<PAGE> 1
==============================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
---------------
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended October 2, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______________ to _____________________
Commission File Number 33-67854
--------
CMI INDUSTRIES, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified on its charter)
Delaware 57-0836097
- --------------------------------------------- -------------------
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
1301 Gervais Street, Suite 700, Columbia, South Carolina 29201
- -------------------------------------------------------------------------------
(Address of principal executive office) (Zip Code)
Registrant's telephone number including area code: (803) 771-4434
-----------
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 [ ]
As of November 1, 1999 there were 1,589,318 shares of $1 Par Value Common Stock
outstanding.
==============================================================================
<PAGE> 2
PART I FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
CMI INDUSTRIES, INC.
AND SUBSIDIARIES
Consolidated Statements of Income
(000s omitted except per share data)
(unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
------------------------- ------------------------
OCT. 3, OCT. 2, OCT. 3, OCT. 2,
1998 1999 1998 1999
------- -------- ------- --------
<S> <C> <C> <C> <C>
Net sales $ 107,540 $ 96,061 $ 317,696 $ 280,521
Cost of sales 93,776 88,960 274,744 257,247
--------- -------- --------- ---------
Gross profit 13,764 7,101 42,952 23,274
Selling, general and administrative expenses 8,619 7,901 25,324 24,114
Provision for restructuring and other
nonrecurring asset write-offs (note 6) -- -- -- 7,000
--------- -------- --------- ---------
Operating income (loss) 5,145 (800) 17,628 (7,840)
Other income (expenses):
Interest expense (3,130) (3,165) (9,594) (9,610)
Other, net 848 166 2,082 789
--------- -------- --------- ---------
Total other expenses, net (2,282) (2,999) (7,512) (8,821)
Income (loss) before income taxes 2,863 (3,799) 10,116 (16,661)
Income tax provision 1,046 (1,387) 3,796 (6,495)
--------- -------- --------- ---------
Net income (loss) $ 1,817 $ (2,412) $ 6,320 $ (10,166)
========= ======== ========= =========
Average shares outstanding during period 1,695 1,589 1,695 1,646
Net income per share $ 1.07 $ (1.52) $ 3.73 $ (6.18)
Depreciation and amortization included in
the above costs and expenses: $ 4,277 $ 4,315 $ 12,880 $ 13,096
</TABLE>
See Accompanying Notes
2
<PAGE> 3
CMI INDUSTRIES, INC.
AND SUBSIDIARIES
Consolidated Balance Sheets
January 2, 1999 and October 2, 1999
(000s omitted)
<TABLE>
<CAPTION>
JANUARY 2, OCTOBER 2,
1999 1999
---------- --------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 3,911 $ 1,064
Receivables, less allowance for doubtful
accounts of $1,200 and $1,225 50,884 54,600
Inventories: (note 3)
Raw materials 9,754 10,796
Work-in-process 19,386 20,740
Finished goods 20,716 19,986
Supplies 4,342 3,911
--------- ---------
54,198 55,433
Deferred income taxes -- 2,089
Other current assets 7,431 4,123
--------- ---------
Total current assets 116,424 117,309
Property, plant and equipment: (note 4)
Land and land improvements 3,326 3,317
Buildings 40,049 40,264
Machinery and equipment 207,923 214,153
Construction in progress 4,967 5,292
--------- ---------
256,265 263,026
Less accumulated depreciation and amortization (159,247) (174,421)
--------- ---------
97,018 88,605
Other assets:
Cash value of life insurance, intangibles,
deferred charges, and other assets 9,724 10,248
--------- ---------
$ 223,166 $ 216,162
========= =========
</TABLE>
See Accompanying Notes
3
<PAGE> 4
CMI INDUSTRIES, INC.
AND SUBSIDIARIES
Consolidated Balance Sheets
January 2, 1999 and October 2, 1999
(000s omitted)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
JANUARY 2, OCTOBER 2,
1999 1999
-------- ---------
(unaudited)
<S> <C> <C>
Current liabilities:
Payable - book overdraft $ 12,247 $ 7,600
Accounts payable 13,914 21,455
Accrued expenses, including restructuring charges 13,633 12,025
-------- --------
Total current liabilities 39,794 41,080
Long-term debt (note 2) 124,536 133,649
Deferred income taxes 4,506 --
Other liabilities 12,247 12,167
Stockholders' equity:
Common stock of $1 par value per share; 2,100,000 shares
authorized, 1,695,318 shares issued at January 2, 1999
and 1,589,318 shares issued at October 2, 1999 1,695 1,589
Paid-in capital 11,358 8,813
Retained earnings (note 2) 29,030 18,864
-------- --------
Total stockholders' equity 42,083 29,266
-------- --------
$223,166 $216,162
======== ========
</TABLE>
See Accompanying Notes.
4
<PAGE> 5
CMI INDUSTRIES, INC.
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the nine months ended October 3, 1998 and October 2, 1999
(000s omitted)
<TABLE>
<CAPTION>
OCTOBER 3, OCTOBER 2,
1998 1999
------------ -----------
<S> <C> <C>
Cash flows from operating activities: (unaudited) (unaudited)
Net income (loss) $ 6,320 $(10,166)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation and amortization 12,880 13,096
Nonrecurring asset write-off -- 6,000
Changes in assets and liabilities:
Receivables (13,835) (3,716)
Inventories (7,984) (3,351)
Other current assets (3,156) 3,308
Other assets (1,226) (843)
Accounts payable 4,581 7,541
Accrued expenses (771) (1,608)
Income taxes 2,100 --
Deferred income taxes 3,207 (6,595)
Other liabilities (44) (80)
-------- --------
Net cash provided by operating activities 2,072 3,586
-------- --------
Cash flows from investing activities:
Capital expenditures, net (4,340) (8,178)
-------- --------
Net cash used in investing activities (4,340) (8,178)
-------- --------
Cash flows from financing activities:
Net borrowings (repayments) on revolving credit facilities (139) 9,042
Purchase of common stock -- (2,650)
Net change in payable-book overdraft 1,759 (4,647)
-------- --------
Net cash provided by financing activities 1,620 1,745
-------- --------
Net decrease in cash (648) (2,847)
Cash and cash equivalents at beginning of year 1,729 3,911
-------- --------
Cash and cash equivalents at end of period $ 1,081 $ 1,064
======== ========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 12,244 $ 12,281
======== ========
Income taxes $ 1,104 $ 100
======== ========
</TABLE>
See Accompanying Notes
5
<PAGE> 6
Notes to Consolidated Financial Statements
Note 1:
Basis of Presentation:
The consolidated financial statements include the accounts of the
Company and its wholly owned subsidiaries. All significant intercompany balances
and transactions have been eliminated. In the opinion of management, the
accompanying unaudited consolidated financial statements include all adjustments
necessary to present fairly the Consolidated Balance Sheet as of October 2,
1999, the Consolidated Statements of Cash Flows for the nine months ended
October 3, 1998 and October 2, 1999, and the Consolidated Statements of Income
for the three months and nine months then ended. All dollar amounts are rounded
to thousands. The Consolidated Balance Sheet as of January 2, 1999 has been
audited, but the auditor's report is not included herein. The disclosures
accompanying these interim financial statements are condensed and should be read
in conjunction with the disclosures in the annual financial statements.
Note 2:
Long-Term Debt:
In October 1993, the Company completed a public offering ("the
Offering") of $125,000 in aggregate principal amount of 9 1/2% Senior
Subordinated Notes ("Notes") due October 1, 2003. The Notes are general
unsecured obligations of the Company. Interest on the Notes is payable
semiannually. The Notes are redeemable at the option of the Company at the
following redemption prices (expressed as a percentage of the principal amount),
plus accrued interest, if redeemed during the 12-month period beginning on
October 1 of the years indicated:
<TABLE>
<CAPTION>
Year Redemption Price
---- ----------------
<S> <C>
1998 104.750%
1999 102.375%
2000 and thereafter 100.000%
</TABLE>
The recorded balance of $124,608 at October 2, 1999, is presented net
of $392 of unamortized bond issue discount that is being amortized over the
period to maturity. The latest information available indicates the fair value of
the Notes was $90,000 at October 2, 1999. The fair value presented herein is not
necessarily indicative of the amounts that the Company would realize in a
current market exchange.
In March 1996, the Company replaced a $92 million unsecured revolving
credit facility with a new credit agreement and renewed a Wachovia Bank of South
Carolina facility at $4 million. The Company and its lenders amended the new
credit agreement in February 1997 to reduce the borrowing limit to $65 million,
to contemplate the realignment of the Company's assets into separate operating
entities, which was completed during 1997, and to extend the maturity of the
6
<PAGE> 7
secured revolving credit facility by two years to January 2000. The Company and
its lenders amended the secured revolving credit facility again in June 1999 to
reduce the borrowing limit to $45 million and to extend the maturity of the
secured revolving credit facility by another two years to March 2002. The
borrowings under the amended credit agreement are secured by all receivables,
certain inventories and certain intangibles. In September 1999, the Company
terminated the unsecured facility with Wachovia Bank of SC.
Long-term debt at January 2, 1999 and October 2, 1999 consisted of:
<TABLE>
<CAPTION>
JAN. 2, 1999 OCT. 2, 1999
------------ ------------
<S> <C> <C>
Borrowings under credit agreements:
Secured revolving credit facility $ -- $ 9,041
Unsecured Wachovia Bank of SC facility -- --
Senior subordinated notes, net 124,536 124,608
-------- --------
124,536 133,649
Less current portion -- --
-------- --------
Long-term debt $124,536 $133,649
======== ========
</TABLE>
The amended secured revolving credit facility requires a commitment fee
of 1/4 of 1% per annum on all unused amounts and as of October 2, 1999, the
Company could have borrowed an additional $35 million under the amended secured
revolving credit facility. Interest on the secured revolving credit facility is
based on a floating prime rate or an eurodollar rate plus 1 1/4%. At October 2,
1999, the prime borrowing interest rate on the revolving credit facility was
8.25%.
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 October 2, 1999, the
Company was authorized to pay up to $1.3 million of cash dividends or capital
stock purchases. At October 2, 1999, the Company was in compliance with all
covenants under all credit agreements.
As part of the Company's workers' compensation insurance agreements in
South Carolina, Alabama, Georgia and Virginia, the Company has obtained letters
of credit for $900, $200, $250 and $75 respectively. The letters of credit
expire on January 11, 2000, June 30, 2000, January 11, 2000 and April 10, 2000,
respectively. At October 2, 1999, the Company owed no amount under these letters
of credit.
7
<PAGE> 8
Note 3:
Inventories:
Inventories at January 2, 1999 and October 2, 1999 are stated at the
lower of cost (first-in, first-out) or market, and include the costs of raw
materials, direct labor, and manufacturing overhead.
Note 4:
Property, Plant and Equipment:
All additions to property, plant and equipment are stated at cost.
Depreciation is calculated for financial reporting purposes by the straight-line
method over the estimated useful lives of the respective assets.
Note 5:
Segment Information
The Company manages its businesses through three operating divisions: the Greige
Fabrics Division, the Elastic Fabrics Division, and the Chatham Division. The
Greige Fabrics Division produces greige woven fabrics, such as printcloths,
broadcloths, twills and other fabrics used in home furnishings, apparel and
industrial applications. The Elastic Fabrics division produces woven and knitted
elasticized fabrics used in the manufacturing of intimate apparel, activewear
and swimwear. The Chatham Division produces upholstery fabrics used in the
automotive and furniture industries and consumer products used in the home
textile industry. Information about the Company's three segments and the items
necessary to reconcile this information to the Company's consolidated results
are as follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
-----------------
OCTOBER 3, 1998 OCTOBER 2, 1999
--------------- ---------------
<S> <C> <C>
Net sales
Greige $118,409 $ 83,380
Chatham 127,695 121,641
Elastics 71,592 75,500
-------- --------
Total $317,696 $280,521
======== ========
Operating income (loss) before nonrecurring items
Greige $ 10,992 $ (8,330)
Chatham 2,618 1,228
Elastics 7,896 9,195
Corporate (3,878) (2,933)
-------- --------
Total 17,628 (840)
</TABLE>
8
<PAGE> 9
<TABLE>
<S> <C> <C>
Nonrecurring items -- 7,000
Interest expense 9,594 9,610
Other expense (income), net (2,082) (789)
-------- --------
Income (loss) before income taxes $ 10,116 $(16,661)
======== ========
Operating margin
Greige 9.3 (10.0)
Chatham 2.1 1.0
Elastics 11.0 12.2
-------- --------
Total 5.5% (0.3)%
======== ========
</TABLE>
Note 6:
Restructuring Charges
In the second quarter of 1999, the Company approved a plan to pursue
restructuring initiatives in all divisions. These initiatives are focused on
discontinuing certain weaving and yarn manufacturing operations which, when
coupled with certain yarn outsourcing strategies, will reduce the Company's
operating costs, downsize its fabric formation capacity to levels more in line
with market demand, and conserve capital for other equipment modernization
projects. In conjunction with these efforts, the Company will be consolidating
certain manufacturing capacity, realigning certain management responsibilities
and disposing of idle equipment and related inventories. These initiatives are
expected to be completed by December 1999. The restructuring initiatives also
include the termination and retirement of approximately 170 associates,
including the associated severance costs relating to insurance, vacation and
other benefits. The Company reported a $7,000 charge to earnings in connection
with the restructuring initiatives and has reserved for the following items in
the accompanying statement of income for the nine months ended October 2, 1999:
<TABLE>
<CAPTION>
Restructuring items: July 3, 1999 Oct. 2, 1999
------------ ------------
<S> <C> <C>
Severance and related benefit costs $ 1,000 646
Other nonrecurring asset write-offs:
Inventory write-offs 2,116 1,356
Property, plant & equipment write-offs 3,884 3,753
-------- --------
$ 7,000 $ 5,755
======== ========
</TABLE>
Included in the $7,000 charge were approximately $1,000 of incremental cash
expenditures. During the quarter ended October 2, 1999, the Company funded $354
of cash related restructuring items and disposed of $891 of assets related to
the restructuring.
9
<PAGE> 10
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
This report contains statements which to the extent that they are not
recitations of historical fact, may constitute "forward looking statements"
within the meaning of applicable federal securities laws. All forward looking
statements contained in this report are intended to be subject to the safe
harbor protection provided by the Private Securities Litigation Reform Act of
1995 and Section 21E of the Securities Exchange Act of 1934, as amended. For a
discussion identifying some important factors that could cause actual results to
vary materially from those anticipated in the forward looking statements made by
the Company, see the Company's Annual Report on Form 10-K for the year ended
January 2, 1999, including, but not limited to, the "Overview" discussion to
Management's Discussion and Analysis of Financial Condition and Results of
Operations on pages 17 and 18 of the Annual Report.
Results of Operations
Three Months Ended October 2, 1999
Compared with Three Months Ended October 3, 1998
Sales
Sales for the three months ended October 2, 1999 were $96.1 million, a
decrease of $11.5 million or 10.7% from the corresponding period of 1998. Sales
of the Greige Fabrics Division decreased $8.2 million, or 22.6%. Sales of the
Elastics Division increased $0.5 million or 1.8%, and sales of the Chatham
Division decreased $3.8 million or 8.1%.
The decrease in sales of the Greige Fabrics Division may be attributed
to unfavorable market conditions for printcloth fabrics used primarily in the
apparel and home furnishings markets. Average selling prices for these fabrics
during the period decreased 26.0% while volume was relatively unchanged. The
decline in prices is primarily attributable to increased imports of lower-
priced Asian fabrics and increased inventories at the Company's large vertical
home furnishing customers, which together has reduced the demand for
domestically-produced printcloth greige fabrics and negatively affected market
selling prices. The Company expects average selling prices for printcloth
fabrics to continue to be affected by lower priced imported fabrics and reduced
buying from certain key home furnishing customers. The Company anticipates these
factors to continue to negatively impact the performance of the Greige Fabrics
Division in the fourth quarter of 1999.
The sales decrease for the Chatham Division consisted of a $3.9 million
or 18.9% reduction in automotive upholstery sales. This decline is indicative of
the Company's placements for the Year 2000 model year as compared to prior year
placements. Additionally, the Chatham Division reported a $1.2 million decline
in yarn sales for the quarter ended October 2, 1999 related to its decision to
discontinue certain yarn sales activities as part of the restructuring
initiatives. The decline in yarn sales was more than offset by the continued
growth of furniture upholstery sales. Sales of consumer products remained
relatively unchanged for the third quarter period.
10
<PAGE> 11
Earnings
Operating income for the three month period ended October 2, 1999
decreased $5.9 million from operating income of $5.1 million in the
corresponding period of 1998 to an operating loss of $0.8 million. The decrease
in profitability is primarily attributable to the Greige Fabrics Division as the
influx of lower-priced imported fabrics and excess inventory levels continue to
suppress market selling prices for domestically-produced greige fabrics.
Although raw material prices for cotton and polyester have been more favorable
in 1999, the impact from reduced selling prices of greige fabrics has more than
offset any decline in raw material expenses. As a result, operating income for
the Greige Fabrics Division is down $5.9 million in the third quarter of 1999.
Operating margins in both the Elastics Division and the Chatham Division
remained relatively unchanged during the third quarter and did not offset the
significant losses associated with the Greige Fabrics Division.
Interest expense for the three months ended October 2, 1999 was $3.2
million, and remained relatively unchanged as compared to the corresponding
period of 1998.
Other income, net, for the three months ended October 2, 1999 was $0.2
million, a decrease of $0.7 million from the same period in 1998. Other income,
net, was greater in 1998 because the Company received $0.6 million in "Step 2"
payments under the USDA's Cotton Rebate Program. The Company has not received
any "Step 2" payments in 1999 because funding for the Cotton Rebate Program has
been exhausted.
As a result of the above mentioned items, income (loss) before income
taxes decreased $6.7 million for the three months ended October 2, 1999 over the
corresponding period in 1998, and the provision for income taxes decreased $2.4
million. The net loss of $2.4 million for the third period of fiscal 1999
represents a decrease in net earnings of $4.2 million as compared to the
corresponding period of fiscal 1998.
Nine Months Ended October 2, 1999
Compared with Nine Months Ended October 3, 1998
Sales
Sales for the nine months ended October 2, 1999 were $280.5 million, a
decrease of $37.2 million or 11.7%, from the corresponding period of 1998. Sales
of the Greige Fabrics Division decreased $35.0 million or 29.6%, while sales of
the Elastics Division increased $3.9 million or 5.5%, and sales of the Chatham
Division decreased $6.1 million or 4.7%.
The decrease in sales of the Greige Fabrics Division may be attributed
to deteriorating market conditions for printcloth fabrics used primarily in the
apparel and home furnishings markets. Average selling prices for these fabrics
during the period decreased 24.1% while volume decreased 11.4%. The decline in
greige sales in the first nine months of 1999 primarily reflects the increased
competition associated with lower priced imports from Asia. The sales decrease
in the Chatham
11
<PAGE> 12
Division consisted primarily of an $8.0 million, or 13.2% reduction in
automotive upholstery sales. Additionally, the Company's yarn sales have
decreased $3.7 million due to the Company's restructuring initiatives to
downsize its yarn spinning capacity. Strong demand for Chatham's furniture
upholstery products has resulted in a $5.4 million, or 12.7% increase in
year-to-date furniture sales which has partially offset the reduced levels of
automotive and yarn revenues. Sales of consumer products have remained
relatively unchanged in the first nine months of 1999 as compared to the same
nine month period in the prior year.
Earnings
Operating income for the nine month period ended October 2, 1999
decreased $25.4 million from operating income of $17.6 million in the first nine
months of 1998 to an operating loss of $7.8 million. Earnings in the Greige
Fabrics Division have declined $19.3 million as a result of the lower selling
prices and reduced demand for domestically-produced printcloth fabrics. The
Elastics Division has reported higher earnings due to higher sales and operating
improvements at its narrow elastic facility in Stuart, Virginia, while the
Chatham Division has experienced lower earnings due to lower sales levels and
operating disruptions associated with implementing certain of the production
consolidation initiatives as part of the restructuring.
Interest expense for the nine months ended October 2, 1999 was $9.6
million, and remained relatively unchanged from the corresponding period in
1998.
Other income, net, for the nine months ended October 2, 1999 was $0.8
million, a decrease of $1.3 million over the corresponding period in 1998. This
decrease reflects the $1.8 million in "Step 2" payments received by the Company
last year under the USDA's cotton rebate program. These payments ceased in
December 1998 when the program exhausted its funding.
The provision for income taxes decreased approximately $10.3 million in
the first nine months of 1999 as compared to the corresponding period in 1998
because income before income taxes decreased $26.8 million in the nine months
ended October 2, 1999. Consequently, net earnings for the nine months ending
October 2, 1999 decreased by $16.5 million from net income of $6.3 million in
the first nine months of 1998 to a net loss of $10.2 million for the first nine
months of 1999.
Financial Condition
For the nine months ended October 2, 1999, the Company generated $3.6
million of positive cash flow from operations, increased its net borrowings by
$9.0 million and reduced its cash balances by $2.8 million. The Company used
these borrowings and cash sources to fund $8.2 million of capital expenditures,
to reduce its payable book overdraft by $4.6 million and to repurchase $2.6
million of its outstanding common stock from a director of the Company.
12
<PAGE> 13
At October 2, 1999, working capital was approximately $76.2 million as
compared to approximately $76.6 million at January 2, 1999. Management is not
aware of any present or potential impairments to the Company's liquidity.
At October 2, 1999, long-term debt of approximately $133.6 million
represented 82.0% of total capital, compared to 74.7% at January 2, 1999.
The Company believes that funds from operations during the balance of
fiscal 1999 and amounts available under the amended credit agreement (see note 2
to consolidated financial statements) are adequate to finance capital
expenditures of approximately $2 million during the remainder of 1999, in
addition to meeting working capital requirements and scheduled debt service
payments.
Impact of Year 2000
The Company presently expects to spend approximately $0.2 million
during the remainder of 1999 to complete the replacement, modification and
testing of its computer information systems to ensure the proper processing of
transactions relating to Year 2000 and beyond. Included in this amount are
expenditures to implement certain new or improved systems which not only achieve
Year 2000 compliance, but significantly improve and expand operational
capabilities of certain of the Company's computer systems. The Company has
inventoried all critical financial, human resource, operational and
manufacturing systems and has developed detailed plans for the necessary system
modifications or replacements. As of the date of this filing, the Company
believes it has completed and tested approximately 99% of the new system
installations or existing system modifications. The Company will continue to
monitor and retest all business critical systems through the end of the year.
Additionally, the Company has communicated with its suppliers, vendors
(including machinery manufacturers) and customers to determine the status of
their Year 2000 initiatives and appropriate contingency plans are being
developed to address identified risks in these areas.
Executive management regularly reviews the status of its Year 2000
efforts and based on analyses of its own systems and discussions with and
surveys of its key vendors and customers, management currently believes that
Company information and manufacturing systems affected by Year 2000 issues have
been or will be timely identified and that its implementation plans will render
all material systems Year 2000 compliant on a timely basis; however, should
other entities upon whose systems the Company relies fail to properly address
Year 2000 compliance issues, or should key resources required to achieve the
initiatives described herein become unavailable or prove to be unreliable, the
Company's effectiveness in achieving Year 2000 compliance could be delayed,
which could have a material adverse effect on the Company's results of
operations.
13
<PAGE> 14
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Interest rate risk. The Company has exposure to interest rate changes
primarily relating to interest rate changes under its bank credit agreements.
The Company's bank credit agreement bears interest at a rate which may vary with
changes in (i) the London Interbank Offered Rate (LIBOR) or (ii) a rate of
interest announced publicly by The First National Bank of Boston. Although the
Company is not presently a party to any contract in which it speculates on the
direction of interest rates, the Company has in the past and may, in the future,
enter into contracts which have the effect of speculating on the direction of
interest rates. As of October 2, 1999, the Company had $9,041 of outstanding
indebtedness under its bank credit agreement which bore interest at a variable
rate. The Company believes that the effect, if any, of reasonably possible
near-term changes in interest rates on the Company's consolidated financial
position, results of operations or cash flows would not be material.
Commodity price risk. A portion of the Company's raw materials is
cotton which is subject to price volatility caused by weather, production
problems, delivery difficulties and other factors which are outside the control
of the Company. The Company believes that at certain times, changes in cotton
pricing may not be adjusted for by changes in its product pricing and therefore
could have a significant effect on the Company. Consequently, the Company
purchases futures contracts to hedge against fluctuations in the price of raw
material cotton. Increases or decreases in the market price of cotton may affect
the fair value of cotton commodity futures contracts. As of October 2, 1999, the
Company had contracted for 21,193 bales of cotton through commodity futures
contracts. A 10% decline in the market price of cotton would have a negative
impact of approximately $0.6 million on the fair value of the Company's
outstanding futures contracts.
14
<PAGE> 15
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None Reportable
Item 2. Changes in Securities and Use of Proceeds
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits
4.1 Amendment No. 1 dated September 30, 1999 to Amended
and Restated Loan and Security Agreement dated as of
May 28, 1999 between CMI Industries, Inc. and
BankBoston, N.A., as Agent for the Lenders.
27.1 Financial Data Schedule (for SEC use only)
b) Reports on Form 8-K
None
15
<PAGE> 16
SIGNATURE OF REGISTRANT
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CMI INDUSTRIES, INC.
Date: November 12, 1999 By /s/ JOSEPH L. GORGA
-----------------------------------------
Joseph L. Gorga
President and Chief Executive Officer
Date: November 12, 1999 By /s/ JAMES A. OVENDEN
-----------------------------------------
James A. Ovenden
Executive Vice President and Chief Financial
Officer
16
<PAGE> 17
PART III. INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit No. Description Page No.
----------- ----------- --------
<S> <C> <C>
4.1 Amendment No. 1 dated September 30, 1999 to Amended and Restated
Loan and Security Agreement dated as of May 28, 1999 between CMI
Industries, Inc. and BankBoston, N.A., as Agent for the Lenders.
27.1 Financial Data Schedule (for SEC use only)
</TABLE>
17
<PAGE> 1
EXHIBIT 4.1
AMENDMENT NO. 1
DATED AS OF SEPTEMBER 30, 1999 TO
AMENDED AND RESTATED
LOAN AND SECURITY AGREEMENT
DATED AS OF MAY 28, 1999
CMI INDUSTRIES, INC., a Delaware corporation (the "Borrower"),
the financial institutions set forth on the signature pages hereof (the
"Lenders") and BANKBOSTON, N.A., 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 has requested modifications to
certain financial covenants contained in the Loan Agreement and the Agent and
the Lenders are willing to agree to such requests, upon and subject to all of
the terms and conditions of this Amendment.
STATEMENT OF AGREEMENT
NOW, THEREFORE, for and in consideration of the premises, the Loan
Agreement 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 Amended and Restated Loan and
Security Agreement, dated as of May 28, 1999, 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 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 meanings herein as
therein.
SECTION 2. Amendments. Effective on the Amendment Effective Date
(as defined in SECTION 3), the Loan Agreement is amended by amending Section
11.1 Financial Covenants of the Loan Agreement by amending subsections (a) and
(c) thereof in their entirety to read as follows:
(a) Interest Coverage. Permit the ratio of EBITDA to
Interest for any period of four consecutive Fiscal Quarters ending
after the Effective Date and (i)
<PAGE> 2
prior to the last day of the third Fiscal Quarter of Fiscal Year 1999,
to be less than 1.25 to 1, (ii) on the last day of the third Fiscal
Quarter of Fiscal Year 1999 or on the last day of Fiscal Year 1999 to
be less than 1.0 to 1, or (iii) after the last day of Fiscal Year 1999,
to be less than 1.5 to 1.0.
. . .
(c) Fixed Charge Coverage Ratio. Permit the Fixed Charge
Coverage Ratio for any period of four consecutive Fiscal Quarters
ending after the Effective Date and (i) (A) prior to the last day of
the third Fiscal Quarter of Fiscal Year 1999 or (B) after the last day
of Fiscal Year 1999, to be less than 1.1 to 1.0 or (ii) on the last day
of the third Fiscal Quarter of Fiscal Year 1999 to be less than .6 to 1
(iii) or on the last day of Fiscal Year 1999, to be less than .5 to 1.
SECTION 3. 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) 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, after giving effect to this Amendment,
(i) 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) no Default or Event of Default exists,
and the Agent shall be satisfied as to the truth and accuracy thereof; and
(c) such other documents and instruments as the Agent or any
Lender may reasonably request.
SECTION 4. 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 is a
corporation, duly organized, validly existing and in good standing under the
laws of its jurisdiction of its organization, having the power and authority to
own its properties and to carry on its business as now being and hereafter
proposed to be conducted and is duly qualified and authorized to do business in
each jurisdiction in which the character of its properties or the nature of its
business
2
<PAGE> 3
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
to which the Borrower 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,
(iii) 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, any material provisions of any indenture, agreement or
other instrument to which the Borrower is a party or by which it or its
property may be bound or any Governmental Approvals relating to the
Borrower, which conflict, breach or default could have a Materially
Adverse Effect, or
(iv) 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, other than the Security Interest.
SECTION 5. 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 6. Governing Law. This Amendment shall be construed
in accordance with, and governed by the laws of, the State of Georgia.
SECTION 7. 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 respective successors and assigns and all of
which taken together shall constitute one and the same agreement.
3
<PAGE> 4
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:
BANKBOSTON, as Agent and as a Lender CMI INDUSTRIES, INC.
By: By:
--------------------------------- ----------------------------
Name: Name:
--------------------------- --------------------------
Title: Title:
-------------------------- -------------------------
LENDER:
BANK OF AMERICA, N.A. (formerly
NationsBank, N.A.)
By:
----------------------------
Name:
----------------------
Title:
---------------------
4
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF CMI INDUSTRIES INC. FOR THE NINE MONTHS ENDED OCTOBER 2,
1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-1-2000
<PERIOD-START> JAN-2-1999
<PERIOD-END> OCT-2-1999
<CASH> 1,064
<SECURITIES> 0
<RECEIVABLES> 55,825
<ALLOWANCES> 1,225
<INVENTORY> 55,433
<CURRENT-ASSETS> 117,309
<PP&E> 263,026
<DEPRECIATION> 174,421
<TOTAL-ASSETS> 216,162
<CURRENT-LIABILITIES> 41,080
<BONDS> 133,649
0
0
<COMMON> 1,589
<OTHER-SE> 27,677
<TOTAL-LIABILITY-AND-EQUITY> 216,162
<SALES> 280,521
<TOTAL-REVENUES> 281,310
<CGS> 257,247
<TOTAL-COSTS> 281,361
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 7,000
<INTEREST-EXPENSE> 9,610
<INCOME-PRETAX> (16,661)
<INCOME-TAX> (6,495)
<INCOME-CONTINUING> (10,166)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (10,166)
<EPS-BASIC> (6.18)
<EPS-DILUTED> (6.18)
</TABLE>
