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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
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(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
--- EXCHANGE ACT OF 1934
For the quarterly period ended March 30, 1996
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
--- EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number 33-67854
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CMI INDUSTRIES, INC.
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(Exact name of registrant as specified in its charter)
Delaware 57-0836097
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(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
1301 Gervais Street, Suite 700, Columbia, South Carolina 29201
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(Address of principal executive office) (Zip Code)
Registrant's telephone number including area code: (803) 771-4434
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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
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As of March 30, 1996, there were 1,690,318 shares of $1 Par Value Common Stock
outstanding.
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PART I FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
CMI INDUSTRIES, INC.
AND SUBSIDIARIES
Consolidated Statements of Operations
(000's Omitted Except Per Share Data)
(Unaudited)
<TABLE>
THREE MONTHS ENDED
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APRIL 1, MARCH 30,
1995 1996
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<S> <C> <C>
Net sales $109,321 $ 88,580
Cost of sales 95,201 83,372
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Gross profit 14,120 5,208
Selling, general and administrative expenses 8,861 7,760
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Operating income (loss) 5,259 (2,552)
Other income (expense):
Interest expense (4,396) (3,939)
Other, net 356 375
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(4,040) (3,564)
Income (loss) before income taxes 1,219 (6,116)
Provision (benefit) for income taxes 475 (2,138)
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Net income (loss) $ 744 $ (3,978)
======== =========
Average shares outstanding during period 1,773 1,690
Net income (loss) per share $ .42 $ (2.35)
Depreciation and amortization included in the above
costs and expenses: $ 5,791 $ 6,144
</TABLE>
See Accompanying Notes.
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CMI INDUSTRIES, INC.
AND SUBSIDIARIES
Consolidated Balance Sheets
December 30, 1995 and March 30, 1996
(000's Omitted)
<TABLE>
<CAPTION>
DECEMBER 30, MARCH 30,
1995 1996
------------ ------------
(Unaudited)
<S> <C> <C>
ASSETS
------
Current assets:
Cash and cash equivalents $ 227 $ 1,477
Receivables, less allowance for doubtful
accounts of $1,729 and $1,163 50,684 48,427
Inventories: (note 3)
Raw materials 9,872 12,632
Work-in-process 22,295 21,388
Finished goods 29,603 26,332
Supplies 5,281 5,177
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67,051 65,529
Other current assets 5,319 2,347
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Total current assets 123,281 117,780
Property, plant and equipment: (note 4)
Land and land improvements 3,813 3,697
Buildings and leasehold improvements 39,455 39,402
Machinery and equipment 203,648 203,399
Construction in progress 1,346 4,166
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248,262 250,664
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Less accumulated depreciation (122,488) (128,135)
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125,774 122,529
Other assets:
Cash value of life insurance, intangibles
deferred charges, and other assets 8,053 7,998
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$ 257,108 $ 248,307
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</TABLE>
See Accompanying Notes.
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CMI INDUSTRIES, INC.
AND SUBSIDIARIES
Consolidated Balance Sheets
December 30, 1995 and March 30, 1996
(000's Omitted Except Share Data)
<TABLE>
<CAPTION>
DECEMBER 30, MARCH 30,
1995 1996
----------- -----------
<S> <C> <C>
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Payable - book overdraft $ 13,226 $ 4,605
Current portion of long-term debt (note 2) 853 4,000
Accounts payable 13,471 14,860
Accrued expenses 15,189 16,669
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Total current liabilities 42,739 40,134
Long-term debt (note 2) 154,245 154,511
Deferred income taxes 3,352 958
Other liabilities 14,264 14,174
Stockholders' equity:
Common stock of $1 par value per share;
2,100,000 shares authorized, 1,690,318 shares issued 1,690 1,690
Paid-in capital 11,350 11,350
Retained earnings (note 2) 29,468 25,490
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Total stockholders' equity 42,508 38,530
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$257,108 $248,307
======== ========
</TABLE>
See Accompanying Notes.
4
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CMI INDUSTRIES, INC.
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the Three Months Ended April 1, 1995 and March 30, 1996
(000s omitted)
(Unaudited)
<TABLE>
<CAPTION>
APRIL 1, MARCH 30,
1995 1996
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<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 744 $(3,978)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation and amortization 5,791 6,144
Changes in assets and liabilities
Receivables (326) 2,257
Inventories (1,886) 1,522
Other current assets 3,377 2,972
Other assets (141) (73)
Accounts payable (801) 1,389
Accrued expenses 2,877 1,480
Income taxes 182 --
Deferred income taxes 225 (2,394)
Other liabilities 255 (90)
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Net cash provided by
operating activities 10,297 9,229
Cash flows from investing activities:
Cost of United Elastic acquisition, net of Chesterfield
disposal and net of cash acquired (20,616) --
Capital expenditures, net (1,909) (2,747)
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Net cash used in investing activities (22,525) (2,747)
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Cash flows from financing activities:
Net borrowings on revolving credit facilities 15,696 3,389
Decrease in payable-book overdraft (4,457) (8,621)
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Net cash provided by (used in) financing activities 11,239 (5,232)
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Net increase (decrease) in cash (989) 1,250
Cash and cash equivalents at beginning of year 3,145 227
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Cash and cash equivalents at end of period $ 2,156 $ 1,477
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Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 776 $ 1,042
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Income taxes $ 155 $ 256
========= =======
</TABLE>
See Accompanying Notes.
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Notes to Consolidated Financial Statements
Note 1:
Basis of Presentation:
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries. All significant intercompany balances and
transactions have been eliminated. In the opinion of management, the
accompanying unaudited consolidated financial statements include all
adjustments necessary to present fairly the Consolidated Balance Sheet as of
March 30, 1996, the Consolidated Statements of Cash Flows for the three months
ended April 1, 1995 and March 30, 1996, and the Consolidated Statements of
Operations for the three months then ended. All dollar amounts are rounded to
thousands. The Consolidated Balance Sheet as of December 30, 1995 has been
audited, but the auditor's report is not included herein. The disclosures
accompanying these interim financial statements are condensed and should be
read in conjunction with the disclosures in the annual financial statements.
Note 2:
Long-Term Debt:
In October 1993, the Company completed a public offering ("the Offering") of
$125,000 in aggregate principal amount of 9 1/2% Senior Subordinated Notes
("Notes") due October 1, 2003. The Notes are general unsecured obligations of
the Company and are due October 1, 2003. Interest on the Notes is payable
semiannually, and are redeemable at the option of the Company at any time after
October 1, 1998. Redemption prices commence at 104-3/4% of the principal
amount, declining annually to 100% of the principal amount in October 2000,
plus accrued interest. The recorded balance of $124,269 at March 30, 1996, is
presented net of $731 of unamortized bond issue discount that is being
amortized over the period to maturity. The latest information available
indicates the fair value of the Notes was $100,000 at March 30, 1996. The fair
value presented herein is not necessarily indicative of the amounts that the
Company would realize in a current market exchange.
The Company had a credit agreement at December 30, 1995 which provided an
unsecured revolving credit facility of $92,000 due January 15, 1998, and a
credit facility from Wachovia Bank of South Carolina, which provided an
unsecured, uncommitted line of credit of $4,000. Effective March 19, 1996, the
Company replaced the unsecured revolving credit facility with a new credit
agreement. The new credit agreement provides for a revolving credit facility
of up to $80,000, including a letter of credit facility of up to $5,000. The
borrowings under the new credit agreement are secured by all inventories, all
receivables, and certain intangibles. The new credit agreement matures on
January 18, 1998.
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Long-term debt as of December 30, 1995 and March 30, 1996 consists of:
<TABLE>
December 30, 1995 March 30, 1996
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<S> <C> <C>
Borrowings under credit agreements:
Unsecured revolving credit facility $ 30,000 $ --
Secured revolving credit facility -- 30,242
Unsecured Wachovia Bank of SC facility 853 4,000
Senior subordinated notes, net 124,245 124,269
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155,098 158,511
Less current portion 853 4,000
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Long-term debt $ 154,245 $154,511
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</TABLE>
The new credit agreement requires a commitment fee of 3/8 of 1% per annum on
all unused amounts and as of March 30, 1996, the Company could have borrowed an
additional $34,284 under the facility. Interest on the revolving credit
facility is based on a floating prime rate or an eurodollar rate plus 1 1/2%.
At March 30, 1996, the average interest rate on the revolving credit facility
was 7.0%. The Wachovia Bank of South Carolina facility is unsecured, requires
no commitment fee and may be terminated by the bank with 100 days notice.
Interest on the Wachovia Bank of South Carolina facility accrues at an amount
based on the daily Federal Funds rate, which was 7.5% at March 30, 1996.
The credit agreements contain various restrictive covenants and conditions
requiring, among other things, minimum levels of net worth, certain interest
coverage ratios, prohibitions against certain borrowings and advances, and a
negative covenant limiting the Company's right to grant security interests or
other liens on its assets. In addition, the credit agreements and the
indenture pursuant to which the Notes were issued contain restrictions on the
Company's ability to pay cash dividends or purchase its capital stock. Under
the most restrictive covenant, as of March 30, 1996, the Company was not
authorized to pay any cash dividends or purchase its capital stock. At March
30, 1996, the Company was in compliance with all covenants under all credit
agreements.
In January 1994, the Company entered into an interest rate swap transaction
with The First National Bank of Boston to convert from an economic perspective
$50,000 of the Company's fixed rate indebtedness at 4.535%, represented by the
Notes, to a floating rate indebtedness driven by LIBOR. Financial risk varies
during the two and one half year life of this swap agreement. The net amount
to be paid or received under this swap agreement is accrued over the term of
this agreement as a separate component of interest expense. The floating rate
was reset at 5.434% for the final six month period beginning January 19, 1996.
As part of the Company's workers' compensation insurance agreements in South
Carolina, Alabama and Georgia, the Company has obtained letters of credit for
$750, $200 and $250. The letters of credit expire on February 10, 1997, June
30, 1996 and January 11, 1997, respectively. At March 30, 1996, the Company
owed no amount under these letters of credit.
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Note 3:
Inventories:
Inventories at December 30, 1995 and March 30, 1996 are stated at the
lower of cost (first-in, first-out) or market, and include the costs of raw
materials, direct labor, and manufacturing overhead.
Note 4:
Property, Plant and Equipment:
All additions to property, plant and equipment are stated at cost.
Depreciation is calculated for financial reporting purposes by the
straight-line method over the estimated useful lives of the respective assets.
Note 5:
Restructuring Charges and Other Nonrecurring Items:
In December 1995, the Company approved a plan to pursue restructuring
initiatives in all divisions. These initiatives are expected to be completed
by the end of the 1996 fiscal year. In the Greige Fabrics Division, the
Company will close one of its manufacturing facilities and dispose of idle
equipment and inventories. In the Finished Fabrics Division, the Company will
consolidate certain operations and also dispose of idle equipment and
inventories. The Company also downsized its corporate operations. The
restructuring charges also consist of costs for the severance and retirement of
approximately 700 associates, including the termination of consulting
contracts, insurance, vacation and related expenses. Related to this decision,
the Company reported a $12,900 charge to earnings in 1995 and has reserved for
the following items:
<TABLE>
December 30, March 30,
Restructuring items: 1995 1996
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<S> <C> <C>
CRIP early retirement window $ 1,299 $ 1,299
Termination of consulting contracts
and other items 1,345 1,190
Severance and related benefit costs 2,404 2,288
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5,048 4,777
Other nonrecurring asset write-offs related
to the restructuring:
Inventory write-offs 2,915 2,709
Property, plant and equipment write-offs 4,937 4,695
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$12,900 $12,181
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</TABLE>
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Included in the $12,900 of restructuring and related nonrecurring amounts
at December 30, 1995, were approximately $5,048 of incremental cash
expenditures. The Company expects to fund the early retirement amount from
assets in the Company's defined benefit plan and the balance, $3,779, from
operations or amounts available under the new credit agreement primarily over
the next eighteen months. During the first quarter ended March 30, 1996, the
Company funded $271 of cash related restructuring items and disposed of $448 of
assets related to the restructuring.
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Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations
Three Months Ended March 30, 1996
Compared with Three Months Ended April 1, 1995
Sales
Sales for the three months ended March 30, 1996 decreased $20.7 million or
19.0% from $109.3 million to $88.6 million over the corresponding period of
1995. Sales of the Greige Fabrics Division decreased $11.6 million or 22.8%,
while sales of the Finished Fabrics Division decreased $9.1 million or 15.6%.
The decrease in sales for the Greige Fabrics Division may be attributed to poor
market conditions for lightweight apparel and home furnishings fabrics.
Average prices for these fabrics during the period declined 8.8% while volume
decreased 15.2%. The sales decrease for the Finished Fabrics Division included
a $5.4 million reduction in narrow elastic sales and a $3.3 million reduction
in furniture upholstery sales. The reductions in sales of both divisions may
be attributed to weak product demand, overcapacity and high raw material costs
that are negatively affecting the textile industry.
Earnings
Operating income (loss) for the three month period ended March 30, 1996
decreased $7.8 million or 147% from $5.3 million to an operating loss of $(2.6)
million. The decline in profitability can be attributed to the Greige Fabrics
Division, as lower average selling prices, reduced volumes and higher raw
material costs all combined to significantly reduce margins. Despite lower
sales volume, the Finished Fabrics Division reported improved levels of
profitability due to operating improvements which, coupled with lower corporate
overhead costs, helped to partially offset the reduction in earnings from the
Greige Fabrics Division. The Company's restructuring initiatives have not had
a favorable impact on operating income for the three months ended March 30,
1996.
Interest expense for the three months ended March 30, 1996 was $3.9
million, down $0.5 million from the same period in 1995. The decrease reflects
the Company's efforts to reduce its debt balances, and lower interest rates as
compared to the same period a year ago.
The provision (benefit) for income taxes decreased approximately $2.6
million. This decrease is due to the $7.3 million decrease in earnings before
taxes. The foregoing resulted in a decrease in net income of $4.7 million or
635% from $0.7 million to a net loss of $(4.0) million.
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Financial Condition
For the quarter ended March 30, 1996, the Company generated cash from
operations of $9.2 million and increased its net borrowings by $3.4 million.
These funds were primarily used to finance $2.7 million of capital expenditures
and reduce its payable-book overdraft by $8.6 million
At March 30, 1996, working capital was approximately $77.6 million as
compared to approximately $80.5 million at December 30, 1995. Management is
not aware of any present or potential impairments to the Company's liquidity.
At March 30, 1996, long-term debt of approximately $154.5 million
represented 80% of total capital, compared to 78% at December 30, 1995.
The Company believes that funds from operations during the balance of
fiscal 1996 and amounts available under the credit agreements (see note 2 to
consolidated financial statements) are adequate to finance capital expenditures
of approximately $12.0 million during the remainder of 1996, in addition to
meeting working capital requirements, scheduled debt service payments and
amounts to be paid pursuant to the Company's restructuring initiatives (see
note 5 to consolidated financial statements) for the same period.
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PART II OTHER INFORMATION
Item 1. Legal Proceedings
None Reportable
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
At the annual meeting of the stockholders of the Company on April 2, 1996,
the stockholders elected the following individuals to the Board of Directors:
Joseph L. Gorga
James A. Ovenden
W. James Raleigh
Stephen M. McLean
Rupinder S. Sidhu
Michael H. deHavenon
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits
4.1 Interest Rate Collar Transaction letter agreement
dated February 5, 1996 between The First National Bank of
Boston and CMI Industries, Inc.*
4.2 Credit Agreement dated as of March 19, 1996 among
CMI Industries, Inc., The First National Bank of Boston,
individually and as agent, NationsBank of North Carolina, N.A.
and The Wachovia Bank of South Carolina, N.A.*
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10.1 Option Agreement between CMI Industries, Inc. and Joseph L.
Gorga dated January 23, 1995, pursuant to CMI Industries, Inc.
1994 Stock Option Plan.*
10.2 Amended and Restated Employment Agreement dated January 1, 1996,
between CMI Industries, and Joseph L. Gorga.*
10.3 Amended and Restated Employment Agreement dated January 1, 1996,
between CMI Industries, Inc. and James A Ovenden.*
10.4 Amendment No. 1 to Option Agreement between CMI Industries, Inc.
and Joseph L. Gorga dated January 31, 1996.*
10.5 Option Agreement between CMI Industries, Inc. and Joseph L.
Gorga dated January 31, 1996, pursuant to the CMI Industries,
Inc. 1992 Stock Option Plan.*
10.6 Option Agreement between CMI Industries, Inc. and Joseph L.
Gorga dated January 31, 1996, pursuant to the CMI Industries,
Inc. 1994 Stock Option Plan.*
10.7 Option Agreement between CMI Industries, Inc. and James A.
Ovenden dated January 31, 1996, pursuant to the CMI Industries,
Inc. 1994 Stock Option Plan.*
27.1 Financial Data Schedule (for SEC use only). (Previously filed)
(*) Filed as an exhibit to CMI Industries, Inc.'s Annual Report
on Form 10-K on March 29, 1996 and incorporated herein by reference.
b) Reports on Form 8-K
Form 8-K filed February 14, 1996 to report the waiver of certain financial
covenants under the Company's bank credit agreements and the restructuring
initiatives undertaken in the Greige Fabrics and Finished Fabrics Divisions.
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SIGNATURE OF REGISTRANT
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.
CMI INDUSTRIES, INC.
Date: June 7, 1996 By /s/ JOSEPH L. GORGA
------------------------------------------------
Joseph L. Gorga
President and Chief Executive Officer
Date: June 7, 1996 By /s/ JAMES A. OVENDEN
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James A. Ovenden
Executive Vice President, Chief Financial Officer
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