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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 [FEE REQUIRED]
For the fiscal year ended January 1, 2000
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)
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<S> <C>
Delaware 57-0836097
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(State or other jurisdiction of incorporation (I.R.S. Employer Identification No.)
1301 Gervais Street, Suite 700, Columbia, South Carolina 29201
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(Address of principal executive office) (Zip Code)
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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 15, 2000 is zero.
As of March 15, 2000, there were 594,931 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 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 "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, automotive upholstery, consumer products and industrial/medical
markets. The Company operates through three divisions: the Greige Fabrics
Division, the Elastic Fabrics Division and the Chatham Division. The Company
had net sales of $374.3 million in 1999. The Greige Fabrics Division accounted
for 30% of 1999 net sales, the Elastic Fabrics Division accounted for 26% of
1999 net sales, and the Chatham Division accounted for 44% of 1999 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 Elastic Fabrics Division manufactures fabrics and products for
sale to the elasticized apparel fabric markets. The Elastic 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 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 Chatham Division manufactures fabrics and products for sale to the
furniture upholstery, automotive upholstery and consumer products markets.
Furniture upholstery is
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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, and furniture upholstery is also sold
through an extensive distributor network. Automotive 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 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 who acquired shares of the
Company's common stock (the "Common Stock") in 1986 and thereafter, sold all of
the shares of Common Stock owned by them back to the Company on March 14, 2000.
See "Item 12. Security Ownership of Certain Beneficial Owners and Management."
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.
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SALES BY DIVISION
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(Dollars in thousands)
1997 1998 1999
<S> <C> <C> <C> <C> <C> <C>
Greige Fabrics Division $171,010 41% $147,066 36% $111,978 30%
Elastic Fabrics Division 93,931 22% 95,435 23% 99,042 26%
Chatham Division 157,781 37% 170,290 41% 163,284 44%
-------- --- -------- --- -------- ---
Total $422,722 100% $412,791 100% $374,304 100%
======== === ======== === ======== ===
</TABLE>
The following table presents, for the last five fiscal years, the
percentages of the Company's sales to the home furnishings, woven apparel,
furniture upholstery, elasticized fabric, automotive upholstery, consumer
products and industrial/medical/other markets, as estimated by the Company.
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PERCENTAGE OF DOLLAR SALES
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1995 1996 1997 1998 1999
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<S> <C> <C> <C> <C> <C>
Home furnishings market 28% 28% 26% 20% 20%
Woven apparel market 11% 11% 11% 10% 7%
Furniture upholstery market 14% 15% 13% 14% 17%
Elasticized fabric market 25% 24% 22% 23% 26%
Automotive upholstery market 8% 11% 16% 19% 20%
Consumer products market 8% 7% 6% 7% 7%
Industrial/medical/other markets 6% 4% 6% 7% 3%
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Total 100% 100% 100% 100% 100%
==========================================================
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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. 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.
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 58% 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 located in
Clinton, South Carolina; Geneva, Alabama; and Clarkesville, Georgia. All of its
plants are equipped with projectile and air-jet shuttleless machines and
supporting equipment including carding, spinning
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and yarn preparation equipment. The division plans to make further capital
expenditures of $1.9 million during fiscal 2000. These expenditures will
include replacement and updating of existing equipment and facilities. Capital
expenditures have been designed to expand production capabilities, reduce
production costs and increase quality.
Five of the division's six plants are currently operating on a
24-hour, seven-day week schedule. The remaining plant operates on a 24 hour,
six day week schedule. CMI tailors its operating schedules to meet market
demand, and it has the ability to adjust these operating schedules as
appropriate.
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. None of the
division's customers account for more than 10% of Company sales. Fabrics are
typically manufactured to order. The division's sales are generally not
seasonal.
ELASTIC FABRICS DIVISION
Products. The Elastic Fabrics 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 yarns. The
division dyes and finishes the majority of its elasticized fabrics as well as
lace products manufactured by others.
Manufacturing and Capacity. 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 fabrics
up to 150 inches in width, in many different styles and 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.
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
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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 wide elasticized knit fabrics at a plant
located in Greensboro, North Carolina, which operates on a 24-hour, five or
six-day week. The division manufactures narrow elasticized woven fabrics in
Stuart, Virginia. This plant operates on a 24-hour, five day week.
Marketing and Sales. The Elastic Fabrics Division sells its
elasticized fabrics through the Company's New York sales office, and marketing
professionals located in Greensboro, North Carolina, Stuart, Virginia, Atlanta
and Los Angeles. None of the division's customers account for more than 10% of
the Company sales. These fabrics are manufactured to order and are typically
not seasonal.
CHATHAM DIVISION
Products. The Chatham Division manufactures a variety of dyed and
finished fabrics for use in diverse markets.
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.
Automotive 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. In an effort to
expand its product capabilities and market penetration, CMI has
developed strategic alliances with Mount Vernon Mills to produce woven
velour fabrics, with AB Borgstena Textile, Ltd. to produce circular
knit fabrics and with
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Tatsumura Textile Company, Ltd., to help to increase the division's
business with the Japanese automakers. A wide variety of upholstery
fabrics are produced for the automotive market primarily from spun and
filament polyester. For the automotive 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. The Company
markets its consumer products under the brand names: Chatham,
Beautyrest and Wimbledon. Additionally, the Company has an agreement
with Springs Industries, Inc. to manufacture and market a line of
blankets using Springs Industries' names and trademarks, including
Springmaid, Wamsutta and Performance.
Manufacturing and Capacity. 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.
Design Capabilities. The division employs advanced technologies in
computer and design systems which enable fabrics to be designed with reduced
sampling production costs and shortened development time and promote faster
responses to customer inquiries. In the last two years, the division has added
chenille yarn making equipment in order to enhance its product capabilities.
Chenille yarns have certain characteristics which add texture to fabrics and
provide innovative design opportunities for furniture upholstery, automotive
upholstery and consumer products. The Chatham Division markets its chenille
yarns and fabrics under its own trademark "Sheneele."
Marketing and Sales. 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 City, Chicago, Los
Angeles, and Grand Rapids, Michigan, and sales agents in the Far East, Europe,
Australia and South America. Automotive upholstery is sold through 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 City and by sales associates located throughout the United States. Foreign
bedding sales are handled through agents or distributors in Mexico, Canada,
Western Europe, Australia and the Far East. None of the division's customers
account for more than 10% of Company sales.
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RAW MATERIALS
The principal raw materials the Company uses are cotton and man-made
fibers, yarns and woven velour fabrics. In 1999, raw materials accounted for
approximately 53.9% 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. Additionally, the Company
purchases woven velour fabrics for its automotive upholstery business through a
strategic alliance with Mount Vernon Mills. Although other suppliers of woven
velour fabrics are available, and the Company has manufactured woven velour
fabrics in the past, the Company currently out sources all of its woven velour
fabric requirements through its alliance with Mount Vernon Mills.
Generally, the Company has had no difficulty in obtaining raw
materials. The Company's raw materials are available from a large number of
suppliers. The Company maintains a limited supply of cotton in inventory.
Typically, the Company purchases cotton only when firm orders have been
obtained for the goods in which it will be used. However, if management
concludes that a certain grade of cotton may be in short supply or that prices
may be substantially higher in the near term, the Company may deviate from this
procedure and buy additional cotton for inventory or make commitments for
cotton in the future in excess of amounts required to meet future sales orders.
Historically, the Company has not purchased significant amounts of cotton for
inventory. The Company believes it has contracted for cotton at prices that
will permit it to be competitive with other companies in the domestic textile
industry when the cotton purchased for future use is put into production.
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," "Chatham,"
"Sheneele," and "Restwarmer" as trademarks. The Company markets consumer
products in the Chatham Division under license arrangements with Beautyrest,
Wimbledon and Springs Industries. The Company does not own or use any other
patents, licenses or trademarks that are currently material in the conduct of
its business.
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BACKLOG
At January 1, 2000, the Company had aggregate unfilled orders of $77
million, as compared to $76 million at January 2, 1999. As of January 1, 2000,
the Greige Fabrics Division had approximately $50 million of unfilled customer
orders for woven fabrics, as compared to $41 million at January 2, 1999. The
increase in the Greige Fabrics Division's order backlog from 1998 to 1999 is
indicative of the marginally improved market conditions for greige fabrics. At
January 1, 2000, the Elastic Fabrics Division had unfilled orders totaling $12
million, as compared to $12 million at January 2, 1999. At January 1, 2000, the
Chatham Division had unfilled orders totaling $16 million, as compared to $23
million at January 2, 1999. The reduced level of Chatham's backlog may be
attributed to its decline in automotive placements for the 2000 model year and
the Company's decision in 1999 to exit the yarn sales business. The Company
expects to fill all of these orders in 2000. 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. See "Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations--Overview."
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, and 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 abroad. 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
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maintaining such restrictions on products imported from outside North America,
subject to the Uruguay Agreement. 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. To the extent that production of
fabricated textile products (apparel and home furnishings) moves to Mexico at
the expense of less competitive Asian producers, the Company believes that it
could benefit from the resulting increase in North American production by
supplying fabrics to those product manufacturers.
The impact of import competition varies among the Company's divisions.
The Greige Fabrics Division sells its fabrics primarily to integrated
manufacturers and also to converters for use in a wide variety of home
furnishings, woven apparel and industrial products. The division sells its
fabrics in certain markets where imports are a competitive factor, such as the
women's apparel and the over the counter fabrics for home sewing 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 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 Elastic 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
division's principal elasticized fabrics competitors include Liberty Fabrics,
Darlington and Worldtex.
The Chatham Division's furniture upholstery, automotive 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 automotive upholstery),
Joan Fabrics (furniture and automotive upholstery), Collins and Aikman
(automotive upholstery) and Pillowtex (consumer products).
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EMPLOYEES
On January 1, 2000 the Company had 3,679 employees, none of whom were
covered by a collective bargaining agreement. Of these employees, 3,224 were
employed as hourly associates while 455 were employed as salaried associates.
All of the Company's employees are full-time. The Company believes that its
employee relations are good.
YEAR 2000 COMPLIANCE
The "Year 2000 problem" is the result of many computer systems that
use two digits rather than four digits to define the applicable year, and
whether such systems would properly and accurately process information when the
year changed to 2000.
As part of its company-wide initiative to upgrade business computer
systems in many of its operations, the Company has implemented new computer
systems or completed system modifications that are Year 2000 compliant. As of
January 1, 2000, all of the Company's operations completed their Year 2000
compliance review, and where necessary, upgraded or replaced computer software
or hardware with Year 2000 compliant systems.
At the date of this report, the Company had not experienced any
material problems related to the year 2000, nor has the Company received any
significant complaints regarding year 2000 issues related to its products.
Also, the Company is not aware of any significant year 2000 issues affecting
the Company's major customers or suppliers.
The Company is prepared to implement appropriate contingency plans for
potential major business disruption, if any, which may result from any year
2000 issue.
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.
Certain of the Company's products, including its electric mattress
pads, are sold directly to consumers, and the Company is subject from time to
time to product liability claims, as well as inquiries by the Consumer Products
Safety Commission. In the opinion of the Company, the
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resolution of these matters, individually or in the aggregate, will not have a
materially adverse effect upon the financial position or results of operations
of the Company.
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 the Financial Statements.
The Company is working under the direction of the North Carolina
Department of Environment, Health and Natural Resources and from Guilford
County Environmental Health to cleanup 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 less
than $100,000. Partial reimbursement has been approved from the North Carolina
Underground Storage Tank Trust Fund.
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ITEM 2. PROPERTIES
The following table sets forth certain information relating to the
Company's principal facilities as of January 1, 2000. All of these facilities
are owned by the Company, except for the New York City sales office, the
Columbia, South Carolina executive office, and the Elkin, North Carolina
distribution center. The Company's New York sales office is leased for a term
expiring in 2005. The Columbia executive office and the Elkin distribution
center are each leased for a term expiring in 2001. 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
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<S> <C> <C>
GREIGE FABRICS DIVISION
Vance No. 1............................... 263,000 Manufacturing (191,000 sq. ft.)
Clinton, SC Warehouse and Office (72,000 sq. ft.)
Vance 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.)
ELASTIC 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.)
</TABLE>
13
<PAGE> 14
<TABLE>
<CAPTION>
LOCATION SQ. FOOTAGE USE
- ------------------------ ----------- --------------------------------------
<S> <C> <C>
CHATHAM DIVISION
Elkin, NC.............................. 1,697,600 Manufacturing (1,270,500 sq. ft.)
Warehouse and Office (427,100 sq. ft.)
Elkin, NC.............................. 170,720 Distribution Center
Boonville, NC.......................... 128,500 Manufacturing (99,200 sq. ft.)
Warehouse and Office (29,300 sq. ft.)
OTHER
CMI Sales Office
New York, NY............................ 16,332 Office
CMI Executive Office
Columbia, SC............................ 9,330 Office
</TABLE>
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 year 1999.
14
<PAGE> 15
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. As of
March 15, 2000, there were thirty holders of the Company's Common Stock. See
"Item 12. Security Ownership of Certain Beneficial Owners and Management."
During the two fiscal years ended January 2, 1999 and January 1, 2000,
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. On March 15, 2000,
the Company paid $8,949,843 to repurchase its common stock from affiliates of
Merrill Lynch Capital Partners, Inc. under the above noted $10.0 million
limitation. See "Item 12. Security Ownership of Certain Beneficial Owners and
Management."
Under a $45 million secured revolving credit facility from Fleet
Capital, which serves as the agent bank, and Bank of America, N.A. entered into
in May 1999 and amended in September 1999 (the "Credit Agreement"), the Company
is not permitted to make or declare any type of dividend payment, except that
the Company is permitted to repurchase its Common Stock from former officers or
employees of the Company in an aggregate amount not to exceed $10 million. At
January 1, 2000, under the terms of the Indenture the Company could acquire
capital stock in an amount of $1.3 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 January 1, 2000 the Company was not able
to pay dividends and could repurchase its Common Stock from former officers or
employees up to
15
<PAGE> 16
an amount not to exceed $10 million. The banks party to the Credit Agreement
consented to the purchase of common stock of the Company from affiliates of
Merrill Lynch Capital Partners, Inc., as discussed above.
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected historical financial
information for the Company for fiscal years 1995 through 1999, which has been
derived from the audited financial statements of the Company for such periods.
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 January 2, 1999 and January 1, 2000, and
financial statements for each of the fiscal years in the three-year period
ended January 1, 2000, and the independent accountant's report thereon, are
included elsewhere in this Report. See "Index to Financial Statements and
Schedules."
<TABLE>
<CAPTION>
FISCAL YEAR
1995 1996 1997 1998 1999
--------------------------------------------------------------------------
STATEMENT OF INCOME DATA (Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Net sales $ 408,636 $ 374,044 $ 422,722 $ 412,791 $ 374,304
Depreciation 22,660 21,968 16,702 16,387 16,122
Other cost of sales 345,265 323,920 349,596 345,829 328,571
--------- --------- --------- --------- ---------
Gross profit 40,711 28,156 56,424 50,575 29,611
Selling, general and administrative expense 32,704 31,097 32,914 33,586 32,994
Restructuring and other nonrecurring charges(1) 17,682 -- -- 304 7,000
--------- --------- --------- --------- ---------
Operating income (loss) (9,675) (2,941) 23,510 16,685 (10,383)
Other income (expense)
Interest expense (17,174) (15,425) (14,499) (12,759) (12,910)
Other income (expense), net 1,406 1,588 2,975 1,013 835
--------- --------- --------- --------- ---------
Total other income (expense) (15,768) (13,837) (11,524) (11,746) (12,075)
--------- --------- --------- --------- ---------
Income (loss) before income taxes (25,443) (16,778) 11,986 4,939 (22,458)
Income taxes (benefit) (9,500) (6,115) 4,800 1,900 (8,500)
--------- --------- --------- --------- ---------
Net income (loss) $ (15,943) $ (10,663) $ 7,186 $ 3,039 $ (13,958)
========= ========= ========= ========= =========
Ratio of earnings to fixed charges(2) (0.48)x (0.09)x 1.83x 1.39x (0.74)x
BALANCE SHEET DATA (AT END OF YEAR)
Current assets $ 123,281 $ 112,623 $ 104,349 $ 116,424 $ 106,558
Property, plant and equipment, net 125,774 112,545 103,592 97,018 85,274
Other assets 8,053 8,366 8,599 9,724 10,407
Total assets 257,108 233,534 216,540 223,166 202,239
Current liabilities 42,739 44,117 38,541 39,794 35,807
Long-term debt, less current portion 154,245 143,749 124,528 124,536 128,814
Other liabilities and deferred items 17,616 13,823 14,427 16,753 12,143
Stockholders' equity 42,508 31,845 39,044 42,083 25,475
EBITDA(3) $ 14,361 $ 21,293 $ 43,749 $ 34,633 $ 7,348
Depreciation and amortization(4) 22,670 22,646 17,264 16,935 16,896
Capital expenditures 8,850 9,288 8,292 10,322 8,624
Ratio of EBITDA to interest expense(5) 1.03x 1.43x 3.15x 2.83x 0.59x
Ratio of total debt (at end of year) to EBITDA 10.80x 6.94x 2.90x 3.60x 17.53x
</TABLE>
16
<PAGE> 17
- --------------------------------------
(1) Represents $4,782 of executive severance charges related to the
retirement of Mr. G. T. Williams, the Company's former President and
Chief Executive Officer and $12,900 of charges related to the
Company's restructuring plan, both recorded in 1995. Also reflects the
write-off of transaction costs associated with the terminated merger
agreement with CMI Management, Inc. in 1998 of $1,649 and a credit of
$1,345 in 1998 related to the previously reported restructuring and
severance charges. In 1999, $7,000 was reserved for restructuring
initiatives in the following amounts: severance and related benefits,
$1,000; inventory write-offs, $2,116; property, plant and equipment
write-offs, $3,068; and other asset write-offs, $816. See "Item 7.
Management's Discussion and Analysis of Financial Condition and
Results of Operations--Overview."
(2) 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.
(3) 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.
(4) Excludes amortization of deferred debt cost and debt discount cost.
(5) Interest expense excludes amortization of deferred debt cost and debt
discount cost.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
A number of factors influence the operating results for the Company
including general economic conditions, competition, raw material prices and
capital expenditures. Significant factors impacting the Company's operating
results over the past several years are as follows:
History. In 1992, the Company began implementing a strategic
plan with the primary goal of becoming the low-cost domestic provider
of greige fabrics while achieving greater product diversification
through acquisitions. Important elements of this new business strategy
included the continued modernization of the Company's manufacturing
facilities and the acquisition of certain strategic companies in order
to reduce the Company's reliance upon sales of greige fabrics.
Chatham Division. In February 1992, the Company acquired the
assets of Chatham Manufacturing Company. In addition to increased
product diversification, the Chatham acquisition provided the Company
with access to markets with greater barriers to entry than the greige
fabrics markets. The Chatham Division manufactures fabrics to be sold
to the automotive industry, residential and contract furniture
upholstery
17
<PAGE> 18
industries, as well as consumer products such as blankets, mattress
pads and heated pads. These industry segments are characterized by
sophisticated supplier qualification and quality requirements, short
order lead times, significant capital requirements and other barriers
to entry. Most of the division's products are not sensitive to
imports, and in many instances, provide the Company with export
opportunities. Nonetheless, Chatham's financial performance
deteriorated from 1992 through 1995. In 1993 and 1994, the Chatham
Division experienced significant operating disruptions which resulted
in excessive off-quality levels and minimum order lead times of up to
26 weeks for furniture fabrics. These disruptions negatively impacted
operating margins and the division's ability to service its customers.
During 1995, operating margins in the Chatham Division remained
substantially below those of the Company's other divisions as it
worked to improve its product mix, complete the development of its
information systems and correct certain quality and manufacturing
inefficiencies.
Greige Fabrics Division. Continuing with its acquisition
strategy, the Company acquired the Clarkesville Plant in May 1994
which expanded the Company's products to include greige fabrics of
100% synthetic yarns. Because the fabrics produced at Clarkesville are
less commodity-oriented, they are more capable of consistently
producing higher margins. The Company's Greige Fabrics Division now
manufactures light to midweight greige fabrics, including printcloths,
broadcloths, twills, crepes and other fabrics of 100% cotton, blends
of polyester and cotton and 100% synthetic yarns. The fabrics are sold
for use in home furnishings such as sheetings, curtains and mattress
ticking, career apparel and various industrial applications including
medical and athletic tape. Certain greige fabrics produced by the
Company are more commodity oriented, and therefore, more sensitive to
general supply and demand levels and the corresponding impact on
pricing. In 1995 and 1996, there was an oversupply of greige fabrics
which depressed prices and resulted in excess capacity and increased
inventory levels. Also in 1995 and 1996, the division was negatively
impacted by unprecedented increases in raw material costs.
Elastics Fabrics Division. The Company acquired the former
United Elastic Corporation operations in January 1995. The United
Elastic Corporation acquisitions allowed the Company to further
diversify its product offerings to include narrow woven elastics and
provide its existing customer base with more value-added products and
services. The Elastic Fabrics Division now produces both wide and
narrow elastics and manufactures woven, warp knit and circular knit
fabrics used in intimate apparel, activewear and industrial/medical
markets. The products manufactured in this division are highly
engineered and the quality of the fabrics is critical. United Elastic
Corporation was in bankruptcy when it was purchased by the Company.
Despite the strategic opportunities associated with this acquisition,
the negative effects of the bankruptcy on both customers and
manufacturing operations have been difficult to overcome.
Throughout this time period, the Company continued to upgrade
its manufacturing capacity by investing in new equipment capable of
producing better quality fabrics more efficiently. Despite these
investments and its achieving greater
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<PAGE> 19
product diversification through acquisitions, the Company's
performance continued to deteriorate while asset utilization rates and
customer service levels also declined.
1995 Restructuring. The Company's disappointing financial
performance in 1994 and 1995 forced the Company to make certain
changes in senior management and refocus its overall business strategy
in late 1995. At that time, the Company initiated a plan ("the 1995
Restructuring") to improve operating performance, reduce costs and
realign certain resources in order to better serve its customers. The
1995 Restructuring consisted of: (1) additional changes in the
management of the Company; (2) the closing of the Greige Fabrics
Division's least efficient manufacturing facility; (3) the
consolidation of the Chatham Division's weaving operations in Elkin,
North Carolina from three buildings to two buildings; (4) the
downsizing of the Company's corporate offices in Columbia, South
Carolina and relocation of certain resources back to the operating
divisions; (5) the write-off and proposed sale of certain idle and
impaired assets; (6) the increased emphasis on customer service and
product development investments, particularly with systems and design
resources; (7) the sale of excess inventories; and (8) other process
improvement initiatives designed to reduce costs, improve customer
service levels and maximize returns on current investments. As a
result of the 1995 Restructuring, the Company recorded a $12.9 million
restructuring charge in 1995 relating to severance, retirement, and
other nonrecurring charges associated with facility closures and
overhead reductions. Each of the restructuring initiatives was
completed by the end of 1996. In total, the Company now estimates that
over 900 manufacturing and administrative positions out of
approximately 5,000 were permanently eliminated as a result of the
1995 Restructuring.
1999 Restructuring. In the second quarter of 1999, the
Company approved a plan to pursue additional restructuring initiatives
in all divisions. These initiatives were focused on discontinuing
certain weaving and yarn manufacturing operations which, when coupled
with certain yarn outsourcing strategies, have reduced the Company's
operating costs, downsized its fabric formation capacity to levels
more in line with market demand, and conserved capital for other
equipment modernization projects. In conjunction with these efforts,
the Company has consolidated and is currently disposing of idle
equipment and related inventories. The consolidation initiatives were
completed by December 1999 and the disposition of related assets
should be completed by June 2000. The restructuring initiatives also
included the termination and retirement of approximately 239
associates in 1999 and included the associated severance costs
relating to insurance, vacation and other benefits. The Company
reported a $7,000 charge to 1999 earnings in connection with the
restructuring initiatives.
The 1995 and 1999 Restructurings have allowed the Company to
downsize its corporate offices, eliminate inefficient capacity and
reorganize its resources to emphasize customer service and product
development. These initiatives have helped position the Company to
operate more efficiently and to respond more quickly and cost
effectively to market changes and customer demands. The initiatives to
reduce inventories and to correct capacity levels relative to market
demand, particularly in the Greige Fabrics Division, have resulted in
better internal operating disciplines and a significant reduction
19
<PAGE> 20
in CMI's overall investment in working capital. Although supply levels
relative to demand for greige fabrics positively impacted the overall
market conditions during 1997, market conditions for greige fabrics
deteriorated in 1998 and 1999. Increased imports of lower priced Asian
fabrics, excess inventories at key vertical home furnishing customers
and a stronger U.S. dollar all have combined to weaken demand, place
downward pressure on selling prices and create an oversupply situation
in the marketplace similar to that of 1995 and 1996. Although
operating levels in the Greige Fabrics Division are again close to
full capacity and U.S. currency valuations have improved recently
relative to many Asian currencies, imports of lower priced Asian
fabrics remain high and have continued to keep prices for commodity
greige fabrics extremely depressed.
Operating margins improved significantly in the Chatham
Division during 1996 and 1997 in response to the business improvement
initiatives and strategic investments in new equipment at its Elkin,
North Carolina facility. In light of its improved performance in
quality, on-time delivery, product development and order backlog
levels, the Chatham Division increased it investments in 1998 and 1999
in new equipment, new product offerings, new business certifications
and new Year 2000 compliant business systems. Although these
investments have been disruptive to operations in 1998 and 1999, CMI
believes that these investments were critical in order for the Chatham
Division to continue as a key supplier in its markets.
Although the turnaround of the Company's narrow elastic
facility had been slower than that of its other operations, CMI has
continued to realize slight operating improvements at this facility in
1999 despite lower sales. Consequently, operating margins in the
Elastics Division improved for the third consecutive year and the
Company believes that additional improvements are possible as the
Company continues to realize efficiencies from offering both wide and
narrow elasticized fabrics.
The Company expects to continue to invest in all three of its
divisions going forward in an effort to meet customer demands and
market requirements. The Company's efforts will continue to focus on
improving returns by being well-positioned to operate a diversified,
more value-added product mix and reducing its dependency on the sale
of greige fabrics.
General Economic Conditions. The Company's operating results
are susceptible to fluctuations in the general condition of the United
States economy. The ability of the Company to maintain its operating
margins during economic downturns is adversely affected by the capital
intensive nature of its business. The Company's operating margins may
also be negatively impacted by increases in raw material prices,
fluctuations in the commodity-oriented market for greige fabrics and
the cyclical nature of the automotive, home furnishing and apparel
industries. These factors may occur despite trends in the general
economy of the United States. In 1997, the Company benefited from its
restructuring initiatives and the correction of supply levels of
greige fabrics relative to market demand, as well as a return to more
historical levels of costs for raw material. In 1998 and 1999, the
Company continued to benefit from favorable conditions for raw
20
<PAGE> 21
materials but was negatively impacted by weakening market conditions
for greige fabrics. Market conditions have remained difficult for
greige fabrics in the first quarter of 2000 and consequently,
operating margins are expected to deteriorate despite favorable
general economic conditions and continued restructuring initiatives to
reduce the Company's cost structure.
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
--------------------------------
1997 1998 1999
------ ------ ------
<S> <C> <C> <C>
Net sales ...................................... 100.0% 100.0% 100.0%
Depreciation ................................... 4.0 4.0 4.3
Other cost of sales ............................ 82.7 83.8 87.8
----- ----- -----
Gross profit ................................... 13.3 12.2 7.9
Selling, general and administrative expenses ... 7.8 8.1 8.8
Restructuring and other nonrecurring charges ... -- 0.1 1.9
----- ----- -----
Operating income (loss) ........................ 5.5 4.0 (2.8)
Other income (expense)
Interest expense ............................ (3.4) (3.1) (3.4)
Other, net ................................... 0.7 0.3 0.2
----- ----- -----
Income (loss) before income taxes .............. 2.8 1.2 (6.0)
Income taxes (benefit) ......................... 1.1 0.5 (2.3)
----- ----- -----
Net income (loss) .............................. 1.7% 0.7% (3.7)%
===== ===== =====
</TABLE>
Fiscal Year 1999 Compared to Fiscal Year 1998
The Company's net sales decreased $38.5 million or 9.3% from $412.8
million in 1998 to $374.3 million in 1999. Sales of the Greige Fabrics Division
decreased $35.1 million or 23.9%, sales of the Elastic Fabrics Division
increased $3.6 million or 3.8% while sales of the Chatham Division decreased
$7.0 million or 4.1%. The decrease in sales for the Greige Fabrics Division was
primarily attributable to increased imports of lower priced Asian fabrics,
excess inventories at key home furnishing customers, and a stronger U.S. dollar
which all combined to severely weaken the domestic greige fabrics market. These
factors resulted in a 23.7% decrease in average selling prices for lightweight
printcloth greige fabrics and a corresponding decrease in sales volume of 9.1%.
The increase in sales for the Elastic Fabrics Division was principally
attributable to stronger demand for wide warp knit elasticized fabrics. Sales
of narrow woven elasticized fabrics fell slightly in 1999, and market
conditions for narrow elastics continue to remain soft and sales are still
below historical levels. The decrease in sales for the Chatham Division
consisted primarily of a $10.8 million decrease in automotive upholstery sales
due to a reduced number of automotive placements for the 2000 model year. Sales
of furniture fabrics increased $8.4 million due to the Company's continued
investment in new technologies and product development directed at growing its
residential upholstery segment. Sales of consumer products in 1999 remained
relatively unchanged from prior year levels while yarn sales were
21
<PAGE> 22
down $3.9 million due to the Company's decision to exit certain yarn activities
as part of the 1999 Restructuring.
In conjunction with the Company's decreased sales, gross profit
decreased $21.0 million from $50.6 million in 1998 to $29.6 million in 1999,
which resulted in a gross margin decline from 12.2% to 7.9%. The decrease in
gross profits was directly attributable to the deteriorating market conditions
for greige fabrics which resulted in lower selling prices and forced the
Company to curtail its greige operations. Gross profit in the Elastic Fabrics
Division increased due to higher sales while gross margins improved slightly as
a result of better product mix and operating improvements at the narrow elastic
facility in Stuart, Virginia. Gross profit in the Chatham Division decreased
slightly due to lower sales and gross margins remained relatively unchanged.
Selling, general and administrative expenses decreased $0.6 million or
1.8% from $33.6 million in 1998 to $33.0 million in 1999. The decrease in
selling, general and administrative expenses was primarily due to the decline
in incentive compensation paid to management. The Company paid approximately
$0.4 million in incentive compensation in 1999 as compared to $0.9 million in
1998. The Company continued to realize benefits from its restructuring and
downsizing initiatives as administrative expenses declined $0.9 million in 1999
and remained unchanged as a percentage of sales at 4.4%. Selling expenses,
however, continued to reflect the Company's efforts to promote its new
furniture product offerings, and selling expenses were up $0.5 million in 1999
and increased to 4.4% of sales.
In 1999 the Company approved a plan to pursue additional restructuring
initiatives in all divisions, resulting in a $7.0 million charge to earnings.
Of this charge, $1.0 million has been reserved for severance and benefits costs
related to the net termination and retirement of approximately 239 associates
in 1999. The remaining $6.0 million is reserved for nonrecurring asset
write-offs of inventory, $2.1 million; property, plant and equipment, $3.1; and
other assets, $0.8 million.
Interest expense increased $0.1 million or 1.2% from $12.8 million in
1998 to $12.9 million in 1999. The increase was due to higher debt balances in
1999.
Income taxes (benefit) as a percent of income (loss) before taxes
changed from 38.5% in 1998 to 37.9% in 1999.
As a result of the foregoing factors, the Company reported a net loss
of $14.0 million in 1999 as compared to a net income of $3.0 million in 1998.
Fiscal Year 1998 Compared to Fiscal Year 1997
The Company's net sales decreased $9.9 million or 2.3% from $422.7
million in 1997 to $412.8 million in 1998. Sales of the Greige Fabrics Division
decreased $23.9 million or 14.0%, sales of the Elastic Fabrics Division
increased $1.5 million or 1.6% while sales of the Chatham Division increased
$12.5 million or 7.9%. The decrease in sales for the Greige Fabrics Division
22
<PAGE> 23
was primarily attributable to increased imports of lower priced Asian fabrics,
excess inventories at key home furnishing customers, and a stronger U.S. dollar
which all combined to severely weaken the domestic greige fabrics market. These
factors resulted in a 1.0% decrease in average selling prices for lightweight
printcloth greige fabrics and a corresponding decrease in sales volume of
11.4%. The increase in sales for the Elastic Fabrics Division was principally
attributable to stronger demand for wide warp knit elasticized fabrics. Sales
of narrow woven elasticized fabrics rose slightly in 1998, but market
conditions for narrow elastics remain soft and sales are still below historical
levels. The increase in sales for the Chatham Division consisted primarily of a
$12.8 million increase in automotive upholstery sales due to the Company's
success in securing new product placements and increasing market share. Sales
of furniture fabrics and consumer products remained relatively unchanged from
prior year levels. Sales in 1998 were also negatively impacted because of the
loss of production and sales associated with 1998 being a 52-week year as
compared to 1997, which was a 53-week year.
In conjunction with the Company's decreased sales, gross profit
decreased $5.8 million from $56.4 million in 1997 to $50.6 million in 1998,
which resulted in a gross margin decline from 13.3% to 12.2%. The decrease in
gross profits was directly attributable to the deteriorating market conditions
for greige fabrics which resulted in lower selling prices and forced the
Company to curtail its greige operations below capacity. Gross profit in the
Elastic Fabrics Division increased due to higher sales while gross margins also
improved as a result of better product mix and improved efficiencies at the
division's Stuart facility. Gross profit in the Chatham Division decreased
despite higher sales as gross margins were negatively affected by manufacturing
inefficiencies associated with numerous capital investment projects, charges
associated with attaining its QS9000 certification on July 2, 1998 and startup
costs associated with developing its new residential upholstery and chenille
yarn product offerings. Gross profit in 1998 was also negatively impacted
because of the loss of production and sales associated with 1998 being a
52-week year as compared to 1997 which was a 53-week year.
Selling, general and administrative expenses increased $0.7 million or
2.0% from $32.9 million in 1997 to $33.6 million in 1998. The increase in
selling, general and administrative expenses was primarily due to the increased
costs associated with the Company's efforts to become year 2000 compliant and
an increase in commission or royalty based revenues at the Company's Chatham
Division. Additionally, the Company paid approximately $0.9 million in
incentive compensation in 1998 as compared to $1.5 million in 1997. The Company
continued to realize benefits from its restructuring and downsizing initiatives
from prior years, but due to lower sales levels, selling, general and
administrative expenses were up from 7.8% of sales in 1997 to 8.1% of sales in
1998.
In 1998, the Company wrote off transaction costs associated with the
terminated merger agreement with CMI Management, Inc. of $1.6 million and
reported a credit of $1.3 million related to the previously reported
restructuring and severance charges. The Company did not have any related items
in 1997.
Interest expense decreased $1.7 million or 12.0% from $14.5 million in
1997 to $12.8 million in 1998. This decrease was due to lower debt balances in
1998 which resulted from the
23
<PAGE> 24
Company's continued earnings and continued efforts to monitor capital spending
and working capital levels.
Income taxes (benefit) as a percent of income (loss) before taxes
changed from 40% in 1997 to 38.5% in 1998.
As a result of the foregoing factors, the Company reported net income
of $3.0 million in 1998 as compared to a net income of $7.2 million in 1997.
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 (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
million 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 were completed during 1997, and
to extend the maturity of the Credit Agreement 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 Credit Agreement by another two years to March 2002. In
September 1999, the Company terminated the Wachovia Credit Facility.
The Credit Agreement now provides for a revolving credit facility of
up to $45.0 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
24
<PAGE> 25
credit facility. The maximum and average amounts outstanding during 1999 were
$11.6 million and $2.1 million, respectively; at January 1, 2000, $4.2 million
was outstanding.
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 1.25%. The Company pays a commitment fee of 0.25% per annum on the
unused portion of the revolving credit facility, payable quarterly in arrears.
The Company also pays a quarterly agency fee of $25,000 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 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 $18.5 million. Up to $10.5 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 (as
defined in the Credit Agreement), including a minimum tangible net worth of
$30.0 million in fiscal 1999, 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. At January 1, 2000, the Company was
required to maintain a minimum interest coverage ratio (EBITDA to interest) of
not less than 1.0 to 1 for the previous four consecutive quarters. The Company
was also required to maintain a fixed charge coverage ratio of 0.5 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 four
most recent fiscal quarters. As of January 1, 2000, the Company was in
compliance with all of the covenants under the Credit Agreement.
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 $10.5
million of any additional senior indebtedness permitted under the Credit
Agreement may be secured by assets of the Company other than inventory or
receivables.
25
<PAGE> 26
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.
LIQUIDITY AND CAPITAL RESOURCES
In 1999, net cash provided by operations decreased $9.4 million from
$14.8 million in 1998 to $5.4 million in 1999, primarily as a result of
decreased earnings in 1999 as compared to 1998.
Net cash used in investing activities decreased $1.7 million from $10.3
million in 1998 to $8.6 million in 1999 as a result of decreased spending on
capital improvement projects.
Net cash provided by financing activities increased $3.8 million from
1998 to 1999. The decrease in investment activities noted above coupled with
less cash flow from operations caused the Company to borrow $4.2 million on its
revolving credit facilities in 1999 and decrease its cash position by $1.6
million to $2.3 million at January 1, 2000.
Working capital (excluding cash, marketable securities and the current
portion of long-term debt) decreased $4.2 million from $72.7 million at January
2, 1999 to $68.5 million at January 1, 2000. The decrease in working capital may
be primarily attributed to the reduction in equipment deposits and prepaid
employee medical costs as other current assets declined from $7.4 million at
January 2, 1999 to $1.8 million at January 1, 2000.
The Company's primary ongoing cash requirements will be to meet its
debt service requirements, invest in capital expenditures and position the
Company to respond to better business conditions. The Company currently intends
to make capital expenditures of approximately $5.0 million during 2000, of which
a portion may be financed with operating lease facilities. The Company's ability
to make scheduled payments or to refinance its indebtedness or to fund planned
capital expenditures will depend on its future performance, which to a certain
extent is subject to general economic, financial, competitive, regulatory and
other factors that are beyond its control. Based upon the current level of
operations, management believes that cash flow from operations and available
cash, together with availability under the Credit Agreement, will be adequate to
meet the Company's future liquidity needs, meet its debt service requirements
and fund capital expenditures. There can be no assurance that the Company's
business will generate sufficient cash flow from operations or that future
borrowings will be available under the Credit Agreement in amounts sufficient to
enable the Company to service its indebtedness or to fund its other liquidity
needs.
26
<PAGE> 27
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 January 1, 2000 for the cost of these
expenditures. The Company may also have remediation obligations with respect to
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, may
give rise to additional compliance and other costs that could have a material
adverse effect on the Company.
ITEM 7A. 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 the Credit Agreement. See
"Item 7. Management's Discussion and Analysis of Financial condition and Results
of Operations--The Notes and Financing Agreements." The Company's Credit
Agreement bears interest at rates which vary with changes in (i) the Eurodollar
Rate 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 contracts 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 January 1, 2000, the
Company had outstanding debt balances of $4.2 million which bore interest at
variable rates. 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 material 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 January 1, 2000, the Company
had contracted for 20,991 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.
27
<PAGE> 28
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
28
<PAGE> 29
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 47 Director; Chairman, President and Chief Executive Officer
James A. Ovenden 37 Director; Chief Financial Officer, Executive Vice
President and Secretary
Joshua T. Hamilton 48 Executive Vice President and President, Greige
Fabrics Division
James F. Robbins 46 Executive Vice President and President, Elastic
Fabrics Division
W. James Raleigh 72 Director
Rupinder S. Sidhu 43 Director
Stephen M. McLean 42 Director
Michael H. deHavenon 59 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 Chairman of the Board of Directors, President
and Chief Executive Officer and appointed as a director of the Company in
November 1995. Prior to 1995, Mr. Gorga joined a predecessor of the Elastic
Fabrics Division as its President in 1991.
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 1992-1999.
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 the Elastic Fabrics Division.
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<PAGE> 30
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 Managing Director of Arena Capital Partners. He is also President
of Merion Capital Partners LLC, a private investment company, a position he has
held since 1994. He was a special limited partner of Stonington Partners, Inc.,
a private investment firm, from 1993 through 1994. He was a member of the Board
of Directors of ML Capital Partners, a private investment firm affiliated with
ML & Co., from 1987 to February 2000. From 1993 to July 1994, he was a Partner
of ML Capital Partners 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, a Director of the Investment Banking Division of
Merrill Lynch, Pierce, Fenner & Smith Incorporated from 1989 to 1994. Mr. Sidhu
is currently a director of Gemini Industries, Inc. and Alliance Mortgage
Company.
Stephen M. McLean has served as a director of the Company since 1992.
Mr. McLean is Managing Director of Arena Capital Partners, LLC, a private
investment firm. He was a Partner and a Director of Stonington Partners, Inc.,
from 1993 until 1999. He was a member of the Board of Directors of Merrill Lynch
Capital Partners, a private investment firm affiliated with Merrill Lynch & Co.,
Inc. from 1987 untill February 2000. Mr. McLean was a partner of ML Capital
Partners from 1993 to July 1994. 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 Pathmark Stores,
Inc. and Supermarkets General Holding Corporation.
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 structured and managed leveraged private investments.
30
<PAGE> 31
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 1999 fiscal year
(collectively, the "Named Executive Officers").
<TABLE>
<CAPTION>
Summary Compensation Table(1)
========================================================================================================
Long Term
Compensation
Annual Compensation Awards
------------------------------------------------ -------------
Other Annual Securities
Salary Bonus Compensation Underlying
Name and Principal Position Year ($) ($)(2) ($)(3) Options (#)
- --------------------------- ---- ------ -------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Joseph L. Gorga 1999 414,000 85,000 19,760 7,500
President and Chief 1998 395,000 175,000 20,800 --
Executive Officer 1997 354,737 325,000 20,550 --
James A. Ovenden 1999 260,000 50,000 13,600 7,500
Executive Vice President 1998 250,000 100,000 15,000 --
and Chief Financial Officer 1997 242,770 150,000 14,750 --
Joshua T. Hamilton 1999 220,000 -- 12,000 --
President, Greige Fabrics 1998 220,000 30,000 13,200 --
1997 208,987 75,000 12,660 --
James F. Robbins 1999 242,000 85,000 12,864 7,500
President, Elastic Fabrics 1998 232,000 100,000 13,920 --
1997 220,000 80,000 13,200 10,000
</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 returns and earnings before interest, taxes and
depreciation exceed predetermined levels. 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 Elastic Fabrics Division,
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.
31
<PAGE> 32
Stock Option Exercises. The following table sets forth information with
respect to unexercised stock options held by the Named Executive Officers as of
January 1, 2000. None of the Named Executive Officers exercised any options
during the Company's 1999 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 82,500/0 $0/$0
James A. Ovenden 52,500/0 $0/$0
Joshua T. Hamilton -- --
James F. Robbins 17,500/0 $0/$0
</TABLE>
- --------------------
(1) Calculated based on the difference between the estimated value of the
Common Stock underlying the options at January 1, 2000 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.
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. 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 Company's 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.
32
<PAGE> 33
Clinton Retirement Income Program. In 1991, the Company's former
Clinton Mills subsidiary 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.
<TABLE>
<CAPTION>
PENSION PLAN TABLE
YEARS OF SERVICE
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
33
<PAGE> 34
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.
<TABLE>
<CAPTION>
PENSION PLAN TABLE
YEARS OF SERVICE
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
1999 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 were affiliated with ML Capital Partners or ML & Co. ML Capital
Partners, through various affiliates, beneficially owned 62.57% of the
outstanding shares of Common Stock until March 15, 2000. See "Item 12. Security
Ownership of Certain Beneficial Owners and Management."
COMPENSATION OF DIRECTORS
In 1999, the Company paid $2,000 per quarter and $1,000 per meeting to
its outside directors (Messrs. deHavenon and Raleigh) for serving as a Director.
34
<PAGE> 35
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 had a term of two years, subject to annual renewals
unless either party objected. In September 1997, the parties agreed to an
amendment to the amended and restated employment agreement whereby the term of
the agreement was extended for another two year period. Under the amendment, Mr.
Gorga is entitled to an annual salary of $395,000, 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 the greater of 75% of his base salary or the amount
specified in the plan. In September 1999, the parties agreed to an amendment
which extended the agreement until September 30, 2000 subject to an automatic
renewal unless either the Company or the employee elects to terminate the
agreement.
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 years base salary, together with
continued health and life insurance benefits during the period in 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. In March 2000 the
Amended and Restated Employment Agreement was further amended to provide that
Mr. Gorga will be entitled to receive certain of the payments described above in
the event he resigns for any reason whatsoever within six months following the
date on which the company's repurchase of the shares of common stock owned by
affiliates of ML Capital Partners was consummated. See "Item 12. Security
Ownership of Certain Beneficial Owners and Management."
In the event of a change of control, Mr. Gorga may also be entitled to
receive special compensation (as defined) based upon the transaction value
realized by the Company. Under certain circumstances with respect to change of
control, the severance and special compensation 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.
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<PAGE> 36
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 had a term of two years, subject to annual
renewals unless either party objected. In September 1997, the parties agreed to
an amendment to the amended and restated employment agreement whereby the term
of the agreement was extended for another two year period. Under the amendment,
Mr. Ovenden is entitled to an annual salary of $250,000, 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 the greater of 50% of his base salary or the amount
specified in the plan. In September 1999, the parties agreed to an amendment
which extended the agreement until September 30, 2000 subject to an automatic
renewal unless either the Company or the employee elects to terminate the
agreement.
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. In March 2000 the Amended and Restated Employment Agreement was further
amended to provide that Mr. Ovenden will be entitled to receive certain of the
payments described above in the event he resigns for any reason whatsoever
within six months following the date on which the company's repurchase of the
shares of common stock owned by affiliates of ML Capital Partners was
consummated. See "Item 12. Security Ownership of Certain Beneficial Owners and
Management."
In the event of a change of control, Mr. Ovenden may also be entitled
to receive special compensation (as defined) based upon the transaction value
realized by the Company. Under certain circumstances with respect to change of
control, the severance and special compensation 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. 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.
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
36
<PAGE> 37
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 received severance
payments at the annual rate of $275,000 until August 1997. 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 Mr. Hamilton, 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 initial public offering
of Common Stock, at the same price as shares of Common Stock are being offered
to the public.
37
<PAGE> 38
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 March 15, 2000 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 BENEFICIALLY OWNED
---------------------------
NUMBER PERCENT
OF SHARES OF TOTAL
--------- --------
<S> <C> <C>
Steve F. Warren(1).............................................................. 120,000 20.2%
2 Baywater Lane
Greensboro, NC 27408
G. Thaddeus Williams............................................................. 97,000 16.3%
333 Springlake Drive
Columbia, SC 29206
Joseph L. Gorga(2).............................................................. 87,500 12.9%
4102 Brambletye Drive
Greensboro, NC 27407
James A. Ovenden(3)............................................................. 62,500 9.7%
10 Sunturf Circle
Columbia, SC 29223
W. James Raleigh................................................................. 20,000 3.7%
James F. Robbins (4)............................................................. 17,500 2.9%
Joshua T. Hamilton(5)........................................................... 16,000 2.7%
Michael H. deHavenon............................................................. 4,081 *
Rupinder S. Sidhu............................................................... -- --
Stephen M. McLean............................................................... -- --
M. S. Bailey and Son Bankers, as Trustee........................................ 126,698 21.3%
211 North Broad Street
Clinton, SC 29325
All directors and executive officers as a group
(8 persons)(2)(3)(4)(5)....................................................... 207,581 27.8%
</TABLE>
*Less than 1%
(1) Amounts for Mr. Warren include 60,000 shares of Common Stock held by a
limited partnership in which Mr. Warren is a general partner.
(2) Amounts for Mr. Gorga include 82,500 shares issuable upon exercise of
presently exercisable options to acquire Common Stock.
(3) Amounts for Mr. Ovenden include 52,500 shares issuable upon exercise of
presently exercisable options to acquire Common Stock.
38
<PAGE> 39
(4) Amounts for Mr. Robbins represent shares issuable upon exercise of
presently exercisable options to acquire common stock.
(5) 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.
CHANGE IN OWNERSHIP
On March 14, 2000, the Company pursuant to a Stock Acquisition
Agreement dated February 23, 2000 between the Company and certain of its
stockholders who are affiliated with ML Capital Partners, purchased 994,387
shares of the Company's Common Stock held by the affiliates of ML Capital
Partners for a purchase price of $9.00 per share for an aggregate of $8,949,483
(the "Stock Purchase Transaction"). As a result of this transaction, the
stockholder affiliates of ML Capital Partners which previously owned more than
62% of the outstanding Common Stock of the Company no longer own any Common
Stock. Instead, members of management and other stockholders with historical
ties to the Company own all of the outstanding shares of Common Stock. The
consideration paid to the stockholder affiliates of ML Capital Partners was
funded through the Credit Agreement.
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 provided that the ML Capital Partners affiliates were
entitled to designate four of the Company's seven directors and the Management
Investors were entitled to designate three of the Company's directors. In
addition, 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. Under the terms of
the Restated Stockholders Agreement, upon completion of the Stock Purchase
Transaction, the voting provisions described above have lapsed and are no longer
part of the agreement. The Restated Stockholders Agreement also provides for
certain restrictions on the transfer of shares of Common Stock by the current
stockholders, tag-along rights and rights of first refusal in connection with
certain proposed transfers of Common Stock. As a result of an amendment to the
Restated Stockholders Agreement that became effective upon consummation of the
Stock Purchase Transaction, those provisions, which otherwise would have lapsed,
were continued and are still in effect. The amendment also exempted the Stock
Purchase Transaction from the transfer and related restrictions. Pursuant to the
Consulting Agreement, Mr. Williams' shares of Common Stock would not have been
subject to these transfer restrictions if the ML Capital Partners affiliated
stockholders had sold their shares of Common Stock to a "Third Party" under the
Restated Stockholders Agreement or distributed their shares of Common Stock to
their respective partners or investors.
39
<PAGE> 40
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 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 the Management Investors 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 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. Williams' descendants (the "Trusts") at a price of
$40 per share or a total of $3.3 million.
In October 1997, Mr. Gorga, a director and the President and Chief
Executive Officer of the Company, purchased 5,000 shares of Common Stock for a
purchase price of $27.50. Mr. Gorga delivered a non-recourse promissory note to
the Company in payment of 90% of the purchase price for these shares of Common
Stock and paid the balance in cash. Mr. Gorga's note bears interest at a per
annum rate of 6.55% and is payable in ten years. Mr. Gorga pledged the purchased
shares as security for payment of his promissory note.
On March 14, 2000, the Company pursuant to a Stock Acquisition
Agreement dated February 23, 2000 between the Company and certain of its
stockholders who are affiliated with ML Capital Partners, purchased 994,387
shares of the Company's Common Stock held by the affiliates of ML Capital
Partners for a purchase price of $9.00 per share, for an aggregate of
$8,949,483. As a result of this transaction, the stockholder affiliates of ML
Capital Partners which previously owned more than 62% of the outstanding Common
Stock of the Company no longer own any Common Stock. See "Item 12. Security
Ownership of Certain Beneficial Owners and Management--Change in Ownership."
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, if required
by ML & Co., to maintain the effectiveness of the registration statement
pursuant to
40
<PAGE> 41
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."
41
<PAGE> 42
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:
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
2.1 -- Stock Acquisition Agreement between CMI Industries, Inc.
and certain of its stockholders who are affiliated with
Merrill Lynch Capital Partners, Inc. dated February 23, 2000.
(15)
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)
42
<PAGE> 43
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 Industries, 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. (9)
4.8 -- Tender offer to Purchase for Cash Any and All Outstanding
9-1/2% Senior Subordinated Notes Due 2003 issued by CMI
Industries, Inc. and Solicitation of Consents to Amendments of
the Indenture. (11)
4.9 -- First Supplemental Indenture of CMI Industries, Inc. 9-1/2%
Senior Subordinated Notes Due 2003 dated as of June 17, 1998,
Supplementing the Indenture of October 28, 1993. (11)
4.10 -- Termination of Tender Offer and Consent Solicitation
relating to the $125 million Principal Amount 9-1/2% Senior
Subordinated Notes due 2003 issued by CMI Industries, Inc.
(12)
4.11 -- Amended and Restated Loan and Security Agreement dated as of
May 28, 1999 by and among CMI Industries, Inc. and the Lenders
named herein and BankBoston, N.A. as Agent. (14)
4.12 -- 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 (15)
4.13 -- Amendment No. 3 to Stockholders Agreement, dated as of March
14, 2000 among CMI Industries, Inc. and its Stockholders. (16)
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)
43
<PAGE> 44
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)
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)*
44
<PAGE> 45
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 (9)*
10.25-- Amendment No. 1 to Amended and Restated Employment
Agreement between CMI Industries, Inc., and Joseph L. Gorga
dated September 30, 1997 (10)*
10.26-- Amendment No. 1 to Amended and Restated Employment
Agreement between CMI Industries, Inc., and James A. Ovenden
dated September 30, 1997 (10)*
10.27-- Agreement Regarding Restriction of Shares of CMI
Industries, Inc. Common Stock between CMI Industries, Inc. and
Joseph L. Gorga dated October 21, 1997 (10)*
10.28-- Merger Agreement by and among CMI Management, Inc., CMI
Acquisitions, Inc. and CMI Industries, Inc. dated as of May
15, 1998. (11)
10.29-- Dealer Manager Agreement Between NationsBanc Montgomery
Securities LLC and CMI Industries, Inc. dated May 29, 1998.
(11)
10.30-- Letter dated February 25, 1999 from CMI Management, Inc.
terminating the Merger Agreement by and among CMI Management,
Inc., CMI Acquisitions, Inc., and CMI Industries, Inc. (13)
45
<PAGE> 46
10.31-- Letter dated February 25, 1999 from CMI Industries, Inc.
terminating the dealer manager engagement letter with
NationsBanc Montgomery Securities, LLC dated March 31, 1998.
(13)
10.32-- Amendment No. 2 to Amended and Restated Employment
Agreement between CMI Industries, Inc., and Joseph L. Gorga
dated March 14, 2000 (filed with this Report)*
10.33-- Amendment No. 2 to Amended and Restated Employment
Agreement between CMI Industries, Inc., and James A. Ovenden
dated March 14, 2000 (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)
23.1 -- Consent on Financial Statement Schedules of Arthur Andersen
LLP (filed with this Report)
27.1 -- Financial Data Schedule (for SEC use only) (filed with this
Report)
- ----------------------
(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.
46
<PAGE> 47
(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.
(9) Filed as an exhibit to the Company's Annual Report on Form
10-K on March 27, 1997 and incorporated herein by this
reference.
(10) Filed as an exhibit to the Company's Quarterly Report on Form
10-Q on November 18, 1997 and incorporated herein by this
reference.
(11) Filed as an exhibit to the Company's Quarterly Report on Form
10-Q on August 7, 1998 and incorporated herein by this
reference.
(12) Filed as an exhibit to the Company's Report on Form 8-K on
August 10, 1998 and incorporated herein by this reference.
(13) Filed as an exhibit to the Company's Annual Report on Form
10-K on March 31, 1999 and incorporated herein by this
reference.
(14) Filed as an exhibit to the Company's Quarterly Report on Form
10-Q on August 16, 1999 and incorporated herein by this
reference.
(15) Filed as an exhibit to the Company's Quarterly Report on Form
10-Q on November 15, 1999 and incorporated herein by this
reference.
(16) Filed as an exhibit to the Company's Report on Form 8-K dated
March 15, 2000 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 1999 fiscal year.
47
<PAGE> 48
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.
48
<PAGE> 49
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 29, 2000 /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 29, 2000
- ---------------------------- Officer, and Director
Joseph L. Gorga
/s/ JAMES A OVENDEN Principal Financial and March 29, 2000
James A. Ovenden Accounting Officer, and Director
/s/ W. JAMES RALEIGH Director March 29, 2000
- ----------------------------
W. James Raleigh
/s/ RUPINDER S. SIDHU Director March 29, 2000
- ----------------------------
Rupinder S. Sidhu
/s/ STEPHEN M. MCLEAN Director March 29, 2000
- ---------------------------
Stephen M. McLean
/s/ MICHAEL H. DEHAVENON Director March 29, 2000
- ---------------------------
Michael H. deHavenon
</TABLE>
49
<PAGE> 50
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
CMI INDUSTRIES, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
Financial Statements:
---------------------
<S> <C>
Report of Independent Public Accountants.................................................................... 51
Consolidated Balance Sheets as of January 2, 1999 and January 1, 2000....................................... 52
Consolidated Statements of Operations for the years ended January 3, 1998
January 2, 1999, and January 1, 2000.............................................................. 53
Consolidated Statements of Changes in Stockholders' Equity for the years
ended January 3, 1998, January 2, 1999 and January 1, 2000........................................ 54
Consolidated Statements of Cash Flows for the years ended January 3, 1998,
January 2, 1999 and January 1, 2000............................................................... 55
Notes to the Consolidated Financial Statements.............................................................. 56
Schedules:
----------
Schedule V - Property, Plant and Equipment for the years ended January 3, 1998,
January 2, 1999 and January 1, 2000............................................................... 70
Schedule VI - Accumulated Depreciation and Amortization of Property, Plant and
Equipment for the years ended January 3, 1998, January 2, 1999
and January 1, 2000............................................................................... 71
Schedule VIII - Valuation and Qualifying Accounts for the years ended
January 3, 1998, January 2, 1999 and January 1, 2000.............................................. 72
</TABLE>
50
<PAGE> 51
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 January 1, 2000 and January
2, 1999, 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 auditing standards generally accepted
in the United States. 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 January 1, 2000 and January 2, 1999 and the results of their
operations and their cash flows for each of the three years in the period ended
January 1, 2000, in conformity with accounting principles generally accepted in
the United States.
/s/ ARTHUR ANDERSEN LLP
Columbia, South Carolina
March 24, 2000.
51
<PAGE> 52
CMI INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JANUARY 2, 1999 AND JANUARY 1, 2000
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
1998 1999
------- --------
ASSETS
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 3,911 $ 2,263
Receivables, net 50,884 48,017
Inventories, net 54,198 51,186
Deferred income taxes -- 3,342
Other current assets 7,431 1,750
-------- --------
Total current assets 116,424 106,558
Property, plant and equipment, net 97,018 85,274
Intangible and other assets, net 9,724 10,407
-------- --------
$223,166 $202,239
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Book overdraft $ 12,247 $ 8,200
Accounts payable 13,914 14,302
Accrued expenses, including restructuring charges 13,633 13,305
-------- --------
Total current liabilities 39,794 35,807
Long-term debt 124,536 128,814
Deferred income taxes 4,506 --
Other liabilities 12,247 12,143
-------- --------
141,289 140,957
Commitments and contingencies
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 issued at January 1, 2000 1,695 1,589
Paid-in capital 11,358 8,814
Retained earnings 29,030 15,072
-------- --------
Total stockholders' equity 42,083 25,475
-------- --------
$223,166 $202,239
======== ========
</TABLE>
The accompanying notes to consolidated financial statements are an
integral part of these balance sheets.
52
<PAGE> 53
CMI INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED JANUARY 3, 1998, JANUARY 2, 1999
AND JANUARY 1, 2000
(IN THOUSANDS)
<TABLE>
<CAPTION>
1997 1998 1999
--------- --------- ----------
<S> <C> <C> <C>
Net sales $ 422,722 $ 412,791 $ 374,304
Cost of sales 366,298 362,216 344,693
--------- --------- ---------
Gross profit 56,424 50,575 29,611
Selling, general and administrative expenses 32,914 33,586 32,994
Write-off of merger costs -- 1,649 --
Provision for restructuring and other nonrecurring
asset write-offs -- -- 7,000
Credits to restructuring and severance charges -- (1,345) --
--------- --------- ---------
Operating income (loss) 23,510 16,685 (10,383)
--------- --------- ---------
Other income (expenses):
Interest expense (14,499) (12,759) (12,910)
Other, net 2,975 1,013 835
--------- --------- ---------
Total other expenses, net (11,524) (11,746) (12,075)
Income (loss) before income taxes 11,986 4,939 (22,458)
Income tax provision (benefit) 4,800 1,900 (8,500)
--------- --------- ---------
Net income (loss) $ 7,186 $ 3,039 $ (13,958)
========= ========= =========
</TABLE>
The accompanying notes to consolidated financial statements are an
integral part of these statements.
53
<PAGE> 54
CMI INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED JANUARY 3, 1998, JANUARY 2, 1999
AND JANUARY 1, 2000
(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 December 28, 1996 1,690 $ 1,690 $ 11,350 $ 18,805 $ 31,845
Sale of common stock 5 5 8 -- 13
Net income -- -- -- 7,186 7,186
------ ------- -------- -------- --------
Balance as of January 3, 1998 1,695 $ 1,695 $ 11,358 $ 25,991 $ 39,044
Net income -- -- -- 3,039 3,039
------ ------- -------- -------- --------
Balance as of January 2, 1999 1,695 $ 1,695 $ 11,358 $ 29,030 $ 42,083
Purchase of common stock (106) (106) (2,544) -- (2,650)
Net loss -- -- -- (13,958) (13,958)
------ ------- -------- -------- --------
Balance as of January 1, 2000 1,589 $ 1,589 $ 8,814 $ 15,072 $ 25,475
====== ======= ======== ======== ========
</TABLE>
The accompanying notes to consolidated financial statements are an
integral part of these statements.
54
<PAGE> 55
CMI INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED JANUARY 3, 1998,
JANUARY 2, 1999 AND JANUARY 1, 2000
(IN THOUSANDS)
<TABLE>
<CAPTION>
1997 1998 1999
-------- -------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C> <C>
Net income (loss) $ 7,186 $ 3,039 $(13,958)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization 17,868 17,447 17,398
(Gain) loss on disposal of equipment (678) -- --
Nonrecurring asset write-offs -- -- 6,000
Changes in assets and liabilities:
Receivables (253) (3,122) 2,867
Inventories 4,216 (271) 896
Other current assets 657 (6,500) 5,681
Intangible and other assets (758) (1,579) (1,129)
Book overdraft (5,477) 6,224 (4,047)
Accounts payable 157 (1,771) 388
Accrued expenses, including restructuring charges 1,399 (855) (700)
Income taxes payable 141 (141) --
Deferred income taxes 4,384 3,261 (7,848)
Other liabilities (641) (935) (104)
-------- -------- --------
Net cash provided by operating activities 28,201 14,797 5,444
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment, net (7,614) (10,322) (8,624)
-------- -------- --------
Net cash used in investing activities (7,614) (10,322) (8,624)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (repayments) borrowings on revolving credit facilities (21,115) (2,293) 4,182
Purchase of common stock from management -- -- (2,650)
Sale of common stock to management 13 -- --
-------- -------- --------
Net cash (used in) provided by financing activities (21,102) (2,293) 1,532
-------- -------- --------
Net increase (decrease) in cash and cash equivalents (515) 2,182 (1,648)
Cash and cash equivalents, beginning of period 2,244 1,729 3,911
-------- -------- --------
Cash and cash equivalents, end of period $ 1,729 $ 3,911 $ 2,263
======== ======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 14,035 $ 12,233 $ 12,296
======== ======== ========
Income taxes $ -- $ 2,068 $ --
======== ======== ========
</TABLE>
The accompanying notes to consolidated financial statements are an
integral part of these statements.
55
<PAGE> 56
CMI INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JANUARY 3, 1998,
JANUARY 2, 1999 AND JANUARY 1, 2000
(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 three divisions: the Greige
Fabrics Division, the Elastic Fabrics Division and the Chatham Division.
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 the Company's accompanying statements of operations for the years
ended January 2, 1999, and January 1, 2000, and 53 weeks for the year ended
January 3, 1998. 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.
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
56
<PAGE> 57
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.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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:
Buildings 20 years
Land improvements 20 years
Machinery and equipment 3-10 years
LONG-LIVED ASSETS
During fiscal year 1997, the Company adopted the provisions of Statement of
Financial Accounting Standards (SFAS) No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of." The statement
requires impairment losses to be recorded on long-lived assets used in
operations when indicators are present and the undiscounted cash flows estimated
to be generated by those assets are less than the assets' carrying amount. The
effect of adoption did not have a material impact on the Company's results of
operation.
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 a sale when goods are shipped or when ownership is
assumed by the customer. At the request of some customers, the Company invoices
goods on a bill and hold basis when the title and risk of ownership pass to the
customer.
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 carries credit insurance on a majority of its outstanding trade
receivables. The Company establishes an allowance for doubtful accounts based
upon factors surrounding the credit risk of
57
<PAGE> 58
specific customers, historical trends and other information, including the
amount of credit insurance on specific accounts.
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 1997 consolidated financial statements have been
reclassified to conform with the 1998 and 1999 presentation.
OTHER
In 1997, the Financial Accounting Standards Board (FASB) issued Statement of
Financial Accounting Standards (SFAS) No. 130, "Reporting Comprehensive Income"
and No. 131, "Disclosures About Segments of an Enterprise and Related
information," both of which the Company adopted in its 1998 fiscal year. The
Company is required to report comprehensive income, which is the total of net
income and certain other nonowner changes in shareholders' equity. The
implementation of the statement did not have a material impact on the Company's
financial position or results of operations. The Company does not presently have
any items affected by this statement. SFAS No. 131, among other things,
establishes standards for reporting financial information about operating
segments, defined as components of an enterprise about which separate financial
information is available to the chief operating decision maker for purposes of
assessing performance and allocating resources.
SFAS No. 133 establishes accounting and reporting standards for derivative
instruments and hedging activities. It requires that an entity recognize all
derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. Management has not yet
evaluated the effects of this change on its operations. The Company will adopt
SFAS No. 133 as required in its interim financial statements for the first
quarter of 2000.
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 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:
58
<PAGE> 59
<TABLE>
<CAPTION>
Year Redemption Price
---- ----------------
<S> <C>
1999 102.375%
2000 and thereafter 100.000%
</TABLE>
3. LONG-TERM DEBT (CONTINUED)
The recorded balance of $124,632 at January 1, 2000, is presented net of $368 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 $86,250 at January 1, 2000. 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
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 January 1, 2000 consisted of:
<TABLE>
<CAPTION>
1998 1999
-------- ---------
<S> <C> <C>
Borrowings under credit agreements:
Secured revolving credit facility $ -- $ 4,182
Unsecured Wachovia Bank credit facility -- --
Senior subordinated notes, net 124,536 124,632
-------- ---------
124,536 128,814
Less current portion -- --
-------- ---------
Long-term debt $124,536 $ 128,814
======== =========
</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 January 1, 2000, the Company
could have borrowed an additional $38 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 January 1,
2000, the prime borrowing interest rate on the revolving credit facility was
8.50%.
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 January 1, 2000, the Company was authorized to
pay up to $1.3 million of cash
59
<PAGE> 60
dividends or capital stock purchases. At January 1, 2000, the Company was in
compliance with all covenants under all credit agreements.
3. LONG-TERM DEBT (CONTINUED)
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, 2001, June 30, 2000, January 11, 2001 and April 10, 2000,
respectively. At January 1, 2000, the Company owed no amount under these letters
of credit.
4. INCOME TAXES
Components of income tax expense (benefit) for the years ended January 3, 1998,
January 2, 1999 and January 1, 2000, consisted of the following:
<TABLE>
<CAPTION>
FEDERAL STATE TOTAL
------- ----- -----
<S> <C> <C> <C>
1997:
Current $ 141 $ -- $ 141
Deferred 3,934 725 4,659
------- ------- -------
$ 4,075 $ 725 $ 4,800
======= ======= =======
1998:
Current $ -- $ -- $ --
Deferred 1,679 221 1,900
------- ------- -------
$ 1,679 $ 221 $ 1,900
======= ======= =======
1999:
Current $ -- $ -- $ --
Deferred (7,930) (570) (8,500)
------- ------- -------
$(7,930) $ (570) $(8,500)
======= ======= =======
</TABLE>
Alternative minimum taxes that have been paid as of January 1, 2000 and are
available indefinitely as carryforward credits for future federal income taxes
aggregated approximately $8,697. Such carryforward credits have been considered
in the determination of the net deferred income tax liability at January 1,
2000.
Total income tax expense (benefit) differed from the amounts computed by
applying the U.S. federal income tax rate of 34 percent in 1997, 1998 and 1999
to income (loss) before income taxes as a result of the following:
<TABLE>
<CAPTION>
1997 1998 1999
------ ------ -------
<S> <C> <C> <C>
Computed "expected" tax expense (benefit) $4,075 $1,679 $(7,930)
Increase in income taxes resulting from:
State income taxes, net of federal income tax benefit 396 163 (770)
Other, net 329 58 200
------ ------ -------
Total income tax expense (benefit) $4,800 $1,900 $(8,500)
====== ====== =======
</TABLE>
60
<PAGE> 61
4. INCOME TAXES (CONTINUED)
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 January 2, 1999, and January 1, 2000 relate to the following:
<TABLE>
<CAPTION>
1998 1999
------- -------
<S> <C> <C>
Plant & equipment, principally due to difference in depreciation
methods $15,231 $13,392
Benefit of net operating loss for tax purposes (169) (4,331)
Alternative minimum tax credits (7,523) (8,697)
Accrued expenses not currently deductible and other, net (3,033) (3,706)
------- -------
Net deferred income tax liability (asset) $ 4,506 $(3,342)
======= =======
</TABLE>
The Company has tax planning strategies in place for fiscal 2000 to realize the
net deferred tax assets that exists at January 1, 2000.
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 curtailment of these plans did not reduce
either plan assets or vested benefits of the participants.
The following table sets forth the funded status of the plans and amounts
recognized in the accompanying consolidated balance sheets at January 3, 1998,
January 2, 1999, and January 1, 2000:
<TABLE>
<CAPTION>
1997 1998 1999
------- ------- ----
<S> <C> <C> <C>
Change in benefit obligation
Benefit obligation at end of prior fiscal year $33,044 $35,823 $36,056
Interest cost 2,394 2,416 2,265
Net actuarial (gain)/loss 6,381 2,083 4,115
Benefits paid (5,996) (4,116) (4,332)
------- -------- -------
Benefit obligation at end of year $35,823 $36,206 $38,104
====== ====== =======
Change in plan assets
Fair value of assets at end of prior fiscal year $ 38,155 $40,325 $40,390
Actual return on plan assets 8,166 4,181 2,701
Benefits paid (5,996) (4,116) (4,332)
------- ------- -------
Fair value of assets at end of year $40,325 $40,390 $38,759
-------- -------- -------
</TABLE>
61
<PAGE> 62
5. BENEFIT PLANS (CONTINUED)
<TABLE>
<CAPTION>
1997 1998 1999
------- ------ ------
<S> <C> <C> <C>
Funded status $ 4,502 $ 4,184 $ 655
Unrecognized net actuarial (gain)/loss (2,352) (1,045) 3,234
------- ------- -------
Prepaid pension cost $ 2,150 $ 3,139 $ 3,889
======= ======= =======
Net pension expense (income) consists of the
following components:
1997 1998 1999
------- ------- ------
Service cost - benefits earned during the period $ -- $ -- $ --
Interest cost on projected benefit obligation 2,394 2,416 2,265
Actual return on plan assets (8,166) (4,181) 2,701
Net amortization 4,926 776 314
------- ------- --------
Net pension expense (income) $ (846) $ (989) $ (750)
======= ======= =======
</TABLE>
The assumptions used in determining the actuarial present value of benefit
obligations and the net periodic pension costs are as follows:
<TABLE>
<CAPTION>
1997 1998 1999
---- ---- ----
<S> <C> <C> <C>
Expected long-term return on assets - both plans 9.0% 9.0% 9.0%
Weighted average discount rate 7.25% 6.75% 7.50%
</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. 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. Additionally, the Company can make additional contributions at the
discretion of the Board of Directors. The Company's matching contributions
totaled $1,156 for 1997, $1,167 for 1998, and $1,026 for 1999.
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 $3,350 and $2,740 for payments
under these plans at January 2, 1999 and January 1, 2000, respectively.
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
62
<PAGE> 63
certain current and former Chatham officers defined pension benefits in excess
of limits imposed by federal tax law. At January 2, 1999, and January 1, 2000,
the accrued SERP liability was
5. BENEFIT PLANS (CONTINUED)
$3,320 and $3,211, respectively, which equals the projected benefit obligation
and is included in other liabilities in the accompanying balance sheets. The
expense was $246, $263 and $266 for the periods ended January 3, 1998, January
2, 1999, and January 1, 2000, respectively. An irrevocable trust has been
established to hold certain assets of the Company (life insurance contracts with
a net cash value of $1,468 at January 1, 2000) 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 to purchase Chatham common stock were converted to options
to purchase the Company's stock. Except for 10,000 options, all of the options
under this Plan have been granted and are fully vested. 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. As of January 1, 2000,
options to acquire 215,000 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 in accordance with FASB Statement No. 123, there
would not have been a material impact on the Company's net income.
6. RECEIVABLES, INVENTORIES, PROPERTY, PLANT AND EQUIPMENT, AND INTANGIBLE AND
OTHER ASSETS
Receivables, inventories, other current assets, property, plant and equipment,
and intangible and other assets at January 2, 1999 and January 1, 2000 consisted
of the following:
<TABLE>
<CAPTION>
1998 1999
--------- -------
<S> <C> <C>
Receivables:
Trade $ 47,756 $ 46,100
Income tax receivable 3,311 2,749
Other 1,017 368
--------- --------
52,084 49,217
Less allowance for doubtful accounts (1,200) (1,200)
--------- ---------
$ 50,884 $ 48,017
========= ========
Inventories:
Raw materials $ 9,754 $ 8,956
Work-in-progress 19,386 18,077
Finished goods 20,716 21,203
Supplies 4,342 2,950
--------- --------
$ 54,198 $ 51,186
========= ========
</TABLE>
63
<PAGE> 64
6. RECEIVABLES, INVENTORIES, PROPERTY, PLANT AND EQUIPMENT, AND INTANGIBLE AND
OTHER ASSETS (CONTINUED)
<TABLE>
<CAPTION>
1998 1999
--------- --------
<S> <C> <C>
Other current assets:
Prepaid employee benefit costs 4,669 861
Deposits for equipment purchases 2,422 379
Other 340 510
--------- ---------
$ 7,431 $ 1,750
========= =========
Property, plant and equipment:
Land and land improvements $ 3,326 $ 3,317
Buildings and leasehold improvements 40,049 42,590
Machinery and equipment 207,923 214,718
Construction in progress 4,967 1,115
--------- ---------
256,265 261,740
Less accumulated depreciation and amortization (159,247) (176,466)
--------- ---------
$ 97,018 $ 85,274
========= =========
Intangible and other assets:
Debt issuance costs, net $ 1,951 $ 1,546
Cash value of life insurance, net of
policy loans of $4,177
at January 2, 1999 and $4,695 at
January 1, 2000 1,755 1,773
Prepaid pension cost 3,139 3,889
Other 2,879 3,199
--------- ---------
$ 9,724 $ 10,407
========= =========
7. ACCRUED EXPENSES AND OTHER LIABILITIES
Accrued expenses and other liabilities at January 2, 1999,
and January 1, 2000 consist of the following:
1998 1999
--------- ---------
Accrued interest $ 3,142 $ 3,254
Accrued compensation 1,608 1,048
Environmental cleanup accrual 408 373
Reserve for self insurance 3,350 2,740
Accrued restructuring charges 118 898
Other 5,007 4,992
---------
Total accrued expenses $ 13,633 $ 13,305
========= =========
Accrued SERP, deferred compensation and other $ 8,592 $ 8,821
Accrued severance liability 813 482
Environmental cleanup accrual 2,842 2,840
--------- ---------
Total noncurrent other liabilities $ 12,247 $ 12,143
========= =========
</TABLE>
64
<PAGE> 65
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 January 1, 2000:
<TABLE>
<S> <C>
2000 $ 4,544
2001 4,201
2002 3,226
2003 3,149
Thereafter 2,142
-------
Total minimum lease payments $17,262
</TABLE>
Rental expense was $2,152 for 1997, $3,003 for 1998, and $5,502 for 1999. 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. The
Company has initiated various remediation projects and continues to monitor
these projects on an ongoing basis. Additionally, the Company may be required to
perform asbestos abatement. The Company believes that sufficient amounts are
accrued as of January 1, 2000 for the cost of these expenditures.
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 January 1, 2000 the Company was committed to future capital expenditures
of $1,800.
The Company purchases significant amounts of cotton, one of its primary raw
materials, through commodity contracts. At January 1, 2000, all fixed contracts
were at prices which approximated or were below current market prices, or were
purchased to hedge firm sales orders from customers in which the Company
believes it has maintained margins at, or above, recent levels. 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
65
<PAGE> 66
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). Under the
management subscription agreement, the Company has an option to purchase, and
each of the management investors have 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.
On May 29, 1999, the Company purchased 100,000 shares of the Company's Common
Stock from W. James Raleigh for a purchase price of $25.00 a share or an
aggregate of $2.5 million.
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 disposed of idle equipment and inventories. In the Finished
Fabrics Division, the Company consolidated certain operations and disposed 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.
In August 1995, the former President and Chief Executive Officer retired from
the Company. In connection with the retirement, the Company reported a severance
charge in the Company's 1995 statement of operations of $4,782 which included
certain retirement benefits, salary, life insurance, consulting fees and other
items.
In connection with the restructuring and severance charges reported in 1995, the
Company made certain estimates concerning the net realizable value of disposing
of certain assets and the amount required to ultimately fund certain benefits.
In 1998, the Company recognized that its losses or expenses associated with
these estimates were overstated and consequently has reported a credit to the
restructuring and severance charges of $1,345 in the accompanying 1998 statement
of operations. As of January 1, 2000, the Company has reported $63 of 1995
restructuring related accruals and $482 of severance liabilities to the former
President and Chief Executive Officer which the Company expects to fund from
operations or amounts available under the Credit Agreement.
66
<PAGE> 67
9. RESTRUCTURING CHARGES AND ACCRUED SEVERANCE LIABILITY (CONTINUED)
In the second quarter of 1999, the Company approved a plan to pursue additional
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
now expected to be completed in 2000. 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 year ended January 1, 2000:
<TABLE>
<CAPTION>
Original Provision Remaining Balance
Restructuring items: July 3, 1999 January 1, 2000
------------------ -----------------
<S> <C> <C>
Severance and related benefit costs $ 1,000 $ 446
Other nonrecurring asset write-offs:
Inventory write-offs 2,116 973
Property, plant & equipment write-offs 3,068 2,684
Other asset write-offs 816 389
-------- --------
$ 7,000 $ 4,492
======== ========
</TABLE>
Included in the $7,000 charge were approximately $1,000 of incremental cash
expenditures. During the year ended January 1, 2000, the Company funded $554 of
cash related restructuring items and disposed of $1,954 of assets related to
the restructuring.
10. Write-off of Merger Costs
During 1998, the Company evaluated various alternative changes to its capital
structure, including a possible merger in which the Company entered into a
merger agreement with an acquisition company formed by senior management. As
part of the proposed transaction, the Company would have been recapitalized
whereby all of the outstanding indebtedness would have been refinanced using
borrowings under a new credit facility, the proceeds of anticipated equity
financing and the proceeds of satisfactory debt financing. The parties
ultimately terminated the merger agreement because of unsatisfactory market
conditions for obtaining the financing. As part of evaluating various
possibilities to changing its capital structure and negotiating the merger
agreement, the Company incurred legal, accounting and professional advisory
fees amounting to $1,649 which the Company has written off and reported as a
charge to earnings in 1998.
67
<PAGE> 68
11. 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>
1997 1998 1999
---------- ---------- ----------
<S> <C> <C> <C>
Net sales
Greige $ 171,010 $ 147,066 $ 111,978
Chatham 157,781 170,290 163,284
Elastics 93,931 95,435 99,042
---------- ---------- ----------
Total $ 422,722 $ 412,791 $ 374,304
========== ========== ==========
Operating income (loss) before nonrecurring items
Greige $ 14,384 $ 9,629 $ (11,875)
Chatham 5,211 1,946 788
Elastics 8,415 9,646 11,366
Corporate (4,500) (4,232) (3,662)
---------- ---------- ----------
Total 23,510 16,989 (3,383)
Nonrecurring items -- 304 7,000
Interest expense 14,499 12,759 12,910
Other expense (income), net (2,975) (1,013) (835)
---------- ---------- ----------
Income before income taxes $ 11,986 $ 4,939 $ (22,458)
========== ========== ==========
Operating margin before nonrecurring items
Greige 8.41% 6.55% (10.60)%
Chatham 3.30 1.14 6.48
Elastics 8.96 10.11 11.48
---------- ---------- ----------
Total 5.56% 4.12% (0.90)%
========== ========== ==========
Identifiable assets
Greige $ 82,955 $ 77,383 $ 73,783
Chatham 78,750 80,433 68,097
Elastics 42,090 42,394 39,824
Corporate 12,745 22,956 20,535
---------- ---------- ----------
Total $ 216,540 $ 223,166 $ 202,239
========== ========== ==========
Depreciation and amortization
Greige $ 9,246 $ 8,811 $ 9,016
Chatham 4,519 4,846 5,114
Elastics 3,104 2,920 2,360
Corporate 999 870 908
---------- ---------- ----------
Total $ 17,868 $ 17,447 $ 17,398
========== ========== ==========
</TABLE>
68
<PAGE> 69
11. Segment Information (continued)
<TABLE>
<CAPTION>
1997 1998 1999
---------- ---------- ----------
Capital expenditures
<S> <C> <C> <C>
Greige $ 2,208 $ 5,983 $ 2,030
Chatham 3,128 5,089 3,704
Elastics 3,139 (714) 2,811
Corporate (861) (36) 79
---------- ---------- ----------
Total $ 7,614 $ 10,322 $ 8,624
========== ========== ==========
</TABLE>
12. Subsequent Event
On March 14, 2000, the Company pursuant to a Stock Acquisition Agreement dated
February 23, 2000 between the Company and certain of its stockholders who are
affiliated with ML Capital Partners, purchased 994,387 shares of the Company's
Common Stock held by the affiliates of ML Capital Partners for a purchase price
of $9.00 per share or an aggregate of $8,949,483. As a result of this
transaction, the stockholder affiliates of ML Capital Partners which previously
owned more than 62% of the outstanding Common Stock of the Company no longer
own any Common Stock. Instead, members of management and other stockholders
with historical ties to the Company own all of the outstanding shares of Common
Stock. The consideration paid to the stockholder affiliates of ML Capital
Partners was funded through the Company's secured revolving credit facility.
69
<PAGE> 70
CMI INDUSTRIES, INC. AND SUBSIDIARIES
SCHEDULE V - PROPERTY, PLANT AND EQUIPMENT
For the Three Years Ended January 3, 1998, January 2, 1999 and January 1, 2000
(in thousands)
<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>
1997
Land and land improvements $ 3,521 $ 48 $ (237) $ -- $ 3,332
Buildings 37,091 -- -- 267 37,358
Machinery and equipment 199,811 -- (3,043) 5,431 202,199
Leasehold improvements 948 -- -- 419 1,367
Construction in progress 1,277 8,340 -- (6,117) 3,500
----------- ----------- ----------- --------- -----------
$ 242,648 $ 8,388 $ (3,280) $ -- $ 247,756
=========== =========== =========== ========= ===========
1998
Land and land improvements $ 3,332 $ -- $ (9) $ 3 $ 3,326
Buildings 37,358 -- -- 1,100 38,458
Machinery and equipment 202,199 -- (2,692) 8,416 207,923
Leasehold improvements 1,367 -- -- 224 1,591
Construction in progress 3,500 11,210 -- (9,743) 4,967
----------- ----------- ----------- --------- -----------
$ 247,756 $ 11,210 $ (2,701) $ -- $ 256,265
=========== =========== =========== ========= ===========
1999
Land and land improvements $ 3,326 $ -- $ (9) $ -- $ 3,317
Buildings 38,458 -- -- 2,541 40,999
Machinery and equipment 207,923 -- (3,244) 10,039 214,718
Leasehold improvements 1,591 -- -- -- 1,591
Construction in progress 4,967 8,728 -- (12,580) 1,115
----------- ----------- ----------- --------- -----------
$ 256,265 $ 8,728 $ (3,253) $ -- $ 261,740
=========== =========== =========== ========= ===========
</TABLE>
70
<PAGE> 71
CMI INDUSTRIES, INC. AND SUBSIDIARIES
SCHEDULE VI - ACCUMULATED DEPRECIATION AND AMORTIZATION
OF PROPERTY, PLANT AND EQUIPMENT
For the Three Years Ended January 3, 1998, January 2, 1999, and January 1, 2000
(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>
1997
Land and land improvements $ 16 $ 5 $ (3) $ -- $ 18
Buildings 12,177 1,892 -- (25) 14,044
Machinery and equipment 117,604 15,611 (1,574) (2,009) 129,632
Leasehold improvements 306 164 -- -- 470
----------- ----------- ----------- ----------- -----------
$ 130,103 $ 17,672 $ (1,577) $ (2,034) $ 144,164
=========== =========== =========== =========== ===========
1998
Land and land improvements $ 18 $ 5 $ -- $ -- $ 23
Buildings 14,044 1,895 -- -- 15,939
Machinery and equipment 129,632 14,765 (1,696) -- 142,701
Leasehold improvements 470 231 -- (117) 584
----------- ----------- ----------- ----------- -----------
$ 144,164 $ 16,896 $ (1,696) $ (117) $ 159,247
=========== =========== =========== =========== ===========
1999
Land and land improvements $ 23 $ 5 $ -- $ -- $ 28
Buildings 15,939 1,933 -- -- 17,872
Machinery and equipment 142,701 14,681 (2,321) 2,684 157,745
Leasehold improvements 584 237 -- -- 821
----------- ----------- ----------- ----------- -----------
$ 159,247 $ 16,856 $ (2,321) $ 2,684 $ 176,466
=========== =========== =========== =========== ===========
</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>
<CAPTION>
1997 1998 1999
---------- ---------- ----------
<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 1999 nonrecurring write-off of property, plant
and equipment in other changes to accumulated depreciation and amortization.
71
<PAGE> 72
CMI INDUSTRIES, INC. AND SUBSIDIARIES
SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS
For the Three Years Ended January 3, 1998, January 2, 1999
and January 1, 2000
(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 January 3, 1998:
Allowance for doubtful accounts $ 2,000 $ 528 $ (1,328) $ 1,200
========== ========== ========== ==========
Year ended January 2, 1999:
Allowance for doubtful accounts $ 1,200 $ 916 $ (916) $ 1,200
========== ========== ========== ==========
Year ended January 1, 2000:
Allowance for doubtful accounts $ 1,200 $ 123 $ (123) $ 1,200
========== ========== ========== ==========
</TABLE>
72
<PAGE> 73
Report of Independent Public Accountants
To The Board of Directors of
CMI Industries, Inc.:
We have audited in accordance with auditing standards generally accepted in the
United States, the financial statements of CMI Industries, Inc. and subsidiaries
included in this annual report and have issued our report thereon dated March
24, 2000. 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 24, 2000.
73
<PAGE> 74
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
10.32 Amendment No. 2 to Amended and Restated Employment Agreement
between CMI Industries, Inc. and Joseph L. Gorga dated March 14, 2000
10.33 Amendment No. 2 to Amended and Restated Employment Agreement
between CMI Industries, Inc. and James A. Ovenden dated March 14, 2000
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 LLP
27.1 Financial Data Schedule (for SEC use only)
</TABLE>
<PAGE> 1
AMENDMENT NO. 2
TO
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
This Amendment is made and entered into this 14th day of
March, 2000 by and between CMI INDUSTRIES, INC., a Delaware corporation (the
"Company"), and JOSEPH L. GORGA (the "Executive").
BACKGROUND STATEMENT
Executive is the President and Chief Executive Officer of the
Company. The parties hereto are parties to an Amended and Restated Employment
Agreement dated as of January 1, 1996, as amended by Amendment No. 1 which was
effective as of October 1, 1997 (together, the "Existing Employment Agreement,"
and as amended hereby, the "Employment Agreement" the terms defined therein
being used herein as therein defined unless otherwise defined herein). The
parties desire to enter into this Amendment to modify in certain respects, the
Existing Employment Agreement.
AGREEMENT
In consideration of the foregoing and other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged, the
parties hereto do hereby agree as follows:
1. Amendments. The Existing Employment Agreement is hereby
amended effective as of the date hereof (the "2000 Amendment Date") unless
otherwise provided below as follows:
a. Subparagraph 6(e)(i) is hereby amended to
delete the first paragraph of such Subsection in its entirety and replace it
with the following:
"(i) Notwithstanding the foregoing provisions of
this paragraph 6, if a Change of Control occurs during the
Period (or within six months after the expiration of the
Period while Executive is employed by the Company) and (x)
the Company terminates Executive's employment with the
Company within one year after the Change of Control other
than for "Good Cause" (as hereinafter defined) or in
connection with his death or Permanent Disability; (y)
Executive resigns within one year after the Change of Control
for "Good Reason" (as hereinafter defined); or (z) solely
with respect to a Change of Control caused by the disposition
of the shares of Common Stock owned by the MLCP Investors to
the Company contemplated by that certain Stock Acquisition
Agreement dated as of February 23, 2000 (the "Stock
Acquisition Agreement"), Executive resigns within six months
following the consummation of such disposition for any reason
<PAGE> 2
other than Good Reason, then Executive shall not be entitled
to receive any further compensation under paragraph 4 hereof,
but Executive shall be entitled to receive the following:".
b. Subparagraph (6)(e)(i)(2) shall be amended
to insert the following provision immediately following the parenthetical
phrase of subclause (y) therein:
"but not if he resigns without Good Reason as
contemplated by subclause (z) of Subparagraph (6)(e)(i),"
c. Subparagraph (6)(e)(i)(3) shall be amended
to insert the following provision immediately following the parenthetical
phrase of subclause (y) therein:
"but not if he resigns without Good Reason as
contemplated by subclause (z) of Subparagraph (6)(e)(i),"
d. Subparagraph 6(e)(i)(4) shall be amended to
insert the following provision immediately following the phrase "the definition
thereof," in the third sentence of such Subparagraph:
"but not if he resigns without Good Reason as
contemplated by subclause (z) of Subparagraph 6(e)(i),"
2. Agreement in Force. Except as amended hereby, all of the
provisions of the Existing Employment Agreement shall be and remain in full
force and effect. Upon the effectiveness hereof, each reference in the Existing
Employment Agreement to "this Agreement, "hereunder," "hereof," or words of
like import referring to the Existing Employment Agreement shall mean and be a
reference to the Employment Agreement.
3. Effectiveness. In the event the transactions contemplated
by that certain Stock Acquisition Agreement are not consummated for any reason
whatsoever, this Amendment No. 2 to the Employment Agreement shall be null,
void and of no force or effect.
4. Miscellaneous. This Amendment shall be governed by and
construed in accordance with the laws of the State of New York. This Amendment
shall be binding upon, and shall inure to the benefit of, the parties hereto,
any successors to or assigns of the Company and Executive's heirs and the
personal representatives of Executive's estate. The Existing Employment
Agreement, as amended hereby, constitutes the entire agreement of the parties
hereto with respect to the subject matter hereof and supersedes any prior or
contemporaneous agreements or understandings to the contrary. Titles and
captions of or in this Amendment are inserted only as a matter of convenience
and for reference and in no way define, limit, extend or describe the scope of
this Amendment or the intent of any of its provisions. The Employment
2
<PAGE> 3
Agreement may be further modified or amended only in an instrument executed by
the party against whom the modification or amendment is asserted. This
Amendment may be executed in two or more counterparts, each of which shall
constitute an original but all of which shall constitute one and the same
agreement.
IN WITNESS WHEREOF, the parties have executed and delivered
this Amendment as of the date provided above.
CMI INDUSTRIES, INC.
By:
--------------------------------
Title:
-----------------------------
-----------------------------------
Joseph L. Gorga
3
<PAGE> 1
AMENDMENT NO. 2
TO
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
This Amendment is made and entered into this 14th day of
March, 2000 by and between CMI INDUSTRIES, INC., a Delaware corporation (the
"Company"), and JAMES A.
OVENDEN (the "Executive").
BACKGROUND STATEMENT
Executive is the Executive Vice President and Chief Financial
Officer of the Company. The parties hereto are parties to an Amended and
Restated Employment Agreement dated as of January 1, 1996, as amended by
Amendment No. 1 which was effective as of October 1, 1997 (together, the
"Existing Employment Agreement," and as amended hereby, the "Employment
Agreement" the terms defined therein being used herein as therein defined
unless otherwise defined herein). The parties desire to enter into this
Amendment to modify in certain respects, the Existing Employment Agreement.
AGREEMENT
In consideration of the foregoing and other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged, the
parties hereto do hereby agree as follows:
1. Amendments. The Existing Employment Agreement is hereby
amended effective as of the date hereof (the "2000 Amendment Date") unless
otherwise provided below as follows:
a. Subparagraph 6(e)(i) is hereby amended to
delete the first paragraph of such Subsection in its entirety and replace it
with the following:
"(i) Notwithstanding the foregoing provisions of
this paragraph 6, if a Change of Control occurs during the
Period (or within six months after the expiration of the
Period while Executive is employed by the Company) and (x)
the Company terminates Executive's employment with the
Company within one year after the Change of Control other
than for "Good Cause" (as hereinafter defined) or in
connection with his death or Permanent Disability; (y)
Executive resigns within one year after the Change of Control
for "Good Reason" (as hereinafter defined); or (z) solely
with respect to a Change of Control caused by the disposition
of the shares of Common Stock owned by the MLCP Investors to
the Company contemplated by that certain Stock Acquisition
Agreement dated as of February 23, 2000 (the "Stock
Acquisition Agreement"), Executive resigns within six months
following the consummation of such disposition for any reason
<PAGE> 2
other than Good Reason, then Executive shall not be entitled to receive any
further compensation under paragraph 4 hereof, but Executive shall be entitled
to receive the following:".
b. Subparagraph (6)(e)(i)(2) shall be amended
to insert the following provision immediately following the parenthetical
phrase of subclause (y) therein:
"but not if he resigns without Good Reason as
contemplated by subclause (z) of Subparagraph (6)(e)(i),"
c. Subparagraph (6)(e)(i)(3) shall be amended
to insert the following provision immediately following the parenthetical
phrase of subclause (y) therein:
"but not if he resigns without Good Reason as
contemplated by subclause (z) of Subparagraph (6)(e)(i),"
d. Subparagraph 6(e)(i)(4) shall be amended to
insert the following provision immediately following the phrase "the definition
thereof," in the third sentence of such Subparagraph:
"but not if he resigns without Good Reason as
contemplated by subclause (z) of Subparagraph 6(e)(i),"
2. Agreement in Force. Except as amended hereby, all of the
provisions of the Existing Employment Agreement shall be and remain in full
force and effect. Upon the effectiveness hereof, each reference in the Existing
Employment Agreement to "this Agreement, "hereunder," "hereof," or words of
like import referring to the Existing Employment Agreement shall mean and be a
reference to the Employment Agreement.
3. Effectiveness. In the event the transactions contemplated
by that certain Stock Acquisition Agreement are not consummated for any reason
whatsoever, this Amendment No. 2 to the Employment Agreement shall be null,
void and of no force or effect.
4. Miscellaneous. This Amendment shall be governed by and
construed in accordance with the laws of the State of New York. This Amendment
shall be binding upon, and shall inure to the benefit of, the parties hereto,
any successors to or assigns of the Company and Executive's heirs and the
personal representatives of Executive's estate. The Existing Employment
Agreement, as amended hereby, constitutes the entire agreement of the parties
hereto with respect to the subject matter hereof and supersedes any prior or
contemporaneous agreements or understandings to the contrary. Titles and
captions of or in this Amendment are inserted only as a matter of convenience
and for reference and in no way define, limit, extend or describe the scope of
this Amendment or the intent of any of its provisions. The Employment
<PAGE> 3
Agreement may be further modified or amended only in an instrument executed by
the party against whom the modification or amendment is asserted. This
Amendment may be executed in two or more counterparts, each of which shall
constitute an original but all of which shall constitute one and the same
agreement.
IN WITNESS WHEREOF, the parties have executed and delivered
this Amendment as of the date provided above.
CMI INDUSTRIES, INC.
By:
--------------------------------
Title:
-----------------------------
-----------------------------------
James A. Ovenden
<PAGE> 1
Exhibit 12
RATIO OF EARNINGS TO FIXED CHARGES*
<TABLE>
<CAPTION>
Fiscal Year
1995 1996 1997 1998 1999
----------- ----------- ----------- ----------- -----------
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
Income before income taxes
and extraordinary items $ (25,443) $ (16,778) $ 11,986 $ 4,939 $ (22,458)
Fixed charges:
Interest expense 16,599 14,843 13,893 12,249 12,408
Amortization of debt expense 575 582 606 510 502
----------- ----------- ----------- ----------- -----------
Total fixed charges $ 17,174 $ 15,425 $ 14,499 $ 12,759 $ 12,910
=========== =========== =========== =========== ===========
Income before income taxes, extraordinary
items and fixed charges $ (8,269) $ (1,353) $ 26,485 $ 17,698 $ (9,548)
=========== =========== =========== =========== ===========
Ratio of earnings to fixed charges (0.48)x (0.09)x 1.83x 1.39x (0.74)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
Chatham Fabrics LLC
Elastic Fabrics of America LLC
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the inclusion
of our report dated March 24, 2000 in this Form 10-K. It should be noted that
we have not audited any financial statements of the Company subsequent to
January 1, 2000 or performed any audit procedures subsequent to the date of our
report.
/s/ARTHUR ANDERSEN LLP
Columbia, South Carolina,
March 29, 2000.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF CMI INDUSTRIES FOR THE YEAR ENDED JANUARY 1, 2000 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-01-2000
<PERIOD-START> JAN-02-1999
<PERIOD-END> JAN-01-2000
<CASH> 2,263
<SECURITIES> 0
<RECEIVABLES> 49,217
<ALLOWANCES> 1,200
<INVENTORY> 51,186
<CURRENT-ASSETS> 106,558
<PP&E> 261,740
<DEPRECIATION> 176,466
<TOTAL-ASSETS> 202,239
<CURRENT-LIABILITIES> 35,807
<BONDS> 128,814
0
0
<COMMON> 1,589
<OTHER-SE> 23,886
<TOTAL-LIABILITY-AND-EQUITY> 202,239
<SALES> 374,304
<TOTAL-REVENUES> 375,139
<CGS> 344,693
<TOTAL-COSTS> 384,687
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 12,910
<INCOME-PRETAX> (22,458)
<INCOME-TAX> (8,500)
<INCOME-CONTINUING> (13,958)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (13,958)
<EPS-BASIC> (8.78)
<EPS-DILUTED> (8.78)
</TABLE>
