<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
---------------
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended July 1, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _________________ to ______________________
Commission File Number 33-67854
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CMI INDUSTRIES, INC.
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(Exact name of registrant as specified, on its charter)
Delaware 57-0836097
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(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
1301 Gervais Street, Suite 700, Columbia, South Carolina 29201
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(Address of principal executive office) (Zip Code)
Registrant's telephone number including area code: (803) 771-4434
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
As of July 1, 2000, there were 595,031 shares of $1 Par Value Common Stock
outstanding.
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<PAGE> 2
PART I FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
CMI INDUSTRIES, INC.
AND SUBSIDIARIES
Consolidated Statements of Operations
(000's Omitted Except Per Share Data)
(unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
-------------------------- --------------------------
JULY 3, JULY 1, JULY 3, JULY 1,
1999 2000 1999 2000
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net sales $ 91,339 $ 75,863 $ 184,460 $ 168,235
Cost of sales 84,073 71,680 168,287 157,137
---------- ---------- ---------- ----------
Gross profit 7,266 4,183 16,173 11,098
Selling, general and administrative expenses 8,017 6,460 16,213 14,629
Loss on sale of furniture fabric assets (note 8) -- 19,602 -- 19,602
Provision for restructuring and other
nonrecurring asset write-offs (note 6) 7,000 -- 7,000 --
---------- ---------- ---------- ----------
Operating loss (7,751) (21,879) (7,040) (23,133)
Other income (expenses):
Interest expense (3,232) (2,975) (6,445) (6,257)
Other, net 290 155 623 360
---------- ---------- ---------- ----------
(2,942) (2,820) (5,822) (5,897)
Loss before income taxes and
extraordinary item (10,693) (24,699) (12,862) (29,030)
Income tax provision (4,258) (9,331) (5,108) (11,018)
---------- ---------- ---------- ----------
Loss before extraordinary item (6,435) (15,368) (7,754) (18,012)
Extraordinary gain on repurchase of debt, net of taxes -- 2,089 -- 7,790
---------- ---------- ---------- ----------
Net loss $ (6,435) $ (13,279) $ (7,754) $ (10,222)
========== ========== ========== ==========
Average shares outstanding during period 1,695 595 1,674 993
Net loss per share $ (3.90) $ (22.32) $ (4.63) $ (10.29)
Depreciation and amortization included in
the above costs and expenses $ 4,431 $ 3,324 $ 8,781 $ 7,332
</TABLE>
See Accompanying Notes.
2
<PAGE> 3
CMI INDUSTRIES, INC.
AND SUBSIDIARIES
Consolidated Balance Sheets
January 1, 2000 and July 1, 2000
(000's Omitted)
<TABLE>
<CAPTION>
JANUARY 1, JULY 1,
2000 2000
---------- -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 2,263 $ 1,488
Receivables, less allowance for doubtful
accounts of $1,200 and $1,000, respectively 48,017 43,158
Inventories: (note 3)
Raw materials 8,956 5,635
Work-in-process 18,077 12,124
Finished goods 21,203 19,450
Supplies 2,950 2,408
---------- ----------
51,186 39,617
Deferred income taxes 3,342 9,600
Other current assets 1,750 2,579
---------- ----------
Total current assets 106,558 96,442
Property, plant and equipment: (note 4)
Land and land improvements 3,317 2,318
Buildings and leasehold improvements 42,590 35,295
Machinery and equipment 214,718 170,565
Construction in progress 1,115 1,500
---------- ----------
261,740 209,678
Less accumulated depreciation and amortization (176,466) (152,850)
---------- ----------
85,274 56,828
Other assets:
Cash value of life insurance, intangibles,
deferred charges, and other assets 10,407 10,048
---------- ----------
$ 202,239 $ 163,318
========== ==========
</TABLE>
See Accompanying Notes.
3
<PAGE> 4
CMI INDUSTRIES, INC.
AND SUBSIDIARIES
Consolidated Balance Sheets
January 1, 2000 and July 1, 2000
(000's Omitted)
<TABLE>
<CAPTION>
JANUARY 1, JULY 1,
2000 2000
---------- -----------
(unaudited)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Payable - book overdraft $ 8,200 $ 6,795
Accounts payable 14,302 13,963
Accrued expenses, including restructuring charges 13,305 12,649
---------- ----------
Total current liabilities 35,807 33,407
Long-term debt (note 2) 128,814 114,436
Other liabilities 12,143 9,168
Stockholders' equity:
Common stock of $1 par value per share; 2,100,000 shares
authorized, 1,589,318 shares issued and outstanding at
January 1, 2000; and 820,000 authorized, 595,031 shares
issued and outstanding at July 1, 2000 1,589 595
Paid-in capital 8,814 862
Retained earnings (note 2) 15,072 4,850
---------- ----------
Total stockholders' equity 25,475 6,307
---------- ----------
$ 202,239 $ 163,318
========== ==========
</TABLE>
See Accompanying Notes.
4
<PAGE> 5
CMI INDUSTRIES, INC.
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the Six Months Ended July 3, 1999 and July 1, 2000
(000's Omitted)
<TABLE>
<CAPTION>
JULY 3, JULY 1,
1999 2000
----------- -----------
(unaudited) (unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (7,754) $ (10,222)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization 8,781 7,332
Gain on purchase of senior subordinated notes -- (12,554)
Loss on sale of furniture fabric assets -- 19,602
Nonrecurring asset write-offs 6,000 --
Changes in assets and liabilities
Receivables 2,286 (5,244)
Inventories (2,821) (6,983)
Other current assets 5,864 (2,320)
Other assets (615) (155)
Accounts payable 1,901 3,920
Accrued expenses (554) 756
Deferred income taxes (5,197) (6,258)
Other liabilities (49) (975)
---------- ----------
Net cash provided by (used in) operating activities 7,842 (13,101)
---------- ----------
Cash flows from investing activities:
Capital expenditures, net (5,548) (1,392)
Proceeds from sale of furniture fabric assets -- 25,630
---------- ----------
Net cash provided by (used in) investing activities (5,548) 24,238
---------- ----------
Cash flows from financing activities:
Net borrowings on revolving credit facilities 3,795 11,601
Purchase of Senior Subordinated Notes -- (13,162)
Purchase of common stock, net (2,650) (8,946)
Net change in payable-book overdraft (5,963) (1,405)
---------- ----------
Net cash used in financing activities (4,818) (11,912)
---------- ----------
Net decrease in cash (2,524) (775)
Cash and cash equivalents at beginning of year 3,911 2,263
---------- ----------
Cash and cash equivalents at end of period $ 1,387 $ 1,488
========== ==========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 6,254 $ 6,549
========== ==========
</TABLE>
See Accompanying Notes.
5
<PAGE> 6
Notes to Consolidated Financial Statements
Note 1:
Basis of Presentation:
The consolidated financial statements include the accounts of the
Company and its wholly owned subsidiaries. All significant intercompany balances
and transactions have been eliminated. In the opinion of management, the
accompanying unaudited consolidated financial statements include all adjustments
necessary to present fairly the Consolidated Balance Sheet as of July 1, 2000,
the Consolidated Statements of Cash Flows for the six months ended July 3, 1999
and July 1, 2000, and the Consolidated Statements of Operations for the three
months and six months then ended. All dollar amounts contained in the financial
statements and accompanying notes are rounded to thousands unless otherwise
indicated. The Consolidated Balance Sheet as of January 1, 2000 has been
audited, but the auditors' report is not included herein. The disclosures
accompanying these interim financial statements are condensed and should be read
in conjunction with the disclosures in the annual financial statements.
Note 2:
Long-Term Debt:
In October 1993, the Company completed a public offering ("the
Offering") of $125,000 in aggregate principal amount of 9 1/2% Senior
Subordinated Notes ("Notes") due October 1, 2003. The Notes are general
unsecured obligations of the Company. Interest on the Notes is payable
semiannually. The Notes are redeemable at the option of the Company at the
following redemption prices (expressed as a percentage of the principal amount),
plus accrued interest, if redeemed during the 12-month period beginning on
October 1 of the years indicated:
<TABLE>
<CAPTION>
Year Redemption Price
---- ----------------
<S> <C>
1999 102.375%
2000 and thereafter 100.000%
</TABLE>
During the six months ended July 1, 2000, the Company has purchased
$26,095 (face value) of these notes in the open market at prices lower than face
value. After a reduction of $379 for the write-off of the related unamortized
bond issue discount and debt issue costs, these purchases have resulted in an
extraordinary gain of $7,790, net of income taxes. The recorded balance of
$98,653 at July 1, 2000, is presented net of $252 of unamortized bond issue
discount that is being amortized over the period to maturity. The latest
information available indicates the fair value of the remaining outstanding
Notes was approximately $49,453 at July 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. Following
the sale of the furniture fabric assets on May 1, 2000, the Company and its
lenders amended the facility again to reduce the borrowing limit to $40 million.
The borrowings under the amended credit agreement are secured by all
receivables, certain inventories and certain intangibles.
6
<PAGE> 7
Long-term debt as of January 1, 2000 and July 1, 2000 consisted of:
<TABLE>
<CAPTION>
January 1, 2000 July 1, 2000
--------------- ------------
<S> <C> <C>
Borrowings under credit agreements:
Secured revolving credit facility $ 4,182 $ 15,783
Senior subordinated notes, net 124,632 98,653
---------- ----------
128,814 114,436
Less current portion -- --
---------- ----------
Long-term debt $ 128,814 $ 114,436
========== ==========
</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 July 1, 2000, the Company
could have borrowed an additional $20 million under the amended secured
revolving credit facility. Interest on the secured revolving credit facility is
based on a floating prime rate or a eurodollar rate plus 1 1/4%. At July 1,
2000, the prime borrowing interest rate on the revolving credit facility was
9.5% and the eurodollar borrowing rate was 7.76%.
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
agreement 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 July 1, 2000, the
Company was not authorized to pay any dividends or make any capital stock
purchases. At July 1, 2000, the Company was in compliance with, or had received
waivers for, all covenants under all credit agreements.
As part of the Company's workers' compensation insurance agreements in
South Carolina, Alabama, Georgia and Virginia, the Company has obtained letters
of credit for $900, $200, $250 and $75, respectively. The letters of credit
expire on January 11, 2001, June 30, 2001, January 11, 2001 and April 10, 2001,
respectively. At July 1, 2000, the Company owed no amount under these letters of
credit.
Note 3:
Inventories:
Inventories at January 1, 2000 and July 1, 2000 are stated at the lower
of cost (first-in, first-out) or market, and include the costs of raw materials,
direct labor, and manufacturing overhead.
Note 4:
Property, Plant and Equipment:
All additions to property, plant and equipment are stated at cost.
Depreciation is calculated for financial reporting purposes by the straight-line
method over the estimated useful lives of the respective assets.
Note 5:
Segment Information
The Company manages its businesses through three operating divisions:
the Greige Fabrics Division, the Elastic Fabrics Division, and the Chatham
Division. The Greige Fabrics Division produces greige woven fabrics, such as
printcloths, broadcloths, twills and other fabrics used in home furnishings,
apparel and industrial applications. The Elastic Fabrics division produces woven
and knitted elasticized fabrics used in the manufacturing of intimate apparel,
activewear and swimwear. The Chatham Division produces upholstery fabrics used
in the automotive industry and consumer products used in the home textile
industry. Prior to May 1, 2000 and the sale of Chatham's furniture fabric
assets, the Chatham Division also produced upholstery for the furniture
industry.
7
<PAGE> 8
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>
Six Months Ended
-----------------------------------
July 3, 1999 July 1, 2000
------------ ------------
<S> <C> <C>
Net sales
Greige $ 55,400 $ 55,292
Chatham 78,681 67,721
Elastics 50,379 45,222
---------- ----------
Total $ 184,460 $ 168,235
========== ==========
Operating loss before nonrecurring items
Greige $ (4,402) $ (5,638)
Chatham 353 305
Elastics 6,356 3,610
Corporate (2,347) (1,808)
---------- ----------
Total (40) (3,531)
Nonrecurring items 7,000 19,602
Interest expense 6,445 6,257
Other (income), net (623) (360)
---------- ----------
Loss before income taxes and extraordinary item $ (12,862) $ (29,030)
========== ==========
Operating margin
Greige (7.9) (11.1)
Chatham 0.4 0.5
Elastics 12.6 8.0
---------- ----------
Total (0.0)% (2.4)%
========== ==========
Identifiable assets
Greige $ 74,765 $ 67,596
Chatham 76,812 25,810
Elastics 44,363 43,425
Corporate 11,494 26,487
---------- ----------
Total $ 207,434 $ 163,318
========== ==========
Depreciation and amortization
Greige $ 4,520 $ 4,175
Chatham 2,541 1,603
Elastics 1,261 1,109
Corporate 459 445
---------- ----------
Total $ 8,781 $ 7,332
========== ==========
Capital expenditures
Greige $ 871 $ 247
Chatham 3,027 706
Elastics 992 312
Corporate 658 127
---------- ----------
Total $ 5,548 $ 1,392
========== ==========
</TABLE>
8
<PAGE> 9
Note 6:
Restructuring Charges
Second Quarter 1999 Restructuring Charges
In the second quarter of 1999, the Company approved a plan to pursue
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, 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 consolidated certain
manufacturing capacity, realigned certain management responsibilities and
disposed of idle equipment and related inventories. Except for completing
certain asset dispositions, these initiatives have been substantially completed.
The restructuring initiatives included the termination and retirement of
approximately 170 associates, including the associated severance costs relating
to insurance, vacation and other benefits. The Company originally reported a
$7,000 charge to earnings in connection with the restructuring initiatives and
continues to reserve for the following items in the accompanying balance sheet
as of July 1, 2000:
<TABLE>
<CAPTION>
January 1, 2000 July 1, 2000
--------------- ------------
<S> <C> <C>
Restructuring items:
Severance and related benefit costs $ 446 $ 160
Other nonrecurring asset write-offs:
Inventory write-offs 973 273
Property, plant & equipment write-offs 2,684 963
Other asset write-offs 389 256
-------- --------
$ 4,492 $ 1,652
======== ========
</TABLE>
Included in the $7,000 charge were approximately $1,000 of incremental
cash expenditures. During the six months ended July 1, 2000, the Company funded
$286 of cash related restructuring items and had net asset disposals of $2,554
related to the restructuring.
Note 7:
Purchase of Common Stock from Merrill Lynch Capital Partners, Inc.
On March 14, 2000, the Company completed the purchase of 994,387 shares
of the Company's Common Stock held by Merrill Lynch Capital Partners, Inc. and
its affiliates for a purchase price of $9.00 per share or an aggregate amount of
$8,949,483. As a result of this transaction, the stockholder affiliates of
Merrill Lynch Capital Partners, Inc. 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 Merrill Lynch Capital Partners, Inc. was funded
through the Company's secured revolving credit facility.
Note 8:
Sale of Furniture Fabric Assets of Chatham Division
On May 1, 2000, the Company completed the sale of the furniture fabric
assets of its Chatham Division to Interface, Inc. for a purchase price of $25.6
million in cash. Sales associated with the furniture fabric assets for the four
months ended May 1, 2000 amounted to approximately $25.0 million. The sale
resulted in a pretax loss of approximately $19.6 million which was reflected as
a charge to operations during the second quarter of 2000. The Company used the
proceeds from the sale to pay down the outstanding indebtedness under its
secured revolving credit facility. In conjunction with completing the sale of
its furniture fabric assets, the Company and its lenders also amended the
secured revolving credit facility to allow for the disposition of the furniture
fabric assets. The amendment also reduced the borrowing limit under the facility
to $40 million and revised certain financial covenants.
9
<PAGE> 10
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
This report contains statements which to the extent that they are not
recitations of historical fact, may constitute "forward looking statements"
within the meaning of applicable federal securities laws. All forward looking
statements contained in this report are intended to be subject to the safe
harbor protection provided by the Private Securities Litigation Reform Act of
1995 and Section 21E of the Securities Exchange Act of 1934, as amended. For a
discussion identifying some important factors that could cause actual results to
vary materially from those anticipated in the forward looking statements made by
the Company, see the Company's Annual Report on Form 10-K for the year ended
January 1, 2000, including, but not limited to, the "Overview" discussion and
the "Results of Operations" discussion to Management's Discussion and Analysis
of Financial Condition of the Annual Report.
Results of Operations
Three Months Ended July 1, 2000
Compared with Three Months Ended July 3, 1999
Sales
Sales for the three months ended July 1, 2000, decreased $15.4 million,
or 16.9%, from $91.3 million to $75.9 million as compared to the corresponding
period of 1999. Sales of the Greige Fabrics Division increased $0.4 million, or
1.6%, while sales for the Elastic Fabrics Division decreased $3.0 million or
12.0%, and sales of the Chatham Division decreased $12.9 million or 32.4% from
the prior year. The increase in sales for the Greige Fabrics Division consisted
of (1) a $0.6 increase in sales of 100% filament fabrics produced at the
Company's Clarkesville, Georgia facility and (2) a $0.2 million decrease in
sales of blended or 100% cotton fabrics, resulting from a 3.3% decrease in
average selling prices and a 2.4% increase in volume. Market demand for the
Company's commodity oriented greige fabrics continues to be very weak, and the
growing availability of lower priced Asian fabrics continues to suppress market
selling prices. The decrease in sales in the Elastic Fabrics Division consisted
of a 13.8% decrease in sales of wide elastics and a 7.8% decrease in sales of
narrow elastics. The decline in elastics sales reflects both the reduced demand
by customers due to inventory initiatives at retail and certain operational
inefficiencies which have disrupted the Elastics Division's on-time delivery
performance. The sales decrease for the Chatham Division included a $2.8 million
decrease in automotive upholstery sales and a $11.4 million decrease in
furniture upholstery sales, while sales of consumer products increased by $1.3
million or approximately 30%. The decline in furniture sales reflects the sale
of Chatham's furniture fabric assets on May 1, 2000 while the decline in
automotive sales is consistent with the reduction in 2000 model year vehicle
placements of Chatham's automotive upholstery fabrics.
Earnings
The Company reported an operating loss of $21.9 million for the
three-month period ended July 1, 2000. Included in the current period's
operating loss was a $19.6 million charge associated with the sale of the
Company's furniture fabric assets. Included in the prior year's operating loss
of $7.8 million was a $7.0 million restructuring charge associated with the
Company's decision to discontinue certain manufacturing operations and other
initiatives designed to reduce costs. Excluding these two non-recurring items,
operating income would have declined $1.5 million for the three month period
ended July 1, 2000 as compared to the same period a year ago. The decline in
earnings is primarily attributed to the Elastics Division as lower sales coupled
with continued operational inefficiencies and quality issues combined to reduce
the Elastic Division's operating income by $1.5 million. Additionally, the
continued influx of lower priced imported fabrics and excess inventory levels
continued to suppress demand and selling prices for domestically produced greige
fabrics, and consequently, the Company has not reported any improvement in its
Greige Division's earnings. Earnings in the Chatham Division were up marginally
in the three month period ended July 1, 2000, but could only partially offset
the decline in earnings associated with the Elastics Division.
10
<PAGE> 11
Interest expense for the three months ended July 1, 2000 was $3.0
million, as compared to $3.2 million for the corresponding period in 1999. Other
income, net, for the three months ended July 1, 2000 was $0.2 million, a
decrease of $0.1 million from the same period in 1999.
As a result of the above mentioned items, the net loss before income
taxes and extraordinary item increased $14.0 million for the three months ended
July 1, 2000 over the corresponding period in 1999, while the provision for
income taxes decreased $5.1 million and resulted in a $15.4 million loss before
extraordinary item for the three month period.
Also included in the three month period ended July 1, 2000 was
extraordinary income associated with the Company's purchase of its Notes at
market prices below face value. The Company reported a $2.1 million gain on the
repurchase of its Notes, net of taxes. After considering the extraordinary item,
the Company reported a $13.3 million net loss for the three months ended July 1,
2000 as compared to a $6.4 million net loss for the corresponding period of
1999.
Six Months Ended July 1, 2000
Compared with Six Months Ended July 3, 1999
Sales
Sales for the six months ended July 1, 2000 decreased $16.3 million, or
8.8%, from $184.5 million to $168.2 million as compared to the corresponding
period in 1999. Sales of the Greige Fabrics Division decreased $0.1 million or
0.2%, while sales of the Elastic Fabrics Division decreased $5.2 million or
10.2%, and sales of the Chatham Division decreased $11.0 million or 14.0%. The
decrease in sales of the Greige Fabrics Division consisted of (1) a $1.1 million
decrease in sales of blended or 100% cotton fabrics, resulting from a 6.7%
decrease in average selling prices and a 4.5% increase in volume, and (2) a $1.0
million increase in sales of 100% filament fabrics produced at the Company's
Clarkesville, Georgia facility. The decrease in sales in the Elastics Division
consisted of a 10.5% decrease in wide elastic sales and a 9.5% decrease in
narrow elastic sales. The decline in sales in the Chatham Division included a
$4.3 million reduction in automotive upholstery sales associated with the
Company's reduced number of placements for the 2000 model year. Sales of
furniture upholstery were down $8.2 million due to the divestiture of the
furniture fabric assets on May 1, 2000. Sales of consumer products increased
$1.5 million or 17% due to strong market demand for Chatham's blanket product
offerings.
Earnings
The Company reported an operating loss of $23.1 million for the
six-month period ended July 1, 2000. Excluding the loss on the sale of the
furniture fabrics assets on May 1, 2000 and the restructuring charge reported in
the first half of 1999, the operating loss in the first half of 2000 has
increased $3.5 million as compared to the same period in the prior year. The
decrease in profitability is primarily attributable to the Elastic Fabrics
Division as lower sales coupled with operational inefficiencies and quality
issues have combined to reduce the Elastic Division's operating income by $2.7
million. On-time deliveries and off-quality levels appear to be improving in the
third quarter period. The Greige Fabrics Division's earnings decreased by $1.0
million as compared to the same period in 1999 as lower selling prices have
continued to depress margins. Despite lower sales levels resulting from the sale
of its furniture fabric assets, the Chatham Division's earnings remain
relatively unchanged from prior year levels.
Interest expense for the six months ended July 1, 2000 was $6.3
million, as compared to $6.4 million for the corresponding period in 1999. Other
income, net, for the six months ended July 1, 2000, was $0.4 million, down $0.2
million from the corresponding period in 1999.
As a result of the above mentioned items, the net loss before income
taxes and extraordinary item decreased $16.2 million for the six months ended
July 1, 2000 over the corresponding period in 1999, while the provision for
income taxes decreased $5.9 million and resulted in a $18.0 million loss before
extraordinary item for the six month period.
11
<PAGE> 12
Also included in the six month period ended July 1, 2000 was
extraordinary income associated with the Company's purchase of its Notes at
market prices below face value. The Company reported a $7.8 million gain on the
repurchase of its Notes, net of taxes. After considering the extraordinary item,
the Company reported a $10.2 million net loss for the three months ended July 1,
2000 as compared to a $7.8 million net loss for the corresponding period of
1999.
Financial Condition
For the six months ended July 1, 2000, the Company used $11.6 million
of borrowings under its secured credit facility and $25.6 million from the sale
of its furniture fabric assets to fund $13.1 million of negative cash flow from
operations, to repurchase $13.2 million of its 9 1/2% Notes, to invest $1.4
million for capital expenditures, and to repurchase $8.9 million of the
Company's common stock. Additionally, the Company also reduced its cash position
by $0.8 million during the six months ended July 1, 2000 and reduced its payable
book overdraft by $1.4 million.
At July 1, 2000, working capital was approximately $63.0 million as
compared to approximately $70.8 million at January 1, 2000. The decrease in
working capital includes $24.5 million of working capital related to the sale of
the furniture fabric assets on May 1, 2000. Offsetting the reduction in working
capital associated with the sale of the furniture fabric assets, the Company
reported a $5.2 million increase in receivables, a $7.0 million increase in
inventory and a $6.3 million increase in its deferred tax asset. Management is
not aware of any present or potential impairments to the Company's liquidity.
At July 1, 2000, long-term debt of approximately $114.4 million
represented 94.8% of total capital, compared to 83.5% at January 1, 2000. The
increased leverage reflects the impact from the Company's purchase of common
stock for $8.9 million and the net loss reported of $10.2 million during the six
months ended July 1, 2000.
The Company believes that funds from operations during the balance of
fiscal 2000 and amounts available under the amended credit agreement (see note 2
to consolidated financial statements) are adequate to finance capital
expenditures of approximately $2.0 million during the remainder of 2000, in
addition to meeting working capital requirements and scheduled debt service
payments. The Company also continues to consider various strategic business
alternatives in respect of its operations, which are consistent with maximizing
shareholder value, improving liquidity and maximizing the Company's tax planning
strategies and attributes. In performing such reviews, the Company is
considering potential asset divestitures and acquisitions that would better
position certain of its businesses to compete long term.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Interest rate risk. The Company has exposure to interest rate changes
primarily relating to interest rate changes under its bank credit agreement. The
Company's bank credit agreement bears interest at rates which vary with changes
in (i) the London Interbank Offered Rate (LIBOR) or (ii) a rate of interest
announced publicly by Fleet National Bank. 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
July 1, 2000, the Company had $15,783 of outstanding indebtedness under its bank
credit agreements 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
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July 1, 2000, the Company had contracted for 20,556 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.
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PART II OTHER INFORMATION
Item 1. Legal Proceedings
None Reportable
Item 2. Changes in Securities
As reported in Note 2 to the Consolidated Financial Statements, the
Company's credit agreements and indenture contain various restrictive covenants,
and as of July 1, 2000, the Company was not authorized to pay any dividends in
respect of its common stock.
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
At the Annual Meeting of the stockholders of the Company on May 9,
2000, the following matters were voted upon:
A. The stockholders elected the following individuals to the
Board of Directors of the Company by a vote of 436,200 shares
for (or 73.3%), 154,650 shares against (or 26%), and 4,081
shares not voting (or 0.7%):
Joseph L. Gorga William R. Davis
James A. Ovenden Rupinder S. Sidhu
Steve F. Warren
B. The stockholders also elected J. R. Swetenburg as a member of
the Board of Directors of the Company by a vote of 439,850
shares for (or 73.9%), 97,000 shares voting for other
nominations (or 16.3%), and 58,081 shares not voting (or
9.8%).
C. The stockholders amended Section 3.08 of Article III of the
Bylaws of the Company to require the vote of not less than 75%
of the directors then in office to approve matters submitted
to the Board of Directors. Votes cast in favor of the
amendment to the Bylaws were 493,850 (or 83.0%), 97,000 shares
voting against (or 16.3%), and 4,181 shares not voting (or
0.7%).
D. The stockholders approved two resolutions which (i) directs
the Board of Directors of the Company to retire the shares of
common stock of the Company redeemed from the affiliates of
Merrill Lynch Capital Partners, Inc., and (ii) to reduce the
number of authorized shares of common stock of the Company to
an appropriate amount, taking into consideration the Company's
outstanding obligations with respect to its common stock and
the recent redemptions of the Affiliates of Merrill Lynch
Capital partners, Inc. Votes cast in favor of the resolutions
were 493,850 for (or 83.0%), 97,000 shares voting against (or
16.3%), and 4,181 shares not voting (or 0.7%).
E. The Stockholders unanimously appointed W. James Raleigh as a
Director Emeritus of the Company.
F. The stockholders did not approve a motion placed before them
that would have required that any Company action that dilutes
or has the potential to dilute the interest of the
stockholders must be presented to the stockholders for a vote,
with a two-thirds majority necessary to implement such action,
and that such action must be supported by a fairness opinion.
Votes cast in favor of the motion were 134,000 (or 22.5%),
441,850 votes against (or 74.3%), and 19,181 shares not voting
(or 3.2%).
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Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits
3.1 Amendment to the Bylaws of the Company.
4.1 Amendment No. 3 dated May 31, 2000 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.
10.1 Employment Agreement dated July 7, 2000 between the
Company and Joseph L. Gorga.
10.2 Employment Agreement dated July 7, 2000 between the
Company and James A. Ovenden.
27.1 Financial Data Schedule. (for SEC use only)
b) Reports on Form 8-K
None
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SIGNATURE OF REGISTRANT
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CMI INDUSTRIES, INC.
Date: August 14, 2000 By /s/ JOSEPH L. GORGA
----------------------------------------
Joseph L. Gorga
President and Chief Executive Officer
Date: August 14, 2000 By /s/ JAMES A OVENDEN
----------------------------------------
James A. Ovenden
Executive Vice President
and Chief Financial Officer
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INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<S> <C>
3.1 Amendment to the Bylaws of the Company.
4.1 Amendment No. 3 dated May 31, 2000 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.
10.1 Employment Agreement dated July 7, 2000 between the Company
and Joseph L. Gorga.
10.2 Employment Agreement dated July 7, 2000 between the company
and James A. Ovenden.
27.1 Financial Data Schedule. (for SEC use only)
</TABLE>
17
