<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 September 30, 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.
(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 November 14, 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 NINE MONTHS ENDED
------------------------- -------------------------
OCT. 2, SEPT. 30 OCT. 2, SEPT. 30,
1999 2000 1999 2000
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net sales $ 53,100 $ 49,568 $ 158,880 $ 150,083
Cost of sales 51,647 49,829 149,857 147,322
---------- ---------- ---------- ----------
Gross profit (loss) 1,453 (261) 9,023 2,761
Selling, general and administrative expenses 3,263 3,669 11,090 10,748
Provision for restructuring and other
nonrecurring asset write-offs (note 7) -- -- 7,000 --
---------- ---------- ---------- ----------
Operating loss (1,810) (3,930) (9,067) (7,987)
Other income (expenses):
Interest expense (3,165) (2,863) (9,610) (9,120)
Other, net 135 56 622 329
---------- ---------- ---------- ----------
Total other expenses, net (3,030) (2,807) (8,988) (8,791)
Loss from continuing operations
before income tax provision and
extraordinary item (4,840) (6,737) (18,055) (16,778)
Income tax provision (benefit) (1,767) 11,018 (7,038) --
---------- ---------- ---------- ----------
Loss from continuing operations
before extraordinary item (3,073) (17,755) (11,017) (16,778)
Extraordinary gain on repurchase of debt, net of taxes -- 4,806 -- 12,597
---------- ---------- ---------- ----------
Loss from continuing operations (3,073) (12,949) (11,017) (4,181)
Discontinued operations, net of taxes (note 3):
Income from discontinued operations 661 1,634 851 2,247
Gain (loss) on disposal of discontinued operations -- 9,031 -- (10,571)
---------- ---------- ---------- ----------
Net loss $ (2,412) $ (2,284) $ (10,166) $ (12,505)
========== ========== ========== ==========
Average shares outstanding during period 1,589 595 1,646 860
Net loss per share $ (1.52) $ (3.83) $ (6.18) $ (14.54)
Depreciation and amortization included in the
above costs and expenses: $ 4,315 $ 2,885 $ 13,096 $ 10,217
</TABLE>
See Accompanying Notes
2
<PAGE> 3
CMI INDUSTRIES, INC.
AND SUBSIDIARIES
Consolidated Balance Sheets
January 1, 2000 and September 30, 2000
(000's omitted)
<TABLE>
<CAPTION>
JANUARY 1, SEPTEMBER 30,
2000 2000
---------- -------------
(unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 2,263 $ 690
Receivables, less allowance for doubtful
accounts of $700 and $725, respectively 29,762 31,299
Inventories: (note 3)
Raw materials 3,845 3,891
Work-in-process 10,789 11,760
Finished goods 6,427 7,737
Supplies 2,173 2,290
---------- ----------
23,234 25,678
Net assets of discontinued operations held for sale 57,440 26,066
Deferred income taxes 3,434 3,434
Other current assets 1,160 1,281
---------- ----------
Total current assets 117,293 88,448
Property, plant and equipment: (note 4)
Land and land improvements 1,973 1,937
Buildings and leasehold improvements 34,612 34,462
Machinery and equipment 166,151 163,928
Construction in progress 1,000 365
---------- ----------
203,736 200,692
Less accumulated depreciation and amortization (145,162) (149,335)
---------- ----------
58,574 51,357
Other assets:
Cash value of life insurance, intangibles,
deferred charges, and other assets 10,200 9,963
---------- ----------
$ 186,067 $ 149,768
========== ==========
</TABLE>
See Accompanying Notes
3
<PAGE> 4
CMI INDUSTRIES, INC.
AND SUBSIDIARIES
Consolidated Balance Sheets
January 1, 2000 and September 30, 2000
(000's omitted)
<TABLE>
<CAPTION>
JANUARY 1, SEPTEMBER 30,
2000 2000
---------- -------------
(unaudited)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Payable - book overdraft $ 8,200 $ 7,180
Accounts payable 8,244 8,729
Accrued expenses, including restructuring charges 6,736 8,607
---------- ----------
Total current liabilities 23,180 24,516
Long-term debt (note 2) 128,814 113,287
Other liabilities 8,598 7,941
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 September 30, 2000 1,589 595
Paid-in capital 8,814 862
Retained earnings (note 2) 15,072 2,567
---------- ----------
Total stockholders' equity 25,475 4,024
---------- ----------
$ 186,067 $ 149,768
========== ==========
</TABLE>
See Accompanying Notes.
4
<PAGE> 5
CMI INDUSTRIES, INC.
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the Nine Months Ended October 2, 1999 and September 30, 2000
(000's Omitted)
<TABLE>
<CAPTION>
OCTOBER 2, SEPTEMBER 30,
1999 2000
---------- -------------
(unaudited) (unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (10,166) $ (12,505)
Adjustments to reconcile net loss to
net cash provided by operating activities:
Depreciation and amortization 13,096 10,217
Gain on purchase of Senior Subordinated Notes -- (12,597)
Loss on disposal of discontinued operations -- 10,571
Nonrecurring asset write-off 6,000 --
Changes in assets and liabilities:
Receivables (3,716) (5,682)
Inventories (3,351) (3,832)
Other current assets 3,308 (1,696)
Other assets (843) (387)
Accounts payable 7,541 2,416
Accrued expenses (1,608) 2,162
Deferred income taxes (6,595) --
Other liabilities (80) (1,120)
---------- ----------
Net cash provided by (used in) operating activities 3,586 (12,453)
---------- ----------
Cash flows from investing activities:
Capital expenditures, net (8,178) (2,098)
Proceeds from sale of furniture fabric assets -- 25,630
---------- ----------
Net cash provided by (used in) investing activities (8,178) 23,532
---------- ----------
Cash flows from financing activities:
Net borrowings on revolving credit facilities 9,042 10,503
Purchase of Senior Subordinated Notes -- (13,189)
Purchase of common stock (2,650) (8,946)
Net change in payable-book overdraft (4,647) (1,020)
---------- ----------
Net cash used in financing activities 1,745 (12,652)
---------- ----------
Net decrease in cash (2,847) (1,573)
Cash and cash equivalents at beginning of year 3,911 2,263
---------- ----------
Cash and cash equivalents at end of period $ 1,064 $ 690
========== ==========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 12,281 $ 7,072
========== ==========
</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 September 30,
2000, the Consolidated Statements of Cash Flows for the nine months ended
October 2, 1999 and September 30, 2000, and the Consolidated Statements of
Operations for the three months and nine 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.
Management Plans
The Company reported a loss from continuing operations of $16,778 for
the nine months ended September 30, 2000, and a loss of $8,324 relating to the
Chatham Division which was discontinued in 2000. This compares to a loss from
continuing operations of $6,733 for the nine months ended October 2, 1999 and
income from the Chatham Division of $851. In 2000, the Company concluded that it
would divest the Chatham Division because of its inability to commit the
required capital to this business segment. Additionally, the Company continues
to assess other strategic alternatives which are consistent with maximizing
shareholder value, improving liquidity and maximizing its tax planning
opportunities and attributes. In the second quarter of 1999, the Company
implemented a plan to restructure certain of its operations in an effort to
downsize its productive capacity to levels more in line with market demand. In
conjunction with these efforts, the Company consolidated certain manufacturing
capacity, realigned certain management responsibilities and disposed of idle
equipment and related inventories which together resulted in a $7,000 charge to
operations. Although these initiatives contributed to the improved profitability
of the Chatham Division in 2000, the Company's Greige Division continues to be
negatively affected by the growing availability of lower priced Asian fabrics
which have suppressed market selling prices and reduced demand for domestically
produced greige fabrics. The Company has reported an operating loss of $11,173
for the Greige Division through the nine months ended September 30, 2000 as
compared to an operating loss of $8,330 for the same period in 1999.
Consequently, the Company is currently evaluating various alternatives to
improve the operating performance of the Greige Division and realign its
operations in an effort to improve operating margins going forward. The Company
expects these efforts to include further capacity consolidation initiatives and
cost reduction programs in order to allow the Greige Division to compete cost
effectively in the current market environment. The consolidation plan and cost
reduction programs for the Greige Division have not been completed, however, the
Company expects to report additional restructuring charges related to this
effort in the fourth quarter which cannot currently be estimated.
Due to the continued losses from continuing operations in 2000 and the
loss from divesting the Chatham Division, the Company has established a $4,692
valuation allowance during the third quarter of 2000 to offset any potential
2000 estimated net tax benefits associated with the net losses generated in
2000. The Company will continue to report a valuation allowance for any
potential 2000 estimated net tax benefits associated with any ongoing losses
from continuing operations or gains on the repurchase of debt until such time
that it determines its operations have returned to profitability. The Company
continues to believe that it will realize the benefits associated with the
deferred tax assets reported prior to 2000 and consequently, has not reported a
valuation allowance related to the $3,434 balance at January 1, 2000.
The Company believes that the initiatives discussed above will
eventually result in improved profitability and a capital structure more in line
with the return capabilities of the Company; however, such plans require
management to make estimates and assumptions regarding future operations. Actual
results could differ from those estimates.
6
<PAGE> 7
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 a
redemption price of 100.0% (expressed as a percentage of the principal amount),
plus accrued interest, if redeemed after October 1, 2000.
During the nine months ended September 30, 2000, the Company has
purchased $26,165 (face value) of these notes in the open market at prices lower
than face value. After a reduction of $380 for the write-off of the related
unamortized bond issue discount and debt issue costs, these purchases have
resulted in an extraordinary gain of $12,597, net of income taxes. The recorded
balance of $98,602 at September 30, 2000, is presented net of $233 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 $35,000 at September 30, 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. 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 both the furniture fabric assets on May 1, 2000, and
the automotive assets on October 27, 2000, the Company and its lenders amended
the facility to allow for the disposition of those assets, reduce the borrowing
limit under the facility and waive or amend certain financial covenants.
Currently, the secured revolving credit facility has been reduced to a borrowing
limit of $28 million and all financial covenants have been waived through the
third quarter of 2000. The borrowings under the amended credit agreement are
secured by all receivables, certain inventories and certain intangibles.
Long-term debt as of January 1, 2000 and September 30, 2000 consisted of:
<TABLE>
<CAPTION>
January 1, 2000 September 30, 2000
--------------- ------------------
<S> <C> <C>
Borrowings under credit agreements:
Secured revolving credit facility $ 4,182 $ 14,685
Senior subordinated notes, net 124,632 98,602
---------- ----------
128,814 113,287
Less current portion -- --
---------- ----------
Long-term debt $ 128,814 $ 113,287
========== ==========
</TABLE>
The amended secured revolving credit facility requires a commitment fee
of 1/2 of 1% per annum on all unused amounts and as of September 30, 2000, the
Company could have borrowed an additional $21 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 3/4%. At September
30, 2000, the prime borrowing interest rate on the revolving credit facility was
9.75% and the eurodollar borrowing rate was 8.37%.
The credit agreement and indenture pursuant to which the Notes were
issued 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 contain restrictions
on the Company's ability to pay cash dividends or purchase its capital stock.
Under the most restrictive covenant, as of September 30, 2000, the Company was
not authorized to pay any dividends or make any capital stock purchases. At
September 30, 2000, the Company was in compliance with, or had received waivers
for, all covenants under the credit agreement.
7
<PAGE> 8
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 September 30, 2000, the Company owed no amount under these
letters of credit.
Note 3:
Discontinued Operations:
During 2000, the Company has substantially completed the sale of a
majority of the assets of its Chatham Division. On May 1, 2000, the Company
completed the sale of the furniture assets of the Chatham Division to Interface
Fabrics Group, Inc. for a purchase price of $25.6 million in cash. On October
27, 2000, the Company completed the sale of the automotive assets of the Chatham
Division to Borgstena Textile North America, Inc., a wholly owned subsidiary of
AB Borgstena Textile located in Borgstena, Sweden, for a purchase price of $19.0
million in cash. Proceeds from the sale of the furniture assets and automotive
assets have been used to pay down outstanding obligations under the secured
revolving credit facility. Also in October 2000, the Company signed a
non-binding letter of intent to sell the consumer products assets of its Chatham
Division to WestPoint Stevens, Inc. and the Company expects to complete this
sale in the fourth quarter of 2000.
The entire Chatham Division is considered one segment under APB Opinion
No. 30: "Reporting the Results of Operations--Reporting the Effects of Disposal
of a Segment of a Business, and Extraordinary, Unusual and Infrequently
Occurring Events and Transactions." In accordance with APB Opinion No. 30, the
measurement date for the sale of the Chatham Division is October 27, 2000. As
the measurement date is prior to the release of the September 30, 2000 financial
statements, the Company has reported the results of the operations of the
Chatham Division and the loss on disposal as discontinued operations during the
nine months ended September 30, 2000. The results of operations for all periods
presented have been restated for the discontinued operations. Net assets
associated with the Chatham Division have been segregated on the balance sheet
and reflect the remaining net realizable value of the net assets held for sale
as of September 30, 2000 as follows:
<TABLE>
<CAPTION>
September 30, 2000
------------------
<S> <C>
Net assets of discontinued operations:
Current assets $ 23,759
Property, plant and equipment 3,439
Other assets 167
Liabilities (10,245)
--------
$ 17,120
Net proceeds anticipated from sale of Chatham Division in excess of remaining net book value 8,946
--------
Net assets of discontinued operations held for sale $ 26,066
========
</TABLE>
Summary operating results for Chatham Division are as follows for the nine
months ended:
<TABLE>
<CAPTION>
October 2, 1999 September 30, 2000
--------------- ------------------
<S> <C> <C>
Revenues $ 121,641 $ 91,552
Costs and expenses 120,247 89,305
--------- --------
Income from discontinued operations before taxes 1,394 2,247
Income tax expense 543 --
--------- --------
Income from discontinued operations $ 851 $ 2,247
========= ========
</TABLE>
For the nine months ended September 30, 2000, the pre-tax loss on the
disposal of the Chatham Division was $8,324, which includes a $10,571 loss on
the sale of the Chatham Division and income from discontinued operations in 2000
of $2,247.
8
<PAGE> 9
Note 4:
Inventories:
Inventories at January 1, 2000 and September 30, 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 5:
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 6:
Segment Information
The Company manages its continuing operations through two operating
divisions: the Greige Fabrics Division and the Elastic Fabrics 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. Information about the Company's two segments and the items
necessary to reconcile this information to the Company's consolidated results
from continuing operations are as follows:
<TABLE>
<CAPTION>
Nine Months Ended
-------------------------------------
OCTOBER 2, 1999 SEPTEMBER 30, 2000
--------------- ------------------
<S> <C> <C>
Net sales
Greige $ 83,380 $ 81,704
Elastics 75,500 68,379
---------- ----------
Total $ 158,880 $ 150,083
========== ==========
Operating income (loss) before nonrecurring items
Greige $ (8,330) $ (11,173)
Elastics 9,195 6,235
Corporate (2,932) (3,049)
---------- ----------
Total (2,067) (7,987)
Nonrecurring items 7,000 --
Interest expense 9,610 9,120
Other expense (income), net (622) (329)
---------- ----------
Loss from continuing operations before income taxes
and extraordinary item $ (18,055) $ (16,778)
========== ==========
Operating margin:
Greige (10.0) (13.7)
Elastics 12.2 9.1
---------- ----------
Total (1.3)% (5.3)%
========== ==========
Identifiable assets:
Greige $ 69,527 $ 63,130
Elastics 46,920 40,592
Corporate 19,338 19,980
---------- ----------
Total assets of continuing operations $ 135,785 $ 123,702
========== ==========
</TABLE>
9
<PAGE> 10
<TABLE>
<CAPTION>
Nine Months Ended
-----------------------------------
OCTOBER 2, 1999 SEPTEMBER 30, 2000
--------------- ------------------
<S> <C> <C>
Depreciation and amortization:
Greige $ 6,799 $ 6,114
Elastics 1,828 1,654
Corporate 670 638
-------- --------
Total depreciation and amortization of continuing operations $ 9,297 $ 8,406
======== ========
</TABLE>
Note 7:
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 September 30, 2000:
<TABLE>
<CAPTION>
January 1, 2000 September 30, 2000
--------------- ------------------
<S> <C> <C>
Restructuring items:
Severance and related benefit costs $ 446 $ 148
Other nonrecurring asset write-offs:
Inventory write-offs 973 233
Property, plant & equipment write-offs 2,684 824
Other asset write-offs 389 208
-------- --------
$ 4,492 $ 1,413
======== ========
</TABLE>
Included in the $7,000 charge were approximately $1,000 of incremental
cash expenditures. During the nine months ended September 30, 2000, the Company
funded $298 of cash related restructuring items and had net asset disposals of
$2,781 related to the restructuring.
Note 8:
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.
10
<PAGE> 11
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 September 30, 2000
Compared with Three Months Ended October 2, 1999
Sales
Sales from continuing operations for the three months ended September
30, 2000 were $49,568, a decrease of $3,532 or 6.7% from the corresponding
period of 1999. Sales of the Greige Fabrics Division decreased $1,567, or 5.6%.
Sales of the Elastics Division decreased $1,965 or 7.8%.
The decrease in sales of the Greige Fabrics Division may be attributed
to unfavorable market conditions for printcloth fabrics used primarily in the
apparel and home furnishings markets. Average selling prices for these fabrics
during the period decreased 2.0% while volume was down 4.3%. The continued
decline in sales is primarily attributable to increased imports of lower- priced
Asian fabrics and a general slowdown at retail for many of the Company's large
vertical home furnishing customers, which together has reduced the demand for
domestically-produced printcloth greige fabrics and negatively affected market
selling prices. The Company expects average selling prices for printcloth
fabrics to continue to be affected by lower priced imported fabrics and reduced
demand from certain key home furnishing customers. The Company anticipates these
factors to continue to negatively impact the performance of the Greige Fabrics
Division in the fourth quarter of 2000 and in 2001.
The decrease in sales of the Elastics Division may also be attributed
to a general slowdown at retail for many of the Company's intimate apparel
customers. Inventory destocking initiatives at many national retailers have
curtailed demand for both the Company's narrow and wide elastic fabric products.
Sales of narrow elastic fabrics were down $702 or 9.8% from the prior year
period while sales of wide elastic fabrics have declined $1,263 or 7.0%.
Earnings
The operating loss from continuing operations for the three month
period ended September 30, 2000 increased by $2,120 from an operating loss of
$1,810 in the corresponding period of 1999 to an operating loss of $3,930 in the
current period. The decrease in profitability is primarily attributable to the
Greige Fabrics Division as the influx of lower-priced imported fabrics and
reduced demand continue to suppress market selling prices for
domestically-produced greige fabrics. Additionally, raw material prices for
cotton and polyester have also been less favorable in 2000, which together with
the decline in volume and selling prices, has resulted in significantly reduced
margins in 2000. As a result, the operating loss for the Greige Fabrics Division
has increased $1,895 in the third quarter of 2000. Operating margins in the
Elastics Division have remained relatively unchanged during the third quarter
but overall profitability has declined relative to the decline in sales.
Interest expense for the three months ended September 30, 2000 was
$2,863 as compared to $3,165 for the corresponding period of 1999. The decline
in interest expense reflects the Company's reduced debt balances since the sale
of the Chatham Division's furniture assets on May 1, 2000.
11
<PAGE> 12
Other income, net, for the three months ended September 30, 2000 was
$56, a decrease of $79 from the same period in 1999.
As a result of the above mentioned items, the loss from continuing
operations before income taxes and extraordinary item increased $1,897 for the
three months ended September 30, 2000 over the corresponding period in 1999.
Due to the continued operating losses in 2000 and the net loss
associated with divesting the Chatham Division, the Company has established a
valuation allowance during the third quarter of 2000 to offset any potential
estimated tax benefits associated with the year-to-date net loss generated in
2000. Consequently, the Company has reported an income tax provision of $11,018
for the three months ended September 30, 2000, and reported the extraordinary
item and results from discontinued operations net of a valuation allowance for
the expected tax benefits associated with each of these items.
Included in the three months ended September 30, 2000, is extraordinary
income of $4,806 associated with the Company's purchase of its Notes at market
prices below face value. Included in this amount is the establishment of a
valuation allowance for the previously recorded net tax provision associated
with the year-to-date extraordinary gain on repurchase of debt.
Results for discontinued operations for the three months ended
September 30, 2000 include income from the Chatham Division of $1,634 and the
net gain of $9,031 associated with completing disposition of the Chatham
Division in the fourth quarter of 2000. (See Note 3 to consolidated financial
statements.)
Nine Months Ended September 30, 2000
Compared with Nine Months Ended October 2, 1999
Sales
Sales for the nine months ended September 30, 2000 were $150,083, a
decrease of $8,797 million or 5.5%, from the corresponding period of 1999. Sales
of the Greige Fabrics Division decreased $1,676 or 2.0%, while sales of the
Elastics Division decreased $7,121 or 9.4%.
The decrease in sales of the Greige Fabrics Division may be attributed
to the poor market conditions for printcloth fabrics used primarily in the
apparel and home furnishings markets. Average selling prices for these fabrics
during the period decreased 4.9% while volume has increased 1.3%. The decline in
greige sales in the first nine months of 2000 primarily reflects the increased
competition associated with lower priced imports from Asia. The decrease in
sales of the Elastics Division may be attributed to the general weakness at
retail for many of the Company's intimate apparel customers, and from certain
delivery issues earlier in the year associated with operating inefficiencies and
off-quality production at the Company's Greensboro facility. Sales of narrow
elastic fabrics for the nine months ended September 30, 2000 were down $1,964 or
9.6% from the prior year period while sales of wide elastic fabrics were down
$5,160 or 9.4%.
Earnings
The Company reported an operating loss from continuing operations of
$7,987 for the nine-month period ended September 30, 2000. Excluding a $7,000
restructuring charge reported in the first nine months of 1999, the operating
loss from continuing operations in the first nine months of 2000 has increased
$5,920 as compared to the same period in the prior year. The decrease in
profitability may be attributed to the Elastic Fabrics Division as lower sales
coupled with operational inefficiencies and quality issues in the first half of
2000 have combined to reduce the Elastic Division's operating income by $2,960.
On-time deliveries and off-quality levels returned to more historical levels in
the third quarter period. The Greige Fabrics Division's earnings decreased by
$2,843 as compared to the same period in 1999 as lower selling prices and higher
raw material costs have continued to depress margins. Given current market
conditions at retail and the general factors impacting the overall textile
industry, the Company anticipates that profitability at both the Elastics
Division and Greige Division will continue to be depressed in the fourth quarter
of 2000 and 2001.
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Interest expense for the nine months ended September 30, 2000 was
$9,120 and declined $490 as compared to the corresponding period in 1999. Other
income, net, for the nine months ended September 30, 2000 was $329, a decrease
of $293 over the corresponding period in 1999.
As a result of the above mentioned items, the loss from continuing
operations before income taxes and extraordinary item decreased $1,277 for the
nine months ended September 30, 2000 over the corresponding period in 1999, and
the provision for income taxes was reduced to zero in connection with the
Company's decision to report a valuation allowance for the estimated tax
benefits associated with any year-to-date net losses reported in 2000. As a
result, the Company has reported a $16,778 loss from continuing operations
before extraordinary item for the nine month period ended September 30, 2000.
Also included in the nine month period ended September 30, 2000 was
extraordinary income of $12,597 associated with the Company's purchase of its
Notes at market prices below face value. The Company reported a $12,505 net loss
for the nine months ended September 30, 2000 as compared to a $10,166 net loss
for the corresponding period of 1999.
Financial Condition
For the nine months ended September 30, 2000, the Company used $10,503
of borrowings under its secured credit facility and $25,630 from the sale of its
furniture fabric assets to fund $12,453 of negative cash flow from operations,
to repurchase $13,189 of its 9 1/2% Notes, to invest $2,098 for capital
expenditures, and to repurchase $8,946 of the Company's common stock.
Additionally, the Company also reduced its cash position by $1,573 during the
nine months ended September 30, 2000 and reduced its payable book overdraft by
$1,020.
Excluding net assets associated with discontinued operations, working
capital at September 30, 2000, was approximately $37,866 as compared to
approximately $36,673 at January 1, 2000. The Company's net assets of
discontinued operations held for sale have declined from $57,440 at January 1,
2000 to $26,066 at September 30, 2000. The Company anticipates to collect the
balance of the proceeds for these net assets of discontinued operations in the
fourth quarter of 2000. (See Note 3 to consolidated financial statements.)
Management is not aware of any present or potential impairments to the Company's
short-term liquidity. However, if general market conditions do not improve for
the textile industry, the Company may not be able to meet its long-term
obligations related to the 9 1/2% Senior Subordinated notes due October 1, 2003.
At September 30, 2000, long-term debt of approximately $113,287
represented 96.7% 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 $12,505 during the nine
months ended September 30, 2000.
The Company believes that the expected proceeds from sale of the
Chatham Division, 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 $1.0 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 and financing alternatives in respect to its capital structure,
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 additional asset divestitures and
acquisitions that would better position certain of its businesses to compete
long term and enable the Company to better meet its long-term obligations under
the 9 1/2% Senior Subordinated Notes.
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
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effect of speculating on the direction of interest rates. As of September 30,
2000, the Company had $14,685 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 September 30, 2000, the
Company had contracted for 14,600 bales of cotton through commodity futures
contracts. A 10% decline in the market price of cotton would have a negative
impact of approximately $438 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 agreement and indenture contain various restrictive covenants,
and as of September 30, 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
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits
<TABLE>
<S> <C>
4.1 Amendment No. 4 dated October 26, 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.
27.1 Financial Data Schedule. (for SEC use only)
</TABLE>
b) Reports on Form 8-K
Form 8-K filed on October 31, 2000 to announce the purchase of
substantially all the assets of the Company's Chatham automotive
textile assets located in Elkin, NC by Borgstena Textile North America,
Inc., a wholly owned subsidiary of AB Borgstena Textile Ltd. of
Borgstena, Sweden.
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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: November 15, 2000 By /s/ JOSEPH L. GORGA
----------------------------------------------------
Joseph L. Gorga
President and Chief Executive Officer
Date: November 15, 2000 By /s/ JAMES A OVENDEN
----------------------------------------------------
James A. Ovenden
Executive Vice President and Chief Financial Officer
16
