
At the annual meeting, 19,866,691 votes were cast by the shareholders FOR the
election of Mr. Finn-Egan and 276,631 votes were WITHHELD; 19,867,091 votes were
cast by the shareholders FOR the election of Mr. Lipkin and 276,231 votes were
WITHHELD; and 19,086,991 votes were cast by the shareholders FOR the election of
Mr. Nichols and 1,056,331 votes were WITHHELD.
19,768,500 votes were cast by the shareholders FOR the approval of the CMI
Corporation Deferred Compensation Plan, 337,221 votes AGAINST, and 37,601 votes
ABSTAINED.
Item 5. Other information.
None.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits required by Item 601 of Regulation S-K are as follows:
Exhibit No.
-----------
27 Financial Data Schedule
(b) The Company filed a report on Form 8-K on May 8, 2000 to announce the
resignation of Mr. Tom Engelsman as Chief Executive Officer and as a
director of the Company.
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: August 21, 2000 /s/Jim D. Holland
--------------------- -------------------------------------
Jim D. Holland
Senior Vice President,
Chief Financial Officer & Treasurer
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