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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [ NO FEE REQUIRED, EFFECTIVE OCTOBER 7, 1996]
For the fiscal year ended December 28, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from _________________ to ______________________
Commission File Number 33-67854
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 (I.R.S. Employer
of incorporation 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
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None
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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
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [X]
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No shares of the voting securities of the Registrant are held by nonaffiliates;
the aggregate market value of shares of voting securities held by nonaffiliates
as of March 1, 1997 is zero.
As of March 1, 1997, there were 1,690,318 shares of $1 Par Value Common Stock
outstanding.
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This Report contains statements which to the extent they are not
recitations of historical fact, may constitute "forward looking statements"
within the meaning of applicable federal securities laws. All forward looking
statements in this Report are intended to be subject to the safe harbor
protection provided by applicable federal securities laws. 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 "Item 7--Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Overview."
PART I
ITEM 1. BUSINESS
THE COMPANY
CMI Industries, Inc. ("CMI" or the "Company") and its subsidiaries
manufacture textile products that serve a variety of markets, including the
home furnishings, woven apparel, elasticized knit apparel, furniture
upholstery, transportation upholstery, consumer products and industrial/medical
markets. The Company operates through two groups: the Greige Fabrics Division
and the Finished Fabrics Division. The Company had net sales of $374.0
million in 1996. The Greige Fabrics Division accounted for 42% of 1996 net
sales, and the Finished Fabrics Division accounted for 58% of 1996 net sales.
The Greige Fabrics Division is one of the largest domestic manufacturers
of light to midweight greige (unfinished) fabrics for sale to third parties.
The division's product line includes printcloths, broadcloths, twills, crepes
and other fabrics of 100% cotton and blends of polyester and combed or carded
cotton, and synthetic yarns. The division sells its fabrics primarily to
integrated manufacturers and converters for use in a wide variety of home
furnishings, woven apparel and industrial products. The Greige Fabrics
Division also targets selected niches in markets where value-added services can
differentiate its fabrics from imported fabrics. In addition, this division
works closely with certain manufacturers to customize fabrics, packaging and
services to their specific requirements.
The Finished Fabrics Division manufactures fabrics and products for sale
to the furniture upholstery, transportation upholstery, consumer products and
elasticized apparel fabric markets. Furniture upholstery is supplied for use
in residential applications, office and public seating and wall panels for
open-plan office systems. Customers include contract and residential furniture
manufacturers. Furniture upholstery is also sold through an extensive
distributor network. Transportation upholstery is supplied for use in
automobile and light truck seating and interior component applications to
domestic automobile manufacturers and to Japanese manufacturers with domestic
production facilities. Consumer products such as blankets, mattress pads and
afghans are manufactured for sale to major retailers. The Finished Fabrics
Division is a leading manufacturer of dyed and finished elasticized fabrics
primarily for use in intimate apparel and foundation garments and also for use
in stretch fabric activewear and industrial and medical products. The
division's vertically integrated manufacturing operations produce woven and
knit fabrics using a variety of spandex, polyester, rayon, nylon and cotton
yarns. Various dyeing and
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finishing technologies are utilized which enable the division to finish and dye
its fabrics to achieve consistent specifications and color matching for its
products.
The Company was formed in 1986 at the direction of Merrill Lynch Capital
Partners, Inc. ("ML Capital Partners"), a wholly owned subsidiary of Merrill
Lynch & Co., Inc. ("ML & Co."), together with certain members of present or
former management for the purpose of acquiring Clinton Mills, Inc., a South
Carolina corporation, a predecessor in interest to the Greige Fabrics Division.
Affiliates of ML Capital Partners and certain members of management of the
Company who acquired shares of the Company's common stock (the "Common Stock")
in 1986 and thereafter and their affiliates (the "Management Investors")
currently own 58.8% and 40.9%, respectively, of the outstanding Common Stock.
RESTRUCTURING
Effective December 1995, the Company approved a restructuring plan to
improve operating performance, reduce costs and realign certain resources in
order to better serve its customers (the "Restructuring"). In connection with
the plan, the Company recorded a $12.9 million nonrecurring charge ($8.1
million after related income tax benefits) to operating expenses in the fourth
quarter of 1995. The restructuring plan consisted of: (1) the closing of the
Greige Fabrics Division's Lydia plant in Clinton, SC; (2) the consolidation of
the Finished Fabrics Division's weaving operations in Elkin, NC from three
buildings to two buildings; (3) the downsizing of the Company's corporate
offices in Columbia, SC and relocation of certain resources back to the
operating divisions; (4) the write-off and proposed sale of certain idle and
impaired assets; and (5) other process improvement initiatives designed to
reduce costs but which also required severance, retirement, or other
nonrecurring charges in order to implement the facility closures and overhead
reductions. In total, the Company estimates that over 700 manufacturing and
administrative positions have been permanently eliminated. Although each of
the restructuring initiatives had been completed by the end of 1996, certain
assets are still being offered for sale.
SALES SUMMARY
The following table presents, for the last three fiscal years, the dollar
sales and the percentages of the Company's sales contributed by each division.
<TABLE>
<CAPTION>
SALES BY DIVISION
---------------------------------------------
(Dollars in thousands)
1994 1995 1996
-------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Greige Fabrics Division $176,321 45% $182,923 45% $156,793 42%
Finished Fabrics Division 213,746 55% 225,713 55% 217,251 58%
-------- ---- -------- ---- -------- ----
Total $390,067 100% $408,636 100% $374,044 100%
======== ==== ======== ==== ======== ====
</TABLE>
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The following table presents, for the last five fiscal years, the
percentages of the Company's sales to the home furnishings, woven apparel,
elasticized fabric, furniture upholstery, transportation upholstery, consumer
products and industrial/medical/other markets, as estimated by the Company.
<TABLE>
<CAPTION>
PERCENTAGE OF DOLLAR SALES
--------------------------------------
1992 1993 1994 1995 1996
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Home furnishings market 29% 25% 28% 28% 28%
Woven apparel market 19% 18% 15% 11% 11%
Furniture upholstery market 17% 19% 18% 14% 15%
Elasticized fabric market 14% 15% 16% 25% 24%
Transportation upholstery market 7% 10% 11% 8% 11%
Consumer products market 7% 8% 9% 8% 7%
Industrial/medical/other markets 7% 5% 3% 6% 4%
--- --- --- --- ---
Total 100% 100% 100% 100% 100%
=== === === === ===
</TABLE>
GREIGE FABRICS DIVISION
Products. The Greige Fabrics Division manufactures light to midweight
greige (unfinished) fabrics, including printcloths, broadcloths, twills, crepes
and other fabrics of 100% cotton and blends of polyester and combed or carded
cotton, and 100% synthetic yarns. None of the division's customers accounts
for more than 10% of Company sales. The division can manufacture fabric in a
broad range of styles, which are determined by the fibers used, the number and
size of the yarns and the width of the fabric, but concentrates on a limited
number of styles and blends. The division currently produces fabric in widths
ranging from 43 to 135 inches and typically produces between 60 and 100 styles
at any one time. The division's production flexibility enables it to be a cost
effective manufacturer of traditional fabric styles available from a large
number of domestic and foreign producers and gives it the ability to respond to
changes in demand in its markets. The division works closely with major
integrated manufacturers to satisfy their specific requirements.
The fabrics sold by the Greige Fabrics Division are ultimately made into a
variety of home furnishings, woven apparel and industrial products. In the
home furnishings market, fabrics are used in comforters, bedspreads, sheets and
coordinating accessories, as well as curtains and other home furnishing
products. In the woven apparel markets, fabrics are used in a wide range of
items, including women's apparel, men's boxer shorts, trousers, and uniforms
and similar career apparel. Combed blends and 100% cotton fabrics are also
used in bolts of finished cloth sold at retail for home sewing and crafts. The
principal industrial uses for the division's fabrics are medical and athletic
tapes.
Manufacturing and Capacity. The Greige Fabrics Division's manufacture of
woven fabrics involves two principal operations: spinning cotton and blends of
cotton and polyester into yarn, and weaving yarn into fabric.
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Spinning. The division either spins or purchases the yarn it uses to
produce woven fabrics. Two types of spinning equipment are used: air-jet
spinning equipment, which combines spinning and winding into one process,
and traditional ring spinning equipment. Approximately 26% of the
division's current spinning capacity is air-jet spinning.
Weaving. The division employs only shuttleless weaving machines.
The division's shuttleless machines are more versatile than shuttle
weaving machines and are capable of weaving multiple fabrics of different
widths simultaneously on the same machine, with some machines capable of
producing fabrics as wide as 147 inches. The shuttleless machines require
a lower labor complement and weave fabric at higher speeds and with higher
quality levels than shuttle machines. The flexibility of the shuttleless
machines permits production to be shifted among fabric widths to meet
changing market requirements and demand levels.
The division currently operates six manufacturing plants. All of its
plants are equipped with projectile and air-jet shuttleless machines and
supporting equipment including carding, spinning and yarn preparation
equipment. The division plans to make further capital expenditures of $8
million during fiscal 1997. These expenditures will include additional air-jet
spinning equipment. Capital expenditures have been designed to expand
production capabilities, reduce production costs and increase quality.
All of the division's six plants are currently operating on a 24-hour,
seven-day week. As in the past, if market conditions soften, the Company has
the ability to curtail these operating schedules.
Marketing and Sales. The Greige Fabrics Division's fabrics are sold
primarily through the Company's New York sales office. Fabrics are sold to
integrated manufacturers and converters for use in various home furnishings
products, woven apparel and a variety of industrial applications. Fabrics are
typically manufactured to order. The division's sales are generally not
seasonal.
FINISHED FABRICS DIVISION
Products. The Finished Fabrics Division manufactures a variety of dyed
and finished fabrics for use in diverse markets.
Elasticized Fabrics. The division manufactures a variety of dyed
and finished elasticized knit and woven fabrics for use in intimate
apparel and foundation garments. It also has a significant presence in
the stretch fabric activewear market, including swimwear fabrics, and
produces fabrics for use in industrial and medical products. The
vertically integrated manufacturing operations produce warp knit, circular
knit and woven fabrics using a variety of spandex, polyester, rayon,
nylon, cotton and blends of cotton
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yarns. The division dyes and finishes the majority of its elasticized
fabrics as well as lace products manufactured by others.
Furniture Upholstery. The division produces furniture upholstery for
residential applications, office and public seating as well as wall panels
for open office systems. The division's customers include contract and
residential furniture manufacturers. Furniture upholstery is also sold
through an extensive distributor network. Furniture upholstery fabrics
are offered in both wool and a broad range of manmade fibers and in a
variety of constructions, from jacquard and dobby wovens to knitted and
tufted piles. These various fabric constructions primarily utilize
internally produced woolen spun, filament and novelty type yarns. A wide
variety of dyeing methods, including raw stock, yarn and piece dyeing, are
used.
Transportation Upholstery. The division supplies upholstery fabrics
for automobile and light truck seating and interior component applications
as well as for a variety of other transportation uses such as heavy truck
interiors, van conversions and after-market uses. Primary automotive
customers include domestic automobile manufacturers and Japanese
automobile manufacturers with United States manufacturing facilities. To
a limited extent, the division also exports its automotive fabrics to
Japan for overseas production. The Company has developed a strategic
alliance with Tatsumura Textile Company, Ltd., a leading supplier of
automotive fabrics to Toyota, Mazda and Mitsubishi, to help to increase
its business with the Japanese automakers. A wide variety of upholstery
fabrics are produced for the transportation market primarily from spun and
filament polyester. For the transportation upholstery market, the
division supplies flat and jacquard wovens, jacquard and dobby woven
velours, jacquard circular knits and double needle bar knits, and employs
stock, yarn, and piece dyeing technologies.
Consumer Products. The division produces blankets, mattress pads,
electric mattress pads, fringed throws, cotton jacquard afghans and infant
bedding for sale to the retail, institutional and health care markets. Its
consumer products are manufactured through either a loom woven process or a
non-woven Fiberwoven(R) process. Market placements have been made in
Mexico, Canada, Western Europe, Australia and the Far East.
Manufacturing and Capacity.
Elasticized Fabrics: Manufacturing warp knit, circular knit and woven
fabrics with elastomeric fibers is a more difficult and complicated process
than that required for other fabrics. Customers who purchase elasticized
fabrics typically require that the fabrics meet precise specifications related
to physical characteristics, shades, shrinkage and the like.
Knitting. Several types of warp knitting machines are used. These
machines are versatile with the capability of knitting high quality fabric
in many different styles at high speeds and low defect levels. For
circular knitting, the Company uses both single and double knit machines,
some of which have mini-jacquard capability.
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Weaving. Several types of looms are used. These looms are versatile
with the capability of weaving high quality narrow elastic fabric up to
twelve inches in width. Certain looms have jacquard capabilities, and can
weave logo designs into the fabric.
Finishing and Dyeing. Various dyeing and finishing technologies are
utilized which allow the division to dye and finish its fabrics on-site to
achieve consistent specifications and color matching for its products.
The processes used depend upon the type and style of fabrics being
produced. The division scours and dyes most of its fabric in either
pressurized or non-pressurized dyeing vessels. Fabrics of regular warp
construction are normally steamed in preparation for other finishing
processes. Fabrics are sent through finishing frames that stretch and set
the fabric at a desired width. Computerized color matching equipment
enables the division to meet the stringent requirements of the markets it
serves. For certain fabrics and shades, it uses dyed yarn for both
knitting and weaving.
The division manufactures its elasticized knit fabrics at a plant located
in Greensboro, North Carolina, which operates on a 24-hour, five or six-day
week. Since the acquisition of the former United Elastic Corporation
operations in January 1995, the division manufactures narrow elasticized woven
fabrics in Stuart, Virginia. This plant operates on a 24-hour, five day week.
Furniture Upholstery, Transportation Upholstery and Consumer Products:
The division operates a manufacturing complex in Elkin, North Carolina,
containing approximately 1.7 million square feet in 11 buildings and a plant
in Boonville, North Carolina. At the Elkin complex, manufacturing is
vertically integrated from fiber to finished fabric. The Boonville plant
produces yarn from fiber, which is then transferred to the Elkin facility for
weaving. Manufacturing processes include garnetting waste fiber, extruding
nylon and dyeing raw stock, yarn and fabric. The product of these processes
may flow through other processes such as carding, spinning, weaving, knitting,
the nonwoven Fiberwoven(R) process and finishing. The division employs
computer systems that allow for the design of fabrics without the production
cost associated with sampling, shorten fabric development time and promote
faster response to customer inquiries.
Marketing and Sales.
Elasticized Fabrics: The division sells its elasticized fabrics through
the Company's New York and Los Angeles sales offices, and sales representatives
located in Greensboro, North Carolina and Stuart, Virginia. These fabrics are
manufactured only to order.
Furniture Upholstery, Transportation Upholstery and Consumer Products:
Sales and marketing functions are conducted at the product level. Furniture
upholstery is sold by sales personnel in Elkin and High Point, North Carolina
(including a showroom), New York, Chicago, Los Angeles, and Grand Rapids,
Michigan, and sales agents in the Far East, Australia, and South America.
Transportation upholstery has sales and marketing offices in Elkin, North
Carolina and Detroit, Michigan. Consumer products are sold and marketed
through offices in Elkin, North Carolina and New York and sales associates
located throughout the United States. Foreign
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bedding sales are handled through agents or distributors in Mexico, Canada,
England, Western Europe, Australia, and the Far East.
RAW MATERIALS
The principal raw materials the Company uses are cotton and man-made
fibers and yarns. In 1996, raw materials accounted for approximately 46% of
cost of sales. The Company uses many types of fibers, both natural (cotton and
wool) and man-made (polyester, nylon, olefin, rayon and acrylic) as well as
yarns including Lycra(R), a spandex elastomeric yarn produced by DuPont (E.I.)
de Nemours & Company, in the manufacture of its textile products. The Company
believes that availability and future price levels for fibers and yarns will
depend primarily upon supply and demand conditions, crop conditions, general
inflation, government agricultural programs and prices of petroleum-based raw
materials.
Generally, the Company has had no difficulty in obtaining raw materials.
Cotton is available from a large number of suppliers. The Company maintains a
limited supply of cotton in inventory; its usual procedure is to purchase
cotton only when firm orders have been obtained for the goods in which it will
be used. When management concludes that a certain grade of cotton may be in
short supply or that prices may be substantially higher in the near term,
however, the Company may deviate from this procedure and buy additional cotton
for inventory. Historically, the Company has not purchased significant amounts
of cotton for inventory and continues to purchase cotton for future delivery
when orders are received.
The principal man-made fibers and yarns purchased by the Company are
polyester and nylon. The Company maintains a limited supply of man-made fibers
and yarns in inventory. The Company currently purchases man-made fibers for
its Greige Fabrics Division from two suppliers, although other suppliers are
available. The Company also purchases yarns of texturized filament polyester
primarily from a limited number of suppliers for use in its woven and knit
fabrics, although other suppliers are available. Currently, most of the
elastomeric yarn used in the production of elasticized fabrics is Lycra(R).
PATENTS AND TRADEMARKS
The Company has registered a stylized "Clinton," "EFA" and "Chatham" as
trademarks. The Company does not own or use any other patents, licenses or
trademarks that are currently material in the conduct of its business.
BACKLOG
At December 28, 1996, the Company had aggregate unfilled orders of $120
million, as compared to $64 million at December 30, 1995. As of December 28,
1996, the Greige Fabrics Division had approximately $87 million of unfilled
customer orders for woven fabrics, as compared to $41 million at December 30,
1995. The increase in the Greige Fabrics Division's order backlog from 1995 to
1996 is indicative of the recently improved market conditions for lightweight
greige woven fabrics. The division expects to fill substantially all of these
orders in
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1997. At December 28, 1996, the Finished Fabrics Division had unfilled orders
totaling $33 million, as compared to $23 million at December 30, 1995. The
increase in the Finished Fabrics Division's order backlog from 1995 to 1996 is
indicative of the increase in placements for the Company's transportation
upholstery fabrics. The division expects to fill all of these orders in 1997.
These backlogs consist of orders that are not generally subject to cancellation
prior to shipment, although the Company has in the past accommodated customer
requests for order deferments due to unusual circumstances.
COMPETITION AND INTERNATIONAL TRADE POLICY
The domestic textile industry is highly competitive with no one firm
dominating the United States market. Many companies compete only in limited
segments of the textile market. In recent years, there has been a trend toward
consolidation in the United States textile industry. Textile competition is
based in varying degrees on price, product styling and differentiation, quality
and customer service. The importance of each of these factors depends upon the
needs of particular markets and customers.
The domestic textile industry has been fundamentally affected by
competition from imports. The level of import protection for domestic
producers of textiles has been and will continue to be subject to domestic
political and foreign policy considerations. Under the import tariff and quota
framework developed under the Arrangement Regarding International Trade in
Textiles and commonly known as the Multifiber Arrangement (the "MFA"), most
significant exporters of fabrics were subject to annual quotas. However, the
MFA expired on December 31, 1994, and was replaced by The Uruguay Round
Agreement (the "Uruguay Agreement") on textiles and clothing which contains a
schedule for the gradual phase-out of quotas established pursuant to the MFA
over a ten year transition period. After the transition period, textile and
clothing trade will be fully integrated into the World Trade Organization and
subject to the same restrictions as other sectors. The Uruguay Agreement
contains a provision for reducing tariffs on textiles and clothing products
imposed by the United States by approximately 12% overall, with the reductions
phased in over a ten year period. The reduction in the import protection
accorded domestic fabric and apparel manufacturers could adversely affect the
Company.
The Company believes that the North American Free Trade Agreement
("NAFTA") has and will continue to affect competition in the domestic textile
manufacturing market by phasing out substantially all trade restrictions among
Canada, Mexico and the United States while maintaining such restrictions on
products imported from outside North America, subject to the Uruguay Agreement.
While the Company believes that as a result of NAFTA some labor-intensive
apparel production has and will continue to move to Mexico due to Mexico's
lower labor costs, the Company expects to compete for sales of fabric to these
apparel producers in what may become a larger market for the Company's
products. To the extent that U.S. apparel manufacturers move production to
Mexico and thus gain a competitive advantage over Asian producers facing
continuing import restrictions, the Company believes that it would benefit from
a resulting increase in North American production, as neither Mexico nor Canada
are currently competitive producers of the fabrics used in the manufacture of
apparel.
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The impact of import competition varies among the Company's divisions.
The Greige Fabrics Division sells its fabrics in markets where imports are a
significant competitive factor--estimated by the Company at 25% of the
division's United States markets. In addition, the division's fabrics are used
in apparel products which compete with imported garments. In response to the
increasing effect of imports, the division has engaged in an extensive
modernization program which has added flexibility to its manufacturing process
and increased its fabric offerings. This modernization program has resulted in
increases in productivity and lower unit costs, net of depreciation. In
addition, marketing has been redirected in an effort to reduce its dependence on
commodity fabrics and has focused on developing long-term customer relationships
where value added services can differentiate its fabrics from imports. To
implement this strategy, the division has generally endeavored to decrease its
sales to the apparel market and shift more of its sales to home furnishing
markets where competition from imports is less severe. However, depending on
market conditions, the division may from time to time redirect its sales from
home furnishings to apparel to avoid market weakness or to obtain a benefit from
opportunistic selling. The Greige Fabrics Division's principal competitors
include Greenwood Mills and Alice Manufacturing.
The Finished Fabrics Division and other United States manufacturers of
elasticized fabrics and garments, including intimate apparel, swimwear and
activewear, have not been subject to the same pressure from imports experienced
by many other sportswear apparel manufacturers. Customers place significant
emphasis on product design, component shade-matching and other quality-related
criteria. Customers establish strict specifications that place a premium on
customer service, which places foreign manufacturers at a disadvantage. The
Company also believes that the swimwear market is less susceptible to import
competition because sales in the U. S. retail market are generally made
within a four-month period, and therefore close proximity of the swimwear
manufacturer and the fabric producer is advantageous for initial orders and
reorders. The division's principal elasticized fabrics competitors include
Liberty Fabrics, Darlington, and Elastic Corporation of America.
Furniture upholstery, transportation upholstery and consumer products
compete in domestic markets that to date have experienced little competition
from imports. In these markets, product styling and differentiation, quality
and customer service are more significant considerations as compared to more
commodity-oriented markets that are more susceptible to import competition.
Principal competitors include Guilford of Maine (furniture upholstery),
Milliken (furniture and transportation upholstery), Collins and Aikman
(furniture and transportation upholstery) and Pillowtex (consumer products).
EMPLOYEES
On December 28, 1996 the Company had 4,196 employees, none of whom were
covered by a collective bargaining agreement. Of these employees, 3,756 were
employed as hourly associates while 440 were employed as salaried associates.
All of the Company's employees are full-time. The Company believes that its
employee relations are good.
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ENVIRONMENTAL, HEALTH AND SAFETY, AND OTHER REGULATORY MATTERS
The Company's operations are subject to federal, state and local laws and
regulations relating to the environment, health and safety, and other
regulatory matters. Certain of the Company's operations may from time to time
involve the use of substances that are classified as toxic or hazardous
substances within the meaning of these laws and regulations. Environmental
operating permits are, or may be required, for certain of the Company's
operations and such permits are subject to modification, renewal and revocation.
The Company monitors and reviews its operations, procedures and policies for
compliance with these laws and regulations. Despite these compliance efforts,
risk of environmental liability is inherent in the operation of the Company's
businesses, as it is with other companies engaged in similar businesses, and
there can be no assurance that environmental liabilities will not have a
material adverse effect on the Company in the future.
The Company has identified certain groundwater and soil contamination
which will require remediation and asbestos which may require abatement at its
Elkin facility. The Company has accrued for the costs it expects to incur in
connection with this remediation and abatement. See "Item 7--Management
Discussion and Analysis of Financial Condition and Results of
Operations--Environmental" and Notes 7 and 8 to Financial Statements.
In May 1993, the Greige Fabrics Division received a notice of potential
liability and an information request from the EPA with respect to the AquaTech
site in Greer, South Carolina. The Company has been designated by the EPA as a
potentially responsible party ("PRP") at the site. The Company entered into a
buyout agreement with a group of approximately 719 PRPs who funded a surface
removal of hazardous substances from this site at a cost in excess of $14.0
million. The Company's allocated share of the costs of the surface cleanup
under the buyout agreement was less than $1,000. The buyout agreement does not
commit the Company to any additional expenditures nor protect it from liability
for any additional costs. The Company has joined the AquaTech PRP Group for
Subsurface Remediation which is awaiting the completion of soil and groundwater
testing by the EPA at the AquaTech site. At this time neither the extent of
further cleanup nor the Company's share of any additional remediation costs is
known.
The Company has approval from the North Carolina Department of
Environment, Health and Natural Resources and from Guilford County
Environmental Health to begin cleanup of groundwater at its Greensboro facility
resulting from previously removed leaking underground storage tanks. The
Company estimates that remaining costs associated with the cleanup will be
approximately $320,000. Partial reimbursement has been approved from the North
Carolina Underground Storage Tank Trust Fund. Equipment has been ordered to
begin the cleanup as approved in the corrective action plan.
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ITEM 2. PROPERTIES
The following table sets forth certain information relating to the
Company's principal facilities as of December 28, 1996. All of these
facilities are owned by the Company, except for the New York sales office and
the Columbia executive office. The Company's New York sales office is leased
for a term expiring in 2005. The Columbia executive office is leased for a
term expiring in 2000. The Company believes all of its facilities are in good
repair and are in suitable condition for the purposes for which they are used.
<TABLE>
<CAPTION>
LOCATION SQ. FOOTAGE USE
-------- ----------- ---
GREIGE FABRICS DIVISION
-------------------------
<S> <C> <C>
Clinton No. 1 ................263,100 Manufacturing (191,000 sq. ft.)
Clinton, SC Warehouse and Office (72,000 sq. ft.)
Clinton No. 2................ 544,900 Manufacturing (303,900 sq. ft.)
Clinton, SC Warehouse and Office (241,000 sq. ft.)
Lydia.........................472,100 Warehouse and Office (472,100 sq. ft.)
Clinton, SC
Bailey ...................... 277,200 Manufacturing (224,100 sq. ft.)
Clinton, SC Warehouse and Office (53,100 sq. ft.)
Office-Clinton, SC.............37,700 Office
Geneva No. 1..................151,500 Manufacturing (128,300 sq. ft.)
Geneva, AL Warehouse and Office (23,200 sq. ft.)
Geneva No. 2..................258,200 Manufacturing (211,900 sq. ft.)
Geneva, AL Warehouse and Office (46,300 sq. ft.)
Office-Geneva, AL...............7,500 Office
Clarkesville, GA..............268,800 Manufacturing (170,100 sq. ft.)
Warehouse and Office (98,700 sq. ft.)
FINISHED FABRICS DIVISION
-------------------------
Greensboro, NC................175,300 Manufacturing (138,800 sq. ft.)
Warehouse and Office (36,500 sq. ft.)
Stuart, VA....................415,340 Manufacturing (328,900 sq. ft.)
Warehouse and Office (86,440 sq. ft.)
Elkin, NC...................1,697,600 Manufacturing (1,270,500 sq. ft.)
Warehouse and Office (427,100 sq. ft.)
Boonville, NC.................128,500 Manufacturing (99,200 sq. ft.)
Warehouse and Office (29,300 sq. ft.)
</TABLE>
12
<PAGE> 13
<TABLE>
<CAPTION>
LOCATION SQ. FOOTAGE USE
-------- ----------- ---
OTHER
-----
<S> <C> <C>
CMI Sales Office
New York, NY.................. 16,332 Office
CMI Executive Office
Columbia, SC.................. 9,330 Office
</TABLE>
As part of the Restructuring, the Company ceased manufacturing operations
at the Lydia plant, consolidated certain weaving operations at its Elkin
location and downsized its corporate administrative functions in Columbia.
Consequently, certain manufacturing space at Lydia and Elkin is being utilized
for warehousing, and the Company has subleased over one-half of its leased
facility in Columbia.
ITEM 3. LEGAL PROCEEDINGS
The Company is from time to time involved in routine litigation incidental
to its business operations, as well as product liability litigation. In the
opinion of the Company's management, none of the litigation in which it is
currently involved is material.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Company's security holders
during the fourth quarter of fiscal 1996.
13
<PAGE> 14
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER
MATTERS
None of the issued shares of the Common Stock is publicly held and there
is no established published trading market for the Common Stock.
During the two fiscal years ended December 28, 1996, the Company did not
pay any dividends. The Company's ability to pay dividends was subject to
limitations in its bank credit agreement and in the indenture pursuant to which
its $125 million principal amount 9-1/2% Senior Subordinated Notes due 2003
were issued (the "Indenture"). Capitalized terms used in this Item 5 that are
not defined in this Report have the same meaning as set forth in the Indenture.
The Indenture prohibits the Company from paying cash dividends or making
other Restricted Payments if an Event of Default exists under the Indenture or
the Company cannot incur additional Indebtedness (other than Permitted
Indebtedness) because of an inadequate Fixed Charge Coverage Ratio. The
Indenture limits the aggregate amount of cash dividends and other Restricted
Payments that may be made subsequent to October 28, 1993 to an amount no
greater than the sum of (i) 50% of the Company's Consolidated Adjusted Net
Income accrued on a cumulative basis since October 1, 1993 (less 100% of any
loss) plus (ii) the aggregate net proceeds received by the Company after
October 28, 1993 from certain issues or sales of the Company's capital stock
and from capital contributions. Notwithstanding the foregoing, so long as an
Event of Default does not exist, the Indenture permits the Company to (i)
repurchase its capital stock from Management Investors under certain
circumstances in an aggregate amount of up to $2.0 million per year, with the
right to carry forward into the immediately following year the aggregate amount
of the unused portion, and (ii) pay cash dividends and make other Restricted
Payments in an aggregate amount not to exceed $10.0 million.
Under an $80 million secured revolving credit facility from The First
National Bank of Boston, which serves as the agent bank, NationsBank, N.A. and
The Wachovia Bank of South Carolina, N.A. entered into in March 1996 (the
"Credit Agreement"), the Company was not permitted to pay dividends without the
approval of the lenders. In February 1997 the Company and the lenders amended
the Credit Agreement to permit, among other things, the Company to pay
dividends of up to $3 million in any fiscal year.
At December 28, 1996, under the terms of the Indenture the Company could
acquire capital stock in an amount of $2.7 million from Management Investors
and could pay cash dividends or make other Restricted Payments in an aggregate
amount of $10.0 million. However, the limitation on restricted payments
contained in the Credit Agreement as then in effect was more restrictive than
the limitation contained in the Indenture, so that at December 28, 1996 the
Company was unable to make any restricted payments or cash dividends.
Following the February 1997 amendment to the Credit Agreement, the Company is
able to pay dividends or make restricted payments of up to $3 million in any
fiscal year provided that such payments would be permitted under the Indenture.
14
<PAGE> 15
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected historical financial information
for the Company for fiscal years 1992 through 1996, which has been derived from
the audited financial statements of the Company for such periods. The
information contained in the following table reflects the results of operations
of Chatham Manufacturing from February 14, 1992, the Clarkesville plant from
May 9, 1994, and the former United Elastic Corporation operations from January
3, 1995, the respective dates of acquisition. The selected financial data
should be read in conjunction with "Item 7--Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the audited
financial statements of the Company, together with the related notes and
independent accountant's report. The Company's consolidated balance sheet as
of December 30, 1995, and December 28, 1996, and financial statements for each
of the fiscal years in the three-year period ended December 28, 1996, and the
independent accountant's report thereon, are included elsewhere in this Report.
See "Index to Financial Statements."
<TABLE>
<CAPTION>
FISCAL YEAR
---------------------------------------------------
1992(1) 1993 1994 1995 1996
--------- -------- -------- --------- ---------
STATEMENT OF INCOME DATA (Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Net sales $352,338 $370,396 $390,067 $408,636 $374,044
Depreciation 14,160 17,226 19,879 22,660 21,968
Other cost of sales 282,640 301,698 323,564 345,265 323,920
-------- -------- -------- -------- --------
Gross profit 55,538 51,472 46,624 40,711 28,156
Selling, general and administrative expense 23,874 29,360 31,433 32,704 31,097
Restructuring and other nonrecurring charges (2) -- -- -- 17,682 --
-------- -------- -------- -------- --------
Operating income (loss) 31,664 22,112 15,191 (9,675) (2,941)
Other income (expense)
Interest expense (10,104) (10,558) (14,430) (17,174) (15,425)
Other income (expense), net (103) (419) 1,397 1,406 1,588
-------- -------- -------- -------- --------
Total other income (expense) (10,207) (10,977) (13,033) (15,768) (13,837)
-------- -------- -------- -------- --------
Income (loss) before income taxes and
extraordinary items 21,457 11,135 2,158 (25,443) (16,778)
Income taxes (benefit) 8,354 4,343 789 (9,500) (6,115)
-------- -------- -------- -------- --------
Income (loss) before extraordinary items 13,103 6,792 1,369 (15,943) (10,663)
Extraordinary item-loss on refinancing
senior subordinated debentures, net of
tax benefit of $1,368 -- 2,139 -- -- --
-------- -------- -------- -------- --------
Net income (loss) $13,103 $4,653 $1,369 $(15,943) $(10,663)
======== ======== ======== ======== ========
Ratio of earnings to fixed charges (3) 3.04x 2.02x 1.15x (0.48)x (0.09)x
BALANCE SHEET DATA (AT END OF YEAR)
Current assets $111,078 $122,300 $137,582 $123,281 $112,623
Property, plant and equipment, net 112,337 120,411 135,800 125,774 112,545
Other assets 7,047 6,864 8,567 8,053 8,366
Total assets 230,462 249,575 281,949 257,108 233,534
Current liabilities 46,666 39,377 43,443 42,739 44,117
Long-term debt, less current portion 100,608 124,052 153,962 154,245 143,749
Other liabilities and deferred items 27,439 25,744 22,773 17,616 13,823
Stockholders' equity 55,749 60,402 61,771 42,508 31,845
</TABLE>
15
<PAGE> 16
<TABLE>
<CAPTION>
FISCAL YEAR
-------------------------------------------
1992(1) 1993 1994 1995 1996
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
OTHER DATA AND OTHER FINANCIAL RATIOS
EBITDA (4) $48,366 $41,430 $36,790 $14,361 $21,293
Depreciation and amortization (5) 16,630 19,773 20,294 22,670 22,637
Capital expenditures 22,857 25,179 28,390 8,850 9,288
Ratio of EBITDA to interest expense (6) 5.05x 4.18x 2.67x 1.03x 1.43x
Ratio of total debt (at end of year) to EBITDA 2.22x 3.07x 4.25x 10.80x 6.94x
</TABLE>
________________________
(1) Financial information for fiscal 1992 excluding the operations of
Chatham, which were acquired in February 1992 as described herein, would
have been as follows: net sales of $238.7 million; gross profit of $38.0
million; operating income of $25.2 million; EBITDA of $39.0 million; and
a ratio of EBITDA to interest expense of 5.64x.
(2) In 1995, represents $4,782 of executive severance charges recorded in the
third quarter related to the retirement of Mr. G. T. Williams, the
Company's former President and Chief Executive Officer and $12,900 of
charges recorded in the fourth quarter related to the Restructuring.
(3) For purposes of computing this ratio, earnings consist of income before
income taxes and extraordinary items, plus fixed charges. Fixed charges
consist of interest expense on debt, amortization of deferred debt cost
and debt discount cost and the estimated interest component of rent
expense.
(4) Represents income before interest, income taxes, extraordinary items,
depreciation and amortization. The Company has included information
concerning EBITDA as a measure of the Company's ability to service its
debt. EBITDA should not be considered as an alternative to, or more
meaningful than, operating income or cash flow as an indicator of the
Company's operating performance. See the Statements of Cash Flows
included in the Financial Statements.
(5) Excludes amortization of deferred debt cost and debt discount cost.
Includes amortization of a $5.0 million noncompetition agreement obtained
in the Chatham acquisition, which was amortized over a two-year period
from February 14, 1992 to February 14, 1994. Amortization expense
includes approximately $2.2 million, $2.5 million and $0.3 million for the
years ended January 2, 1993, January 1, 1994 and December 31, 1994,
respectively, with respect to this agreement.
(6) Interest expense excludes amortization of deferred debt cost and debt
discount cost.
16
<PAGE> 17
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
A number of factors influence the textile industry and operating results
for the Company including general economic conditions, competition, raw
material prices and capital expenditures, some of which are not within the
Company's control. The following factors have had an impact on the Company's
operating results over the past several years.
General Economic Conditions. The Company's past operating results
have been affected by the general condition of the United States economy.
The ability of the Company to maintain its operating margins during
downturns in the general economy is affected by the capital intensive
nature of its business. In 1992, the Company (excluding the results of
operations for Chatham Manufacturing Company, which was acquired in
February 1992) experienced increases in both sales and operating income,
which the Company attributes in part to the perception then held by the
Company's customers that general economic conditions were improving and,
to a lesser extent, to the Company's modernization program. Operating
margins were down in 1993, 1994, 1995 and even further in 1996 due
primarily to deteriorating market conditions for fabrics manufactured by
the Greige Fabrics Division. In 1995 the textile industry in general was
impacted by poor retail sales, overcapacity and unprecedented raw material
costs. Because inventory increases and excess capacity issues were more
extreme in the lightweight greige fabrics markets, the impact of
market-wide price erosion, plant shutdowns and significant capacity
curtailments was more severe and more prolonged in these markets. The
Company was not immune to these general conditions, and their impact
prompted the Company to curtail its operating schedule at all plant
locations in 1995 and 1996 and decrease capacity by the closure of the
Greige Fabrics Division's Lydia plant and the realignment of the Finished
Fabrics Division's weaving operations at the Elkin plant.
Modernization and Capital Expenditures. An important element of the
Company's business strategy is the continuing modernization of its
facilities, which has resulted in a reduction in cash unit manufacturing
costs and an increase in production capacity and flexibility. Increased
depreciation costs resulting from the Company's modernization programs
reduce the Company's operating income. Although the Company believes that
continued modernization of its facilities is essential in order to realize
the earnings potential of its existing businesses and to compete
effectively in its markets, the Company has not been able to benefit from
all these expenditures because of the weak market conditions and an
oversupply of certain fabrics. Consequently, the Company has not fully
utilized certain investments over the last two years, which has negatively
impacted results of operations
.
Acquisitions. The acquisition of the assets of Chatham Manufacturing
Company (the Elkin and Boonville plants) in February 1992 has allowed the
Company to achieve greater market diversification and reduce its overall
reliance upon sales of greige fabrics.
17
<PAGE> 18
In addition to increased market diversification, the acquisition provided
the Company with access to markets that are more difficult to enter than
the markets of the Company's other businesses. Unfortunately, in 1993 and
1994, the Company experienced significant operating disruptions and quality
problems at the Elkin facility, which negatively impacted operating
margins. The Company attempted to address these issues through management
changes and the reorganization of its divisional structure in 1994.
Operating margins at Elkin in 1995 remained substantially below those of
the Company's other businesses as the division worked to improve its
product mix, complete the development of its information systems and
correct certain quality and manufacturing inefficiencies that negatively
impacted both the Elkin facility and its customers during this time period.
In 1996, operating margins improved significantly in response to the
business improvement initiatives and strategic investments in new equipment
at Elkin. The Company intends to continue to invest in new equipment at
its Elkin facility, and believes that current performance trends in
quality, on-time delivery and product development are more consistent with
fully realizing the earnings potential at the Elkin facility.
The acquisition of the Clarkesville plant in 1994 and the acquisition
of the former United Elastic Corporation operations in 1995 have allowed
the Company to diversify further its product offerings and provide its
existing customer base more value added products and service. To date,
these acquisitions have been positive and have added incremental sales
with margins equal to, or above, those of the Company's other businesses.
The Company believes that initiatives in 1995 and 1996 to reduce
inventories and to permanently shut down capacity in both its Greige Fabrics
Division and Finished Fabrics Division have helped correct the level of supply
relative to market demand. Additionally, the Company's ability to downsize its
corporate offices, coupled with improvements at the Elkin facility, the
elimination of inefficient capacity and other expense reduction initiatives
should help position the Company to respond quickly and cost effectively when
market conditions do improve.
18
<PAGE> 19
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated the percentages
that certain income and expense items bear to sales for such periods. All
years refer to the Company's fiscal years.
<TABLE>
<CAPTION>
FISCAL YEAR
----------------------
1994 1995 1996
------ ------ ------
<S> <C> <C> <C>
Net sales ..................................... 100.0% 100.0% 100.0%
Depreciation .................................. 5.1 5.5 5.8
Other cost of sales ........................... 82.9 84.5 86.6
----- ----- -----
Gross profit .................................. 12.0 10.0 7.6
Selling, general and administrative expenses .. 8.1 8.0 8.3
Restructuring and other nonrecurring charges -- 4.3 --
----- ----- -----
Operating income (loss) ....................... 3.9 (2.3) (0.7)
Other income (expense)
Interest expense ............................. (3.7) (4.2) (4.1)
Other, net ................................... 0.4 0.3 0.4
----- ----- -----
Income (loss) before income taxes ............. 0.6 (6.2) (4.5)
Income taxes (benefit) ........................ 0.2 (2.3) (1.6)
----- ----- -----
Net income (loss) ............................. 0.4% (3.9)% (2.9)%
===== ===== =====
</TABLE>
Fiscal Year 1996 Compared to Fiscal Year 1995
The Company's net sales decreased $34.6 million or 8.5% from $408.6
million in 1995 to $374.0 million in 1996. Sales of the Greige Fabrics
Division decreased $26.1 million or 14.3% while sales of the Finished Fabrics
Division decreased $8.5 million or 3.7%. The reduction in sales for the Greige
Fabrics Division may be attributed to the weak market conditions for
lightweight greige printcloth fabrics and the related permanent closing of the
Lydia Plant in May. Consequently, sales for these fabrics in 1996 reflected a
8.4% reduction in average selling prices and a volume decline of 8.6%. The
sales decrease for the Finished Fabrics Division may be attributed to weak
market demand for the Company's woven elasticized fabrics and the Company's
decision to limit shipments to a significant elasticized fabric customer
because of credit concerns relating to the customer. Additionally, the
Finished Fabrics Division continued to experience declining sales in its
consumer products business.
In conjunction with the Company's lower sales, gross profit decreased
$12.6 million or 31.0% from $40.7 million to $28.1 million, as the gross margin
declined from 10.0% to 7.6%. The decline in gross profits may be directly
attributed to the weak market conditions for lightweight greige fabrics,
resulting in reduced volumes, lower selling prices and the Company's decision
to curtail its operating schedule at certain locations during the first half of
1996 and incur unabsorbed fixed overhead costs in order to decrease inventories
and production to levels more consistent with market demand. Although 1996
earnings for the Finished Fabrics Division
19
<PAGE> 20
were improved over 1995 levels, they only partially offset the significant
reduction in the Greige Fabrics Division's gross profits and margins.
Selling, general and administrative expenses decreased $1.6 million or
4.9% from $32.7 million in 1995 to $31.1 million in 1996; however as a
percentage of sales, expenses were up 0.3% from 8.0% to 8.3%. The reduction in
selling, general and administrative expenses relate to the Company's downsizing
of its Corporate offices. As a percentage of sales, costs were higher because
of an increase in the mix of commission based sales.
Interest expense decreased $1.7 million or 10.2% from $17.2 million in
1995 to $15.4 million in 1996. This decrease is due to lower debt balances in
1996 and may be attributed to the Company's reduced capital spending and
inventory reduction initiatives.
Income taxes (benefit) as a percent of income (loss) before taxes remained
unchanged at 37%.
As a result of the foregoing factors and the absence of any restructuring
or other nonrecurring charges in 1996, the Company reported a net loss of $10.7
million in 1996 as compared to a net loss of $15.9 million in 1995
Fiscal Year 1995 Compared to Fiscal Year 1994
The Company's net sales increased $18.5 million, or 4.7% from $390.1
million in 1994 to $408.6 million in 1995. Sales of the Greige Fabrics
Division increased $6.6 million, or 3.7% while sales of the Finished Fabrics
Division increased $11.9 million or 5.6%. The sales increase for the Greige
Fabrics Division may be attributed to the Clarkesville, Georgia facility which
reported a full year's sales in 1995 and only eight months of sales in 1994.
Without the inclusion of Clarkesville sales, the Greige Fabrics Division's
sales would have decreased $2.3 million or 1.4%. This decline was the result
of a 7.6% increase in average selling prices on a volume decline of 8.6%. The
sales increase for the Finished Fabrics Division may be attributed to sales
from the United Elastic business which was acquired on January 3, 1995.
Without the inclusion of United's sales for 1995, the Finished Fabrics
Division's sales would have declined $29.1 million or 13.6%. The sales
decrease relates to poor service issues in 1993 and 1994 at the Company's Elkin
facility, which negatively impacted customer demand in 1995 for furniture and
transportation upholstery fabrics. Additionally, the Finished Fabrics Division
was impacted by a reduction in automobile production by the Company's
transportation upholstery customers. Sales of consumer products were also down
in 1995 as market demand for woven cotton afghans declined after three years of
significant growth.
Despite the increase in the Company's sales, gross profit decreased $5.9
million or 12.7%, from $46.6 million to $40.7 million, as the gross margin
declined from 12.0% to 10.0%. Gross margins in 1994 reflected a nonrecurring
gain of $6.9 million relating to the curtailment of the Company's pension
plans, which was reflected as a reduction in cost of sales in 1994. Gross
margins in 1995 reflect the inclusion of $4.9 million of gross profits from the
United Elastic
20
<PAGE> 21
business purchased in January 1995 and incremental earnings associated with
reporting a full year of sales from Clarkesville. Excluding the nonrecurring
curtailment gain reported in 1994 and the incremental impact of the United
Elastic and Clarkesville acquisitions on profitability, gross profits for the
Company would have declined $5.7 million or 14.8% in 1995 as compared to 1994,
and gross margins would have declined from 10.1% to 9.4%. The decline in gross
profits may be attributed to unprecedented price levels for cotton, polyester
and certain other raw materials, coupled with the Company's decision to
significantly curtail its operating schedule at all locations in the fourth
quarter and incur unabsorbed fixed overhead costs in order to decrease
inventories and production to levels more consistent with market demand.
Selling, general and administrative expenses increased $1.3 million or
4.1%, from $31.4 million in 1994 to $32.7 million in 1995; however as a
percentage of sales, expenses were down 0.1% from 8.1% to 8.0%. The increase
was the result of incremental expenses associated with the acquired United
Elastic business.
Restructuring and nonrecurring charges include $4.8 million of executive
severance charges recorded in the third quarter of 1995 related to the
retirement of Mr. G. T. Williams, the Company's former President and Chief
Executive Officer. The remaining $12.9 million of restructuring and
nonrecurring charges relate to the Company's restructuring plan to improve
operating performance, reduce costs and realign manufacturing assets. Included
in those charges are incremental cash expenses of $5.0 million related to
severance, employee benefits and plant closure costs and $7.9 million of
noncash expenses related to the write-off of fixed assets and inventories.
Interest expense increased $2.7 million or 19.0% from $14.4 million in
1994 to $17.1 million in 1995. This increase reflects the impact of a rising
interest rate environment in 1995 and higher debt balances related to the
Company's capital spending, including the Clarkesville plant and United Elastic
acquisitions. Included in the $2.7 million increase in interest expense are
the Company's costs under an interest rate swap agreement which terminated on
July 19, 1996. Under this agreement, the Company converted $50 million of
fixed rate indebtedness to floating rate indebtedness and incurred additional
interest costs of $0.9 million in 1995. In 1994, the Company earned $0.1
million under the swap agreement. Other income, net of other expenses,
remained unchanged at $1.4 million.
Income taxes (benefit) as a percent of income (loss) before taxes remained
unchanged at 37%.
As a result of the foregoing factors, the Company reported a net loss of
$15.9 million in 1995 as compared to net income of $1.4 million in 1994.
THE NOTES AND FINANCING AGREEMENTS
In October 1993, the Company consummated an underwritten public offering
(the "Offering") of $125 million principal amount of 9-1/2% Senior Subordinated
Notes due 2003
21
<PAGE> 22
(the "Notes"). Immediately upon the issuance of the Notes, the Company's then
principal operating subsidiaries were merged with and into the Company. The net
proceeds of the Offering, together with initial borrowings under a new $70
million revolving credit facility from The First National Bank of Boston, which
served as the agent bank (the "Agent Bank"), NationsBank, N.A. and The Wachovia
Bank of South Carolina, N.A. and a $5 million uncommitted line of credit from
The Wachovia Bank of South Carolina, N.A., were used to refinance $118.7 million
of outstanding debt, comprised of $40.9 million in term loans and $46.7 million
in revolving credit loans under then-existing loan agreements with the Company's
subsidiaries, and $31.1 of 12% Senior Subordinated Debentures due 1999 issued by
Clinton Mills, Inc. (the "Clinton Debentures"). In December 1994 the revolving
credit facility was increased to $92 million and the Wachovia line of credit was
increased to $8 million. In June 1995, the Wachovia line of credit was reduced
to $4 million.
In March 1996, the Company replaced the $92 million unsecured revolving
credit facility with the Credit Agreement and renewed the Wachovia line of
credit at $4 million (the "Wachovia Credit Facility" and, together with the
Credit Agreement constitute the "Bank Credit Facilities"). The Company and the
lenders amended the 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 will be completed during the second
quarter of 1997, and to extend the maturity of the Credit Agreement by two years
to January 2000.
The Credit Agreement provides for a revolving credit facility of up to
$65.0 million, including a letter of credit facility of up to $5.0 million. The
borrowings under the Credit Agreement are secured by certain inventories, all
receivables and certain intangibles. The amount available under the revolving
credit facility is limited to a percentage of the collateral pledged by the
Company, as evidenced by a monthly borrowing base certificate to be delivered by
the Company, and is reduced by any outstanding letters of credit issued under
the letter of credit facility. The maximum and average amounts outstanding
during 1996 were $39.7 million and $31.3 million, respectively; at December 28,
1996, $19.4 million was outstanding and the per annum interest rate was 7.3%.
Interest Rates and Fees. Interest under the Credit Agreement is payable
at one of two specified rates, as selected by the Company, as follows: (i) the
rate announced as the base rate of the Agent Bank and (ii) a Eurodollar rate
plus 1.5%. The Company pays a commitment fee of 0.375% per annum on the unused
portion of the revolving credit facility, payable quarterly in arrears. The
Company also pays a quarterly agency fee of $12,500 to the Agent Bank. In
addition, the Company will pay a fee on the date any letter of credit is issued
under the Credit Agreement and each anniversary date thereafter in an amount
equal to (i) 1.0% of the stated amount of any standby letter of credit and
(ii) 0.375% of the stated amount of any documentary letter of credit.
Restrictive Covenants. The Credit Agreement contains covenants customary
for a secured revolving credit facility including, among others, covenants
restricting the incurrence of indebtedness, the creation or existence of liens,
the declaration or the payment of dividends, the
22
<PAGE> 23
repurchase or redemption of debt and equity securities of the Company, certain
transactions with related parties, and certain corporate transactions such as
sales and purchases of assets, mergers or consolidations. Under the Credit
Agreement, the Company may incur additional senior indebtedness in an aggregate
principal amount of up to $18.0 million, which amount includes borrowings under
the Wachovia Credit Facility, without obtaining the consent of the lenders. Up
to $10.0 million of such additional senior indebtedness may be secured by
purchase money liens. The Credit Agreement also contains affirmative covenants
relating to compliance with laws, preservation of corporate existence,
maintenance of insurance, payment of taxes, maintenance of properties, delivery
of financial and other information to the lenders under the Credit Agreement and
other matters.
The Company is required to maintain certain financial ratios, including a
minimum tangible net worth of $30.0 million in fiscal 1997, with minimum
increases each year thereafter by 50% of the consolidated net income of the
Company and certain of its subsidiaries for the previous fiscal year. The
Company is required to maintain a minimum interest coverage ratio (EBITDA to
interest) of not less than 1.5 to 1 for any four consecutive quarters. The
Company must also maintain a fixed charge coverage ratio of 1.0 to 1, meaning
that (i) consolidated EBITDA less cash used to pay for taxes and capital
expenditures must exceed (ii) all interest plus principal due on long term
indebtedness of the Company and its consolidated subsidiaries for the nine
months ended September 30, 1997 and for any four consecutive fiscal quarters
thereafter.
Security. Borrowings under the Credit Agreement are secured by the
Company's receivables, certain inventories and certain intangibles. The Credit
Agreement contains a negative covenant limiting the Company's right to grant
security interests or other liens in its other assets. However, up to $10.0
million of any additional senior indebtedness permitted under the Credit
Agreement, excluding borrowings under the Wachovia Credit Facility, may be
secured by assets of the Company other than inventory or receivables.
Events of Default. The Credit Agreement contains certain events of
default customary for this type of credit facility, including, among others,
payment events of default, covenant defaults, an event of default based on a
change of control of the Company, and a cross-default to other indebtedness of,
and bankruptcy and judgment defaults to, the Company.
Wachovia Credit Facility
Under the Wachovia Credit Facility, loan amounts, interest rates and
maturities are offered by the bank in its discretion and are accepted by the
Company at the time of borrowing, subject to the execution of a note and
supporting loan documentation satisfactory to the bank. Borrowings under the
Wachovia Credit Facility constitute additional senior indebtedness under the
Credit Agreement and are unsecured. The maximum and average amounts
outstanding during 1996 were $4.0 million and $3.3 million respectively; at
December 28, 1996, $4.0 million was outstanding and the per annum interest rate
was 7.3%.
23
<PAGE> 24
LIQUIDITY AND CAPITAL RESOURCES
In 1996, net cash provided by operations decreased $12.0 million from
$30.8 million in 1995 to $18.8 million in 1996, primarily as a result of lower
working capital reductions in 1996 as compared to the prior year.
Net cash used in investing activities decreased $19.6 million from $28.9
million in 1995 to $9.3 million in 1996. The reduction in 1996 investments
relates to the prior year acquisition of the former United Elastic Corporation
operations on January 3, 1995 for approximately $20.1 million.
Net cash used in financing activities increased $2.7 million from 1995 to
1996. The decline in investment activities noted above coupled with continued
cash flow from operations enabled the Company to repay $7.4 million on the
revolving credit facilities in 1996.
Working capital (excluding cash, marketable securities and the current
portion of long-term debt) decreased $10.9 million from $81.2 million at
December 30, 1995 to $70.3 million at December 28, 1996. The decrease in
working capital resulted from reductions in inventories and receivables.
The Company's primary ongoing cash requirements will be to cover debt
service, facilitate capital expenditures and position the Company to respond to
better business conditions. The Company currently intends to make capital
expenditures of approximately $20.0 million during 1997, of which a portion may
be financed with operating lease facilities. The Company believes that cash
flow from operations and amounts available under the Credit Agreement and the
Wachovia Credit Facility will be sufficient to fund current operations, meet
its debt service requirements and fund capital expenditures.
ENVIRONMENTAL
Federal and state laws and regulations relating to the discharge of
materials into the environment are continually changing; therefore it is
difficult to gauge the total future impact of such regulations on the Company.
In connection with the acquisition of the Elkin facility, environmental site
evaluations were performed by the Company which concluded that some form of
groundwater and soil remediation will be required and that some asbestos
abatement may be required at the Elkin facility. The Company believes that
sufficient amounts are accrued as of December 28, 1996 for the cost of these
expenditures. In the future, the Company may also construct facilities to
control flyash disposal and runoff from a coal pile at the Elkin facility. The
Company may also have remediation obligations with respect to contamination at
an off-site treatment facility and a previously removed leaking underground
storage tank. See "Item 1--Business -- Environmental, Health and Safety, and
Other Regulatory Matters." The Company believes that based on all currently
available information, the resolution of environmental matters will not have a
material adverse effect on the Company. However, future events, such as changes
in or modified interpretations of existing laws and regulations or enforcement
policies, or further investigation or evaluation of potential health hazards of
certain business activities,
24
<PAGE> 25
may give rise to additional compliance and other costs that could have a
material adverse effect on the Company.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements filed as a part of this Annual Report on Form
10-K are listed in the Index to Consolidated Financial Statements and
Schedules.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not Applicable
25
<PAGE> 26
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth certain information concerning the current
executive officers and directors of the Company:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Joseph L. Gorga 44 Director; President and Chief Executive Officer
James A. Ovenden 34 Director; Chief Financial Officer, Executive Vice
President and Secretary
Joshua T. Hamilton 45 Executive Vice President and President,
Greige Fabrics
James F. Robbins 43 Executive Vice President and President, Elasticized
Fabrics
W. James Raleigh 69 Director
Rupinder S. Sidhu 40 Director
Stephen M. McLean 39 Director
Michael H. deHavenon 56 Director
</TABLE>
______________________
Each member of the Board of Directors holds office until the next annual
meeting of the stockholders and until his successor is elected and qualified.
Officers are appointed by the Board of Directors and serve at the discretion of
the Board.
Joseph L. Gorga was named President and Chief Executive Officer and
appointed as a director of the Company in November 1995. Mr. Gorga joined a
predecessor of the Finished Fabrics Division as its President in 1991. He was
employed by Milliken & Co., an integrated textile manufacturer, from 1975
through 1991 and served as General Manager of the Automotive & Elastic Fabrics
Division from 1987 until his employment with the Company.
James A. Ovenden joined the Company in 1987 as Assistant Treasurer and
became Treasurer in 1988. He was appointed to the newly-created office of
Chief Financial Officer in 1993 and was elected Executive Vice President and
Assistant Secretary in 1993. He became a director of the Company in 1990 and
has served as Secretary since 1995.
Joshua T. Hamilton, Executive Vice President of the Company and President
of the Greige Fabrics Division, joined a predecessor of the Greige Fabrics
Division in 1983 and served as Vice President of Operations from 1989 until
becoming President in 1992.
James F. Robbins joined the Company in 1992 as Executive Vice President
for Marketing, Elastic Fabrics. In 1996, he was elected Executive Vice
President and President in charge of Elasticized Fabrics.
26
<PAGE> 27
W. James Raleigh was elected as a director of the Company on April 2,
1996. Mr. Raleigh previously served as President of the Greige Division's
sales organization until his retirement in September 1995.
Rupinder S. Sidhu has served as a director of the Company since 1986.
Mr. Sidhu is the President of Merion Capital Management LLC, a private
investment company, a position he has held since 1994. He was also a Special
Limited partner of Stonington Partners, Inc., a private investment firm, from
1993 through 1994. He has been a member of the Board of Directors of Merrill
Lynch Capital Partners ("MLCP"), a private investment firm affiliated with
Merrill Lynch & Co., since 1987. From 1993 to July 1994, he was a Partner of
MLCP and a Senior Vice President of MLCP from 1987 to 1994. Mr. Sidhu was also
a Managing Director of the Investment Banking Division of ML & Co. from 1989 to
1994 and a Director of the Investment Banking Division of Merrill Lynch,
Pierce, Fenner & Smith Incorporated from 1989 to 1994 and a Director of the
Investment Banking Division of MLPF&S from 1987 to 1989. Mr. Sidhu is a
director of First USA, Inc., and First USA Paymentech Inc.
Stephen M. McLean has served as a director of the Company since 1992.
Mr. McLean is a Partner and a Director of Stonington Partners, Inc., a private
investment firm, a position that he has held since 1993 and is a Partner and a
Director of Stonington Partners, Inc. II. He has also been a member of the
Board of Directors of Merrill Lynch Capital Partners, Inc. ("MLCP"), a private
investment firm affiliated with Merrill Lynch & Co., Inc. since 1987. Mr.
McLean was a Partner of MLCP from 1993 to July 1994 and a Senior Vice President
of MLCP from 1987 to 1993. Mr. McLean was also a Managing Director of the
Investment Banking Division of Merrill Lynch, Pierce, Fenner & Smith,
Incorporated, from 1987 to 1994. Mr. McLean is a director of Dictaphone
Corporation, Pathmark Stores, Inc. and Supermarkets General Holding Corporation
and several privately held companies.
Michael H. deHavenon was first elected as a director of the Company in 1986
and served until 1994 when he did not stand for reelection. Mr. deHavenon was
appointed to the Board on October 24, 1995. Since January 1997 Mr. deHavenon
has been President of Kulen Capital Corp., a firm engaged primarily in making
private investments. Prior thereto, Mr. deHavenon served as President of
Merrill Lynch Capital Corporation and its predecessor, a wholly-owned subsidiary
of ML & Co. which structures and manages leveraged private investments.
27
<PAGE> 28
ITEM 11. EXECUTIVE COMPENSATION
Compensation Summary. The following table shows, for the last three
fiscal years of the Company, annual compensation paid by the Company to Joseph
L. Gorga, the President and Chief Executive Officer and the three other
executive officers of the Company serving at the end of the 1996 fiscal year
(collectively, the "Named Executive Officers").
Summary Compensation Table(1)
================================================================================
<TABLE>
<CAPTION>
Long Term
Compensation
Annual Compensation Awards
---------------------------------------- -----------
Other Annual Securities All Other
Salary Bonus Compensation Underlying Compensation
Name and Principal Position Year ($) ($)(2) ($)(3) Options (#) ($)
- ---------------------------- ----- ------- -------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Joseph L. Gorga 1996 325,000 185,000 15,400 40,000 --
President and Chief 1995 262,861 160,000 4,620 15,000 --
Executive Officer 1994 250,296 236,513 -- 10,000 --
James A. Ovenden 1996 225,000 75,000 10,740 15,000 --
Executive Vice President 1995 184,981 40,000 3,764 -- --
and Chief Financial Officer 1994 177,734 -- -- -- --
Joshua T. Hamilton 1996 200,000 -- 11,600 -- --
President, Greige Fabrics 1995 191,113 20,000 3,864 -- --
1994 181,665 -- -- -- --
James F. Robbins 1996 200,000 20,000 11,400 -- --
President, Elastic Fabrics 1995 185,000 60,000 3,697 -- --
1994 165,000 49,500 -- -- --
</TABLE>
___________________________
(1) The Company does not maintain a "long-term incentive plan," as that term
is defined by applicable rules of the Securities and Exchange Commission
(the "Commission"), and has not made any awards of restricted stock or
stock appreciation rights.
(2) Bonus amounts for Messrs. Gorga, Ovenden, Hamilton and Robbins represent
amounts paid under the Company's Incentive Compensation Program, which
provides for discretionary awards and for cash bonuses in years in which
earnings before interest, taxes and depreciation exceed predetermined
levels of earnings. Bonuses for Messrs. Gorga and Ovenden are based on
the performance of the Company and bonuses for Mr. Hamilton and Mr. Robbins
are based on the performance of the Greige Fabrics Division and the
Company's elasticized fabrics operations, respectively. See "--Employment
and Severance Agreements."
(3) Represents the Company's contribution on behalf of the Named Executive
Officer to the Company's 401(k) Plan for Associates of CMI Industries,
Inc. and the Company's 401(n) Deferred Compensation Plan.
28
<PAGE> 29
Grants of Stock Options and Stock Appreciation Rights. The following
table sets forth information with respect to options to purchase Common Stock
granted to the Named Executive Officers in the 1996 fiscal year.
OPTION GRANTS IN LAST FISCAL YEAR (1)
<TABLE>
<CAPTION>
Potential Realizable
Individual Grants Value of Assumed Annual
----------------- Rates of Stock Price
Number of Percent of Total Appreciation for Option
Securities Under Options Granted Term
-lying Options to Employees in Exercise or Base Expiration -----------------------
Name Granted (#)(2) Fiscal Year (3) Price ($/Share) Date 5%($) 10%($)
---- -------------- --------------- ---------------- ---------- ----- ------
<S> <C> <C> <C> <C> <C> <C>
Joseph L. Gorga 40,000 73% $27.50 1/31/2006 $671,560 $1,753,120
James A. Ovenden 15,000 27% $27.50 1/31/2006 $251,835 $657,420
Joshua T. Hamilton -- -- -- -- -- --
James F. Robbins -- -- -- -- -- --
</TABLE>
_________________________
(1) The Company does not maintain a plan that authorizes the issuance of
stock appreciation rights.
(2) The options granted are non-qualified options, were granted at
estimated fair market value on the date of grant, have a term of 10
years and are immediately exercisable.
(3) Based on options for 55,000 shares of Common Stock granted to all
employees during 1996.
Stock Option Exercises. The following table sets forth information with
respect to unexercised stock options held by the Named Executive Officers as of
December 28, 1996. None of the Named Executive Officers exercised any options
during the Company's 1996 fiscal year.
<TABLE>
<CAPTION>
Aggregated Fiscal Year End Option Values
----------------------------------------
Number of Unexercised Value of Unexercised
Options at Fiscal Year End In-the-Money Options at
(#) Fiscal Year End ($)(1)
Name Exercisable/Unexercisable Exercisable/Unexercisable
------------------ -------------------------- -------------------------
<S> <C> <C>
Joseph L. Gorga 75,000/0 $0/$0
James A. Ovenden 45,000/0 $0/$0
Joshua T. Hamilton -- --
James F. Robbins -- --
</TABLE>
____________________
(1) Calculated based on the difference between the estimated value of the
Common Stock underlying the options at December 28, 1996 and the exercise
price. Because the Common Stock is privately held and not listed on any
securities exchange, the fair market value of the Common Stock is not
readily ascertainable. Management's estimate of the value of the Common
Stock underlying the options includes a discount to reflect the lack of a
public market for the Common Stock and the restrictions applicable to the
Common Stock held by Management Investors pursuant to the terms of the
Management Subscription Agreements and the Restated Stockholders
Agreement. See "--Management Subscription Agreements" and "Item 12.
Security Ownership of Certain Beneficial Owners and Management."
Awards Under Long-Term Incentive Plans. The Company does not maintain a
"long-term incentive plan" as that term is defined by applicable rules of the
Commission.
29
<PAGE> 30
The 401(k) Plan. Effective January 1, 1995, the Company established the
401(k) Plan for Associates of CMI Industries, Inc., which covers
substantially all of the Company's employees. The Company intends to provide
retirement benefits in the future through the 401(k) plan. Under the 401(k)
plan, the Company matches 50% of employee contributions, not to exceed 2% of
pay, for all eligible and participating employees. Messrs. Gorga, Ovenden,
Hamilton and Robbins participate in the 401(k) plan.
The 401(n) Plan. Effective January 1, 1995, the Company established the
401(n) Deferred Compensation Plan for CMI Industries, Inc., which covers a
select group of highly compensated associates. The 401(n) Plan is a
non-qualified plan established to provide retirement benefits for CMI's
executives whose retirement benefits were limited due to the freezing of the
accrued benefits under the Defined Benefit Retirement Plans, and the
restrictions on benefits in the 401(k) Plan. The Board in its discretion may
authorize a supplemental match for select executives. Messrs. Gorga, Ovenden,
Hamilton and Robbins participate in the 401(n) Deferred Compensation Plan.
Defined Benefit Retirement Plans. Effective December 31, 1994, the Company
merged its two defined benefit plans, the Chatham Manufacturing, Inc. Pension
Plan and the Clinton Retirement Income Program and curtailed future benefits.
This restructuring resulted in a curtailment gain of $6.9 million, which
reduced the cost of sales in 1994. See "Item 7 -- Management's Discussion and
Analysis of Financial Condition and Results of Operations."
Clinton Retirement Income Program. In 1991 Clinton combined its Pension
Plan for salaried employees, its Retirement Plan for hourly employees and its
frozen Profit Sharing Plan to form the Clinton Retirement Income Program
("CRIP"). The CRIP is a noncontributory plan providing retirement benefits to
all salaried and hourly employees who meet certain age and service requirements.
Retirement benefits to salaried employees generally equal the greater of (i) 1
1/2% of the average total cash compensation for the five highest consecutive
years before retirement, multiplied by the number of years of service as a
salaried employee and reduced by 50% of the employee's primary Social Security
benefit payable at normal retirement date and (ii) 1% of the aggregate of the
participant's total cash compensation for all years of service as a salaried
employee after December 31, 1980. Benefits can be paid under the CRIP through
one of several annuity options selected by the participant, including joint and
survivor annuity options.
The following table sets forth estimated annual benefits payable upon
retirement in the Company's last fiscal year to CRIP participants at normal
retirement age in the compensation and service classifications specified.
30
<PAGE> 31
PENSION PLAN TABLE
YEARS OF SERVICE
<TABLE>
<CAPTION>
REMUNERATION 15 20 25 30 35
- ------------ ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
$125,000 $20,541 $29,916 $39,291 $48,666 $58,041
150,000 26,166 37,416 48,666 59,916 71,166
175,000 31,791 44,916 58,041 71,166 84,291
200,000 37,416 52,416 67,416 82,416 97,416
225,000 43,041 59,916 76,791 93,666 110,541
250,000 48,666 67,416 86,166 104,916 118,800
300,000 59,916 82,416 104,916 118,800 118,800
400,000 82,416 112,416 118,800 118,800 118,800
450,000 93,666 120,000 120,000 120,000 120,000
500,000 104,916 120,000 120,000 120,000 120,000
550,000 116,166 120,000 120,000 120,000 120,000
600,000 120,000 120,000 120,000 120,000 120,000
650,000 120,000 120,000 120,000 120,000 120,000
700,000 120,000 120,000 120,000 120,000 120,000
750,000 120,000 120,000 120,000 120,000 120,000
</TABLE>
Beginning in 1994, recognizable pay in tax qualified plans was limited to
$150,000 per year. Because of the grandfather treatment of prior accruals in
the CRIP, the above table recognizes accrued benefits on compensation in excess
of $150,000. The credited years of service for each of the Named Executive
Officers who participate in the CRIP are: Joseph L. Gorga, 4 years; James A.
Ovenden, 8 years; Joshua T. Hamilton, 12 years; and James F. Robbins, 3 years.
Chatham Pension Plan. On February 14, 1992, the Company's former Chatham
subsidiary became the sponsor of a pension plan that was originally established
in 1969 by Chatham's predecessor. The plan is a noncontributory plan and
covers all Chatham employees as of the first day of the first plan year after
the employee's date of employment. Participants accrue benefits as of January
1 of each year of eighty-five hundredths of one percent (.0085) of total
compensation for each plan year plus sixty-five hundredths of one percent
(.0065) of compensation which is in excess of $12,200. The plan is a career
average plan and has provision for accredited service prior to January 1,
1989. Benefits can be paid under the Chatham Pension Plan through one of
several annuity options. A lump-sum payment option is also offered with
spousal consent. The following table sets forth estimates of annual benefits
payable upon retirement in the Company's last fiscal year at normal retirement
age in the compensation and service classifications specified. The assumptions
used indicate the remuneration as career average compensation.
The following table sets forth estimated annual benefits payable upon
retirement in the Company's last fiscal year to plan participants at normal
retirement age in the compensation and service classifications specified.
31
<PAGE> 32
PENSION PLAN TABLE
YEARS OF SERVICE
<TABLE>
<CAPTION>
REMUNERATION 15 20 25 30 35
- ------------ ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
$125,000 $26,935 $35,914 $44,892 $53,871 $62,849
150,000 32,560 43,414 54,267 65,121 75,974
175,000 38,185 50,914 63,642 76,371 89,099
200,000 43,810 58,414 73,017 87,621 102,224
225,000 49,435 65,914 82,392 98,871 115,349
235,840 51,875 69,166 86,458 103,749 118,800
</TABLE>
The above table limits remuneration to $235,840 since the Chatham Pension
Plan has no participants with grandfathered compensation in excess of the 1993
maximum recognizable compensation limit for tax qualified plans. None of the
Named Executive Officers participate in the Chatham Pension Plan.
Compensation Committee Interlocks and Insider Participation. During the
1996 fiscal year, the Compensation Committee of the Company's Board of Directors
was composed of Messrs. Rupinder S. Sidhu, Stephen H. McLean, Michael H.
deHavenon and Joseph L. Gorga. Mr. Gorga is the President and Chief Executive
Officer of the Company. Messrs. Sidhu, McLean and deHavenon are not, and have
not been at any time, either officers or employees of the Company. Messrs.
Sidhu and McLean are affiliated with ML Capital Partners or ML & Co. ML Capital
Partners, through various affiliates, beneficially owns 58.8% of the outstanding
shares of Common Stock.
COMPENSATION OF DIRECTORS
The Company pays no remuneration to its directors for serving as such.
EMPLOYMENT AND SEVERANCE AGREEMENTS
Mr. Gorga. Effective January 1, 1996, the Company and Mr. Gorga entered
into an amended and restated employment agreement providing for the employment
of Mr. Gorga as the President and Chief Executive Officer of the Company. The
agreement has a term of two years, subject to annual renewals unless either
party objects. Under the agreement, Mr. Gorga is entitled to an annual salary
of $325,000, subject to increase by the Board's Compensation Committee. He is
entitled to participate in Company benefit plans, including the Incentive
Compensation Plan; so long as the current Incentive Compensation Plan is in
effect, the maximum amount payable under the plan to Mr. Gorga would be 75% of
his base salary rather than the amount specified in the plan.
In the event Mr. Gorga is terminated without cause during the term of the
agreement or within six months after its expiration, the agreement provides for
the payment to him of the greater of the base salary which would accrue over
the remaining term of the agreement or one year's base salary, together with
continued health and life insurance benefits during the period in
32
<PAGE> 33
which the payments are made. If Mr. Gorga is terminated or resigns under
specified circumstances following a change of control (as defined) that occurs
during the term of the agreement or within six months after its expiration, Mr.
Gorga will be entitled to two years' base salary from the termination or
resignation and continued health and life insurance coverage for two years. In
addition, with respect to certain change of control situations, the bonus
payable to Mr. Gorga under any incentive compensation plan then in effect,
rather than being calculated on a pro rata basis as of the termination date,
would be double the maximum amount to which Mr. Gorga otherwise would be
entitled for the entire year, regardless of the actual performance of the
Company. Under certain circumstances with respect to change of control, the
severance amounts payable, including funding for the continued benefits, would
be payable contemporaneously with the occurrence of the change of control.
Payments that result in the imposition of an excise tax penalty under section
4999 of the Internal Revenue Code of 1986, as amended, would result in a
reimbursement payment so that Mr. Gorga's after tax situation is not affected by
the additional tax. The agreement also contains certain agreements of Mr. Gorga
relating to noncompetition with the Company. Contemporaneously with the
execution of the employment agreement in February 1996, Mr. Gorga was issued
non-qualified stock options to acquire up to 40,000 shares of Company stock for
an exercise price of $27.50 per share, the amount determined by the Company to
be the fair market value of the Company's shares at the time of issue, and the
Company adjusted the exercise prices of 25,000 of options already held by Mr.
Gorga to the $27.50 price level.
Mr. Ovenden. Effective January 1, 1996, the Company and Mr. Ovenden
entered into an amended and restated employment agreement providing for the
employment of Mr. Ovenden as the Executive Vice President and Chief Financial
Officer of the Company. The agreement has a term of two years, subject to
annual renewals unless either party objects. Under the agreement, Mr. Ovenden
is entitled to an annual salary of $225,000, subject to increase by the Board's
compensation committee. He is entitled to participate in Company benefit
plans, including the Incentive Compensation Plan; so long as the current
Incentive Compensation Plan is in effect, the maximum amount payable under the
plan to Mr. Ovenden would be 50% of his base salary rather than the amount
specified in the plan.
In the event Mr. Ovenden is terminated without cause during the term of
the agreement or within six months after its expiration, the agreement provides
for the payment to him of the greater of the base salary which would accrue
over the remaining term of the agreement or one year's base salary, together
with continued health and life insurance benefits during the period in which
the payments are made. If Mr. Ovenden is terminated or resigns under specified
circumstances following a change of control (as defined) that occurs during the
term of the agreement or within six months after its expiration, Mr. Ovenden
will be entitled to two years' base salary from the termination or resignation
and continued health and life insurance coverage for two years. In addition,
with respect to certain change of control situations, the bonus payable to Mr.
Ovenden under any incentive compensation plan then in effect, rather than being
calculated on a pro rata basis as of the termination date, would be double the
maximum amount to which Mr. Ovenden otherwise would be entitled for the entire
year, regardless of the actual performance of the Company. Under certain
circumstances with respect to change of control, the severance amounts payable,
including funding for the continued benefits, would be payable
33
<PAGE> 34
contemporaneously with the occurrence of the change of control. Payments that
result in the imposition of an excise tax penalty under section 4999 of the
Internal Revenue Code of 1986, as amended, would result in a reimbursement
payment so that Mr. Ovenden's after tax situation is not affected by the
additional tax. The agreement also contains certain agreements of Mr. Ovenden
relating to noncompetition with the Company. Contemporaneously with the
execution of the employment agreement in February 1996, Mr. Ovenden was issued
non-qualified stock options to acquire up to 15,000 shares of Company stock for
an exercise price of $27.50 per share, the amount determined by the Company to
be the fair market value of the Company's shares at the time of issue.
Mr. G. Thaddeus Williams. Until his retirement from the Company in August
1995, Mr. Williams was employed as President and Chief Executive Officer of
the Company pursuant to an employment agreement effective as of January 1,
1991, which was amended as of July 1, 1993.
Pursuant to the terms of a severance and consulting agreement (the
"Consulting Agreement") entered into upon Mr. Williams' retirement, the rights
and obligations of Mr. Williams and the Company under the employment agreement
have been terminated, except as expressly provided by the Consulting Agreement.
Pursuant to the Consulting Agreement, Mr. Williams is to receive two years
of severance payments at the annual rate of $275,000. Following the
expiration of the severance payment period, Mr. Williams will provide
consulting services to the Board of Directors and to the Chief Executive
Officer of the Company for a period of up to three years and shall receive an
annual consulting fee of $175,000. During the term of the severance payment
period and the consulting period, Mr. Williams has agreed that he will not
compete or interfere with any business conducted by the Company or its
affiliates. Mr. Williams and his dependents are also entitled to continued
participation in the Company's group medical insurance plan and the Company
will pay the required premiums until Mr. Williams attains age 62.
MANAGEMENT SUBSCRIPTION AGREEMENTS
Pursuant to a management subscription agreement (the "Management
Subscription Agreement"), certain of the Company's officers and employees,
including Messrs. Hamilton and Warren, acquired shares of Common Stock in
December 1986. Mr. Ovenden, who acquired shares of Common Stock in 1987, is
subject to a subscription agreement substantially identical to the Management
Subscription Agreement, and is a Management Investor. The Management
Subscription Agreement and Mr. Ovenden's separate subscription agreement grant
the Company an option to purchase and each of the Management Investors an
option under certain circumstances to sell at fair market value the shares of
Common Stock owned by such Management Investor in the event of his death,
incapacity or termination of employment.
Under the Consulting Agreement with Mr. Williams, Mr. Williams waived his
rights under the Management Subscription Agreement to require the Company to
purchase his shares upon his retirement. The Consulting Agreement grants Mr.
Williams the option to sell all or a portion of the shares of Common Stock
directly owned by him to the Company in the event of an
34
<PAGE> 35
initial public offering of Common Stock, at the same price as shares of Common
Stock are being offered to the public. In addition, the Consulting Agreement
also provides Mr. Williams with the right to participate, at any time on or
prior to January 1, 1999, with ML Capital Partners in any sale by ML Capital
Partners to a third party of securities representing more than 15% of the
then-outstanding shares of Common Stock on a fully diluted basis. If Mr.
Williams exercises this right, he will be entitled to sell shares of Common
Stock in the same proportion as the shares of Common Stock ML Capital Partners
proposes to sell bear to the total number of outstanding shares of Common Stock
on a fully diluted basis at the same price and on the same terms as ML Capital
Partners sells its shares of Common Stock.
35
<PAGE> 36
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information with respect to the beneficial
ownership of shares of Common Stock as of December 28, 1996 of all stockholders
known by the Company to be the beneficial owners of more than five percent of
its outstanding Common Stock, of each director of the Company, each Named
Executive Officer named in the Summary Compensation Table, and of all directors
and executive officers as a group.
<TABLE>
<CAPTION>
SHARES BENEFICIALLYOWNED
--------------------------
NUMBER PERCENT
OF SHARES OF TOTAL
------------ ------------
<S> <C> <C>
Merrill Lynch Capital Partners, Inc.(1)(2) .... 994,387 58.8%
767 Fifth Avenue
48th Floor
New York, NY 10153
G. Thaddeus Williams(3) ....................... 142,000 8.2%
333 Spring Lake Road
Columbia, SC 29206
Steve F. Warren(4) ........................... 120,000 7.1%
2 Baywater Lane
Greensboro, NC 27408
Joseph L. Gorga(5) ........................... 75,000 4.2%
W. James Raleigh(6) ........................... 60,000 3.5%
James A. Ovenden(7) .......................... 55,000 3.2%
Joshua T. Hamilton(8) ........................ 16,000 *
James F. Robbins .............................. -- --
Michael H. deHavenon .......................... 4,081 *
Rupinder S. Sidhu ............................ -- --
Stephen M. McLean ............................ -- --
M. S. Bailey and Son Bankers, as Trustee ..... 126,698 7.5%
211 North Broad Street
Clinton, SC 29325
All directors and executive officers as a group
(8 persons)(5)(6)(7)(8) ...................... 210,081 11.6%
</TABLE>
*Less than 1%
(1) Ten limited partnerships, each of which is an affiliate of ML Capital
Partners and Merrill Lynch, are record owners of 894,986 of the presently
outstanding shares: Merrill Lynch Capital Appreciation Partnership No.
VII, L.P., Merrill Lynch Capital Appreciation Partnership No. B-XVI, L.P.,
ML Offshore LBO Partnership No. VII, ML Offshore LBO Partnership No.
B-XVI, ML Employees LBO Partnership No. I, L.P., ML Capital Partners
Associates L.P. No. II, Merrill Lynch Kecalp L.P. 1986, Merrill Lynch
Kecalp L.P. 1989, Merrill Lynch Kecalp L.P. 1991, and Merchant Banking
L.P. No. 1. Merrill
36
<PAGE> 37
Lynch LBO Partners No. II, L.P. ("LBO Partners II") is the general partner
of Merrill Lynch Capital Appreciation Partnership No. VII, L.P. and the
investment general partner of ML Offshore LBO Partnership No. VII. Merrill
Lynch LBO Partners No. B-III ("LBO Partners III") is the general partner of
Merrill Lynch Capital Appreciation Partnership No. B-XVI, L.P. and ML
Offshore LBO Partnership No. B-XVI. ML Capital Partners is in turn the
general partner of LBO Partners II and LBO Partners III. ML Employees
LBO Managers, Inc., a wholly-owned subsidiary of ML Capital Partners, is
the managing general partner of ML Employees LBO Partnership No. 1, L.P.
ML Capital Partners is the general partner of ML Capital Partners
Associates L.P. No. II. Kecalp, Inc., an indirect wholly-owned subsidiary
of ML&Co., is the general partner of Merrill Lynch Kecalp L.P. 1986,
Merrill Lynch Kecalp L.P. 1989 and Merrill Lynch Kecalp L.P. 1991.
Merrill Lynch MBP, Inc., an indirect wholly-owned subsidiary of ML&Co., is
the general partner of Merchant Banking L.P. No. 1. The remaining 99,401
outstanding shares deemed beneficially owned by ML Capital Partners are
owned of record by ML IBK Positions, Inc., an indirect wholly-owned
subsidiary of ML&Co. and an affiliate of ML Capital Partners and Merrill
Lynch.
(2) Rupinder S. Sidhu and Stephen M. McLean, directors of the Company, are
members of the Board of Directors of ML Capital Partners. By virtue of
their status as directors of ML Capital Partners, Messrs. Sidhu and McLean
may be deemed under the rules of the Commission to be beneficial owners of
856,165 shares of Common Stock owned of record by limited partnerships that
are wholly owned by ML Capital Partners. Messrs. Sidhu and McLean disclaim
beneficial ownership of these shares of Common Stock.
(3) Amounts for Mr. Williams include 45,000 shares of Common Stock issuable
to Mr. Williams pursuant to presently exercisable options.
(4) Amounts for Mr. Warren include 60,000 shares of Common Stock held by a
limited partnership in which Mr. Warren is a general partner.
(5) Amounts for Mr. Gorga represent shares issuable upon exercise of
presently exercisable options to acquire Common Stock.
(6) Amounts for Mr. Raleigh do not include 60,000 shares of Common Stock held
by a trust for the benefit of Mr. Raleigh's children, as to which Mr.
Raleigh disclaims beneficial ownership.
(7) Amounts for Mr. Ovenden include 45,000 shares issuable upon exercise of
presently exercisable options to acquire Common Stock.
(8) Amounts for Mr. Hamilton do not include 4,000 shares of Common Stock held
by a trust for the benefit of Mr. Hamilton's children, as to which Mr.
Hamilton disclaims beneficial ownership.
37
<PAGE> 38
RESTATED STOCKHOLDERS AGREEMENT
In connection with the original issuance of Common Stock to the ML Capital
Partners affiliates, certain of the Management Investors and others upon the
organization of the Company in 1986, all stockholders entered into a
stockholders agreement with the Company, which was amended and restated in its
entirety in February 1992 (the "Restated Stockholders Agreement"). The
Restated Stockholders Agreement provides that the ML Capital Partners
affiliates are entitled to designate four of the Company's seven directors and
the Management Investors are entitled to designate three of the Company's
directors. The Board of Directors is currently comprised of six members, three
of whom (Messrs. Sidhu, McLean and deHavenon) have been designated by ML
Capital Partners. Certain significant transactions between the Company and
unrelated parties require the approval of the Board of Directors and the holders
of more than two-thirds of the outstanding shares of Common Stock. Since the ML
Capital Partners affiliates have the right to elect the majority of the Board of
Directors, the approval of the directors elected by the ML Capital Partners
affiliates and Management Investors holding approximately 8% of the outstanding
Common Stock (in addition to the ML Capital Partners affiliated stockholders)
will be required to approve significant transactions. The Restated Stockholders
Agreement also provides for certain restrictions on the transfer of shares of
Common Stock by the current stockholders and rights of first refusal in
connection with certain proposed transfers of Common Stock. Pursuant to the
Consulting Agreement, Mr. Williams' shares of Common Stock will not be subject
to these transfer restrictions if the ML Capital Partners affiliated
stockholders sell their shares of Common Stock to an unaffiliated person or
distribute their shares of Common Stock to their respective partners or
investors.
Under the Restated Stockholders Agreement, all the stockholders of the
Company have certain registration rights with respect to their Common Stock.
These rights include demand and "piggyback" registration rights. The Company
is obligated to register shares of Common Stock under the demand registration
rights if holders of more than two-thirds of the outstanding shares request
registration. The registration rights extend until February 14, 2002 or
terminate sooner upon (i) the merger or consolidation of the Company with an
unaffiliated corporation in which the Management Investors and affiliates of ML
Capital Partners own less than 65% of the surviving or resulting corporation or
(ii) the sale of substantially all the assets of the Company to an
unaffiliated person. The remaining provisions of the Restated Stockholders
Agreement would terminate under the foregoing circumstances or sooner in the
event of (i) a public offering of Common Stock at the conclusion of which at
least 30% of the outstanding shares shall have been sold to the public or (ii)
the sale of 60% or more of the shares of Common Stock owned by either the
Management Investors as a group or the ML Capital Partners affiliates as a
group (as fully diluted by shares to be issued upon exercise of options).
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Purchase of Common Stock. Pursuant to the the terms of the Consulting
Agreement with Mr. Williams and the Management Subscription Agreement, the
Company in August 1995, purchased 83,000 shares of Common Stock owned by
certain trusts for the benefit of Mr.
38
<PAGE> 39
Williams' descendants (the "Trusts") at a price of $40 per share or a total of
$3.3 million. In addition, the Consulting Agreement provides that the Trusts
will have the right under certain circumstances to receive an additional amount
with respect to such shares if, on or before January 1, 1999 (i) the Company
undertakes an initial public offering of Common Stock, (ii) the Company enters
into a fundamental transaction such as a merger, recapitalization or similar
transaction, or (iii) the ML Capital Partners affiliated stockholders agree to
sell their shares of Common Stock to the Company or a party not affiliated with
ML Capital Partners and in connection with any such transaction the shares of
Common Stock are valued at a price higher than $40 per share. If such a
transaction is consummated, the Trusts will be entitled to receive from the
Company a payment equal to the difference between the per share value of Common
Stock in such transaction and $40 multiplied by 83,000 shares.
Market Making Activities. In October 1993, ML & Co. underwrote a public
offering of the Notes. The Company used the proceeds of the Offering, together
with initial borrowings under a credit agreement, to refinance the indebtedness
outstanding under certain subsidiary loan agreements and to call the Clinton
Debentures for redemption. ML & Co. received an underwriting discount of
$3,046,875 in connection with the Offering. The Company has agreed to maintain
the effectiveness of the registration statement pursuant to which the Notes were
registered with the Commission to enable ML & Co. to make a market in the Notes.
The Company also agreed to indemnify ML & Co. against certain liabilities,
including liabilities under the federal securities laws. For a discussion of
the relationship between each of ML & Co. and its affiliates and the Company,
see "Item 12--Security Ownership of Certain Beneficial Owners and Management."
Registration Rights. All current stockholders of the Company have certain
registration rights with respect to their Common Stock. See "Item 12--Security
Ownership of Certain Beneficial Owners and Management."
39
<PAGE> 40
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) The following documents are filed as a part of this Report:
<TABLE>
<S> <C> <C>
1. The financial statements filed as a part of this Report are
listed in the attached index to consolidated financial
statements and schedules.
2. The financial statement schedules filed as a part of this
Report are listed in the attached index to consolidated
financial statements and schedules.
3. Exhibits
3.1 -- Certificate of Incorporation of CMI Industries, Inc., as amended (1)
3.2 -- Bylaws of CMI Industries, Inc. (1)
4.1 -- Indenture dated as of October 28, 1993 between CMI Industries,
Inc. and Chemical Bank, Trustee (including the form of Note)
(2)
4.2 -- Letter dated September 24, 1993 from the South Carolina
National Bank to CMI Industries, Inc. (1)
4.3 -- Form of ISDA Master Agreement dated as of January 14, 1994
between the First National Bank of Boston and CMI Industries,
Inc., including memorandum of Swap Transaction dated January
14, 1994 (3)
4.4 -- Interest Rate Collar Transaction letter agreement dated
February 5, 1996 between the First National Bank of Boston and
CMI Industries, Inc. (7)
4.5 -- Credit Agreement dated as of March 19, 1996 among CMI
Industries, Inc., The First National Bank of Boston,
individually and as Agents, NationsBank of North Carolina,
N.A., and the Wachovia Bank of South Carolina, N.A. (7)
4.6 -- Waiver Letter dated October 11, 1996, among CMI Industries,
Inc., and The First National Bank of Boston, As Agent,
NationsBank of North Carolina, and Wachovia Bank of South
Carolina, as Lenders. (8)
4.7 -- Amendment No. 1 and Consent and Waiver dated as of February
28, 1997 to Loan and Security Agreement dated as of March 19,
1996 among CMI Industsries, Inc., The First National Bank of
Boston, as Agent and Lender, NationsBank, N.A. and The
Wachovia Bank of South Carolina, N.A., as Lenders (filed with
this Report)
</TABLE>
40
<PAGE> 41
<TABLE>
<S> <C>
10.1-- Management Subscription Agreement dated as of December 23, 1986 among
CMI Industries, Inc. and the persons listed on Schedule I thereto (1)
10.2-- Subscription Agreement dated as of June 1, 1987 between CMI Industries,
Inc. and James A. Ovenden (1)
10.3-- Subscription Agreement dated as of November 9, 1988 between CMI
Industries, Inc. and Michael H. deHavenon (1)
10.4-- Amendment No. 1 to Management Subscription Agreement dated as of April
14, 1989 among CMI Industries, Inc. and the persons listed on Schedule
1 thereto (1)
10.5-- Amendment No. 1 to Subscription Agreement dated as of April 14, 1989
between CMI Industries, Inc. and James A. Ovenden (1)
10.6-- Description of CMI Industries, Inc. Incentive Compensation Program (1)*
10.7-- CMI Holdings, Inc. 1989 (now known as CMI Industries, Inc.)
Non-Qualified Stock Option Plan (1)*
10.8-- CMI Industries, Inc. 1992 Non-Qualified Stock Option Plan dated
February 14, 1992 (1)*
10.9-- Option Agreement dated January 14, 1991 between CMI Industries, Inc.
and Joseph L. Gorga.(1)*
10.10-- Amended and Restated Stockholders Agreement dated February 14, 1992
among CMI Industries, Inc. and its Stockholders.(1)
10.11-- Amended and Restated Employment Agreement dated as of January 1, 1991
between Clinton Mills, Inc. and G. Thaddeus Williams as amended
effective as of July 1, 1993 by Amendment No. 1 to Amended and Restated
Employment Agreement dated August 24, 1993 between Clinton Mills, Inc.
and G. Thaddeus Williams.(1)*
10.12-- Amendment No. 1 to Amended and Restated Stockholders Agreement dated
March 31, 1994 (4)
10.13-- CMI Industries, Inc. 1994 Non-Qualified Stock Option Plan (4)
</TABLE>
41
<PAGE> 42
<TABLE>
<S> <C>
10.14-- Option Agreement between CMI Industries, Inc. and Joseph L. Gorga
dated January 2, 1994 pursuant to the CMI Industries, Inc. 1992 Stock
Option Plan (5)*
10.15-- Option Agreement between CMI Industries, Inc. and Joseph L. Gorga
dated January 2, 1994 pursuant to the CMI Industries, Inc. 1994 Stock
Option Plan (5)*
10.16-- Severance and Consulting Agreement dated August 23, 1995, by and
between CMI Industries, Inc. and G. Thaddeus Williams (6)
10.17-- Option Agreement between CMI Industries, Inc. and Joseph L. Gorga
dated January 23, 1995, pursuant to the CMI Industries, Inc. 1994
Stock Option Plan (7)*
10.18-- Amended and Restated Employment Agreement dated January 1, 1996
between CMI Industries, Inc. and Joseph L. Gorga (7)*
10.19-- Amended and Restated Employment Agreement dated January 1, 1996,
between CMI Industries, Inc. and James A. Ovenden (7)*
10.20-- Amendment No. 1 to Option Agreement between CMI Industries, Inc. and
Joseph L. Gorga dated January 31, 1996 (7)*
10.21-- Option Agreement between CMI Industries, Inc. and Joseph L. Gorga
dated January 31, 1996, pursuant to the CMI Industries, Inc. 1992
Stock Option Plan (7)*
10.22-- Option Agreement between CMI Industries, Inc. and Joseph L. Gorga
dated January 31, 1996, pursuant to the CMI Industries, Inc. 1994
Stock Option Plan (7)*
10.23-- Option Agreement between CMI Industries, Inc. and James A. Ovenden
dated January 31, 1996, pursuant to the CMI Industries, Inc. 1994
Stock Option Plan (7)*
10.24-- Option Agreement between CMI Industries, Inc. and James F. Robbins
dated January 31, 1997, pursuant to the CMI Industries, Inc. 1992
Stock Option Plan (filed with this Report)*
12 -- Computation of Ratio of Earnings to Fixed Charges (filed with this
Report)
21 -- Subsidiaries of CMI Industries, Inc. (filed with this Report)
</TABLE>
42
<PAGE> 43
<TABLE>
<S> <C>
23.1-- Consent on Financial Statement Schedules of Arthur Andersen & Co.
(filed with this Report)
27.1-- Financial Data Schedule (for SEC use only) (filed with this Report)
</TABLE>
______________________
(1) Filed as an exhibit to the Registration Statement on Form S-1
(Commission File No. 33-67854) filed by CMI Industries, Inc. with
respect to its $125,000,000 principal amount 9-1/2% Senior
Subordinated Notes due 2003 and declared effective October 22, 1993.
(2) Filed as an exhibit to the Company's Quarterly Report on Form
10-Q on December 6, 1993 and incorporated herein by this reference.
(3) Filed as an exhibit to the Company's Annual Report on Form
10-K on March 29, 1994 and incorporated herein by this reference.
(4) Filed as an exhibit to the Company's Quarterly Report on Form
10-Q on May 16, 1994 and incorporated herein by this reference.
(5) Filed as an exhibit to the Company's Annual Report on Form
10-K on March 31, 1995 and incorporated herein by this reference.
(6) Filed as an exhibit to the Company's Quarterly Report on Form
10-Q on November 14, 1995 and incorporated herein by this reference.
(7) Filed as an exhibit to the Company's Annual Report on Form
10-K on March 29, 1996 and incorporated herein by this reference.
(8) Filed as an exhibit to the Company's Quarterly Report on Form
10-Q on November 12, 1996 and incorporated herein by this reference.
* Identifies a management contract or compensatory plan or
arrangement required to be filed pursuant to Item 14(c) of Form
10-K.
(b) The Company did not file any Current Reports on Form 8-K during the
last quarter of the Company's 1996 fiscal year.
43
<PAGE> 44
SUPPLEMENTAL INFORMATION
The Company has not provided its security holders with an annual report
covering the Company's last fiscal year, or a proxy statement, a form of proxy
or other proxy soliciting material. After the filing of this Annual Report on
Form 10-K, the Company will send to the holders of its 9 1/2% Senior
Subordinated Notes an annual report containing audited financial statements of
the Company, together with an opinion thereon expressed by the Company's
independent auditors. The Company will furnish to the Securities and Exchange
Commission four copies of such annual report when it is sent to such holders.
44
<PAGE> 45
SIGNATURES
Pursuant to the requirements of the Section 13 or 15(d) 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: March 21, 1997 /s/ JOSEPH L. GORGA
-------------------------------
Joseph L. Gorga, President
and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
/s/ JOSEPH L. GORGA President, Chief Executive March 21, 1997
- -------------------- Officer, and Director
Joseph L. Gorga
/s/ JAMES A OVENDEN Principal Financial and March 21, 1997
- -------------------- Accounting Officer, and Director
James A. Ovenden
/s/ W. JAMES RALEIGH Director March 21, 1997
- --------------------
W. James Raleigh
/s/ RUPINDER S. SIDHU Director March 21, 1997
- ------------------------
Rupinder S. Sidhu
/s/ STEPHEN MCLEAN Director March 21, 1997
- ------------------------
Stephen McLean
/s/ MICHAEL H. DEHAVENON Director March 21, 1997
- ------------------------
Michael H. deHavenon
</TABLE>
45
<PAGE> 46
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
CMI INDUSTRIES, INC. AND SUBSIDIARIES
Financial Statements:
---------------------
<TABLE>
<S> <C>
Report of Independent Public Accountants......................................... 47
Consolidated Balance Sheets as of December 30, 1995 and December 28, 1996........ 48
Consolidated Statements of Operations for the years ended December 31, 1994,
December 30, 1995, and December 28, 1996.................................. 49
Consolidated Statements of Changes in Stockholders' Equity for the years
ended December 31, 1994, December 30, 1995 and December 28, 1996.......... 50
Consolidated Statements of Cash Flows for the years ended December 31, 1994,
December 30, 1995 and December 28, 1996................................... 51
Notes to the Consolidated Financial Statements................................... 52
Schedules:
----------
Schedule V - Property, Plant and Equipment for the years ended December 31, 1994,
December 30, 1995 and December 28, 1996................................... 64
Schedule VI - Accumulated Depreciation and Amortization of Property, Plant
and Equipment for the years ended December 31, 1994, December 30, 1995
and December 28, 1996.................................................... 65
Schedule VIII - Valuation and Qualifying Accounts for the years ended
December 31, 1994, December 30, 1995 and December 28, 1996............... 66
</TABLE>
46
<PAGE> 47
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To The Board of Directors of
CMI Industries, Inc.:
We have audited the accompanying consolidated balance sheets of CMI Industries,
Inc. (a Delaware corporation) and subsidiaries as of December 28, 1996 and
December 30, 1995, and the related consolidated statements of operations,
changes in stockholders' equity and cash flows for each of the three years in
the period then ended. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of CMI Industries, Inc. and
subsidiaries as of December 28, 1996 and December 30, 1995 and the results of
their operations and their cash flows for each of the three years in the period
ended December 28, 1996, in conformity with generally accepted accounting
principles.
/s/ ARTHUR ANDERSEN LLP
Columbia, South Carolina
March 20, 1997.
47
<PAGE> 48
CMI INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 30, 1995 AND DECEMBER 28, 1996
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
1995 1996
-------- --------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 227 $ 2,244
Receivables, net 50,684 47,509
Inventories, net 67,051 58,143
Deferred income taxes -- 3,139
Other current assets 5,319 1,588
-------- --------
Total current assets 123,281 112,623
Property, plant and equipment, net 125,774 112,545
Intangible and other assets, net 8,053 8,366
-------- --------
$257,108 $233,534
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Book overdraft $13,226 $11,500
Current portion of long-term debt 853 4,000
Accounts payable 13,471 15,528
Accrued expenses, including
restructuring charges 15,189 13,089
-------- --------
Total current liabilities 42,739 44,117
Long-term debt 154,245 143,749
Deferred income taxes 3,352 --
Other liabilities 14,264 13,823
-------- --------
171,861 157,572
Commitments and contingencies
Stockholders' Equity:
Common stock of $1 par value per
share; 2,100,000 shares
authorized, 1,690,318 shares issued
and outstanding in 1995 and 1996 1,690 1,690
Paid-in capital 11,350 11,350
Retained earnings 29,468 18,805
-------- --------
Total stockholders' equity 42,508 31,845
-------- --------
$257,108 $233,534
======== ========
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these balance sheets.
48
<PAGE> 49
CMI INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1994, DECEMBER 30, 1995 AND DECEMBER 28, 1996
(IN THOUSANDS)
<TABLE>
<S> <C> <C> <C>
1994 1995 1996
-------- --------- ---------
Net sales $390,067 $408,636 $374,044
Cost of sales 343,443 367,925 345,888
-------- --------- ---------
Gross profit 46,624 40,711 28,156
Selling, general and administrative expenses 31,433 32,704 31,097
Executive severance charges -- 4,782 --
Provision for restructuring and other nonrecurring
asset writeoffs -- 12,900 --
-------- --------- ---------
Operating income (loss) 15,191 (9,675) (2,941)
-------- --------- ---------
Other income (expenses):
Interest expense (14,430) (17,174) (15,425)
Amortization of non-compete agreement (312) -- --
Other, net 1,709 1,406 1,588
-------- --------- ---------
Total other expenses, net (13,033) (15,768) (13,837)
Income (loss) before income taxes 2,158 (25,443) (16,778)
Income tax provision (benefit) 789 (9,500) (6,115)
-------- --------- ---------
Net income (loss) $1,369 $ (15,943) $ (10,663)
======== ========= =========
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these statements.
49
<PAGE> 50
CMI INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1994, DECEMBER 30, 1995 AND DECEMBER 28, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK TOTAL
-------------- PAID-IN RETAINED STOCKHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS EQUITY
------ ------ ------- -------- -----------
<S> <C> <C> <C> <C> <C>
Balance as of January 1, 1994 1,773 $1,773 $14,587 $44,042 $60,402
Net income -- -- -- 1,369 1,369
------ ------ ------- -------- -------
Balance as of December 31, 1994 1,773 $1,773 $14,587 $45,411 $61,771
Retirement of common stock (83) (83) (3,237) -- (3,320)
Net loss -- -- -- (15,943) (15,943)
------ ------ ------- -------- --------
Balance as of December 30, 1995 1,690 $1,690 $11,350 $29,468 $42,508
Net loss -- -- -- (10,663) (10,663)
------ ------ ------- -------- --------
Balance as of December 28, 1996 1,690 $1,690 $11,350 $18,805 $31,845
====== ====== ======= ======== =======
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these statements.
50
<PAGE> 51
CMI INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 1994,
DECEMBER 30, 1995 AND DECEMBER 28, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
1994 1995 1996
------- -------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 1,369 $(15,943) $(10,663)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization 20,834 23,241 23,226
(Gain) loss on disposal of equipment 609 195 (109)
Nonrecurring asset writeoffs -- 7,852 --
Changes in assets and liabilities:
Receivables (5,109) 8,855 3,175
Inventories (4,130) 11,516 8,908
Other current assets (992) 40 3,731
Intangible and other assets (2,408) 40 (817)
Payable--book overdraft 1,551 2,956 (1,726)
Accounts payable 531 (4,877) 2,057
Accrued expenses, including restructuring charges 2,318 2,070 (2,100)
Deferred income taxes 263 (9,736) (6,491)
Other liabilities (3,234) 4,579 (441)
------- -------- --------
Net cash provided by operating activities 11,602 30,788 18,750
------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cost of United Elastic acquisition,
net of Chesterfield disposal
and cash acquired -- (20,062) --
Cost of Clarkesville acquisition, net of cash acquired (11,952) -- --
Purchases of property, plant and equipment, net (28,390) (8,850) (9,288)
-------
Net cash used in investing activities (40,342) (28,912) (9,288)
------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (repayments) on revolving credit facilities 29,129 (1,474) (7,445)
Purchase of common stock from management -- (3,320) --
------- -------- --------
Net cash provided by (used in) financing activities 29,129 (4,794) (7,445)
------- -------- --------
Net increase (decrease) in cash and cash equivalents 389 (2,918) 2,017
Cash and cash equivalents, beginning of period 2,756 3,145 227
------- -------- --------
Cash and cash equivalents, end of period $ 3,145 $ 227 $ 2,244
======= ======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $12,785 $ 16,466 $ 15,211
======= ========= =========
Income taxes $ 799 $ 932 $ --
======= ========= =========
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these statements.
51
<PAGE> 52
CMI INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1994, DECEMBER 30, 1995 AND DECEMBER 28, 1996
(IN THOUSANDS, EXCEPT SHARE DATA)
1. DESCRIPTION OF COMPANY
CMI Industries, Inc. ("CMI," a Delaware corporation and subsequently referred
to as the "Company") is a diversified manufacturer of textile products serving
a variety of markets. On October 28, 1993, the Company merged its two primary
operating subsidiaries, Clinton Mills, Inc. and Chatham Manufacturing, Inc.
("Chatham"), with and into the Company upon the closing of the Offering (see
note 3). The Company currently operates through two groups: the Greige
Fabrics Division and the Finished Fabrics Division.
On January 3, 1995, the Company completed its acquisition of $21,400 of assets
of United Elastic Corporation for a purchase price of $20,600 plus the
assumption of approximately $800 of liabilities. The acquired operation
consists of a manufacturing facility located in Stuart, Virginia, which
produces narrow elasticized woven fabrics and products for sale to the intimate
apparel, swimwear and medical markets. The acquired assets are included in the
Company's financial results in 1995 and 1996.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The financial statements include the accounts of the Company and its
wholly-owned subsidiaries. The Company uses a 52-53 week fiscal year. There
were 52 weeks in each of the years presented in the Company's accompanying
statements of operations. All significant intercompany balances and
transactions have been eliminated.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements.
Estimates also affect the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
52
<PAGE> 53
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CASH AND CASH EQUIVALENTS
The Company includes cash, demand deposits and highly liquid investments with
maturities of less than three months in cash and cash equivalents in its
consolidated financial statements. The book overdraft consists of outstanding
checks that had not been presented to a bank for payment.
INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out method) or
market and include the costs of raw materials, direct labor and manufacturing
overhead.
PROPERTY, PLANT AND EQUIPMENT
Additions to property, plant and equipment are stated at cost. Depreciation of
property, plant and equipment is calculated for financial reporting purposes
using the straight-line method over the estimated useful lives of the assets.
For income tax purposes, depreciation is calculated principally by accelerated
methods. Estimated useful lives are as follows:
<TABLE>
<S> <C>
Buildings 20 years
Land improvements 20 years
Machinery and equipment 3-10 years
</TABLE>
INTANGIBLE AND OTHER ASSETS
Capitalized debt issuance costs are amortized over the remaining terms of the
respective debt using the straight-line method.
REVENUE RECOGNITION
The Company recognizes revenue when goods are shipped or when ownership is
assumed by the customers.
LINE OF BUSINESS AND CREDIT RISK
The Company's line of business is the manufacturing and selling of fabrics and
other textile products for the home furnishings, apparel, furniture upholstery,
transportation upholstery, bedding and industrial markets. Export sales are
insignificant. Substantially all of the Company's accounts receivable are due
from companies in the above markets located throughout the United States. The
Company generally does not require collateral for its accounts receivable. The
Company performs ongoing credit evaluations of its customers' financial
condition and establishes an allowance for doubtful accounts based upon factors
surrounding the credit risk of specific customers, historical trends and other
information.
53
<PAGE> 54
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INCOME TAXES
The Company follows Statement of Financial Accounting Standards (SFAS) No. 109
"Accounting for Income Taxes," which requires deferred income taxes to be
recognized for the tax consequences of "temporary differences" by applying
enacted statutory tax rates to differences between the financial statement
carrying amounts and the tax bases of existing assets and liabilities.
PRIOR-YEAR RECLASSIFICATIONS
Certain amounts in the 1995 consolidated financial statements have been
reclassified to conform with the 1996 presentation.
3. 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 Offering was completed through an
underwriter which is affiliated with the Company's principal shareholders. The
Notes are general unsecured obligations of the Company and are due October 1,
2003. The Notes' interest 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 $124,341 at December 28, 1996, is presented net of $659 of unamortized bond
issue discount that is being amortized over the period to maturity. The latest
information available indicates the fair value of the Company's Notes was
$118,750 at December 28, 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
Wachovia Bank of South Carolina credit facility, 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 15, 1998.
54
<PAGE> 55
3. LONG-TERM DEBT (CONTINUED)
Long-term debt as of December 30, 1995 and December 28, 1996 consists of:
<TABLE>
<CAPTION>
1995 1996
-------- --------
<S> <C> <C>
Borrowings under credit agreements:
Unsecured revolving credit facility $ 30,000 $ --
Secured revolving credit facility -- 19,408
Unsecured Wachovia Bank of SC facility 853 4,000
Senior subordinated notes, net 124,245 124,341
-------- --------
155,098 147,749
Less current portion (853) (4,000)
-------- --------
Long-term debt $154,245 $143,749
======== ========
</TABLE>
The new credit agreement requires a commitment fee of 3/8 of 1% per annum on
all unused amounts and as of December 28, 1996, the Company could have borrowed
an additional $42,400 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 December 28, 1996, the average interest rate on the revolving credit
facility was 7.3%. 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 7.3% at December 28,
1996.
The credit agreements and indenture 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 December 28, 1996, the Company was
not authorized to pay any cash dividends or purchase its capital stock. At
December 28, 1996, the Company was in compliance with, or had received waivers
for, 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 $50, respectively. The letters of credit expire
on February 10, 1997, June 30, 1997, January 11, 1997 and April 10, 1997,
respectively. At December 28, 1996, the Company owed no amount under these
letters of credit.
55
<PAGE> 56
4. INCOME TAXES
Components of income tax expense (benefit) for the years ended December 31,
1994, December 30, 1995 and December 28, 1996, consisted of the following:
<TABLE>
<CAPTION>
FEDERAL STATE TOTAL
-------- ------ --------
<S> <C> <C> <C>
1994:
Current $ 521 $ 5 $ 526
Deferred 81 182 263
-------- ------ --------
$ 602 $ 187 $ 789
======== ====== ========
1995:
Current $ -- $ -- $ --
Deferred (8,650) (850) (9,500)
-------- ------ --------
$ (8,650) $ (850) $ (9,500)
======== ====== ========
1996:
Current $ -- $ -- $ --
Deferred (5,705) (410) (6,115)
-------- ------ --------
$ (5,705) $ (410) $ (6,115)
======== ====== ========
</TABLE>
Alternative minimum taxes that have been paid as of December 28, 1996 and are
available indefinitely as carryforward credits for future federal income taxes
aggregated approximately $5,270. Such carryforward credits have been
considered in the determination of the net deferred income tax liability at
December 28, 1996.
Total income tax expense (benefit) differed from the amounts computed by
applying the U.S. federal income tax rate of 34 percent in 1994, 1995 and 1996
to income before income taxes and extraordinary item as a result of the
following:
<TABLE>
<CAPTION>
1994 1995 1996
---- -------- --------
<S> <C> <C> <C>
Computed "expected" tax expense (benefit) $734 $(8,650) $(5,705)
Increase in income taxes resulting from:
State income taxes, net of federal income tax benefit 71 (840) (554)
Other, net (16) (10) 144
---- ------- -------
Total income tax expense (benefit) $789 $(9,500) $(6,115)
==== ======= =======
</TABLE>
Temporary differences between the financial statement carrying amounts and tax
bases of assets and liabilities that give rise to the net deferred income tax
liability at December 30, 1995, and December 28, 1996 relate to the following:
<TABLE>
<CAPTION>
1995 1996
------- --------
<S> <C> <C>
Plant & equipment, principally due to difference in depreciation
methods $19,082 $ 19,014
Benefit of net operating loss for tax purposes (4,135) (10,531)
Alternative minimum tax credits (5,287) (5,270)
Accrued expenses not currently deductible and other, net (6,308) (6,352)
------- --------
Net deferred income tax liability (asset) $3,352 $ (3,139)
======= ========
</TABLE>
56
<PAGE> 57
5. BENEFIT PLANS
Effective December 31, 1994, the Company curtailed future benefits and merged
its two defined benefit plans, the Clinton Retirement Income Program (the
"CRIP") and the Pension Plan of Chatham Manufacturing, Inc. into the CRIP, which
covers substantially all of its associates who qualify as to age and service. In
general, the pension benefits are based on either years of service and
percentages of the average of the five highest years of compensation or total
compensation earned through December 31, 1994. The Company's funding policy is
to contribute the amounts recommended by its independent actuary, which are
determined after considering the funding status of the Company's plans, ERISA
guidelines and tax deductibility. The changes resulted in a curtailment gain of
$6,939, which reduced cost of goods sold in the accompanying 1994 statement of
operations. The curtailment of these plans did not reduce either plan assets or
vested benefits of the participants.
Effective December 30, 1995, the Company provided an early retirement window to
certain associates who were participants in the CRIP. In general, associates
offered the window were provided their age 65 benefit plus a social security
supplement until age 62, if applicable. The Company reported this $1,202
charge as part of its provision for restructuring in 1995.
The following table sets forth the funded status of the plans and amounts
recognized in the accompanying consolidated balance sheets at December 31,
1994, December 30, 1995, and December 28, 1996:
<TABLE>
<CAPTION>
1994 1995 1996
--------- --------- ---------
<S> <C> <C> <C>
Actuarial present value of benefit obligations:
Vested benefit obligation $ 33,601 $ 36,659 $ 31,217
Non-vested benefit obligation 807 618 1,827
--------- --------- ---------
Total accumulated benefit obligation $ 34,408 $ 37,277 $ 33,044
========= ========= =========
Projected benefit obligation $ (34,408) $ (37,277) $ (33,044)
Plan assets at fair value 37,142 37,305 38,155
--------- --------- ---------
Plan assets more than projected benefit obligation 2,734 28 5,111
Unrecognized net (gain) loss from past experience
different from that assumed and unrecognized
effects of changes in assumptions (1,172) 1,847 (3,807)
Additional cost due to early retirement window -- (1,202) --
--------- --------- ---------
Prepaid pension cost $ 1,562 $ 673 $ 1,304
========= ========= =========
</TABLE>
57
<PAGE> 58
5. BENEFIT PLANS (CONTINUED)
<TABLE>
<CAPTION>
Net pension cost consists of the following components:
1994 1995 1996
-------- ------- -------
<S> <C> <C> <C>
Service cost - benefits earned during the period $ 2,214 $ -- $ --
Interest cost on projected benefit obligation 3,193 2,828 2,650
Actual return on plan assets (3,384) (3,788) (6,318)
Additional expense due to early retirement window -- 1,202 --
Curtailment gain (6,939) -- --
Net amortization -- 645 3,037
-------- ------- -------
Net pension expense (income) $ (4,916) $ 887 $ (631)
======== ======= =======
</TABLE>
The assumptions used in determining the actuarial present value of benefit
obligations and the net periodic pension costs are as follows:
<TABLE>
<CAPTION>
1994 1995 1996
---- ---- -----
<S> <C> <C> <C>
Expected long-term return on assets - both plans 9.0% 9.0% 9.0 %
Weighted average discount rate 8.5% 7.5% 7.75%
</TABLE>
The plans' assets include marketable equity securities, guaranteed interest
contracts, and corporate and government debt securities.
The Company had a contributory Profit Sharing and Retirement Savings Plan for
the employees of Chatham. The Plan provided for contributions to the Plan by
the Company as designated by the Board of Directors and voluntary contributions
by the employees from 1% to 10% of their compensation. The expense was $178
for the period ended December 31, 1994. Effective January 1, 1995, this plan
was amended and restated, converting it into The 401(k) Plan for Associates of
CMI Industries, Inc., which covers substantially all of the Company's
associates. Under the 401(k) Plan, the Company matches 50% of employee
contributions, not to exceed 2% of pay, for all eligible and participating
associates. The Company's matching contribution totaled $1,314 for 1995 and
$1,105 for 1996.
The Company is substantially self-insured for employee health and workers'
compensation benefits. Provision for claims under these self-insured programs
is recorded based upon actuarially determined estimates of the aggregate
liability for claims incurred. The Company has accrued $2,989 and $3,800 for
payments under these plans at December 30, 1995 and December 28, 1996,
respectively.
58
<PAGE> 59
5. BENEFIT PLANS (CONTINUED)
In connection with the acquisition of Chatham, the Company assumed obligations
under a Supplemental Executive Retirement Plan ("SERP"), which is a
non-qualified plan that provides certain current and former Chatham officers
defined pension benefits in excess of limits imposed by federal tax law. At
December 30, 1995, and December 28, 1996, the accrued SERP liability was $3,310
and $3,359, respectively, which equals the projected benefit obligation plus
deferred gains and is included in other liabilities in the accompanying balance
sheets. The expense was $229, $287 and $291 for the periods ended December 31,
1994, December 30, 1995, and December 28, 1996, respectively. An irrevocable
trust has been established to hold certain assets of the Company (life
insurance contracts with a net cash value of $1,882 at December 28, 1996) as a
reserve for the discharge of liabilities under the plan.
The 1989 CMI Industries, Inc. Non-Qualified Stock Option Plan provided for the
grant of up to 35,000 shares of common stock for $25 per share. All of the
options granted under this plan are fully vested. In 1992, Chatham's Board of
Directors adopted the Chatham Manufacturing, Inc. 1992 Non-Qualified Stock
Option Plan which provided for the grant of up to 140,000 shares of Chatham
common stock. Options for 9,000 shares vest upon the attainment of levels of
earnings as defined in the agreement or at the end of 10 years, whichever
occurs first, while 60,000 shares vested immediately, 26,000 shares were
vested in 1993, and 8,000 shares were vested in 1994. Options to purchase
Chatham common stock were converted to options to purchase the Company's stock.
In 1996, the Company granted the remaining 37,000 shares from the 1992 Plan
and vested the recipients' interest in these shares immediately. In 1994, the
Company adopted the 1994 CMI Industries, Inc. Stock Option Plan which provided
for the grant of up to 50,000 shares of the Company's stock. Options for 2,000
shares were granted and vested immediately in 1994 pursuant to the 1994 Plan.
In 1995, options for 30,000 shares were granted pursuant to the 1994 Plan, with
vesting upon the attainment of certain earnings levels as defined in the
agreement or at the end of ten years, whichever comes first. In 1996, the
Company granted the remaining 18,000 shares from the 1994 Plan and vested the
recipients' interest in these shares immediately. As of December 28, 1996,
options to acquire 225,000 shares of the Company's common stock were
outstanding. Exercise prices of the options range from $25 to $45 per share.
Management has determined that no compensation expense should be recorded based
on these options. Since the inception of these plans, no options have been
exercised. The Company accounts for stock option plans under APB Opinion No.
25, under which no compensation cost has been recognized. Had compensation
cost for these plans been determined with FASB Statement No. 123, there would
not have been a material impact on the Company's net loss.
59
<PAGE> 60
6. RECEIVABLES, INVENTORIES, PROPERTY, PLANT AND EQUIPMENT, AND INTANGIBLE AND
OTHER ASSETS
Receivables, inventories, property, plant and equipment, and intangible and
other assets at December 30, 1995 and December 28, 1996 consist of the
following:
<TABLE>
<CAPTION>
1995 1996
--------- ---------
<S> <C> <C>
Receivables:
Trade $ 50,965 $ 49,074
Other 1,448 435
--------- ---------
52,413 49,509
Less allowance for doubtful accounts (1,729) (2,000)
--------- ---------
$ 50,684 $ 47,509
========= =========
Inventories:
Raw materials $9,872 $ 10,484
Work-in-progress 22,295 21,234
Finished goods 29,603 21,576
Supplies 5,281 4,849
--------- ---------
$ $67,051 $ 58,143
========= =========
Property, plant and equipment:
Land and land improvements $ 3,813 $ 3,521
Buildings and leasehold improvements 39,455 38,039
Machinery and equipment 203,648 199,811
Construction in progress 1,346 1,277
--------- ---------
248,262 242,648
Less accumulated depreciation and amortization (122,488) (130,103)
--------- ---------
$ 125,774 $ 112,545
========= =========
Intangible and other assets:
Debt issuance costs $ 3,314 $ 2,872
Cash value of life insurance, net of policy loans of $3,387
at December 30, 1995 and $3,922 at December 28, 1996 1,968 1,991
Prepaid pension cost 673 1,304
Other 2,098 2,199
--------- ---------
$ 8,053 $ 8,366
========= =========
</TABLE>
Inventories and Property, plant and equipment include assets held for sale at
December 28, 1996 with an approximate net realizable value of $250.
60
<PAGE> 61
7. ACCRUED EXPENSES AND OTHER LIABILITIES
Accrued expenses and other liabilities at December 30, 1995, and December 28,
1996 consist of the following:
<TABLE>
<CAPTION>
1995 1996
------- -------
<S> <C> <C>
Accrued interest $ 3,648 $ 3,281
Accrued compensation 725 801
Environmental cleanup accrual 337 291
Reserve for self insurance 2,989 3,800
Accrued restructuring charges 3,748 1,292
Other 3,742 3,624
------- -------
Total accrued expenses $15,189 $13,089
======= =======
Accrued SERP, deferred compensation and other $ 7,219 $ 7,850
Accrued severance liability 3,962 2,890
Environmental cleanup accrual 3,083 3,083
------- -------
Total noncurrent other liabilities $14,264 $13,823
======= =======
</TABLE>
8. COMMITMENTS, CONTINGENCIES AND OTHER MATTERS
The Company leases certain office facilities and equipment under various
operating leases expiring at various dates through 2005. Future minimum lease
payments under noncancelable operating leases are as follows at December 28,
1996:
<TABLE>
<S> <C>
1997 $ 3,133
1998 3,182
1999 2,078
2000 1,790
2001 1,679
Thereafter 1,822
-------
Total minimum lease payments $13,684
=======
</TABLE>
Rental expense was $1,717 for 1994, $1,621 for 1995, and $1,581 for 1996. The
majority of these leases require the Company to pay taxes, maintenance,
insurance, and certain other operating expenses applicable to the leased
property.
Environmental site evaluations have been performed which concluded that some
form of groundwater and soil remediation will be required by the Company. In
the future, the Company may also construct facilities to control flyash
disposal and runoff from a coal pile, and may perform asbestos abatement.
The Company believes that sufficient amounts are accrued as of December 28,
1996 for the cost of these expenditures.
61
<PAGE> 62
8. COMMITMENTS, CONTINGENCIES AND OTHER MATTERS (CONTINUED)
The Company is involved in various legal proceedings arising in the ordinary
course of business. In the opinion of management, the ultimate disposition of
these matters will not have a material adverse effect on the Company's
financial condition or results of operations.
As of December 28, 1996 the Company was committed to future capital
expenditures of $756.
The Company purchases significant amounts of cotton, one of its primary raw
materials, through commodity contracts. At December 28, 1996, all fixed
contracts were at prices which approximated or were below current market prices.
The Company's financial results are impacted by the variability of cotton and
other raw material prices.
Under the stockholders agreement, all of the stockholders of the Company have
certain registration rights with respect to their common stock. These rights
include demand and "piggyback" registration rights. The Company is obligated
to register shares of common stock under the demand registration rights if
holders of more than two-thirds of the outstanding shares request registration.
The registration rights extend until February 14, 2002 or terminate sooner
upon (i) the merger or consolidation of the Company with an unaffiliated
corporation in which the management investors and affiliates of Merrill Lynch
Capital Partners, Inc. own less than 65% of the surviving or resulting
corporation or (ii) the sale of substantially all the assets of the company to
an unaffiliated person. The remaining provisions of the stockholders agreement
would terminate under the foregoing circumstances or sooner in the event of (i)
a public offering of common stock at the conclusion of which at least 30% of
the outstanding shares shall have been sold to the public or (ii) the sale of
60% or more of the shares of common stock owned by either the management
investors as a group or the Merrill Lynch Capital Partners, Inc. affiliates as
a group (as fully diluted by shares to be issued upon exercise of options).
62
<PAGE> 63
9. RESTRUCTURING CHARGES AND ACCRUED SEVERANCE LIABILITY
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 Finished Fabrics Division, the Company consolidated certain operations
and is disposing 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>
<CAPTION>
December 30, 1995 December 28, 1996
----------------- -----------------
<S> <C> <C>
Restructuring items:
CRIP early retirement window $ 1,202 $1,202
Termination of consulting contracts and
other items 1,345 497
Severance and related benefit costs 2,501 795
------ ------
5,048 2,494
Other nonrecurring asset write-offs related to the restructuring:
Inventory write-offs 2,915 657
Property, plant and equipment write-offs 4,937 2,092
------- ------
$12,900 $5,243
======= ======
</TABLE>
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 from operations or amounts
available under the credit agreement. During 1996, the Company funded $2,554
of cash related restructuring items and disposed of $5,103 of assets related to
the restructuring.
In August 1995, the former President and Chief Executive Officer retired from
the Company. In connection with the retirement, the Company repurchased the
common stock of the former officer at a cost of $3,320. The repurchase price
is subject to future adjustment based on the occurrence of certain equity
transactions. The executive severance costs reported in the Company's
accompanying 1995 statement of operations of $4,782 includes retirement
benefits, salary, life insurance, consulting fees and other items.
10. SUBSEQUENT EVENT
Effective February 28, 1997, the Company and its lenders amended the new credit
agreement to reduce the borrowing limit to $65 million, to remove the bank's
security interest in certain inventories which the Company expects to be
realigned into separate operating entities in 1997 and to extend the maturity
of the new credit agreement by two years to January 2000. Additionally, the
Company and its lenders modified certain financial covenants to remedy a
previously waived covenant violation and to reflect the new duration of the
agreement.
63
<PAGE> 64
CMI INDUSTRIES, INC. AND SUBSIDIARIES
SCHEDULE V - PROPERTY, PLANT AND EQUIPMENT
For the Three Years Ended December 31, 1994, December 30, 1995, and December
28, 1996
<TABLE>
<CAPTION>
Balance at Balance at
Beginning Additions at Other End of
of Period Cost(1) Retirements Changes Period
---------- ------------ ----------- -------- ----------
<S> <C> <C> <C> <C> <C>
1994
Land and land improvements $ 3,322 $ 803 $ (489) $ -- $ 3,636
Buildings 27,155 2,849 (300) 685 30,389
Machinery and equipment 163,520 11,444 (5,268) 24,624 194,320
Leasehold improvements 382 -- -- 1,107 1,489
Construction in progress 5,132 22,544 -- (26,416) 1,260
-------- ------- --------- -------- --------
$199,511 $37,640 $ (6,057) $ -- $231,094
======== ======= ========= ======== ========
1995
Land and land improvements $ 3,636 $ 126 $ -- $ 51 $ 3,813
Buildings 30,389 5,974 -- 1,562 37,925
Machinery and equipment 194,320 3,117 (1,327) 7,538 203,648
Leasehold improvements 1,489 -- (271) 312 1,530
Construction in progress 1,260 9,549 -- (9,463) 1,346
-------- ------- --------- -------- --------
$231,094 $18,766 $ (1,598) $ -- $248,262
======== ======= ========= ======== ========
1996
Land and land improvements $ 3,813 $ -- $ (308) $ 16 $ 3,521
Buildings 37,925 -- (1,592) 758 37,091
Machinery and equipment 203,648 -- (12,980) 9,143 199,811
Leasehold improvements 1,530 -- (582) -- 948
Construction in progress 1,346 9,848 -- (9,917) 1,277
-------- ------- --------- -------- --------
$248,262 $ 9,848 $(15,462) $ 0 $242,648
======== ======= ========= ======== ========
</TABLE>
64
<PAGE> 65
CMI INDUSTRIES, INC. AND SUBSIDIARIES
SCHEDULE VI - ACCUMULATED DEPRECIATION AND AMORTIZATION
OF PROPERTY, PLANT AND EQUIPMENT
For the Three Years Ended December 31, 1994, December 30, 1995, and December
28, 1996
(in thousands)
<TABLE>
<CAPTION>
Balance at Balance at
Beginning Additions at Other End of
of Period Cost(1) Retirements Changes(2) Period
---------- ------------ ----------- ---------- ---------
<S> <C> <C> <C> <C> <C>
1994
Land and land improvements $ 6 $ 3 $ (2) $ -- $ 7
Buildings 7,690 1,454 (36) -- 9,108
Machinery and equipment 71,348 18,386 (3,647) -- 86,087
Leasehold improvements 56 36 -- -- 92
-------- ------- -------- -------- --------
$ 79,100 $19,879 $ (3,685) $ -- $ 95,294
======== ======= ======== ======== ========
1995
Land and land improvements $ 7 $ 4 $ -- $ 193 $ 204
Buildings 9,108 1,847 -- 794 11,749
Machinery and equipment 86,087 20,618 (330) 3,423 109,798
Leasehold improvements 92 191 (73) 527 737
-------- ------- -------- -------- --------
$ 95,294 $22,660 $ (403) $ 4,937 $122,488
======== ======= ======== ======== ========
1996
Land and land improvements $ 204 $ 5 $ -- $ (193) $ 16
Buildings 11,749 1,880 (684) (768) 12,177
Machinery and equipment 109,798 20,714 (11,434) (1,474) 117,604
Leasehold improvements 737 216 (236) (411) 306
-------- ------- -------- ------- --------
$122,488 $22,815 $(12,354) $(2,846) $130,103
======== ======= ======== ======= ========
</TABLE>
(1) Depreciation is provided for financial reporting purposes on the
straight-line method over the following estimated useful lives for the periods
indicated.
<TABLE>
<Captiom>
1994 1995 1996
---------- ---------- ----------
<S> <C> <C> <C>
Buildings 20 years 20 years 20 years
Land improvements 20 years 20 years 20 years
Machinery and equipment 3-10 years 3-10 years 3-10 years
</TABLE>
(2) The Company has recorded the 1995 nonrecurring write-off of property, plant
and equipment in other changes to accumulated depreciation and amortization.
65
<PAGE> 66
CMI INDUSTRIES, INC. AND SUBSIDIARIES
SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS
FOR THE THREE YEARS ENDED DECEMBER 31, 1994, DECEMBER 30, 1995,
AND DECEMBER 28, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
Balance at Balance at
Beginning Additions End of
Description of Period at Cost Deductions Period
---------- --------- ---------- -------
<S> <C> <C> <C> <C>
Year ended December 31, 1994:
Allowance for doubtful accounts $ 800 $ 508 $ (78) $1,230
====== ====== ===== ======
Year ended December 30, 1995:
Allowance for doubtful accounts $1,230 $1,399 $(900) $1,729
====== ====== ===== ======
Year ended December 28, 1996:
Allowance for doubtful accounts $1,729 $ 760 $(489) $2,000
====== ====== ===== ======
</TABLE>
66
<PAGE> 67
Report of Independent Public Accountants
To The Board of Directors of
CMI Industries, Inc.:
We have audited in accordance with generally accepted auditing standards, the
financial statements of CMI Industries, Inc. and subsidiaries included in this
annual report and have issued our report thereon dated March 20, 1997. Our
audit was made for the purpose of forming an opinion on the basic financial
statements taken as a whole. The schedules listed in the index are the
responsibility of the Company's management and are presented for the purposes
of complying with the Securities and Exchange Commission's rules and are not a
required part of the basic financial statements. These schedules have been
subjected to the auditing procedures applied in our audit of the basic
financial statements and, in our opinion, fairly state in all material respects
the financial data required to be set forth therein in relation to the basic
financial statements taken as a whole.
/s/ ARTHUR ANDERSEN LLP
Columbia, South Carolina
March 20, 1997.
67
<PAGE> 68
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit No. Description Page No.
- ----------- ----------- --------
<S> <C> <C>
4.7 -- Amendment No. 1 and Consent and Waiver dated as of
February 28, 1997 to Loan and Security Agreement dated as of
March 19, 1996 among CMI Industsries, Inc., The First National
Bank of Boston, as Agent and Lender, NationsBank, N.A. and
The Wachovia Bank of South Carolina, N.A., as Lenders
10.24 Option Agreement between CMI Industries, Inc. and James. F. Robbins
dated January 31, 1997, pursuant to the CMI Industries, Inc. 1992
Stock Option Plan
12 Computation of Ratio of Earnings to Fixed Charges
21 Subsidiaries of CMI Industries, Inc.
23.1 Consent and Report on Financial Statement Schedules of
Arthur Andersen & Co.
27.1 Financial Data Schedule (for SEC use only)
</TABLE>
68
<PAGE> 1
EXHIBIT 4.7
[EXECUTION COPY]
AMENDMENT NO. 1 AND CONSENT AND WAIVER
DATED AS OF FEBRUARY 28, 1997 TO
LOAN AND SECURITY AGREEMENT
DATED AS OF MARCH 19, 1996
CMI INDUSTRIES, INC., a Delaware corporation (the "Borrower"),
the financial institutions set forth on the signature pages hereof (the
"Lenders") and THE FIRST NATIONAL BANK OF BOSTON, a national banking
association, as Agent for the Lenders (the "Agent"), agree as follows:
PRELIMINARY STATEMENT
The Borrower, the Lenders and the Agent are parties to the Loan
Agreement (as hereinafter defined). The Borrower wishes to reorganize its
business by creating three new wholly-owned Subsidiaries, Chatham Fabrics, LLC,
Elastic Fabrics of America, LLC and Chatham Consumer Products, LLC, each a
Delaware limited liability company, (individually a "New Subsidiary" and
collectively the "New Subsidiaries") and transferring on a tax-free basis
certain assets of the Borrower's (i) Chatham Manufacturing division, including
the operations located in Boonville and Elkin, North Carolina (excluding the
Consumer Products group and Automotive group assets) to Chatham Fabrics LLC,
(ii) Elastic Fabrics of America division, including the operations based in
Greensboro, North Carolina and Stuart, Virginia, to Elastic Fabrics of America,
LLC and (iii) Consumer Products group of the Chatham Manufacturing division,
including the "Fiberwoven" plant located in Elkin, North Carolina, to Chatham
Consumer Products, LLC, such transferred assets to exclude Receivables (the
"Reorganization"). Such transactions require the consent of the Lenders under
the Loan Agreement. The Lenders are willing to consent to the Reorganization and
the parties desire to amend the Loan Agreement to permit the Reorganization and
otherwise reflect the restructuring of the Borrower's business resulting
therefrom.
STATEMENT OF AGREEMENT
NOW, THEREFORE, for and in consideration of the preliminary statement
and the mutual agreements hereinafter set forth, the parties hereto hereby agree
as follows:
SECTION 1. Cross-References and Definitions.
(a) Reference is made to the Loan and Security Agreement, dated as of
March 19, 1996, among the Borrower, the Lenders and the Agent (the "Loan
Agreement"). Upon and after the Amendment Effective Date (as hereinafter
defined) all references to the Loan Agreement in that document, or in any other
Loan Document or related document, shall mean the Loan Agreement as amended
by this Amendment. Except as expressly provided in this Amendment, the
execution and delivery of this Amendment does not and will not amend, modify or
supplement
<PAGE> 2
any provision of, or constitute a consent to or a waiver of any noncompliance
with the provisions of, the Loan Agreement or any other Loan Document, and,
except as specifically provided in this Amendment, the Loan Agreement and all
other Loan Documents shall remain in full force and effect.
(b) Unless otherwise defined herein, terms used in this Amendment which
are defined in the Loan Agreement shall have the same meaning herein as therein.
SECTION 2. Amendments. Effective on the Amendment Effective Date,
(a) Article I, Appendix I Amendment. Appendix I referred to in Section
1.1 of the Loan Agreement is hereby amended as follows:
(i) By substituting in their entirety the following definitions
for the corresponding existing definitions therein:
"Applicable Margin" means, for any Loans bearing
interest at the Base Rate, zero percent (0%), and for any
Loans bearing interest at the Eurodollar Rate, one and
one-half percent (1.5%)
"EBIT" for any period means the consolidated net
income of the Borrower and its consolidated Subsidiaries for
such period (without deduction of income and franchise taxes)
plus interest expense paid or accrued during such period.
"Fiscal Quarter" means each accounting period of the
Borrower consisting of approximately three months constituting
a fiscal quarter.
"Interest" means, with respect to any period,
interest expense of the Borrower and its consolidated
Subsidiaries (other than interest due but not payable on the
Senior Subordinated Notes under the terms of the Indenture)
during such period, minus any amortization of debt issuance
costs during such period and minus any amounts received or
accrued during such period by Borrower or a Subsidiary
pursuant to any interest cap, swap or collar agreement to
which Borrower or a Subsidiary is a party on the Agreement
Date or thereafter.
"Revolving Facility Amount" means $65,000,000, less
the sum of (a) Stated Amount of any outstanding Letter of
Credit from time to time and (b) the Interest Rate Exposure,
as reduced pursuant to the provisions of Section 2.6.
-2-
<PAGE> 3
"Revolving Facility Percentage Amount" means: as to
The First National Bank of Boston, $28,260,700; as to
NationsBank, N.A., $21,195,850; and as to Wachovia Bank of
South Carolina, N.A., $15,543,450 or such other amount as may
from time to time be reflected on the records of the Agent as
a result of an assignment by a Lender pursuant to Section 14.9
hereof.
"Termination Date" means January 15, 2000 or such
earlier date as all Secured Obligations shall have been
irrevocably paid in full and the Revolving Credit Facility
terminated or such later date to which the same may be
extended by agreement of the Borrower and all of the Lenders.
"Total Facility" means $65,000,000, as reduced
pursuant to the provisions of Section 2.6.
(ii) By adding the following definitions in the
appropriate alphabetical order:
"Fixed Charge Coverage Ratio" means, as of the last
day of any Fiscal Quarter of the Borrower, the result obtained
by dividing (i) the sum of EBITDA minus cash outlays for
income taxes and Capital Expenditures of the Borrower and its
consolidated Subsidiaries for the specified measurement period
by (ii) the sum of Interest plus scheduled principal payments
on long term Indebtedness (including scheduled payments of
capitalized lease obligations) of the Borrower and its
consolidated Subsidiaries during such measurement period.
"New Subsidiary" means one of Chatham Fabrics, LLC,
Elastic Fabrics of America, LLC or Chatham Consumer Products,
LLC, each a Delaware limited liability company and each a
Restricted Subsidiary wholly-owned, directly or indirectly, by
the Borrower.
"New Subsidiary Factoring Agreement" means each
nonrecourse accounts receivable purchase agreement between the
Borrower and a New Subsidiary providing for the purchase by
the Borrower of Receivables of such New Subsidiary from time
to time free of all Liens.
"Purchased Receivables" means Receivables purchased
by the Borrower from the New Subsidiaries from time to time
pursuant to the New Subsidiary Factoring Agreement at a
purchase price not greater than the face amount thereof.
"Reorganization" means the transfer by the Borrower
pursuant to the Reorganization Documents, on a tax-free basis,
of the assets of the Borrower's (i) Chatham Manufacturing
Division, including the operations
-3-
<PAGE> 4
located in Boonville and Elkin, North Carolina (excluding
the Consumer Products group and Automotive group assets)
to Chatham Fabrics LLC, (ii) Elastic Fabrics of America
division, including the operations based in Greensboro,
North Carolina and Stuart, Virginia, to Elastic Fabrics
of America, LLC, and (iii) Consumer Products group of
the Chatham Manufacturing division, including the
"Fiberwoven" plant located in Elkin, North Carolina, to
Chatham Consumer Products, LLC, excluding, however, assets
consisting of Receivables.
"Reorganization Documents" means the agreements and
documents listed on Appendix II hereto.
(iii) By amending the definition of "Eligible Receivable" by
inserting in clause (j) thereof the phrase "or a New Subsidiary's" immediately
after the word "Borrower's" appearing therein and by inserting in clause (k)
thereof immediately before the semicolon at the end thereof the phrase "other
than as a result of a purchase thereof by the Borrower pursuant to the New
Subsidiary Factoring Agreement."
(iv) By amending the definition of "Permitted Investments" by
deleting the "and" at the end of clause (a)(vi), substituting "; and" for the
period at the end of clause (a)(vii), and adding a new clause (a)(viii) to the
end thereof as follows:
"(viii) Investments contemplated by the
Reorganization."
(v) By amending the definition of "Permitted Liens" by
substituting ", and" for the period at the end of clause (h) and adding a new
clause (i) to the end thereof as follows:
"(i) Financing Statements filed by the Borrower, as
purchaser, against the New Subsidiaries, as sellers, in
connection with the acquisition by the Borrower of the
Purchased Receivables."
(b) Section 1.2 Amendment. Section 1.2 is hereby amended by
adding to the end thereof the following:
"Wherever in this Agreement there shall be a reference to
articles of incorporation or bylaws or shareholder agreements
with respect to a Subsidiary which is a limited liability
company, the reference shall be deemed to include articles of
organization, operating agreements and any other agreement
among members and managers, as such."
-4-
<PAGE> 5
(c) II Amendment. Article II is hereby amended by adding to the end
thereof a new Section 2.6 as follows:
"Section 2.6 Reduction of Revolving Credit Facility.
The Borrower shall have the right, at any time and from time
to time, upon at least three Business Days' prior irrevocable,
written notice to the Agent, to reduce permanently all or a
portion of the Revolving Facility Amount; provided, however,
that any such reduction shall be made in an amount not less
than $2,000,000 or increments of $1,000,000 in excess thereof
and shall not reduce the Revolving Credit Facility below the
sum of the amount of the aggregate Stated Amount of all
Letters of Credit outstanding at such time. As of the date of
reduction set forth in such notice, the Revolving Facility
Amount and the Total Facility shall be permanently reduced to
the amount stated in the Borrower's notice for all purposes
herein, and the Borrower shall pay the amount necessary to
reduce the amount of the Revolving Credit Loans outstanding
under the Revolving Credit Facility to the Revolving Facility
Amount as so reduced, together with accrued interest on the
amounts so prepaid. In the event of such reduction, each
Lender's Revolving Facility Percentage Amount shall be reduced
in an amount equal to such Lender's Revolving Facility
Percentage of the amount of such reduction."
(d) 9.9 Amendment. Section 9.9 is hereby amended by inserting
immediately before the period at the end of clause (a)(ii) the phrase "and the
purchase of Purchased Receivables."
(e) 10.1 Amendment. Section 10.1 is hereby amended to read in
its entirety as follows:
"Section 10.1 Financial Statements.
(a) Audited Year-End Statements. As soon as
available, but in any event within one hundred twenty
(120) days after the end of each Fiscal Year of the
Borrower, copies of the consolidating and
consolidated balance sheets of the Borrower and its
consolidated Subsidiaries as at the end of such
Fiscal Year and the related consolidating and
consolidated statements of earnings, shareholders'
equity and cash flows for such Fiscal Year, in each
case, if applicable, setting forth in comparative
form the consolidating and consolidated figures for
the previous year of the Borrower and its
consolidated Subsidiaries, reported on, as to the
consolidated statements only, without qualification
as to the scope of the audit, by independent
certified public accountants of nationally recognized
standing; and
-5-
<PAGE> 6
(b) Monthly Financial Statements. As soon as
available after the end of each fiscal month
(commencing with the fiscal month ending February 29,
1996) but in any event within 30 days after the end
of each fiscal month, copies of (i) the unaudited
consolidating and consolidated balance sheets of the
Borrower and its consolidated Subsidiaries as at the
end of such month and the related unaudited
consolidating and consolidated statement of earnings
for the Borrower and its consolidated Subsidiaries
for such month, and for the portion of the Fiscal
Year of the Borrower through such month, certified by
a Financial Officer of the Borrower as presenting
fairly, in all material respects, the consolidating
and consolidated financial condition and results of
operations of the Borrower and its consolidated
Subsidiaries (subject to normal year-end audit
adjustments and the omission of footnotes), (ii) if
such month is the last month of a Fiscal Year, a
forecast of consolidating and consolidated cash flow
from operations for the ensuing twelve months, and
(iii) if such month is the last month of a Fiscal
Year, a forecast of consolidating and consolidated
sales and operating earnings for the next succeeding
Fiscal Year; and, upon the request of the Agent, if
such month is the last month of a Fiscal Quarter, a
forecast of consolidating and consolidated sales and
operating earnings for the next succeeding Fiscal
Quarter;
all such financial statements (other than forecasts) to
present fairly, in all material respects, the financial
condition of the Borrower and its consolidated Subsidiaries
and be prepared in accordance with GAAP (except, with respect
to interim financial statements, for the omission of footnotes
and for the effect of normal year-end audit adjustments)
applied consistently throughout the periods reflected therein,
and the financial statements and forecasts described in
subsection (b) of this Section 10.1 to be prepared in good
faith and in such form and substance as has been approved by
the Agent on behalf of the Lenders prior to the Effective
Date, or as may be requested by the Agent and agreed to by the
Borrower."
(f) Section 11.1 Amendment. Section 11.1 is hereby amended as follows:
(i) by deleting Section 11.1(b) in its entirety and
substituting the following therefor:
"(b) Net Worth. The consolidated Net Worth of the
Borrower and its consolidated Subsidiaries at any time
(i) during the period from February 28,
1997 through the 1997 Fiscal Year to be less than $30,000,000;
and
-6-
<PAGE> 7
(ii) during each Fiscal Year commencing
after the 1997 Fiscal Year, to be less than the minimum
consolidated Net Worth required under this Section 11.1(b) for
the immediately preceding Fiscal Year plus (if a positive
number) 50% of the consolidated net income of the Borrower and
its Restricted Subsidiaries for such immediately preceding
Fiscal Year."
(ii) by adding a new subsection (c) thereto as follows:
"(c) Fixed Charge Coverage Ratio The Fixed Charge
Coverage Ratio to be less than 1.0 to 1.0 for the nine-month
period ended September 30, 1997 or for any twelve-month period
ending at the end of any Fiscal Quarter ending thereafter."
(g) Section 11.2 Amendment. Section 11.2 in hereby amended by deleting
the "and" at the end of clause (d), substituting "; and" for the period at the
end of clause (e) and adding a new clause (f) as follows:
"(f) Indebtedness of the Borrower to a New Subsidiary
and Indebtedness of a New Subsidiary to the Borrower."
(h) Section 11.4 Amendment. Section 11.4 is hereby amended by inserting
immediately before the period at the end thereof the following phrase, "and
(iii) Investments of the Borrower or any Subsidiary in a New Subsidiary and
Investments of a Subsidiary in the Borrower."
(i) Section 11.5 Amendment. Section 11.5 is hereby amended by adding
the following phrase immediately before the period at the end thereof,
"except that this Section 11.5 shall not restrict loans by the
Borrower to a New Subsidiary or loans or distributions by a
New Subsidiary to the Borrower or the repayment of any such
loans from time to time on such terms as the parties shall
agree."
(j) Section 11.5 Amendment. Section 11.5 is hereby amended by adding
immediately before the period at the end thereof the following:
"provided, however, that the Borrower may, during any Fiscal
Year, make Restricted Dividend Payments and Restricted
Purchases aggregating up to $3,000,000."
SECTION 3. Consent and Waiver of Default; Collateral Release. Effective
on the Amendment Effective Date (as hereinafter defined) the Lenders hereby
consent to the Reorganization and waive any Default that may occur by reason of
the Reorganization and the
-7-
<PAGE> 8
Lenders authorize the Agent on their behalf to release the Security Interest in
the Inventory and certain trademarks transferred to the New Subsidiaries in the
Reorganization.
SECTION 4. Conditions to Effectiveness. This amendment shall be
effective as of the date hereof (the "Amendment Effective Date") upon receipt by
the Agent of the following, each in form and substance satisfactory to the
Agent, at which time the Agent shall issue a written notice to the Borrower and
each Lender that the Amendment Effective Date has occurred:
(a) counterparts of this Amendment, duly executed and delivered by the
Borrower and each Lender;
(b) copies of the Reorganization Documents to be executed prior to the
Amendment Effective Date;
(c) certified copies of all corporate action taken by the Borrower and
each New Subsidiary to authorize the execution, delivery and performance of this
Amendment, the Reorganization Documents and each other certificate, agreement or
other document to be executed by the Borrower and each New Subsidiary in
connection with this Amendment and the Reorganization;
(d) a certificate of the President of the Borrower stating that, to the
best of his knowledge and based on an examination sufficient to enable him to
make an informed statement,
(i) after giving effect to the waiver and consent set forth in
Section 3 of this Amendment and the transactions contemplated
by the Reorganization Documents, all of the representations
and warranties made or deemed to be made under the Loan
Agreement are true and correct as of the date hereof, and
(ii) after giving effect to the waiver and consent set forth
in Section 3 of this Amendment and the transactions
contemplated by the Reorganization Documents, no Default or
Event of Default exists, and the Agent shall be satisfied as
to the truth and accuracy thereof;
(e) a legal opinion from Sutherland, Asbill & Brennan, counsel to the
Borrower, in form and substance satisfactory to the Agent and its counsel; and
(f) such other documents and instruments as the Agent or any Lender may
reasonably request.
SECTION 5. Representations and Warranties. The Borrower hereby makes
the following representations and warranties to the Agent and the Lenders, which
representations and warranties shall survive the delivery of this Amendment and
the making of additional Loans under the Loan Agreement as amended hereby:
(a) Organization; Power; Qualification. The Borrower and each New
Subsidiary is a corporation or limited liability company, as the case may be,
duly organized, validly existing and in good standing under the laws of its
jurisdiction of its organization, having the power and
-8-
<PAGE> 9
authority to own its properties and to carry on its business as now being and
hereafter proposed to be conducted and each is duly qualified and authorized to
do business in each jurisdiction in which the character of its properties or the
nature of its business requires such qualification or authorization and the
failure to so qualify would have a Materially Adverse Effect.
(b) Authorization of Agreements. The Borrower has the right and power,
and has taken all necessary action to authorize it, to execute, deliver and
perform this Amendment and each other agreement contemplated hereby to which it
is a party in accordance with their respective terms. This Amendment and each
other agreement contemplated hereby to which it is a party have been duly
executed and delivered by the duly authorized officers of the Borrower and each
is, or each when executed and delivered in accordance with this Amendment will
be, a legal, valid and binding obligation of the Borrower, enforceable in
accordance with its terms.
(c) Compliance of Agreements with Laws. The execution, delivery and
performance of this Amendment and each other agreement contemplated hereby,
including, without limitation the Reorganization Documents, to which the
Borrower or any New Subsidiary is a party in accordance with their respective
terms do not and will not, by the passage of time, the giving of notice or
otherwise,
(i) require any Governmental Approvals or violate any
Applicable Law relating to the Borrower or any New Subsidiary
(ii) conflict with, result in a breach of or constitute a
default under the articles or certificate of incorporation,
operating agreement, by-laws, or any agreement among the
members or shareholders of the Borrower or any New Subsidiary,
any material provisions of any indenture, agreement or other
instrument to which the Borrower or any New Subsidiary is a
party or by which any of them or any of their property may be
bound or any Governmental Approvals relating to the Borrower
or any New Subsidiary which conflict, breach or default could
have a Materially Adverse Effect, or
(iii) result in or require the creation or imposition of any
Lien upon or with respect to any property now owned or
hereafter acquired by the Borrower or any New Subsidiary other
than the Security Interest.
SECTION 6. Expenses. The Borrower agrees to pay or reimburse on demand
all costs and expenses, including, without limitation, reasonable fees and
disbursements of counsel, incurred by the Agent in connection with the
negotiation, preparation, execution and delivery of the Amendment.
SECTION 7. Governing Law. This Amendment shall be construed in
accordance with, and governed by the laws of, the State of Georgia.
SECTION 8. Counterparts. This Amendment may be executed in any number
of counterparts and by different parties hereto in separate counterparts, each
of which when so executed shall be deemed to be an original and shall be binding
upon all parties and their
-9-
<PAGE> 10
respective successors and assigns and all of which taken together shall
constitute one and the same agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed by their duly authorized officers or agents in several counterparts all
as of the day and year first above written.
AGENT: BORROWER:
THE FIRST NATIONAL CMI INDUSTRIES, INC.
BANK OF BOSTON, As Agent
By: By:
---------------------------- -----------------------------------
Name: Name:
-------------------------- -----------------------------
Title: Title:
-------------------------- -----------------------------
LENDER:
THE FIRST NATIONAL BANK OF BOSTON
By:
----------------------------
Name:
--------------------------
Title:
--------------------------
[SIGNATURES CONTINUED ON FOLLOWING PAGES]
-10-
<PAGE> 11
LENDER:
NATIONSBANK, N.A.
By:
----------------------------
Name:
--------------------------
Title:
--------------------------
-11-
<PAGE> 12
LENDER:
WACHOVIA BANK OF SOUTH CAROLINA, N.A.
By:
----------------------------
Name:
--------------------------
Title:
--------------------------
-12-
<PAGE> 13
APPENDIX II
1. Operating agreement
2. Bill of sale and assignment
3. Deed--Elkin plant (excluding Fiberwoven plant)
4. Deed--Boonville plan
5. Intellectual property license agreement
6. Nonrecourse accounts receivable purchase agreements
7. Management services agreement
8. Automotive division services agreement
9. Blanket division services agreement
10. Other documents in form and substance reasonably satisfactory to the
Agent and its counsel.
-13-
<PAGE> 1
EXHIBIT 10.24
THESE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES
LAWS. THESE SECURITIES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH
REGISTRATION OR AN EXEMPTION THEREFROM UNDER SAID ACTS.
CMI INDUSTRIES, INC.
NON-QUALIFIED STOCK OPTION AGREEMENT
This NON-QUALIFIED STOCK OPTION AGREEMENT is made and entered into as
of the ___ day of January, 1997 by and between CMI INDUSTRIES, INC., a Delaware
corporation (the "Corporation"), and JAMES F. ROBBINS (the "Optionee").
THE PARTIES AGREE AS FOLLOWS:
1. Grant of Option. The Corporation hereby grants to Optionee a
non-qualified stock option (the "Option") to purchase up to an aggregate of ten
thousand (10,000) fully paid and non-assessable shares of the Common Stock,
$1.00 par value per share, of the Corporation (the "Common Stock") on the terms
and conditions set forth herein. The shares of Common Stock subject to this
Option are hereinafter referred to at times as the "Option Shares."
2. Exercise Price. The exercise price for the Option Shares shall be
twenty seven and 50/100 dollars ($27.50) per share (the "Exercise Price").
3. The Plan. The CMI Industries, Inc. 1992 Stock Option Plan, as
amended from time to time, hereby is incorporated herein in its entirety by this
reference (the "Plan"). To the extent that any provision in this Agreement is
inconsistent with the Plan, the terms of the Plan shall control. "Board of
Directors" shall have the same meaning ascribed to such term in the Plan.
4. Exercise of Options.
4.1 Vesting. Subject to the other restrictions and conditions in this
Agreement, Optionee shall have the vested right to exercise this Option to
purchase the Option Shares as follows: (i) from and after the date hereof, 3,333
Option Shares; (ii) from and after January 1, 1998, 6,666 Option Shares (which
includes those previously vested); and (iii) from and after January 1, 1999,
10,000 Option Shares (which includes those previously vested).
4.2 Method of Exercise. Subject to the other restrictions in this
Agreement, this Option may be exercised for all or a part of the Option Shares
with respect to which this Option is then exercisable. Subject to SECTION 4.1
hereof and other restrictions in this Agreement, this Option is exercisable from
time to time by written notice to the Corporation stating the number of
Option Shares with respect to which this Option is being exercised. Such notice
shall be accompanied by payment in full for the Option Shares to be purchased.
Payment for all Option
<PAGE> 2
Shares purchased pursuant to this Option shall be made in cash, and no Option
Shares shall be issued or delivered until full payment therefor has been made.
The Optionee shall, as such, have none of the rights of a stockholder with
respect to the Option Shares until such payment is received by the Corporation.
4.3 Withholding. Whenever Optionee exercises this Option, in whole or
in part, the Corporation shall have the right to require Optionee to remit to
the Corporation, in cash, an amount sufficient to satisfy any federal, state and
local withholding requirements as a condition to the issuance of Option Shares.
Alternatively, Optionee may elect to satisfy such withholding requirements, in
whole or in part, by reducing the total number of Option Shares Optionee
receives by the number of Option Shares having a fair market value equal to the
amount of withholding that must be satisfied, which election shall be subject to
approval of the Board of Directors of the Corporation.
4.4 Non-Transferability of Option. This Option is not transferable or
assignable by Optionee except by will or the laws of descent and distribution
and, except as provided in SECTION 4.5, is exercisable only by Optionee during
the lifetime of Optionee. Any attempt to transfer, assign, pledge, hypothecate
or otherwise dispose of this Option, and any levy of execution, attachment or
similar process on this Option, shall be null and void. If this Option is
transferred by will or the laws of descent and distribution, the legal successor
to this Option shall take subject to and be bound by the terms of this
Agreement.
4.5 Exercise After Termination of Employment or Death. Unless the Board
of Directors expressly determines otherwise prior to the expiration of the
30-day period described below, upon termination of employment of Optionee with
the Corporation or any subsidiary thereof (collectively, the "Employer") for any
reason other than death, retirement (as hereinafter defined) or disability (as
hereinafter defined), Optionee may not exercise this Option more than thirty
days after the date of such termination of employment. For purposes of this
SECTION 4.5, "disability" and "retirement" shall be determined in accordance
with the disability and retirement policies of the Employer in effect on the
date any such determination is made. Notwithstanding the foregoing, this Option
may not be exercised following the date of termination of Optionee's employment
for Cause, as hereinafter defined. For purposes of this Agreement, termination
for "Cause" shall mean termination of Optionee's employment by the Employer
because of (A) any act or omission that constitutes a material and willful
breach by Optionee of any of Optionee's obligations or agreements under his
employment agreement, if any, with the Employer or the willful failure or
refusal of Optionee to perform any duties reasonably required by the Board of
Directors after notification by the Employer of such breach, failure or refusal
and failure of Optionee to correct such breach, failure or refusal within ten
days of such notification (other than by reason of the incapacity of Optionee
due to physical or mental illness) which breach, failure or refusal is
materially injurious to the financial condition or business of the Employer or
its affiliates, or (B) the committing by Optionee of a felony, or the
perpetration by Optionee of a dishonest act or common law fraud against the
Employer or any of its affiliates which is materially injurious to
the financial condition or business of the Employer or its affiliates, or (C)
the failure of Optionee to substantially and effectively discharge his duties to
the Employer, as determined by the Board
-2-
<PAGE> 3
of Directors in good faith. Upon any termination of employment of Optionee by
reason of retirement or disability, Optionee may exercise this Option at any
time during the three-month period after the date of such termination of
employment. Except as provided in SECTION 4.6, for purposes of this SECTION 4.5,
the employment of Optionee shall not be deemed terminated so long as Optionee is
employed by the Employer or by another corporation (or a parent or subsidiary
corporation of such other corporation) that has assumed this Option. If Optionee
dies, this Option may be exercised by Optionee's legal successor at any time
during the three-month period following Optionee's death. The provisions of this
SECTION 4.5 shall not extend the term of this Option specified in SECTION 4.7
hereof. To the extent this SECTION 4.5 permits Optionee (or his legal successor)
to exercise this Option after the date of Optionee's termination of employment
or death, this Option will only be exercisable for the number of Option Shares
that Optionee could have purchased on the date of Optionee's termination of
employment or death, as the case may be.
4.6 Leaves of Absence. The Board of Directors may in its discretion
determine whether any leave of absence constitutes a termination of employment
for purposes of this Option and SECTION 4.5 shall govern if the Board of
Directors determines that a termination of employment has occurred.
4.7 No Exercise After Expiration. This Option shall in no event be
exercisable after December 31, 2006.
4.8 Conditions to Exercise. Except as provided in SECTION 4.5 of this
Agreement, this Option may not be exercised by the Optionee unless Optionee is
then and continually has been, an employee of the Corporation or one of its
subsidiaries after the Effective Date of this Option.
5. Adjustment of Option Shares. The number and Exercise Price of Option
Shares for which this Option has been granted may be adjusted or this Option
amended or terminated in certain circumstances in accordance with the provisions
of the Plan.
6. Restriction on Issuance of Shares; Optionee's Representations.
6.1 Restriction on Issuance of Shares. The Corporation shall not be
obligated to sell or issue any Option Shares pursuant to this Agreement if such
issuance would result in the violation of any laws, including but not limited to
the Securities Act of 1933, as amended (the "Act"), or any applicable state
securities laws. Without limiting the foregoing, the issuance of Option Shares
pursuant to this Option is subject to the condition that if at any time the
Board of Directors shall determine that the listing, registration or
qualification of the Option Shares upon any securities exchange or under any
state or federal law is necessary or desirable as a condition to or in
connection with the granting of this Option or the purchase or delivery of the
Option Shares, the delivery of the Option Shares may be withheld unless and
until such listing, registration or qualification is effected. Stock
certificates evidencing the unregistered Option Shares acquired upon exercise of
this Option shall bear a restrictive legend to the effect that the securities
have been acquired for investment and have not been registered under the Act or
any applicable state securities laws, and may not be sold or transferred in the
absence of registration
-3-
<PAGE> 4
or an exemption therefrom under said acts, and such other restrictive legends as
are required or advisable under the provisions of any applicable laws.
6.2 Option for Investment. Optionee represents and warrants to the
Corporation that:
(a) He is accepting this Option for his own account, in his
individual capacity, and not on behalf of any other person or entity;
(b) He is acquiring this Option for investment and not with a
view to distribution or with the intent to divide his participation
with others or resell or otherwise distribute this Option; and
(c) Neither he nor anyone acting on his behalf has paid or
will pay a commission or other remuneration to any person in connection
with the acquisition of this Option.
7. Rights as a Shareholder. Optionee shall have no rights as a
shareholder with respect to any Option Shares until the date of issuance of a
stock certificate for such Option Shares. Subject to SECTION 5 hereof, no
adjustment shall be made for dividends or other rights for which the record date
is prior to the date such stock certificate is issued.
8. No Continued Employment Rights. This Agreement shall not confer upon
Optionee any right with respect to the continuance of employment by the
Corporation or its subsidiaries, nor shall it interfere in any way with the
right of the Corporation or its subsidiaries to terminate such employment at any
time.
9. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware.
10. Notices. All notices and other communications under this Agreement
shall be in writing, and shall be deemed to have been duly given on the date of
delivery if delivered personally or when received if mailed to the party to whom
notice is to be given, by certified mail, return receipt requested, postage
prepaid, to the following address, or any other address specified by notice duly
given:
To Optionee at: Mr. James F. Robbins
--------------------
--------------------
--------------------
To the Corporation at: CMI Industries, Inc.
1301 Gervais Street
Columbia, SC 29201
Attention: Chairman
-4-
<PAGE> 5
11. Stockholders Agreement. If the Amended and Restated Stockholders
Agreement dated as of February 14, 1992, as amended and as hereafter amended
from time to time, among the Corporation and the holders of the Common Stock
(the "Stockholders Agreement") or any successor agreement thereto is in effect
when this Option is exercised in whole or in part, all Option Shares issued
hereunder automatically shall be subject to the terms of the Stockholders
Agreement, and the Optionee automatically shall be bound by the terms of the
Stockholders Agreement applicable to a Management Investor (as defined in the
Stockholders Agreement).
12. Put-Call Rights.
12.1 Termination of Employment other than Upon Death,
Disability or Retirement.
(a) If, prior to a Public Offering of the Common Stock,
Optionee's employment with the Corporation or a subsidiary thereof is
terminated by the Corporation or such subsidiary for Cause or without
Cause or by Optionee, other than upon Optionee's death, disability, or
retirement at or after obtaining the age of 65, the Corporation shall
have the option, for a period of 90 calendar days after the date of
termination of employment, to purchase all or any portion of the Option
Shares owned by Optionee. For purposes of this SECTION 12.1,
"disability" and "retirement" shall be determined in accordance with
the disability and retirement policies of the Employer in effect on the
date any such determination is made. The Corporation may exercise such
right by giving notice thereof to Optionee prior to the expiration of
such 90-day period. The purchase price for the Option Shares shall be
the fair market value of such Option Shares determined as of the date
of termination of employment, as agreed upon by Optionee and the
Corporation; provided, that, in the event that Optionee and the
Corporation cannot agree on such fair market value, a mutually agreed
upon third party shall make the final determination thereof ("Fair
Market Value"). "Public Offering" is defined in the Stockholders
Agreement.
(b) If, prior to a Public Offering of the Common Stock,
Optionee's employment with the Corporation or any subsidiary thereof is
terminated for any reason other than for Cause or Optionee's
resignation, and the Corporation shall not have exercised its 90-day
option to purchase all of the Option Shares as provided in SECTION
12.1(A) above, Optionee shall have the option, for a period of 90
calendar days, commencing at the end of the Corporation's 90-day option
period, to sell to the Corporation all or any portion of the Option
Shares then owned by Optionee. Optionee may exercise such option by
giving notice thereof to the Corporation prior to the expiration of
Optionee's 90-day option period. The purchase price for the Option
Shares shall be the Fair Market Value of such Option Shares.
12.2 Death, Disability or Retirement.
-5-
<PAGE> 6
(a) If, prior to a Public Offering of the Common
Stock, Optionee dies while in the employ of the Corporation or any
subsidiary thereof, or Optionee's employment with the Corporation or
any subsidiary thereof is terminated because of Optionee's disability
or retirement at or after obtaining the age of 65, the Corporation
shall have the option, for a period of 90 calendar days after the date
of death or determination of disability or retirement, as applicable,
to purchase all or any portion of the Option Shares owned by Optionee
or Optionee's legal representative. The Corporation may exercise such
Option by giving notice thereof to Optionee or Optionee's legal
representative prior to the expiration of such 90-day period. The
purchase price for the Option Shares shall be the Fair Market Value
thereof.
(b) If, prior to a Public Offering of the Common
Stock, the Corporation has not exercised its 90-day option under
SECTION 12.2(A) upon the death, disability or retirement of Optionee,
Optionee or Optionee's legal representative shall have the option, for
a period of 90 calendar days (180 calendar days in the case of
termination due to Optionee's death), commencing at the end of the
Corporation's 90-day option period, to sell to the Corporation all or
any portion of the Option Shares then owned by Optionee or Optionee's
legal representative. Optionee or his legal successor may exercise such
Option by giving notice to the Corporation prior to the expiration of
\Optionee's 90- day option period. The purchase price for such Option
Shares shall be the Fair Market Value thereof.
12.3 Election, Delivery and Payment Procedures.
(a) Upon any exercise by the Corporation or Optionee
or Optionee's legal representative of an option granted in SECTIONS
12.1 OR 12.2, the Corporation shall pay the purchase price in cash.
(b) The closing of any exercise of an option granted
in SECTIONS 12.1 OR 12.2 shall take place at the offices of the
Corporation not less than 15 nor more than 30 days after the date such
option is exercised or, if Optionee and the Corporation cannot reach
agreement on fair market value, not less than 15 nor more than 30 days
after such determination is made by the mutually agreed upon third
party. The exact date and time of closing shall be specified by the
party exercising such option.
(c) If the Corporation shall have the option to
purchase Option Shares from Optionee pursuant to sections 12.1 OR 12.2,
it shall specify to Optionee in reasonable detail its calculation of
Fair Market Value for the purchase price (i) at the time of its
exercise of its option or, (ii) if Optionee or Optionee's legal
representative will have an option to sell pursuant to SUBSECTIONS
12.1(B) OR 12.2(B), prior to the commencement of Optionee's 90-day
option period.
(d) At the closing of any exercise of any option
granted in SECTIONS 12.1 OR 12.2, Optionee shall deliver certificates
for the Option Shares to the Corporation
-6-
<PAGE> 7
duly endorsed or accompanied by written instruments of transfer in form
satisfactory to the Corporation, duly executed by Optionee, and free
and clear of any liens, against payment by the Corporation of the
purchase price therefor.
(e) Notwithstanding the provisions contained in
SECTIONS 12.1 AND 12.2, the Corporation shall not be obligated to
purchase any Option Shares, and Optionee shall have no right to sell
such Option Shares, except to the extent the Corporation shall be
permitted to repurchase its shares under applicable law and any
applicable financing agreements of the Corporation.
IN WITNESS WHEREOF, this Agreement has been executed and delivered as
of the day and year first above written.
THE CORPORATION:
CMI INDUSTRIES, INC.
By:
-----------------------------
Title:
--------------------------
OPTIONEE:
---------------------------- [L.S.]
JAMES F. ROBBINS
* * * * *
-7-
<PAGE> 1
EXHIBIT 12
RATIO OF EARNINGS TO FIXED CHARGES*
<TABLE>
<CAPTION>
FISCAL YEAR
-------------------------------------------------
1992 1993 1994 1995 1996
------- -------- -------- --------- ---------
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
Income before income taxes
and extraordinary items $21,457 $11,135 $ 2,158 $(25,443) $(16,778)
Fixed charges:
Interest expense 9,580 9,919 13,895 16,599 14,843
Amortization of debt expense 524 639 535 575 582
Interest component of rent expense 397 397 148 -- --
------- -------- -------- --------- ---------
Total fixed charges $10,501 $10,955 $14,578 $ 17,174 $ 15,425
======= ======== ======== ========= =========
Income before income taxes, extraordinary
items and fixed charges $31,958 $22,090 $16,736 $ (8,269) $ (1,353)
======= ======== ======== ========= =========
Ratio of earnings to fixed charges 3.04x 2.02x 1.15x (0.48)x (0.09)x
======= ======== ======== ========= =========
</TABLE>
*For purposes of calculation of earnings to fixed charges, earnings consist of
income before income taxes and extraordinary items, plus fixed charges. Fixed
charges consist of interest on all indebtedness, amortization of debt expenses
and the estimated interest component of rent expense.
<PAGE> 1
EXHIBIT 21
LIST OF SUBSIDIARIES OF REGISTRANT
The names of the Company's subsidiaries have been omitted pursuant to Item
601(b)(21)(ii) of Regulation S-K because such subsidiaries do not, in the
aggregate, constitute a "significant subsidiary" as of December 28, 1996.
However, the Company has begun to realign its assets into separate operating
entities, which realignment will be completed during the second quarter of the
1997 fiscal year. As of the date of this Report, one such operation, Chatham
Fabrics, L.L.C., a Delaware limited liability company, had been organized and
commenced operations.
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
reports and all references to our firm included in or made a part of this Form
10-K.
/s/ ARTHUR ANDERSEN LLP
Columbia, South Carolina,
March 20, 1997.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMTION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF CMI INDUSTRIES FOR THE YEAR ENDED DECEMBER 28, 1996 AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-28-1996
<PERIOD-START> DEC-31-1996
<PERIOD-END> DEC-28-1996
<CASH> 2,244
<SECURITIES> 0
<RECEIVABLES> 47,509
<ALLOWANCES> 0
<INVENTORY> 58,143
<CURRENT-ASSETS> 112,623
<PP&E> 242,648
<DEPRECIATION> 130,103
<TOTAL-ASSETS> 233,534
<CURRENT-LIABILITIES> 44,117
<BONDS> 143,749
0
0
<COMMON> 1,690
<OTHER-SE> 30,155
<TOTAL-LIABILITY-AND-EQUITY> 233,534
<SALES> 374,044
<TOTAL-REVENUES> 374,044
<CGS> 345,888
<TOTAL-COSTS> 376,985
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 15,425
<INCOME-PRETAX> (16,778)
<INCOME-TAX> (6,115)
<INCOME-CONTINUING> (10,663)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (10,663)
<EPS-PRIMARY> (6.31)
<EPS-DILUTED> (6.31)
</TABLE>
