Cimco Might Sell Its Most Profitable Subsidiary : Manufacturing: The Costa Mesa plastics maker is considering a deal to help stem recent losses.

By JAMES S. GRANELLI

Sept. 26, 1995 12 AM PT

TIMES STAFF WRITER

COSTA MESA —

Plastics maker Cimco Inc., beset by losses in the last two years and a recent disagreement in the boardroom, may sell its most profitable subsidiary as it continues to push through its plan for working its way back into the black.

The growing Costa Mesa manufacturer has hired the New York investment banking company of PaineWebber to help the company refinance its debts and to evaluate offers for its Compounding Technology Inc. subsidiary, which makes plastic filler that can be adapted to provide such qualities as strength and fire resistance.

“If we could have a divestiture and make a fair amount of money for the shareholders, we would consider it,” said President Russell T. Gilbert, who founded the company 36 years ago. “It certainly would take care of any debt problems with our bank.”

The CTI unit is Cimco’s fastest-growing sector. Its operating profit rose 45% to nearly $2 million for its last fiscal year, which ended April 30. The unit’s revenue grew 24% to $44.1 million.

Even so, Cimco lost a total of $2.8 million in its last two fiscal years. Gilbert said, though, that results so far this year are ahead of expectations and that the company expects to return to profitability in the current quarter, which ends Oct. 31. He said other units are rebounding.

The company also is working with its primary lender, Wells Fargo Bank, and other lenders to restructure its financing. On April 30, Cimco was in technical default on its loans, but Wells Fargo waived the technical default last month and increased the company’s $6-million line of credit to $7.8 million, Gilbert said. The company also has $13.2 million in other loans outstanding.

Rising manufacturing costs, especially for materials and supplies, have hurt the company in recent years even as net sales rose 12% to $83.2 million over its previous fiscal year. In addition, the company opened a plant in Singapore and is about to open a plant outside Lyon, France. International sales now represent about 45% of the company’s revenue, Gilbert said.

The company, which recently closed one of its four Costa Mesa plants, employs 589, including 428 in Orange County. Cimco also operates a plant in Corona and facilities in Nevada and North Carolina.

Cimco’s long bout with red ink after so many years of profitability led to disagreements among board members. Two directors--James L. Doti and Kenneth E. Hendrickson--resigned last month. Doti said they were distressed that it was taking Gilbert so long to turn the company around and that the 65-year-old founder reneged on his retirement plans.

“Quite simply, I felt, along with another board member, that after many years of good service and leadership that Russ gave the company, it was time for a change in leadership and a change in direction,” said Doti, who is president of Chapman University in Orange. “He agreed and announced his resignation pending the appointment. Then he changed his mind, but we didn’t change ours.”

The majority of the board, as well as major institutional investors and other large shareholders, wanted Gilbert to stay on. “Paine-Webber was dead-set against my being replaced in the middle of all this,” Gilbert said.

There was little that Doti and Hendrickson could do but resign. “I really left because it became a point of honor,” Doti said. “Since I cast my vote one way, I wouldn’t be of service to him anymore.”

Both Doti and Gilbert still consider each other friends.

“I have a lot of confidence in the company, and I think Russ can do the job,” Doti said. “But I’m a maximizer; I think we could have done even better.”

Before he left, though, Doti, a member of the Cimco’s audit committee, helped to find a new outside accounting firm. Doti and Gilbert said that Cimco needed an accounting firm that charged less and had a broader capability to handle international tax planning and accounting.

The company replaced Grant Thornton LLP with Deloitte & Touche LLP, but not before Grant Thornton released its 1995 audit that questioned the company’s continuing viability, saying its losses, “deficit in working capital” and loan defaults raise “substantial doubt about its ability to continue as a going concern.”

Doti attacked Grant Thornton’s characterization as “sour grapes” by an auditing firm that was concerned mainly with “covering its tail.” Partners at Grant Thornton, which turned its audit in last month, couldn’t be reached for comment.

Wall Street apparently has agreed with Doti’s assessment. Cimco stock has traded recently at its highest price in the last 12 months, closing Monday at $7 a share, up 6.25 cents a share on the Nasdaq market system. In past years, the stock has traded as high as $16 a share, but fell to its lowest point, $3.375 a share, earlier this year.

(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)

Cimco at a Glance

* Headquarters: Costa Mesa

* Business: Plastic components

* Employees: 589

* President/CEO: Russell T. Gilbert, president

* Exchange: Nasdaq

* 52-week high: $7.25

* 52-week low: $3.38

* Monday’s close: $7

Earnings Fall Despite Sales Increase

Rising manufacturing costs have cut into profits at Cimco, despite a 12% sales increase to $83.2 million in 1995. Sales and net income, in millions: