<PAGE> 1
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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 April 3, 1999
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- --- EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number 33-67854
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CMI INDUSTRIES, INC.
- -------------------------------------------------------------------------------
(Exact name of registrant as specified in 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 April 3, 1999, there were 1,695,318 shares of $1 Par Value Common Stock
outstanding.
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<PAGE> 2
PART I FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
CMI INDUSTRIES, INC.
AND SUBSIDIARIES
Consolidated Statements of Operations
(000's Omitted Except Per Share Data)
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-------------------------
APRIL 4, APRIL 3,
1998 1999
--------- ---------
<S> <C> <C>
Net sales $ 109,045 $ 93,121
Cost of sales 92,825 84,214
--------- ---------
Gross profit 16,220 8,907
Selling, general and administrative expenses 8,844 8,196
--------- ---------
Operating income 7,376 711
Other income (expense):
Interest expense (3,231) (3,213)
Other, net 437 333
--------- ---------
(2,794) (2,880)
Income (loss) before income taxes 4,582 (2,169)
Provision for income taxes 1,775 (850)
--------- ---------
Net income (loss) $ 2,807 $ (1,319)
========= =========
Average shares outstanding during period 1,695 1,695
Net income (loss) per share $ 1.66 $ (0.78)
Depreciation and amortization included in the above
costs and expenses: $ 4,365 $ 4,350
</TABLE>
See Accompanying Notes.
2
<PAGE> 3
CMI INDUSTRIES, INC.
AND SUBSIDIARIES
Consolidated Balance Sheets
January 2, 1999 and April 3, 1999
(000's Omitted)
<TABLE>
<CAPTION>
JANUARY 2, APRIL 3,
1999 1999
--------- ---------
(Unaudited)
<S> <C> <C>
ASSETS
- ------
Current assets:
Cash and cash equivalents $ 3,911 $ 1,163
Receivables, less allowance for doubtful
accounts of $1,200 and $1,300 50,884 52,958
Inventories: (note 3)
Raw materials 9,754 11,299
Work-in-progress 19,386 19,086
Finished goods 20,716 22,401
Supplies 4,342 4,339
--------- ---------
54,198 57,125
Other current assets 7,431 2,443
--------- ---------
Total current assets 116,424 113,689
Property, plant and equipment: (note 4)
Land and land improvements 3,326 3,326
Buildings and leasehold improvements 40,049 40,049
Machinery and equipment 207,923 207,931
Construction in progress 4,967 7,603
--------- ---------
256,265 258,909
Less accumulated depreciation (159,247) (163,427)
--------- ---------
97,018 95,482
Other assets:
Cash value of life insurance, intangibles,
deferred charges, and other assets 9,724 9,996
--------- ---------
$ 223,166 $ 219,167
========= =========
</TABLE>
See Accompanying Notes.
3
<PAGE> 4
CMI INDUSTRIES, INC.
AND SUBSIDIARIES
Consolidated Balance Sheets
January 2, 1999 and April 3, 1999
(000's Omitted Except Share Data)
<TABLE>
<CAPTION>
JANUARY 2, APRIL 3,
1999 1999
---------- ---------
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
<S> <C> <C>
Current liabilities:
Payable - book overdraft $ 12,247 $ 6,840
Current portion of long-term debt (note 2) -- 4,000
Accounts payable 13,914 15,414
Accrued expenses 13,633 9,903
-------- --------
Total current liabilities 39,794 36,157
Long-term debt (note 2) 124,536 126,402
Deferred income taxes 4,506 3,562
Other liabilities 12,247 12,282
Stockholders' equity:
Common stock of $1 par value per share;
2,100,000 shares authorized, 1,695,318 shares issued 1,695 1,695
Paid-in capital 11,358 11,358
Retained earnings (note 2) 29,030 27,711
-------- --------
Total stockholders' equity 42,083 40,764
-------- --------
$223,166 $219,167
======== ========
</TABLE>
See Accompanying Notes.
4
<PAGE> 5
CMI INDUSTRIES, INC.
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the Three Months Ended April 4, 1998 and April 3, 1999
(000s omitted)
(Unaudited)
<TABLE>
<CAPTION>
APRIL 4, APRIL 3,
1998 1999
------- -------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 2,807 $(1,319)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation and amortization 4,365 4,350
Changes in assets and liabilities
Receivables (6,329) (2,074)
Inventories (7,641) (2,927)
Other current assets (415) 4,988
Other assets (609) (382)
Accounts payable 5,276 1,500
Accrued expenses (1,470) (3,730)
Income taxes payable (141) --
Deferred income taxes 1,706 (944)
Other liabilities 12 35
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Net cash used in operating activities (2,439) (503)
------- -------
Cash flows from investing activities:
Capital expenditures, net (1,950) (2,679)
------- -------
Net cash used in investing activities (1,950) (2,679)
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Cash flows from financing activities:
Net borrowings on revolving credit facilities 6,152 5,841
Decrease in payable-book overdraft (859) (5,407)
------- -------
Net cash provided by financing activities 5,293 434
------- -------
Net increase (decrease) in cash 904 (2,748)
Cash and cash equivalents at beginning of year 1,729 3,911
------- -------
Cash and cash equivalents at end of period $ 2,633 $ 1,163
======= =======
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 6,053 $ 6,126
======= =======
Income taxes $ 130 $ 94
======= =======
</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 April 3, 1999,
the Consolidated Statements of Cash Flows for the three months ended April 4,
1998, and April 3, 1999, and the Consolidated Statements of Operations for the
three months then ended. All dollar amounts are rounded to thousands. The
Consolidated Balance Sheet as of 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, and the Notes 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 $124,560 at April 3, 1999,
is presented net of $440 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 approximately $120,000 at April 3,
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 SC
facility at $4 million. The Company and the lenders amended the new credit
agreement in February 1997 to reduce the borrowing limit to $65 million, to
contemplate the realignment of the Company's assets into separate operating
entities, which was completed during 1997, and to extend the maturity of the
secured revolving credit facility by two years to January 2000. The borrowings
under the new credit agreement are secured by all receivables, certain
inventories and certain intangibles.
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Long-term debt as of January 2, 1999 and April 3, 1999 consisted of:
<TABLE>
<CAPTION>
January 2, 1999 April 3, 1999
--------------- -------------
<S> <C> <C>
Borrowings under credit agreements:
Secured revolving credit facility $ -- $ 1,842
Unsecured Wachovia Bank of SC facility -- 4,000
Senior subordinated notes, net 124,536 124,560
-------- --------
124,536 130,402
Less current portion -- 4,000
-------- --------
Long-term debt $124,536 $126,402
======== ========
</TABLE>
The secured revolving credit facility requires a commitment fee of 3/8
of 1% per annum on all unused amounts and as of April 3, 1999, the Company could
have borrowed an additional $50 million under the credit facility. Interest on
the secured revolving credit facility is based on a floating prime rate or an
eurodollar rate plus 1 1/2%. At April 2,1999 the average interest rate on the
revolving credit facility was 8.0%. The Wachovia Bank of South Carolina facility
is unsecured, requires no commitment fee and may be terminated by the bank with
100 days notice. Interest on the Wachovia Bank of South Carolina facility
accrues at an amount based on the daily Federal Funds rate, which was 7.15% at
April 3, 1999.
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 April 3, 1999, the
Company was authorized to pay up to $3 million of cash dividends or capital
stock purchases. At April 3, 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 $750, $200, $250 and $75, respectively. The letters of credit
expire on February 10, 2000, June 30, 1999, January 11, 2000 and April 10, 1999,
respectively. At April 3, 1999, the Company owed no amount under these letters
of credit.
Note 3:
Inventories:
Inventories at January 2, 1999 and April 3, 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.
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<PAGE> 8
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>
Three Months Ended
---------------------------------------
APRIL 4, 1998 APRIL 3, 1999
------------- -------------
<S> <C> <C>
Net sales
Greige $ 40,988 $ 28,660
Chatham 43,314 38,881
Elastics 24,743 25,580
--------- ---------
Total $ 109,045 $ 93,121
========= =========
Operating income (loss)
Greige $ 4,602 $ (1,518)
Chatham 1,824 (144)
Elastics 2,714 3,255
Corporate (1,764) (882)
--------- ---------
Total 7,376 711
Interest expense 3,231 3,213
Other expense (income), net (437) (333)
--------- ---------
Income (loss) before income taxes $ 4,582 $ (2,169)
========= =========
Operating margin
Greige 11.2 (5.3)
Chatham 4.2 (0.4)
Elastics 11.0 12.7
--------- ---------
Total 6.8% 0.8%
========= =========
</TABLE>
8
<PAGE> 9
<TABLE>
<S> <C> <C>
Identifiable assets
Greige $ 88,939 $ 77,279
Chatham 80,589 80,296
Elastics 45,699 43,025
Corporate 14,819 18,567
--------- ---------
Total $ 230,046 $ 219,167
========= =========
Depreciation and amortization
Greige $ 2,184 $ 2,216
Chatham 1,192 1,272
Elastics 760 648
Corporate 229 214
--------- ---------
Total $ 4,365 $ 4,350
========= =========
Capital expenditures
Greige $ 924 $ 801
Chatham 935 1,450
Elastics 291 173
Corporate (200) 255
--------- ---------
Total $ 1,950 $ 2,679
========= =========
</TABLE>
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 18 through 21 of the Annual Report.
Results of Operations
Three Months Ended April 3, 1999
Compared with Three Months Ended April 4, 1998
Sales
Sales for the three months ended April 3, 1999 decreased $15.9 million
or 14.6% from $109.0 million to $93.1 million over the corresponding period of
1998. Sales of the Greige Fabrics Division decreased $12.3 million or 30%, sales
of the Elastic Fabrics Division increased $0.8 or 3.3%, while sales of the
Chatham Division decreased $4.7 million or 10.9%. The decrease in sales for the
Greige Fabrics Division consisted of a $0.4 million decline in sales of 100%
filament fabrics produced at the Company's Clarkesville, Georgia facility. Sales
of blended or 100% cotton greige fabrics decreased $11.9 million as a result of
a 21% decrease in average selling prices and a 16% decline in volume. The
decrease in sales for the Chatham Division included a $4.5 million decrease in
automotive upholstery sales associated with the loss of a placement at both
General Motors and Ford. Sales of furniture upholstery were up $0.7 million due
to increased volume and improving demand for its new residential furniture and
Sheneele upholstey product offerings, while sales of consumer products increased
$0.5 million.
Earnings
Operating income for the three months ended April 3, 1999 decreased
$6.7 million from $7.4 million to an operating profit of $0.7 million. The
decrease in profitability is due to the Greige Fabrics Division, as the influx
of lower priced imported fabrics and excess inventory levels at both customers
and competitors have significantly surpressed demand for domestic production of
greige fabrics. Consequently, the impact from both reduced selling prices and
volumes has more than offset the benefit associated with lower raw material
costs and reduced the profitability of the Greige Fabrics Division by $6.1
million. Earnings at the Company's Chatham Division were down $2.0 million due
to the decline in sales and because of margin deterioration in its Consumer
Products business. Increased earnings at the Company's Elastic
10
<PAGE> 11
Fabrics Division and reduced corporate administrative expenses helped to
partially offset the decline in earnings at the Greige Fabrics Division and the
Chatham Division.
Interest expense for the three months ended April 3, 1999 was $3.2
million and remained unchanged from the same period in 1998.
As a result of the above mentioned items, income before income taxes
decreased $6.8 million for the three months ended April 3, 1999 over the
corresponding period in 1998, while the provision for income taxes decreased
$2.6 million. Consequently, net income of $2.8 million for the first three
months of fiscal 1998 declined by $4.1 million to a net loss of $1.3 million for
the first quarter of 1999.
Financial Condition
For the three months ended April 3, 1999, the Company increased its net
borrowings by $5.8 million and reduced its cash balances by $2.7 million. The
Company used these borrowings and cash sources to fund a $0.5 million shortfall
from operations, to finance $2.7 million of capital expenditures, and to reduce
its payable-book overdraft by $5.4 million.
At April 3, 1999, working capital was approximately $77.5 million as
compared to approximately $76.6 million at January 2, 1999. The increase in
working capital can be attributed to the increased sales at the end of the first
quarter as compared to the end of the year when shipments and production are
generally curtailed during the holiday weeks of Christmas and New Year's.
Additionally, working capital at April 3, 1999 included a $1.8 million increase
in raw cotton inventories due to the seasonal nature of these purchases while
accrued expenses were down because the Company paid its scheduled semiannual
interest payment on the Notes of $5.9 million on April 1, 1999. Management is
not aware of any present or potential impairments to the Company's liquidity.
At April 3, 1999, long-term debt of approximately $126.4 million
represented 75.6% 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 credit agreements (see note 2 to
consolidated financial statements) are adequate to finance capital expenditures
of approximately $10 million during the remainder of 1999, in addition to
meeting working capital requirements and scheduled debt service payments.
11
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PART II OTHER INFORMATION
Item 1. Legal Proceedings
None Reportable
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
At the Annual Meeting of the stockholders of the Company on April 22,
1999, the stockholders elected the following individuals to the Board of
Directors:
Joseph L. Gorga Stephen M. McLean
James A. Ovenden Rupinder S. Sidhu
W. James Raleigh Michael H. deHavenon
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits
27.1 Financial Data Schedule (for SEC use only).
b) Reports on Form 8-K
None
12
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SIGNATURE OF REGISTRANT
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CMI INDUSTRIES, INC.
Date: May 3, 1999 By /s/ JOSEPH L. GORGA
--------------------------------------
Joseph L. Gorga
President and Chief Executive Officer
Date: May 3, 1999 By /s/ JAMES A. OVENDEN
--------------------------------------
James A. Ovenden
Executive Vice President, Chief
Financial Officer
13
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PART III. INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit No. Description Page No.
----------- ----------- --------
<S> <C> <C>
27.1 Financial Data Schedule. (for SEC use only)
</TABLE>
14
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF CMI INDUSTRIES, INC. FOR THE THREE MONTH PERIOD ENDED
APRIL 3, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-01-2000
<PERIOD-START> JAN-02-1999
<PERIOD-END> APR-03-1999
<CASH> 1,163
<SECURITIES> 0
<RECEIVABLES> 54,258
<ALLOWANCES> 1,300
<INVENTORY> 57,125
<CURRENT-ASSETS> 113,689
<PP&E> 258,909
<DEPRECIATION> (163,427)
<TOTAL-ASSETS> 219,167
<CURRENT-LIABILITIES> 36,157
<BONDS> 126,402
0
0
<COMMON> 1,695
<OTHER-SE> 39,069
<TOTAL-LIABILITY-AND-EQUITY> 219,167
<SALES> 93,121
<TOTAL-REVENUES> 93,454
<CGS> 84,214
<TOTAL-COSTS> 92,410
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,213
<INCOME-PRETAX> (2,169)
<INCOME-TAX> (850)
<INCOME-CONTINUING> (1,319)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,319)
<EPS-PRIMARY> (0.78)
<EPS-DILUTED> (0.78)
</TABLE>
