<PAGE> 1
Rule 424(b)(3)
File No. 33-67854
PROSPECTUS SUPPLEMENT NO. 2 DATED AUGUST 12, 1997
TO PROSPECTUS DATED MAY 14, 1997
$125,000,000
CMI INDUSTRIES, INC.
9-1/2% SENIOR SUBORDINATED NOTES DUE 2003
This Prospectus Supplement is intended to be read in conjunction with the
Prospectus dated May 14, 1997.
_________
RECENT OPERATING RESULTS. Attached hereto is Part I to CMI Industries,
Inc.'s Quarterly Report on Form 10-Q for the period ended June 28, 1997, which
includes, among other things, the unaudited consolidated financial statements
of the Company for the three months and six months ended June 28, 1997 and
Management's Discussion and Analysis of Financial Condition and Results of
Operations for the three months and six months ended June 28, 1997.
_________
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE
_________
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PART I FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
CMI INDUSTRIES, INC.
AND SUBSIDIARIES
Consolidated Statements of Income
(000's Omitted Except Per Share Data)
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
------------------------ --------------------------
JUNE 29, JUNE 28, JUNE 29, JUNE 28,
1996 1997 1996 1997
--------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Net sales $89,539 $99,504 $178,119 $196,756
Cost of sales 83,720 85,726 167,092 172,008
-------- --------- --------- ---------
Gross profit 5,819 13,778 11,027 24,748
Selling, general and administrative expenses 7,305 8,383 15,065 16,298
-------- --------- --------- ---------
Operating income (loss) (1,486) 5,395 (4,038) 8,450
Other income (expenses):
Interest expense (3,971) (3,778) (7,910) (7,459)
Other, net 424 1,265 799 2,410
-------- --------- --------- ---------
(3,547) (2,513) (7,111) (5,049)
Income/(loss) before income taxes (5,033) 2,882 (11,149) 3,401
Income tax provision/(benefit) (1,986) 1,127 (4,124) 1,325
-------- --------- --------- ---------
Net income/(loss) $(3,047) $ 1,755 $ (7,025) $ 2,076
======== ========= ========= =========
Average shares outstanding during period 1,690 1,690 1,690 1,690
Net income/(loss) per share $ (1.80) $ 1.04 $ (4.16) $ 1.23
Depreciation and amortization included in
the above costs and expenses $ 6,040 $ 4,494 $ 12,186 $ 9,118
</TABLE>
See Accompanying Notes.
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<PAGE> 3
CMI INDUSTRIES, INC.
AND SUBSIDIARIES
Consolidated Balance Sheets
December 28, 1996 and June 28, 1997
(000's Omitted)
<TABLE>
<CAPTION>
DECEMBER 28, JUNE 28,
1996 1997
------------ ----------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 2,244 $ 1,183
Receivables, less allowance for doubtful
accounts of $2,000 and $1,875 47,509 52,658
Inventories: (note 3)
Raw materials 10,484 15,389
Work-in-process 21,234 21,011
Finished goods 21,576 23,334
Supplies 4,849 4,820
------------ -----------
58,143 64,554
Deferred income tax 3,139 2,066
Other current assets 1,588 2,744
------------ -----------
Total current assets 112,623 123,205
Property, plant and equipment: (note 4)
Land and land improvements 3,521 3,369
Buildings 38,039 37,137
Machinery and equipment 199,811 201,817
Construction in progress 1,277 2,148
------------ -----------
242,648 244,471
Less accumulated depreciation and amortization (130,103) (138,054)
------------ -----------
112,545 106,417
Other assets:
Cash value of life insurance, intangibles,
deferred charges, and other assets 8,366 8,158
------------ -----------
$ 233,534 $ 237,780
============ ===========
</TABLE>
See Accompanying Notes.
3
<PAGE> 4
CMI INDUSTRIES, INC.
AND SUBSIDIARIES
Consolidated Balance Sheets
December 28, 1996 and June 28, 1997
(000's Omitted)
<TABLE>
<CAPTION>
DECEMBER 28, JUNE 28,
1996 1997
-------- --------
(unaudited)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Payable - book overdraft ................................ $ 11,500 $ 4,455
Current portion of long-term debt (note 2) .............. 4,000 4,000
Accounts payable ........................................ 15,528 15,571
Accrued expenses ........................................ 13,089 13,967
-------- --------
Total current liabilities ............................. 44,117 37,993
Long-term debt (note 2) ................................... 143,749 153,004
Other liabilities ......................................... 13,823 12,862
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) .............................. 18,805 20,881
-------- --------
Total stockholders' equity ............................ 31,845 33,921
-------- --------
$233,534 $237,780
======== ========
</TABLE>
See Accompanying Notes.
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CMI INDUSTRIES, INC.
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the Six Months Ended June 29, 1996 and June 28, 1997
(000's Omitted)
<TABLE>
<CAPTION>
JUNE 29, JUNE 28,
1996 1997
-------- -------
(Unaudited) (Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) .......................................... $ (7,025) $ 2,076
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization ........................... 12,186 9,118
Changes in assets and liabilities
Receivables .......................................... 170 (5,149)
Inventories .......................................... 1,038 (6,411)
Other current assets ................................. 4,073 (1,156)
Tax benefit .......................................... (1,029) --
Other assets ......................................... (274) (52)
Accounts payable ..................................... 2,732 43
Accrued expenses ..................................... (1,657) 878
Income taxes ......................................... -- --
Deferred income taxes ................................ (3,352) 1,073
Other liabilities .................................... (306) (960)
-------- -------
Net cash provided by operating activities ............ 6,556 (540)
-------- -------
Cash flows from investing activities:
Capital expenditures, net .................................. (4,414) (2,683)
-------- -------
Net cash used in investing activities ................ (4,414) (2,683)
-------- -------
Cash flows from financing activities:
Net borrowings on revolving credit facilities .............. 7,305 9,207
Decrease in payable-book overdraft ......................... (8,624) (7,045)
-------- -------
Net cash provided by (used in) financing activities .. (1,319) 2,162
-------- -------
Net (decrease) increase in cash ...................... 823 (1,061)
-------- -------
Cash and cash equivalents at beginning of year ................ 227 2,244
-------- -------
Cash and cash equivalents at end of period .................... $ 1,050 $ 1,183
======== =======
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest ................................................ $ 7,712 $ 7,159
======== =======
</TABLE>
See Accompanying Notes.
5
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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 June 28, 1997,
the Consolidated Statements of Cash Flows for the six months ended June 29, 1996
and June 28, 1997, and the Consolidated Statements of Income for the three
months and six months then ended. All dollar amounts are rounded to thousands.
The Consolidated Balance Sheet as of December 28, 1996 has been audited, but the
auditors' 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. 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 $124,389 at June 28, 1997 is presented net of $611 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 $125,000
at June 28, 1997. 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 initially provided for a secured revolving
credit facility of up to $80,000, including a letter of credit facility of up to
$5,000.
The Company and the lenders amended the new credit agreement in February 1997 to
reduce the borrowing limit to $65 million, to contemplate the realignment of the
Company's assets into separate operating entities, which was completed during
the second quarter of 1997, and to extend the maturity of the new credit
agreement by two years to January 2000. The borrowings under the new credit
agreement are secured by all receivables, certain inventories and certain
intangibles.
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Long-term debt as of December 28, 1996 and June 28, 1997 consisted of:
<TABLE>
<CAPTION>
December 28, 1996 June 28, 1997
----------------- -------------
<S> <C> <C>
Borrowings under credit agreements:
Secured revolving credit facility $ 19,408 $ 28,615
Unsecured Wachovia Bank of SC facility 4,000 4,000
Senior subordinated notes, net 124,341 124,389
--------- ---------
147,749 157,004
Less current portion (4,000) (4,000)
--------- ---------
Long-term debt $ 143,749 $ 153,004
========= =========
</TABLE>
The new credit agreement requires a commitment fee of 3/8 of 1% per annum
on all unused amounts and as of June 28, 1997, the Company could have borrowed
an additional $30.4 million under the revolving credit facility. Interest on the
revolving credit facility is based on a floating prime rate or an eurodollar
rate plus 1 1/2%. At June 28, 1997, the average interest rate on the revolving
credit facility was 7.5%. 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 7.4% at June 28,
1997.
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 June 28, 1997, the Company had the ability to
authorize $3 million of cash dividends or capital stock purchases. At June 28,
1997, the Company was in compliance with all covenants under all credit
agreements.
As part of the Company's workers' compensation insurance agreements in
South Carolina, Alabama, Georgia and Virginia, the Company has obtained letters
of credit for $750, $200, $250 and $75. The letters of credit expire on February
10, 1998, June 30, 1998, January 11, 1998 and April 10, 1998, respectively. At
June 28, 1997, the Company owed no amount under these letters of credit.
Note 3:
Inventories:
Inventories at December 28, 1996 and June 28, 1997 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.
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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 were completed by December 1996.
In the Greige Fabrics Division, the Company closed one of its manufacturing
facilities and is disposing of idle equipment and inventories. In the Chatham
and Elastics Divisions, the Company consolidated certain operations and is
disposing of idle equipment and inventories. The Company also downsized its
corporate operations. The restructuring charges also consisted 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>
<CAPTION>
December 28, June 28,
Restructuring items: 1996 1997
------ ------
<S> <C> <C>
CRIP early retirement window ................. $1,202 $1,202
Termination of consulting contracts
and other items ............................. 497 523
Severance and related benefit costs .......... 795 432
------ ------
2,494 2,157
Other nonrecurring asset write-offs related
to the restructuring:
Inventory write-offs ......................... 657 657
Property, plant and equipment write-offs ..... 2,092 1,760
------ ------
$5,243 $4,574
====== ======
</TABLE>
Included in the $12,900 of restructuring and related nonrecurring amounts
at December 28, 1996, 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 from operations or
amounts available under the new credit agreement. During the six months ended
June 28, 1997, the Company funded $337 of cash related restructuring items and
disposed of $332 of assets related to the restructuring.
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Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
This report contains statements which to the extent that they are not
recitations of historical fact, may constitute "forward looking statements"
within the meaning of applicable federal securities laws. All forward looking
statements contained in this report are intended to be subject to the safe
harbor protection provided by the Private Securities Litigation Reform Act of
1995 and Section 21E of the Securities Exchange Act of 1934, as amended. For a
discussion identifying some important factors that could cause actual results to
vary materially from those anticipated in the forward looking statements made by
the Company, see the Company's Annual Report on Form 10-K for the year ended
December 28, 1996, including, but not limited to, the "Overview" discussion to
Management's Discussion and Analysis of Financial Condition and Results of
Operations on pages 17 and 18 of the Annual Report.
Results of Operations
In the second quarter of fiscal 1997, the Company realigned two groups
within the Finished Fabrics Division into two separate operating companies,
Chatham Fabrics, LLC and Elastic Fabrics of America, LLC, both Delaware limited
liability companies. Elastic Fabrics of America, LLC has been denominated the
Elastics Division. Chatham Fabrics, LLC is included in the Chatham Fabrics
Division which also includes the results from the Company's automotive fabrics
and consumer products businesses. The purpose of the realignment was to provide
greater management focus to these groups as separate and independent operating
units. The Company is the sole beneficial owner of the membership interests in
these limited liability companies.
Three Months Ended June 28, 1997
Compared with Three Months Ended June 29, 1996
Sales
Sales for the three months ended June 28, 1997, increased $10.0 million, or
11.1%, from $89.5 million to $99.5 million as compared to the corresponding
period of 1996. Sales of the Greige Fabrics Division increased $5.2 million, or
13.9%. Sales of the Elastics Division decreased $0.3 million or 1.4%, and sales
of the Chatham Fabrics Division increased $5.1 million or 16.9%.
The increase in sales of the Greige Fabrics Division may be attributed to
improved market conditions for lightweight apparel and home furnishings fabrics.
Average selling prices for these fabrics during the period increased 11.6% while
volume increased 3.7%. The sales increase for the Chatham Fabrics Division
included a $5.2 million increase in automotive upholstery sales. Overall, the
improvement in sales may be attributed to improved market conditions and
increased demand for many of the Company's products.
Earnings
Operating income for the three month period ended June 28, 1997 increased
$6.9 million, or 463%, from a $1.5 million loss to an operating gain of $5.4
million. The increase in profitability may be primarily attributed to the
Greige Fabrics Division as higher average selling prices, increased volumes,
lower raw material costs and improved operating efficiencies all combined to
significantly
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improve margins. Although earnings in the Elastics Division remained relatively
unchanged, the Chatham Fabrics Division reported improved levels of
profitability due to operating improvements at Elkin and the increased level of
sales.
Interest expense for the three months ended June 28, 1997 was $3.8 million,
down $0.2 million from the same period in 1996. The decrease reflects lower
average debt balances during the second quarter as compared to the corresponding
period of fiscal 1996.
Other income, net, for the three months ended June 28, 1997 was $1.3
million, up $0.9 million from the same period in 1996. This increase is due to
income received from the sale of certain non-operating real estate.
The provision (benefit) for income taxes increased approximately $3.1
million. This increase is due to a $7.9 million increase in income before taxes.
The foregoing resulted in net income increasing by $4.8 million from a net loss
of $3 million in the second quarter of 1996 to net income of $1.8 million for
the second quarter of 1997.
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Six Months Ended June 28, 1997
Compared with Six Months Ended June 29, 1996
Sales
Sales for the six months ended June 28, 1997 increased $18.7 million, or
10.5%, from $178.1 million to $196.8 million as compared to the corresponding
period in 1996. Sales of the Greige Fabrics Division increased $8.2 million or
10.7%, while sales of the Elastics Division increased $2.4 million or 5.5%, and
sales of the Chatham Fabrics Division increased $8.1 million or 13.9%.
The increase in sales of the Greige Fabrics Division may be attributed to
improved market conditions for lightweight apparel and home furnishings fabrics.
Average selling prices for these fabrics during the period increased 8.9% while
volume increased 0.4%. The sales increase in the Elastics Division may be
attributed to sales of higher priced product. The sales increase for the Chatham
Fabrics Division included a $9.2 million increase in automotive upholstery
sales. Overall, the increase in sales may be attributed to improved market
conditions and stronger product demand for many of the Company's products.
Earnings
Operating income for the six month period ended June 28, 1997 increased
$12.5 million, or 309% over the corresponding period of 1996, from an operating
loss of $4.0 million to an operating profit of $8.5 million. The increase in
profitability may be attributed to the Greige Fabrics Division as higher average
selling prices, increased volumes, lower raw material costs and improved
operating efficiencies all combined to significantly improve margins. Despite
the increased sales levels in the Elastics and Chatham Fabrics Divisions,
operating profits of those Divisions remained relatively unchanged for the first
six months of 1997. Operating inefficiencies at the Company's Elkin, NC and
Stuart, VA facilities negatively impacted margins in the first quarter of 1997
and were not fully recovered through operating improvements in the second
quarter.
Interest expense for the six months ended June 28, 1997 was $7.5 million, a
decrease of $0.4 million over the corresponding period in 1996.
Other income, net, for the six months ended June 28, 1997, was $2.4
million, up $1.6 million from the corresponding period in 1996. This increase is
due to income received from certain life insurance contracts in the first
quarter and the sale of nonoperating real estate in the second quarter.
The provision for income taxes increased approximately $5.4 million as a
result of the income before income taxes increasing $14.6 million. The foregoing
resulted in net income for the six months ending June 28, 1997 increasing $9.1
million from a net loss of $7.0 million in the first half of 1996 to net income
of $2.1 million for the first half of 1997.
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Financial Condition
For the six months ended June 28, 1997, the Company required cash to fund
operations of $0.5 million and increased its net borrowings by $9.2 million.
These borrowings were also used to finance $2.7 million of capital expenditures
and reduce its payable-book overdraft by $7.0 million.
At June 28, 1997, working capital was approximately $85.2 million as
compared to approximately $68.5 million at December 28, 1996. Management is not
aware of any present or potential impairments to the Company's liquidity.
At June 28, 1997, long-term debt of approximately $153.0 million
represented 82% of total capital, compared to 82% at December 28, 1996.
The Company believes that funds from operations during the balance of
fiscal 1997 and amounts available under the loan agreements (see note 2 to
consolidated financial statements) are adequate to finance capital expenditures
of approximately $10 million during the remainder of 1997, 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.
12
